Trust donations under Hundi Kanika and Padapooja Kanika qualify for corpus exemption under section 11(1)(d)

ITAT Mumbai held that donations received under 'Hundi Kanika' and 'Padapooja Kanika' by a trust qualified for corpus donation exemption under section 11(1)(d). The tribunal applied the rule of consistency, noting that the income tax department had consistently accepted this treatment in previous assessment years. The AO was not justified in treating these voluntary contributions from devotees as taxable income when the trust had consistently treated them as corpus donations and the department had previously accepted this position. The tribunal emphasized that fundamental aspects permeating through different assessment years should maintain consistency unless facts substantially differ. The assessee's appeal was allowed.

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The core legal questions considered in this appeal pertain to the treatment of certain donations received by a religious trust under the Income-tax Act, 1961, specifically under section 11(1)(d). The issues are:

1. Whether the donations received as 'Hundi Kanika' amounting to Rs. 1,74,50,201/- qualify as corpus donations under section 11(1)(d) despite the absence of donor letters specifying directions for corpus use.

2. Whether the mere specification on the Hundi that the donation is for the corpus satisfies the requirements of section 11(1)(d) for corpus donations.

3. Whether the donations received as 'Padapooja Kanika' amounting to Rs. 84,32,908/- qualify as corpus donations under section 11(1)(d) in the absence of explicit donor directions.

4. Whether the indication on the platter used for Padapooja Kanika that the donations are for the corpus suffices to meet the statutory conditions under section 11(1)(d).

Regarding the first two issues concerning 'Hundi Kanika' donations, the relevant legal framework is section 11(1)(d) of the Income-tax Act, which provides exemption for income derived from property held under trust or other legal obligation wholly for charitable or religious purposes, including corpus donations. The Act requires that corpus donations must be received with specific directions from the donor that the amount shall form part of the corpus of the trust.

Precedents and principles emphasize the necessity of specific direction by the donor for corpus donations to qualify for exemption. However, the Act and the Income Tax Rules, 1962, do not prescribe any particular mode or form for giving such directions.

The Court examined the facts that the trust operates an ancient religious institution registered under section 12A and approved under section 10(23C)(v). The donations in question were collected through Hundis placed in temple premises, with inscriptions clearly stating that the Kanika collected therein is towards the corpus of the Samsthan. The trust contended that due to the large number of devotees, it is impracticable to obtain individual letters of direction from each donor. Instead, the clear indication on the Hundi itself serves as a specific direction for corpus donation.

The Court noted that the Hundi Kanika donations are traditionally treated by the trust as corpus donations and that the Income Tax Department had accepted this treatment in prior years without objection. The trust also follows rigorous accounting and procedural safeguards, including opening the Hundi in the presence of independent witnesses and recording the proceedings, thereby ensuring transparency and authenticity of the corpus designation.

The Department's argument that absence of individual donor letters invalidates the corpus claim was considered but rejected. The Court emphasized that the statutory framework does not mandate a specific form of direction and that the clear inscription on the Hundi effectively communicates the donor's intention. The Court also underscored the principle of consistency in tax treatment across assessment years, noting that the Department's acceptance in earlier years without distinguishing facts precludes a contrary view in the current year unless there is a material change.

The Court held that the Assessing Officer (AO) erred in treating the Hundi Kanika donations as taxable income and upheld the appellate authority's deletion of the addition.

For the third and fourth issues concerning 'Padapooja Kanika' donations, the legal framework and principles are the same as for the Hundi Kanika donations. The Padapooja Kanika represents offerings made by devotees on a designated platter, with inscriptions indicating the donations are for the Moolanidhi (corpus) of the Samsthan.

The trust submitted that these offerings are part of traditional religious practice and have been consistently treated as corpus donations for capital and non-recurring expenditures. The impracticability of obtaining individual donor letters was again highlighted, with reliance on the clear indication on the platter serving as the donor's specific direction.

The Court found no distinction between the treatment of Padapooja Kanika and Hundi Kanika donations. It reiterated the absence of any prescribed mode for donor directions under the Act and the consistent acceptance of the trust's treatment by the Department in earlier years. The Court also relied on authoritative case law supporting the exemption of such corpus donations where donor intention is clear, even if not documented by individual letters.

The Court accordingly upheld the appellate order deleting the addition made by the AO on Padapooja Kanika donations.

In addressing competing arguments, the Court acknowledged the Department's reliance on the absence of individual donor letters but found this requirement neither explicit in the statute nor practical given the nature of religious donations. The Court favored a purposive interpretation that recognizes traditional practices and the clear communication of donor intention through inscriptions on the donation receptacles.

The Court also emphasized the principle of consistency in tax administration, stating: "Non applicability of rule of res judicata in income tax matters should not unnecessarily disturb rule of consistency to be followed on factual matters repeated from assessment year to assessment year." This principle was pivotal in rejecting the Department's divergent view for the year under consideration.

Significant holdings include the following verbatim excerpts encapsulating the Court's legal reasoning:

"Since it had furnished details that it has been specified on the Hundi that the Kanika would be for the Corpus of the Samsthan, it is implicit that when kanika was collected from a devotee he was appraised of the object for which such kanika was being donated by him and unmistakably indicated that it is his specific direction and his desire that his offering shall form part of the Corpus."

"The manner in which specific direction is to be made for Corpus Donation has not been laid down in the Act or in the Income Tax Rules, 1962. There is no method or mode prescribed by law of giving such directions."

"The chord of consistency can be cut off only if facts are substantially different from earlier years, capable of leading to a different findings... when a fundamental aspect permeating through different assessment years has been found as a fact one way or other and parties have followed that position to be sustained by not challenging the order, it will not be appropriate to allow such position to be challenged in a subsequent year and rule of consistency would apply in such cases."

"This act of the donor of putting the contribution to the Platter where it is stated that it is towards Corpus, unmistakably indicates that it is his specific direction and his desire that his offering shall form part of the Corpus."

Core principles established by the Court include:

• The absence of a prescribed form or mode for donor directions under section 11(1)(d) does not invalidate corpus donations where the donor's intention is otherwise clearly indicated.
• Traditional practices and inscriptions on donation receptacles can suffice as specific directions for corpus donations.
• Consistency in tax treatment across assessment years is a vital principle and should not be disturbed without material change in facts.
• Impracticability of obtaining individual donor letters in the context of mass religious donations is a relevant consideration.

Final determinations on each issue are:

• The Hundi Kanika donations of Rs. 1,74,50,201/- qualify as corpus donations under section 11(1)(d) and are exempt from income tax.
• The inscriptions on the Hundi adequately satisfy the requirement of specific direction by donors for corpus donations.
• The Padapooja Kanika donations of Rs. 84,32,908/- similarly qualify as corpus donations under section 11(1)(d) and are exempt.
• The inscriptions on the Padapooja Kanika platter suffice as specific directions from donors for corpus donations.
• The Assessing Officer's additions treating these donations as taxable income were rightly deleted by the Commissioner of Income-tax (Appeals) and upheld by the Tribunal.

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