Corpus Donations Not Taxable in Unregistered Trust : Agra ITAT

PER A.L. GEHLOT, ACCOUNTANT MEMBER: This is an appeal filed by the Revenue against the order dated 24.02.2012 passed by the ld. CIT(A)-I, Agra for the Assessment Year 2007-08.

The Revenue has raised the following grounds of appeal :-

“1.        The ld. CIT (A) has erred in law and on facts in failing to appreciate that voluntary contributions (whether corpus donations or general donations) received by a Charitable Trust are income as defined vie section 2(24)(iia) of the Act and corpus donations are exempt from tax u/s 11(1)(d) only if assessee is registered u/s 12A/12AA of the Act.

2.         The Ld. CIT(A) has erred in placing reliance upon the appellate decision of Hon’ble Delhi High Court in ITA No.5082/Del/2010 in the case of ITO (Exempion0 vs. Smt. Basanti Devi and Shri Chakhan Lal Garg Education Trus for A.Y. 2003-04, which in turn is now under challenge in the Hon’ble /Supreme Court.

3.         The order of CIT(A)-1, Agra being erroneous in law and on facts be set aside and the order of the AO be restored..

4.         The appellant craves to amend the grounds of the appeal stated above s and when need for doing so may arise.”

The brief facts of the case are that the assessee, trust has shown donation of Rs.68,50,000/- from BBT, Mumbai. The A.O. computed the assessment on total income of Rs.68,70,000/- rejecting the assessee’s contention that the donations were received towards the corpus of the trust. The CIT(A) deleted the addition of Rs.68,50,000/- out of the addition of Rs.68,70,000/- made by the A.O. as under :-

“I have also examined the term corpus found and corpus fund and corpus donation as it is being generally used with respect to a trust. A corpus fund denotes a permanent fund kept for the basic expenditures needed for the administration and survival of the organization. The corpus fund is generally not allowed to be utilized for the attainment of the purposes, but the interest/dividend accused on such fund can be utilized as well as accumulated. Such fund can also be used for creation of capital asset or property of the trust from which income can be generated. Corpus fund are generally crated out of corpus donation. A donation will be treated as corpus donation only if it is accompanied by a specific written direction of the donor. In the absence of any written direction of the donor, a contribution of grant cannot be transferred to corpus fund. In the present case, the donor, the Bhaktivedanta Book Trust has very categorically in his letter, while providing money to the appellant trust, has mentioned the amount of Rs.68,50,000/- as corpus donation and such amount has been used by the trust for purchasing the land and giving money on interest as loan. Therefore, the amount of Rs.68,50,000/- shown by the appellant trust has been found to be in the nature of corpus donation.

Now, the question arises whether such corpus donation is taxable as income or not even in the cases in which the trust is not registered u/s 12AA because for those trusts which are registered u/s 12AA, exemption to corpus donation has been provided as per provision of section 11(1)(d). For such trust to which registration u/s 12AA has not been provided, its tax abilityis required to be decided with reference to the scheme of the Act as held in the decision of Pentafour Software Employees Welfare Foundation Vs. ACIT (supra). In both the decisions referred by the Ld. AR, in case of M/s Pentafour Software Employees Welfare Foundation Vs. ACIT (supra), it has been held that corpus donation being in the nature of capital receipt are not chargeable to income Tax. The decision of ITAT Delhi in case of Basanti Devi and Sri Chakhan Lal Garg Education Trust for both AY 2002-03 and AY 2003-04 are annexed with this order as Annexure A-1 in which reference to the decision in case of Pentafour Software Employees Welfare Foundation is also given.

I have also come across another decision of Hon’ble ITAT, Kolkatta in case of Shri Shankar Bhagwan Estate Vs. ITO dated 13.01.1997 reported in (1997) 61 ITD 196 (Cal) in which, the taxability of corpus donation has been examined in the light of section 12 read section 2(24(iia) of the Income Tax Act and in this decision, it has been held as under :-

“So far as section 2(24)(iia) is concerned, this section has to be read in the context of the introduction of the present section 12 it is significant that section 2(24)(iia) was inserted with effect from 01.04.1973 simultaneously with the present section 12, both of which were introduced from the said date by the Finance Act, 1972. Section 12 makes it clear by the words appearing in parenthesis that contributions made with a specific direction that they shall from part of the corpus of the trust or institution shall not be considered as income of the trust. The Board’s Circular no.108 dated 20.03.1973 is extracted at page 1277 of Vol. I of Sampat Iyengar’s Law of Income tax, 9th Edn. In which the inter-relation between section 12 and section 2(24) has been brought out. Gifts made with clear directions that they shall formpart of the corpus of the religious endowment can never be  considered as income. In the case of R.B. Shreeram Religious and Charitable Trust V CIT (1988) 172 ITR 373/39 taxman 28 it was held by the Bombay High Court tht even ignoring the amendment to section 12, which means that even before the words appearing to parenthesis in the present section 12, it cannot be held that voluntary contributors specifically received towards the corpus of the trust may be brought to tax. The aforesaid decision was followed by the Bombay High Court in the case of CIT Vs. Trustees of Kasturbai Scindia Commission Trust (1991) 189 ITR 5/57 taxman 38. The position after the amendment is a forori. In the present cases the Assessing Officer on evidence has accepted the facts that all the donations have been received towards the corpus of the endowments. In view of this clear finding, it is not possible to hold that they are to be assessed as income of the assessees. We, therefore, hold that the assessment of the corpus donations cannot be supported.

For the above reasons, we hold as under: The religious endowments are not invalid on the ground that neither the temple nor the image had been consecrated at the time of creating the endowments. The assessees have to be assessed in the status of ‘individual’ since they are artificial juridical entities and The voluntary contributors received by the assessees towards the corpus cannot be brought to tax.”

Even after considering the definition of section 2(24)(iia) read with section 12, the Hon’ble ITAT, Kolkatta arrived to the conclusion that the voluntary contribution in the nature of corpus donation raised by the appellant cannot be brought to tax. In this case also, the trust under appeal was a Pvt. Religious trust not registered u/s 12AA and hence, corpus donation received by it should not be taxable as its income.

After considering the position of law as it is prevailing at present on the basis of decision of Three Tribunals i.e. ITAT, Chennai, ITAT, Delhi and ITAT, Kolkatta and further confirmed by the Delhi High Court, the corpus donation is in the nature of capital receipt and are not taxable, irrespective of the fact whether trust is registered u/s 12AA or not. Therefore, I agree with the Ld. AR that the amount of Rs.68,50,000/- being in the nature of corpus donation is not taxable under the Income Tax Act being in the nature of capital receipt and therefore, the addition of Rs.68,50,000/- made by the AO towards the taxable income of the assessee is hereby deleted and accordingly, Ground no.2 is allowed.”

Ld. D.R. relied upon the order of the AO, whereas the ld. Authorized Representative relied upon the order of the CIT(A) and submitted that the CIT(A) has followed the order of the ITAT Delhi Bench, which has been confirmed by the Hon’ble Delhi High Court, thus, the issue is covered in favour of the assessee.

The ld. Authorized Representative has submitted that the issue is covered by various orders of the ITAT in the cases of Shri Shankar Bhagwan Estate Vs. ITO 61 ITD 196 (Cal.), Society for Integrated Development in Urban & Rural Areas Vs. Deputy Commissioner of Income Tax (2004) 90 ITD 493 (Hyd.), Sri Dwarkadhees Charitable Trust Vs. ITO (1975) 98 ITR 557 (All.) and Deputy Commissioner of Income Tax Vs. Nasik Gymkhan 77 ITD 500 (Pune).

We have heard ld. Representatives of the parties and records perused. The grievance of the Revenue is that the CIT(A) has wrongly followed the judgment of the Hon’ble Delhi High Court in ITA No. 5082/Del./2010, whereas that order has been challenged before the Hon’ble Supreme Court. The Revenue did not dispute the facts. We noticed that the CIT (A) after considering the decision of Three Tribunals i.e. ITAT, ITAT, Delhi in the case of Smt. Basanti Devi and Shri Chakhan Lal Garg Education trust, the Revenue filed appeal before Hon’ble Delhi High Court. Hon’ble Delhi High court confirmed the order of the ITAT, the Revenue file appeal before Hon’ble Supreme court, which has been dismissed for non-prosecution vide judgment Civil Appeal Nos. 7036 of 2011, judgment dated 28.1.2013, ITAT Chennai Bench in the case of M/s Pentafour Software Employees Welfare Foundation Vs. ACIT ITA NOs 751 and 752 /Mads/2007 and others and ITAT, Kolkatta Bench in the case of Shri Shankar Bhagwan Estate Vs. ITO dated 13.01.1997 reported in (1997) 61 ITD 196 (Cal) decided the issue in favour of the assessee. We find that the facts of the case under consideration are identical to the facts of the case decided by ITAT Delhi Bench in the case of Smt. Basanti Devi & Shri Chakhan Lal Garg Education Trust (Supra) and other orders of the ITAT. Since facts are identical, therefore, to maintain consistency, we follow the above orders of ITAT and the light of facts we do not find any infirmity in the order of the CIT(A). The order of CIT(A) is confirmed.

In the result, the appeal of the Revenue is dismissed.

          Sd/-                                                                                              Sd/-

(BHAVNESH SAINI)                                                                  (A.L. GEHLOT)

   Judicial Member                                                                        Accountant Member

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IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA

ITA No.386/Agra/2012

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