Tribunal rules corpus donations non-taxable under Income Tax Act, highlights donor directions & proper inquiries

The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order directing the AO to treat donations received from sister trusts as corpus donations under section 11(1)(d) of the Income Tax Act. It emphasized that corpus donations are capital receipts and not taxable. The amendment to section 11(1)(d) by the Finance Act, 2017, was deemed prospective and not applicable to the relevant assessment year. The Tribunal stressed the significance of specific directions from donors and the necessity for the AO to conduct proper inquiries into the nature and sources of donations.

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Issues Involved:
1. Treatment of donations received from sister trusts as corpus donations under section 11(1)(d) of the Income Tax Act.
2. Applicability of the amendment to section 11(1)(d) introduced by the Finance Act, 2017.
3. Examination of the non-taxability of corpus donations despite the inapplicability of certain provisions of the Income Tax Act.
4. Requirement of specific direction by the donor for donations to be treated as corpus donations.

Detailed Analysis:

1. Treatment of Donations from Sister Trusts as Corpus Donations:
The primary issue revolves around whether donations received from sister trusts should be treated as corpus donations under section 11(1)(d) of the Income Tax Act. The assessee trust received corpus donations amounting to Rs. 41,92,32,911/-, out of which Rs. 36,16,88,341/- was from sister trusts. The Assessing Officer (AO) disallowed the claim of corpus nature and treated the amount as regular income, arguing that such donations could lead to manipulation by transferring regular income as corpus donations, making them immune from application during the year. The CIT(A) directed the AO to treat the donations as corpus donations, emphasizing that corpus donations from one charitable trust to another are not prohibited until the amendment to section 11(1)(d) by the Finance Act, 2017, which is effective from 01.04.2018.

2. Applicability of the Amendment to Section 11(1)(d):
The Revenue contended that the amendment to section 11(1)(d) introduced by the Finance Act, 2017, should be considered. This amendment, effective from 01.04.2018, specifies that contributions with a specific direction that they shall form part of the corpus of the trust or institution shall not be treated as an application of income for charitable or religious purposes. The CIT(A) and the Tribunal held that this amendment is prospective and not retrospective, and therefore, it does not apply to the assessment year 2015-16.

3. Examination of Non-Taxability of Corpus Donations:
The Tribunal examined various judicial precedents to determine the non-taxability of corpus donations. It referred to the Mumbai Bench of the Tribunal in Chandraprabhu Jain Swetamber Mandir vs. ACIT, where it was held that voluntary contributions towards the corpus cannot be brought to tax due to their capital nature. The Tribunal also considered decisions from other cases, such as ITO vs. Basanti Devi & Shri Chakhan Lal Garg Education Trust, where it was held that corpus donations are not taxable even if the trust is not registered under section 12A. The Tribunal concluded that corpus donations are capital receipts and are not taxable, irrespective of the trust's registration status under section 12AA.

4. Requirement of Specific Direction by the Donor:
The Tribunal also addressed the requirement of specific direction by the donor for donations to be treated as corpus donations. The jurisdictional High Court in Bharatiya Samskriti Vidyapith Trust held that if the recipient trust has accounted for the donations as corpus funds and maintained separate accounts, it can be inferred that there was a specific direction by the donor. In the present case, the assessee produced receipts indicating that the donations were received as corpus donations. However, there was no evidence of specific directions from the donors. The Tribunal noted that the AO failed to conduct a necessary inquiry into the sources of the donations and the donors' intentions. In the absence of such findings, the Tribunal upheld the CIT(A)'s order treating the donations as corpus donations.

Conclusion:
The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order directing the AO to treat the donations received from sister trusts as corpus donations under section 11(1)(d) of the Income Tax Act. The Tribunal emphasized that corpus donations are capital receipts and are not taxable, and the amendment to section 11(1)(d) by the Finance Act, 2017, is prospective and not applicable to the assessment year in question. The Tribunal also highlighted the importance of specific directions from donors and the need for proper inquiry by the AO into the nature and sources of the donations.

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