2011 (1) TMI 1320 - AT - Income Tax

Tax Tribunal affirms capital nature of corpus donations exempt from tax, rejects Department's challenge.

Income Tax Officer (Exemptions), Trust Ward II, Delhi Versus Smt. Basanti Devi & Shri Chakhan Lal Garg Education Trust

The Tribunal upheld the decision in the Charitable Trust's favor regarding the tax treatment of voluntary contributions and infrastructure fund receipts. ... Exemption u/s 11 - corpus donation - voluntary contributions (whether corpus donations or general donations) received by a Charitable Trust is income as defined vide section 2(24)(iia) of the Act or not - corpus donations are exempt from tax u/s 11(1)(d) only if assessee is registered u/s 12A/12AA of the Act or not - receipt of money by the assessee in the status of AOP - applicability of provisions of Chapter IV. HELD THAT:- The Tribunal, in the assessee’s own case for assessment year 2003- 04, held that the amount received by the assessee trust from its settler, towards infrastructure fund, was not taxable in the hands of the assessee, despite the fact that the assessee trust was not registered u/s 12A of the Act in that year. The Hon’ble Delhi High Court, vide its order in BASANTI DEVI & SHRI CHAKHAN LAL GARG EDUCATION TRUST [2009 (9) TMI 978 - DELHI HIGH COURT] have dismissed the Department’s appeal against the aforesaid Tribunal order, by observing the CIT(A) as well as ITAT rightly concluded that the donations received towards corpus of the trust would be capital receipt and not revenue receipt chargeable to tax. The Department contends that the aforesaid High Court order is under challenge before the Hon’ble Supreme Court by way of a SLP filed by the Department. This, however, is not premise enough to allow the Department’s appeal, particularly when the High Court order has not been shown to have been stayed. Decided in favour of assessee. Respectfully following the High Court decision in the assessee’s own case for assessment year 2003-04, the grievance of the Department is rejected. The appeal filed by the Department is dismissed. Issues:1. Taxability of voluntary contributions received by a Charitable Trust.2. Reopening of assessment u/s 147/148 of the Income Tax Act.3. Allowability of infrastructure fund as a deduction u/s 11 of the IT Act.4. Applicability of provisions of section 164 of the Income Tax Act.5. Challenge to Tribunal decision in the Hon'ble Supreme Court.6. Capital receipt vs. revenue receipt in the case of corpus donations.Analysis:1. The Department's appeal revolved around the taxability of voluntary contributions received by a Charitable Trust. The Department argued that such contributions are income as per section 2(24)(iia) of the Act and that corpus donations are exempt from tax under section 11(1)(d) only if the trust is registered under sections 12A/12AA of the Act. The CIT(A) had deleted the addition of a sum received as infrastructure fund by the trust, following a Tribunal order in the assessee's own case for assessment year 2003-04.2. The assessee's cross objections challenged the reassessment made by the Assessing Officer under section 147/148 of the Income Tax Act. The CIT(A) had upheld the reassessment, leading to the cross objections. However, during the proceedings, the assessee withdrew the cross objections, and they were dismissed accordingly.3. The dispute over the allowability of the infrastructure fund as a deduction under section 11 of the IT Act was a crucial aspect of the case. The AO had brought the amount received by the trust as infrastructure fund to tax, which was contested by the CIT(A) based on the Tribunal's order in the assessee's case for assessment year 2003-04.4. The Department contended that the CIT(A) had erred in deleting the addition made by the AO and had failed to appreciate the provisions of section 164 of the Income Tax Act while considering the case. The Department raised concerns about the treatment of voluntary contributions and the status of the trust under the Act.5. The Tribunal, in its decision, relied on the High Court's order upholding the Tribunal's decision in the assessee's case for assessment year 2003-04. The High Court had dismissed the Department's appeal against the Tribunal order, emphasizing that donations towards the corpus of the trust should be considered as capital receipts, not revenue receipts chargeable to tax.6. Ultimately, the Tribunal rejected the Department's appeal, citing the High Court decision in the assessee's case for assessment year 2003-04. The Tribunal found no grounds to overturn the previous decisions regarding the tax treatment of donations received by the trust, particularly in the context of corpus donations being considered capital receipts.