LOK BHARTI MANDAL,SURAT vs. THE INCOME TAX OFFICER (EXEMPTION) WARD, SURAT

The grounds of appeal

raised by the assessee are as follows: “(I) Denial of benefit of section 11(1)(d) on Rs.51.38 lacs received as earmarked funds being corpus donation:

However, in response to the notice of the assessing officer, the assessee submitted its reply on 15-02-2016, which is reproduced as under: “The above said donation received for the specific purpose shown in “Earmarked Fund” in Balance sheet. Kindly take the note of the above and oblige”.

However, assessing officer observed that as per the provisions u/s 12 of the Act and u/s 11(1)(d) of the I.T. Act a corpus fund means a voluntary contribution made by any donor with a specific direction, that such donation as paid, shall form part of corpus and accordingly, the A.O. is of the view that in the absence of such specific direction from relevant donor- assigning it the status and purpose of corpus fund, the same would not qualify for such exemption u/s 11(1)(d) of the Act. Holding to such view, the A.O has denied the exemption on these earmarked fund donation receipts as not qualified as the same do not have any such specific directions in this regard while giving such donations. Therefore, assessing officer rejected the contention of the assessee and held that earmarked donations or specific expenditure donations are not corpus donations. Further, in the balance sheet, the trust, has reported Trust fund or corpus separately from these "Earmarked Funds". Thus, the assessee itself has differentiated these funds and, therefore, has reported these “Earmarked Funds” as non-corpus fund. In view of the above, the said donations of Rs.51,38,851/- was treated by the assessing officer as general donations and added to the total income of the assessee.

Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A) who has confirmed the action of ITA 212/SRT/2023/AY.2008-09 Lok Bharti Mandal the Assessing Officer. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.

We heard both sides in detail and also perused the records of the case including the paper book filed by the assessee. The Learned Counsel argued that these donations were received as part of earmarked funds as reflected in the Balance Sheet of the trust by this name. Accordingly, further claims that these were received from various donors with specific purposes of new building, room account and campus improvements etc., only is the contention of the assessee. Further, with reference to AO's contention that trust not having specified in Trust deed what kind of funds will constitute corpus into trust, the earmarked funds cannot be treated as forming part of corpus is not acceptable and the same is unfair, as the trust deed is only a constitution and further details of nature and character of donation will be decided by the donor. It is the will of the doner that he wants to donate to the corpus of the fund or he wants to make a general donation to the trust. Thus, ld Counsel negates the contention of AO that by a simple resolution of a trust, any receipt of donation can be equated as a corpus donation, as any trust speaks only through its resolutions, when the same is not defined in the trust deed as in this case, hence, in this analogy the assessee has negated all contentions of A.O and held to the view that earmarked funds are only corpus funds eligible for claim of exemption u/s 11(1)(d) of I.T. Act. Thus, ld Counsel contended that earmarked funds are only corpus funds eligible for claim of exemption u/s 11(1)(d) of I.T. Act.

On the other hand, the Ld. DR for the Revenue submitted that in the instant case, assessee could not provide any substantial evidences confirming these receipts as corpus donations as confirmed by donors with specified purpose of such corpus fund spending activity, therefore, ld DR

We find merit in the submission of ld Counsel. We note that assessee is a registered Pubic Charitable Trust registered under ‘the Bombay Public Trust Act’ The assessee-trust is also registered u/s 12A of the Income Tax Act vide registration number E149451074. The assessee is having 80G registration vide registration number SRT/CIT- I/ITO/TECH/104/L-5/2008-09/244. The assessee-trust furnished the following information on the Earmarked funds received from various donors vide letter dated 15-2-2016 (Page 118 of Paper book). (i) On date-wise, donor-wise, amount-wise, details of donation received from various donors, (page No.119 of paper book) (ii) Receipts showing that donations received from various donors were only for specific purpose (from Page No.120 to 127 of paper book).

We note that such clear evidence on donations received from the donors for specific purpose, and we note that Trust Deed is only constitution. The nature and character of donation can be decided based on the intention of the donor and the direction given by the donor. To find which kind of donation would form part of the Earmarked funds into the Trust Deed is unprecedented. We note that the donors' intention can come through receipt or letter by the donor or sometimes by resolutions as the trusts speak only by resolutions. Therefore, the contention of the AO is unfounded because it is not necessary that kind of donation must be defined in Trust Deed, rather it is a will of the doner whether he wants to make a general donation or donation to the corpus fund. Hence, the AO does not succeed on this score. It is an established law that when a Trust receives a particular sum which is earmarked for a specific purpose, it ITA 212/SRT/2023/AY.2008-09 Lok Bharti Mandal constitutes nothing but capital receipt which needs to be treated as forming part of the corpus. For this ld Counsel relied on the following authorities: Sr. Name Citation No.

Shri Ramakrishna Seva Ashrama 258 CTR 201 (Karnataka) 2. J.B. Educational Society 98 DTR 347 (Hyderabad) 3. Indian Society of Anesthesiologists 47 taxmann.com 183 (Chennai Tribunal) 4. St. Ann’s Home for the Aged 13 TTJ 185 (Banglore) 5. Shri Satya Kabir Sahabani Gadi 50 TTJ 501 (Ahmedabad Tribunal) 6. Jaipur Golden Charitable Clinical 7 DTR 350 (Delhi) Laboratory Trust

The ld Counsel also states that earmarked funds have been utilized only for the specific purposes for which they are received and the utilization has not been claimed by the assessee as application u/s.11 of the Act in the return of income. The ld Counsel also submits Table C (Page No. 139) to demonstrate that the assessee has not claimed utilization towards application of funds against the earmarked funds as application u/s11 of the Act. Therefore, without prejudice, ld Counsel argued that in the worst- case scenario for the assessee, if the earmarked funds were to be treated as non-exempt u/s11(1)(d) of the Act, the assessee logically needs to be allowed application against the earmarked funds as deduction.

We note that assessee- trust being a public charitable trust, runs a school primarily to address students from the very lower strata of the society and relying on donors to fund the school. The assessing officer has grossly erred in treating the Earmarked funds as revenue receipts particularly when the clear evidence before the assessing officer had demonstrated that what the donors had given was nothing but Earmarked funds for new building, room and campus developments. We note that stand taken by the Assessing Officer is not tenable in law, reason being that trust deed is only constitution of the trust and the nature and character

In the result, ground No.1 raised by the assessee is allowed.

Coming to ground No.3 raised by the assessee, which relates to addition of Rs.3,80,657/- being excess cash deposits into the bank account.

Succinct facts qua the issue are that ground No.3 of the assessee relates to excess cash deposited in its School's Bank Account of Rs.3,80,657/- over and above the school cash fees received. The assessee argued before the assessing officer that the cash fees received from the school was much higher than the cash deposited, as same being the net amount of cash fees from these schools, after debiting expenses incurred against these school cash fees receipts. However, the A.O has rejected the contention of the assessee and held that the assessee has deposited a total cash fees from three schools at Rs.46.87 lakhs as against the reported cash

On appeal, ld CIT(A) has confirmed the action of the assessing officer. The ld CIT(A) observed that except making the argument that assessee has claimed net of expenses, the assessee could not give any comprehensive reconciliation of total cash fees as received during the year and total expenses debited against these cash fees to arrive at correct / net cash fees deposited in Bank Account i.e. for Rs. 46.87 lakhs. Hence, ld CIT(A) dismissed this ground of the assessee. Aggrieved by the order of ld CIT(A) the assessee is in further appeal before us.

We have heard both the parties. Learned Counsel submitted before us that it is a very old matter of 10 years, therefore it would be difficult to reconcile completely to match the cash receipts and cash deposits and requested to consider by placing reliance on regular audited books of account as genuine. The ld Counsel submitted the reconciliation of fees before the Bench and as per said reconciliation difference of Rs.3,80,657/- narrows down to Rs.95,146/-. The ld Counsel submits that the computer fees received particularly of Kishor Vihar and English Medium School, vide ledger accounts (Page No.140 to 147- English translation on Page. 140A to 147A), the assessee had debited expenditure incurred against the computer fees by cheque and only net amount of fees was taken to the audited income and expenditure account refer Page No.60 and 74). These ledger accounts were produced before the AO as mentioned at para 17 of letter dated 21-1-2016 (page No. 9 and 10). On the other hand, ld DR for the revenue states that on this issue, assessee could not give any further evidence with due reconciliation to establish the excess cash deposited as attributable to accounted school fee receipts thereby matching the total cash fees collected with total cash fees deposited in the assessee’s bank

In the result, appeal filed by the assessee is partly allowed in above terms.