2025 (7) TMI 1749 - AT - Income Tax

Donations with specific directions are corpus donations under Section 11(1)(d) and not taxable

LoknayakJaiprakash Narayan Leprosy Eradication Trust Versus ITO Exemption Ward-1 (4), Mumbai

The ITAT Mumbai held that donations received with specific directions for the trust's primary object constitute corpus donations under section 11(1)(d) ... Disallowance u/s 11(1)(d) - Specific Donation received with Specific Directions - AO treated the donation as a general donation for the want of letter of direction from donor - whether the donation received by assessee is general or a capital receipt for the purpose of corpus of assessee trust? HELD THAT:- Majority of the donation is given for the contribution of treatment of leprosy patient, which is ultimate object of assessee. As decided in Ramakrishna Seva Ashrama [2011 (10) TMI 369 - KARNATAKA HIGH COURT] while considering that definition of word “corpus” held that corpus is not defined in the Income Tax Act. It was held that one has to understand the same in the context of a capital, opposed to an expenditure. It is a capital of an assessee; a capital of an estate; capital of a trust; a capital of an institution and if any voluntary contribution is made with a specific direction it shall be treated as the capital of assessee trust for carrying out its activities and such income shall fall u/s 11(d) and is not liable to tax. It is specifically held that it is not necessary that a voluntary contribution should be made with the specific direction to treat it as “corpus”. If intention of the donor is to give that money to a trust which they will keep in a trust account in deposit and is utilised for carrying on a particular activity, it satisfies the definition part of the ‘corpus’ and assessee would be entitled for benefit of exemption from payment of tax. On appreciation of direction in various letters by donors, find that donors have given donation for utilisation money for object of the assessee trust. Word ‘corpus donation’ is not mentioned on all the receipts but fact remains the same that such donation is made for the purpose of activities of assessee trust. Therefore, treatment of such corpus fund as a general is not justified. Thus, direct the assessing officer to treat the impugned donation is ‘corpus donation’ which is not liable to tax. In the result, grounds of appeal raised by assessee is allowed. ISSUES: Whether a donation received with specific directions but without explicit mention of 'corpus donation' qualifies as a corpus donation under section 11(1)(d) of the Income Tax Act.Whether the absence of a written direction letter from donors at the time of assessment justifies treating the donation as a general receipt and disallowing exemption.Whether donations given for a specific purpose or fund, such as patient medical treatment, constitute capital receipts (corpus) exempt from tax. RULINGS / HOLDINGS: The court held that 'it is not necessary that a voluntary contribution should be made with the specific direction to treat it as 'corpus'' and that if the intention of the donor is to give money to a trust to be kept and utilized for carrying on a particular activity, it satisfies the definition of 'corpus' under section 11(1)(d).The absence of direction letters at the time of assessment does not justify disallowance where such letters are subsequently furnished and show that donations were made for specific purposes aligned with the trust's objects.Donations received for a specific fund or purpose, such as treatment of leprosy patients, constitute corpus donations and are capital receipts not liable to tax, as supported by judicial precedents.The impugned donation of Rs. 10,21,500/- was directed to be treated as a 'corpus donation' and thus exempt from tax under section 11(1)(d). RATIONALE: The court applied the legal framework under section 11(1)(d) of the Income Tax Act, which exempts income derived from property held under trust for charitable purposes, including corpus donations.Reliance was placed on judicial precedents, including the Karnataka High Court's decision in DIT Vs Ramakrishna Seva Ashrama, which clarified that 'corpus' is to be understood as capital as opposed to expenditure, and that specific direction in writing is not a statutory requirement to treat a donation as corpus.Precedents from various High Courts were cited to affirm that voluntary contributions for a specific purpose or fund are capital receipts and not taxable income.The court recognized the practical difficulties arising from the sudden death of the working trustee responsible for compliance, allowing subsequent submission of donor direction letters.This decision reflects a doctrine that substance and purpose of the donation prevail over formality of written directions at the time of assessment for determining corpus donations.