2023 (1) TMI 890 - AT - Income Tax

Tax Tribunal affirms taxability of foreign contributions, unregistered trusts under Income Tax Act.

Akshay Educational & Social Welfare Charitable Trust Versus DCIT, Circle-3 Gaya

The Tribunal upheld the decision of the CIT(A) in a case involving taxability of voluntary contributions from a foreign association, applicability of ... Exemption u/s 11 - Nature of donation - corpus fund or not - assessee was not registered u/s 12A during the relevant year - addition being the amount of donation received from Association Akshy Patriarca, San Jose, CA, US - As per assessee main aim and objectives of the trust is to help the weaker section of the society, children, women and old people who are in very bad economical conditions, mainly through education and other development projects - HELD THAT:- Firstly it has been mentioned that the said donor has agreed to extend financial support and sponsor the program and project of the assessee and to be utilized exclusively for the purpose of the trust activities. However, in the second part, it has been mentioned that 80,000 euros (equivalent to Rs. 57,25,000) were sent by way of donation for infrastructural development and other development work and in case of other necessity, the trustee in consultation with the Chairman can use the fund for the development of trust activities. Therefore, it has been provided that the trustees in consultation with the chairman can use the fund for trust activities. Hence, it cannot be said that it is a clear direction that the donation will form part of the corpus fund, rather, a liberty has been given to use it for trust activities in consultation with the chairman. Under such circumstances, even otherwise, the said donation, in our view, does not strictly conform as the donation towards corpus fund. Even, for the sake of arguments, if it is taken that the said fund was for infrastructural development or to say it was towards corpus fund of the trust, still as per the amended provisions of section 2(24)(iia) as amended vide Finance Act 1987 and further amended vide Amendment Act 1989, the trust being not registered u/s. 12A for the year under consideration, the corpus donation will form part of the taxable income of the assessee trust. In view of the above decision, Ground Nos. 1 to 7 of the assessee's appeal are hereby dismissed. Disallowance @ 20% out of expenditure incurred under the head 'food and beverages' - HELD THAT:-Assessee has pleaded that the Assessing Officer has not made any query with regard to the aforesaid expenses. However, no bills and vouchers have been furnished in respect of the aforesaid claim of expenditure. Since no bills and vouchers have been maintained for the aforesaid expenditure, we do not find any infirmity in the order of the CIT(A) on this issue also. Accordingly, Ground No. 8 is hereby dismissed. Issues Involved:1. Taxability of voluntary contributions received from a foreign association.2. Applicability of Section 11, 12, and 13 of the Income Tax Act to trusts not registered under Section 12A.3. Treatment of contributions towards infrastructure development.4. Disallowance of expenses under the head 'food and beverages.'Detailed Analysis:1. Taxability of Voluntary Contributions:The primary issue was whether the voluntary contribution of Rs. 57,25,000 received by the assessee trust from a foreign association for infrastructural development should be treated as taxable income. The assessee argued that the donation was towards the corpus fund and hence should be considered a capital receipt, not taxable even without registration under Section 12A. The CIT(A) and the Assessing Officer, however, held that such exemption is only available to trusts registered under Section 12A.2. Applicability of Sections 11, 12, and 13:The CIT(A) upheld the view that Sections 11, 12, and 13 apply even if the institution is not registered under Section 12A. The CIT(A) noted that the trust, though not registered under Section 12A, was registered with the Ministry of Home Affairs for FCRA purposes. The CIT(A) reasoned that since the trust is in existence for religious and charitable purposes, its income, including contributions or donations received, would form part of the total income for Income Tax purposes.3. Treatment of Contributions Towards Infrastructure Development:The CIT(A) observed that although the contribution was received for infrastructure development, no activity related to infrastructure development was carried out during the year in question. The CIT(A) held that the lack of specific direction from the donor regarding the utilization of the fund and the non-utilization of the fund in the year of receipt led to the conclusion that the contribution should be treated as taxable income.4. Disallowance of Expenses Under the Head 'Food and Beverages':The Assessing Officer disallowed 20% of the expenses under the head 'food and beverages,' amounting to Rs. 89,598, due to the lack of bills and vouchers to substantiate the expenses. The CIT(A) confirmed this disallowance, noting that the assessee failed to produce the necessary documentation to support the claimed expenditure.Judgment:The Tribunal dismissed the appeal of the assessee, upholding the CIT(A)'s decision on all grounds. The Tribunal referred to various judicial precedents and statutory provisions, concluding that:- The voluntary contribution received by the trust, not registered under Section 12A, should be included in the taxable income.- The trust's registration with the Ministry of Home Affairs for FCRA purposes does not exempt it from being taxed under the Income Tax Act.- The contribution towards infrastructure development, without specific direction and utilization, is taxable.- The disallowance of expenses under 'food and beverages' was justified due to the lack of supporting documentation.Conclusion:The appeal was dismissed, and the additions and disallowances made by the Assessing Officer and upheld by the CIT(A) were confirmed. The Tribunal emphasized the importance of registration under Section 12A for claiming exemptions under Sections 11 and 12 and the necessity of maintaining proper documentation for claimed expenses.