2017 (1) TMI 555 - AT - Income Tax

Corpus donations excluded from income, donations to trusts count as income application. Opportunity for Form-10 amendment granted.

Thermax Social Initiative Foundation Versus Income-tax Officer (Exemptions) Ward-1, Pune

The Tribunal allowed the appeal of the assessee, holding that corpus donations should not be included in the income, donations to other charitable trusts ... Benefit of section 11(1) (d) denied - voluntary contribution of Thermax Ltd towards corpus of the trust - Held that:- It emerges from the record that the impugned donations were given by Thermax Ltd to the assessee as corpus donation, a fact which is evident from the letter mentioned above. Thermax Ltd the donor has given specific direction for corpus of the assessee trust and in our considered opinion the same cannot be interpreted in a different manner by intendment and presumptions by Authorities below. Similar methodology of Thermax Ld. Donation and their similar utilization has been accepted by the department in past years as depicted in the chart above. The reasons given by ld. CIT(A) to adopt different view is based on the misinterpretation and presumptions, which are unsustainable. Voluntary contribution of Thermax Ltd towards corpus of the trust cannot be included in the income of the assessee in clear terms of section 11(1)(d). Our view is fortified by Visakhapatnam ITAT judgment in the case of Nagarjuna Educational Society (2011 (7) TMI 580 - ITAT, VISAKHAPATNAM ) and by Delhi ITAT, in the case of Dharma Pratishthanam (1984 (8) TMI 117 - ITAT DELHI-A). Thus findings of Ld. CIT(A) on this issue is hereby reversed. Violation the provision of sec. 11 and 12 by giving donation for furtherance of its objects to the other registered charitable trust having similar objects. Nothing has been brought on record to suggest that assessee's to carry out its objects there is any clause in the memorandum prohibiting this. It is settled law that the charitable objects can also be promoted with own efforts and by donating other trust having charitable objects. Our view is supported by Mumbai ITAT in the case of Suman Ramesh Tulsiani (2012 (12) TMI 58 - ITAT MUMBAI) which again relies on various other judgments besides, Hon'ble Bombay High Court in the case of trustees of the Jadi Trust [1981 (4) TMI 75 - BOMBAY High Court ]. Thus no hesitation to hold that assessee's trust can promote its charitable objects by giving donation to other charitable organizations and such donations will amount to application of income of the trust.Thus, the findings of the Ld. CIT(A) on the second issue is also reversed. Issues Involved:1. Treatment of donations received towards corpus as voluntary contributions.2. Computation of total income by CIT(A).3. Application of donations to other charitable trusts.4. Compliance with the provisions of section 11(2) of the Income Tax Act.Detailed Analysis:1. Treatment of Donations Received Towards Corpus as Voluntary Contributions:The assessee argued that the donations amounting to Rs. 9,37,00,000 received from donors were specifically directed towards the corpus of the trust and should not be treated as voluntary contributions. The CIT(A) treated these donations as voluntary contributions, denying the benefit of section 11(1)(d) of the Income Tax Act. The Tribunal noted that the donations were explicitly mentioned as corpus donations by the donor, Thermax Ltd., and thus should be considered as corpus donations. The Tribunal reversed CIT(A)'s decision, stating that the specific direction from the donor to form part of the corpus cannot be interpreted differently by the authorities.2. Computation of Total Income by CIT(A):The CIT(A) computed the appellant's total income at Rs. 3,74,48,948 against NIL income declared in the return. The Tribunal found that the CIT(A) had misinterpreted the specific directions of the donor and wrongly included the corpus donations in the income. The Tribunal concluded that voluntary contributions towards the corpus of the trust should not be included in the total income of the assessee.3. Application of Donations to Other Charitable Trusts:The assessee contended that donations of Rs. 4,81,13,000 made to other charitable trusts amounted to direct application of income towards its own objects. The CIT(A) held that such donations did not amount to direct application by the appellant towards its own objects. The Tribunal disagreed, citing judicial precedents that donating income to another charitable trust amounts to the application of income for charitable purposes. The Tribunal held that the assessee's trust could promote its charitable objects by giving donations to other charitable organizations, and such donations would amount to the application of income.4. Compliance with the Provisions of Section 11(2) of the Income Tax Act:The CIT(A) observed that the application of income during the year was less than 85% of the income and did not grant an opportunity to the appellant to comply with the provisions of section 11(2) of the Act. The Tribunal noted that the assessee should have been given an opportunity to amend Form-10 for setting apart the income to be applied in the next six years as provided by law. The Tribunal cited judicial precedents allowing such corrections/amendments in Form-10 and expressed that the assessee's claim was unjustifiably denied.Conclusion:The Tribunal allowed the appeal of the assessee, holding that:1. The corpus donations cannot be included in the income of the assessee.2. Donations to other charitable trusts amount to the application of income.3. The assessee should have been given an opportunity to amend Form-10 for compliance with section 11(2).The appeal of the assessee was allowed, and the findings of the CIT(A) on the issues were reversed.