DAWOODI BOHRA MUSAFIRKHANA TRUST,KHAMBHAT vs. THE ITO, WARD (EXEMPTION), VADODARA

The facts, to put it briefly, are that the assessee is a trust registered u/s 12A of the Act and hence entitled to exemption u/s 11 of the Act. The object of the Trust, as noted in the assessment order, is religious activity.

During the impugned year the assessee had shown gross receipts of Rs.1,08,46,787/- and applied an amount of Rs.76,203/- for the objects of the Trust. The assessee had claimed exemption u/s 11(1)(d) of the Act of Rs.1,08,37,253/- on account of corpus donation received for construction of building. Further, since the assessee had utilized this corpus donation by incorporating capital expenditure to the tune of Rs.99,12,380/-, the assessee claimed exemption on account of utilization of its income for charitable purposes in terms of Section 11(1)(a) of the Act. Thus, while the corpus donation of Rs.1,08,37,253/- was claimed as exempt u/s 11(1)(d) of the Act, Rs.99,12,380/- of the corpus donation utilized for capital purposes was also claimed as exempt u/s 11(1)(a) of the Act. It is in this background of facts that both the Assessing Officer and the ld. CIT(A) held that the assessee had claimed double exemption of the same income and the exemption claimed u/s 11(1)(a) of the Act was accordingly held not allowable.

We have heard the contentions of both the parties.

We, however, find no merit in the contention of the Ld. Counsel for the assessee. We have carefully gone through the relevant provisions of law as applicable to the impugned year, A.Y. 2016-17, and we find that the law is clear and unambiguous in denying exemption u/s 11(1)(a) to corpus donations. Corpus donations, even prior to the amendment made to the Act w.e.f. 01-04-22, were not entitled to exemption u/s 11(1)(a) of the Act.

Section 11(1)(a) of the Act grants exemption only to “Incomes derived from Property held under Trust” and corpus donations, as per law, do not qualify as such Incomes as per section 12(1) of the Act.

As evident from a bare perusal of Section 11(1)(a), it grants exemption to Incomes of Charitable /Religious entities which is derived from property held under Trust wholly for the said purposes, to the extent so utilized.

Corpus donations are admittedly separately exempted from tax u/s 11(1)(d) of the Act. The same is reproduced hereunder:-

Section 12(1) of the Act is reproduced hereunder :

Since Section 11(1)(a) of the Act grants exemption only to Income derived from property held under Trust, in view of the categorical denial of this status to corpus donations , there is no doubt and no ambiguity in law of corpus donations not being entitled to exemption u/s 11(1)(a) of the Act. It is as clear as crystal, therefore, that exemption u/s 11(1)(a) of the Act is not available to corpus donations. Section 11(1)(a) r.w.s. 12(1) of the Act brings out very clearly the position of law that corpus donations are not entitled to exemption u/s 11(1)(a) of the Act. There is no ambiguity in law.

Further the provisions of law clearly bring out that the corpus donations are distinct and separate from “ Incomes derived from Property held under Trust” and accordingly both incomes are granted exemptions separately u/s 11(1)(a) and 11(1)(d) of the Act. There is no overlapping of exemption granted to corpus donations therefore both u/s 11(1)(a) and 11(1)(d) of the Act.

Sub-clauses (a) to (c) of Section 11(1) of the Act deals with income derived from property held under Trust wholly or partly for charitable purposes, created on or after the 1st day of April, 1952. Thus, Section 11(1)(a) to Section 11(1)(c) exempts income derived from property held under Trust for charitable purposes, to the extent prescribed in the said clauses. Clauses (a) to (c) of Section 11(1) of the Act, therefore, exempts one class/species of income, which is income derived from properties under Trust.

Clause (d) refers to incomes in the form of voluntary contributions made with the specific directions that they shall form corpus of the Trust or Institution. Clause (d) deals with a different class/species of income of charitable trust, which is received by way of voluntary contribution with the specific direction that they shall form corpus of the trust.

Thus, Section 11, which lists the different incomes which are exempt from tax, prescribes only two categories of such income; first, income derived from property under Trust, and second, income in the form of voluntary contributions received by charitable trust with the direction that they shall form corpus of the trust. It is amply clear that income listed in clause (d) is not overlapping and, is distinct and different from income listed in clause (a) of Section 11(1) of the Act.

This is further reinforced by the fact that the definition of income provided in Section 2(24) of the Act specifically lists voluntary contributions received by trusts created wholly or partly for charitable or religious purposes as being in the nature of income. Section 2(24) is reproduced hereunder: - “2 (24) "income" includes— (i) profits and gains ; (ii) dividend ; (iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via) of clause (23C) of section 10 or by an electoral trust. Explanation.—For the purposes of this sub-clause, "trust" includes any other legal obligation; Income by way of voluntary contributions are clearly, therefore, a distinct and separate category of income, different from income derived from property held under Trust and have been specifically listed as included in the definition of income u/s 2(24) of the Act.

Section 12(1) of the Act further fortifies this position that the income by way of corpus donation is distinct and separate from Income derived from property held under Trust, when it deems voluntary contributions received by a charitable entity to be Income derived from property held under Trust and thereafter categorically includes corpus donations for the said purpose. Thus it is only by virtue of Section 12(1) of the Act that voluntary donations are treated as Income derived from property under Trust. Meaning thereby clearly that dehors Section 12(1) of the Act voluntary donations do not enjoy this status.

Corpus donations, therefore, being identified and recognized in law as distinct and separate from Incomes derived from property held under Trust and both being granted exemption separately u/s 11(1)(a) and 11(1)(d) of the Act, there arises no question of overlapping exemption. Different incomes recognized for exemption have been separately granted exemption in law. There arises no question therefore of corpus donations claiming exemption in law both under sub-clause (d) and sub-clause (a) of section 11(1) of the Act.

The above interpretation of law was confronted to the Ld. Counsel for the assessee during the course of hearing before us who was unable to point out any infirmity in the same. He however relied on various decisions but when asked whether any of the said decisions had interpreted the position of Dawoodi Bohra Musafirkhana Trust Vs. ITO AY : 2016-17 law considering section 11(1)(a) r.w.s. 12(1) of the Act, as above, he was unable to point out any.

The decisions relied upon by the Ld. Counsel for the assesse, we have noted are all either distinguishable on facts or have been rendered without considering the clear provision of law as noted above by us. The decisions therefore are of no assistance to the assessee.

In view of the above, we see no reason to allow the ground raised by the assessee before us, seeking exemption u/s 11(1)(a) of the Act of corpus donations received by it amounting to Rs.99,12,380/-. In view of the above, the appeal of the assessee is dismissed.

In the result, the appeal filed by the assessee is dismissed.