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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
O R D E R
Per Sanjay Arora, AM
This is an Appeal by the Assessee agitating the dismissal of it’s appeal contesting the processing of it’s return of income under section 143(1) of the Income Tax Act, 1961 (hereinafter ‘the Act’) dated 30.10.2019 for Assessment Year (AY) 2018-19,by the Commissioner of Income Tax (Appeals), Income Tax Department (NFAC, Delhi) [CIT(A)] vide order dated 25.7.2022.
The brief facts of the case are that the assessee, a charitable trust registered u/s. 12AA of the Act, filed it’s return of income for the relevant year on 28.8.2018 declaring nil income, i.e., claiming exemption u/s. 11 on the entirety of it’s income. The same was processed u/s.143(1)(a) of the Act, denying it the benefit of section 11 of the Act, i.e., at an income of Rs. 13,34,692. The denial of exemption was for the reason of non-audit of it’s accounts and, consequently, non-filing of the audit report, required to be filed in the prescribed form (Form 10B), along with the return of ITANo. 901/Coch/2022 (AY: 2018-19) Vishwakarma Educational Trust vs. Dy. CIT income, so that the said adjustment fell within the purview of section 143(1)(a) of the Act. The same being confirmed in first appeal, the assessee is in second appeal.
We have heard the parties, and perused the material on record. 3.1 Section 12A of the Act in its relevant part reads as under: - “Conditions for applicability of sections 11 and 12. 12A. (1) The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:— (a)...(ab) (b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year,— (i) the books of account and other documents have been kept and maintained in such form and manner and at such place, as may be prescribed; and (ii) the accounts of the trust or institution for that year have been audited by an accountant defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB and the person in receipt of the income furnishes by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars, as may be prescribed; (ba) the person in receipt of the income has furnished the return of income for the previous year in accordance with the provisions of sub-section (4A) of section 139, within the time allowed under that section.” (emphasis, ours) 3.2 The applicability of sections 11 & 12 is, thus, subject to the conditions prescribed u/s. 12A of the Act, which includes the condition as to obtaining the audit report and furnishing it along with the return of income. Admittedly, in the instant case, this condition is not satisfied. The assessee has not got it’s accounts audited, so that the further question of furnishing the audit report by the said date, or even later, i.e., at the time of assessment, does not arise. Ms. Ammal, the ld. counsel for the assessee, would submit that the assessee was under a bona fide impression that inasmuch as income by way of receipt of voluntary contribution in the main (Rs. 12.94 lakhs out of Rs. 13.35 lakhs) is a capital receipt, i.e., receipt accompanied by a ITANo. 901/Coch/2022 (AY: 2018-19) Vishwakarma Educational Trust vs. Dy. CIT direction that it shall form part of corpus of the trust, there was no requirement for audit. This is as excluding the same, there was no income chargeable to tax.
3.3 The fallacy in the assessee’s case is apparent on the face of it. Section 12(1) of the Act, which deems voluntary contributions received by a Trust as income derived from a property held under trust, excludes corpus donations covered u/s. 11(1)(d) of the Act. The same is, therefore, not required to be, for availing exemption u/s. 11 of the Act, applied for charitable purposes as specified u/s.11(1)(a) of the Act. The exclusion thus is only for its exemption being subject to application for charitable purposes, as is the case for other voluntary contributions.
3.4 Section 12A(1)(b) postulates reckoning of income without reference to sections 11&12 of the Act. As such, the deeming of specified voluntary contributions as income derived from property held under the trust [section 12(1)] or of corpus donations as not includible in the total income [section 11(1)(d)], is to be ignored. Any contribution received by a charitable or religious trust is income by definition (s.2(24)(iia) of the Act). Section 11(1)(d) of the Act is only a part of section 11, and which is, as afore-noted, subject to section 12A(1) of the Act. There is, accordingly, no basis in law to say that section 11(1)(d) income is not subject to the regulation of s. 12A(1)(b) of the Act, which provides for the condition of audit.
3.5 The only relaxation is that the audit report in Form 10B could be filed even during the course of the assessment proceedings, so that it is available before the Assessing Officer (AO) at the time of assessment, as clarified by the Hon'ble Courts (viz. CIT v. Nagpur Hotel Owner’s Association [2001] 247 ITR 201 (SC)). In the instant case, the audit was, as stated, completed on 30.8.2022 and, thus, the said reportnot available even at the time of the appellate proceedings, much less furnished thereat. How, thus, one may ask, could the Revenue be faulted with? Apart from the law as explained in Nagpur Hotel Owner’s Association (supra), we draw support from the decision in Pr. CIT v. Wipro Ltd. [2022] 446 ITR 1 (SC), wherein it stands Page 3
ITANo. 901/Coch/2022 (AY: 2018-19) Vishwakarma Educational Trust vs. Dy. CIT clarified that exemption provisions are to be strictly complied with, and cannot be construed as merely procedural requirements.
We, accordingly, find little merit in assessee’s case. Reference to section 2(24) of the Act, defining income, as it stood on its amendment by Finance Act, 1972, is of no relevance in view of amendment/s thereto since and, in fact, misleading. As afore- explained, capital receipt in case of a charitable institution, whether by way of corpus donation or otherwise, is part of it’s income. However, inasmuch as corpus is to be maintained, it can only be utilized for capital assets/expenditure, or otherwise maintained (as through investment), yielding income, which is to be then applied for it’s objects by the donee-trust. The condition of application of income, subject to which the income of a charitable trust or institution is exempt, is thus not extended to corpus donations, categorizing them separately u/s.11(1)(d) of the Act. Why, application of such funds for charitable purposes would extinguish the capital, the source of it’s income, besides violating the terms of it’s receipt. This explains both, the inclusion of corpus donation as income u/s. 2(24)(iia) of the Act, while excluding it from the deeming of section 12(1) of the Act and, consequently, application of income under section 11(1)(a) of the Act. Taking us through the assessee’s return for the year (copy on record), it was explained to us by Ms. Ammal during hearing that expenditure amounting to Rs. 1,11,208 has also been regarded as part of the assessee’s income inasmuch as it has not been deducted in computing it’s income. We are unable to see any basis therefor. Only income, implying net of expenditure, could be applied for charitable purposes and, where not, denied exemption u/s.11(1)(a) of the Act. The said expenditure, detailed in the return itself, includes Rs. 48,000 toward ‘educational assistance fund disbursed’. The same is only an application of income for the assessee, an educational trust, and cannot therefore be regarded as expenditure per se. The AO shall, while giving appeal effect to this order, accordingly, treat the entire receipt of Rs.