2025 (11) TMI 154 - AT - Income Tax

Exemption under s.11 upheld where fresh 12A/12AA certificate produced; corpus donation voluntary; s.2(15) proviso inapplicable

ITAT JAIPUR - AT allowed the appeal, holding that exemption under s.11 cannot be denied merely because the assessee did not place the earlier 12AA/12A ... Denying exemption u/s 11 - for the year under consideration assessee has not furnished copy of certificate of registration u/s 12A and fresh registration certificate submitted by the assessee is for the period AY 2022-23 to 2026-27 - corpus donation is considered as voluntary donation - HELD THAT:- The issue raised in the above mentioned appeal is almost similar to the appeal of the assessee in [2025 (5) TMI 2199 - ITAT JAIPUR] wherein the bench has given allowed the appeal of the assessee only because assessee could not place on record registration certificate issued u/s 12AA of the Act, the benefit of exemption u/s 11 cannot be denied. Corpus donation received by the assessee as voluntary donation AR submitted that even if the corpus donation is considered as voluntary donation, the assessee has applied more than 85% of its receipt for charitable purpose. This shows that the assessee has applied 87.87% of its receipt for charitable purposes. So far as receipt for medical services rendered to M/s Sigma Electric Manufacturing Corp. Pvt. Ltd. is concerned, the same is not a commercial receipt and otherwise also such receipt is less than 20% of the total receipt. Hence proviso to section 2(15) of the Act is not applicable in the present case. Hence, in this view of the matter, we do not concur with the findings of the ld CIT(A). Thus the appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether exemption under section 11 can be denied on account of non-production of the registration certificate under section 12AA where other official records (80G approval, prior assessment order accepting 12AA, and subsequent fresh registration under section 12A(1)(ac)(i)/12AB) indicate existence of registration. 2. Whether receipts labelled as corpus donation can be treated as voluntary (taxable) donation by the assessing authority on the ground of alleged manipulation of receipts, and if so, whether such classification defeats claim of exemption under section 11. 3. If corpus donation is treated as voluntary donation, whether the assessee nonetheless satisfies the requirement of application of income (85% rule) so as to retain exemption under section 11, including treatment of capital expenditure and late-fee (section 234E) as application. 4. Whether the proviso to section 2(15) (commercial receipts exceeding 20% of total receipts) applies to receipts received for medical services rendered to a corporate employer on nominal/contractual basis. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of denying section 11 exemption for non-production of 12AA certificate Legal framework: Section 12AA/12AB registration is a precondition for claiming exemption under section 11; section 80G(5)(i) requires registration under section 12AA as a precondition for 80G approval. The assessing officer may deny exemption if registration is not proved to be in force for the year. Precedent treatment: The assessing officer and first appellate authority applied a Supreme Court decision (Goetze India Ltd.) to restrict entertaining new claims in appeal where not raised before AO. The tribunal (earlier bench for a later AY) examined documentary indicia of registration and allowed exemption. Interpretation and reasoning: The Court found that although the specific 12AA certificate was not produced, contemporaneous and authoritative documents established registration: (a) 80G approval issued on same date as registration (80G cannot be granted without 12AA registration); (b) prior assessment order (AY 2011-12) accepted 12AA registration; and (c) later fresh registration under section 12A(1)(ac)(i)/12AB was granted, itself predicated on earlier 12AA registration. On these facts the absence of a physical 12AA certificate did not justify denial of section 11 exemption unless Revenue could show registration was not in force for the relevant year. Ratio vs. Obiter: Ratio - where credible official indicia demonstrate existence and force of registration under section 12AA, mere non-production of the certificate is not a valid ground to deny section 11 exemption. Distinguishing authority (Goetze) in context - the tribunal treated the Supreme Court decision as inapplicable to bar the appellate forum from entertaining an entitlement established by documentary indicia. Conclusion: The Court followed its earlier reasoning and concluded that exemption under section 11 should not be denied solely for failure to produce the 12AA certificate when other official records prove registration; direction given to compute income allowing section 11. Issue 2 - Classification of corpus donation as voluntary donation (taxable) on account of alleged manipulation Legal framework: Donations designated as corpus (earmarked to capital/reserve) are generally outside application of section 11's application-of-income test but may be treated as part of gross receipts if they are voluntary donations not qualifying for exemption depending on factual character and genuineness. AO may treat funds as voluntary donations if receipts are manipulated. Precedent treatment: Lower authorities treated corpus donation as voluntary based on alleged post facto insertion of 'corpus fund' on receipts. The assessee contested genuineness and relied on application calculations and supporting evidence. The tribunal in a related earlier order did not uphold AO's characterization where application requirement was met. Interpretation and reasoning: The Court examined the substance over form: it noted the AO's assertion of manipulation but found that even if the corpus donation were treated as voluntary receipt, the assessee had demonstrably applied more than 85% of available receipts to charitable purposes (including capital expenditure) and had supporting entries in income & expenditure and fixed asset schedules. The tribunal accepted the assessee's calculation showing application of 87.87% of total receipts (including corpus), and also considered the character of specific expenditures (including fee under section 234E treated as application, not penalty, per authority relied upon in the earlier bench decision). Ratio vs. Obiter: Ratio - characterization of receipt as voluntary does not automatically lead to taxable income where the assessee applies requisite proportion (85%) of receipts to charitable purpose; factual finding on genuineness and application is decisive. Obiter - comments on manipulation allegations were addressed but not determinative given application analysis. Conclusion: Even if corpus donation were treated as voluntary receipt, the assessee met the statutory application threshold; therefore addition of Rs.30,19,100 could not stand and exemption under section 11 remained applicable once application was established. Issue 3 - Application of income test (85% rule) and treatment of capital expenditure and late-fee Legal framework: For exemption under section 11, specified proportion of the income must be applied to charitable purposes (application includes revenue expenditure and, in appropriate circumstances, capital expenditure or specific fees if properly attributable to charitable activity). Prior judicial precedents treat certain payments (e.g., late-fee under section 234E) as not being penal so as to qualify as application where consistent with facts and applicable authority. Precedent treatment: The tribunal bench in a related appeal accepted inclusion of capital expenditure and certain fees as application of income; relied upon a high court authority to treat section 234E payment as not a penalty. Interpretation and reasoning: The Court accepted the assessee's computation: total receipts including corpus (94,99,455) and total application (83,46,907) producing 87.87% application. Capital expenditure as per fixed assets schedule was included in application. The tribunal relied on earlier findings and authorities to treat the fee paid under section 234E as application, not penalty. The Court therefore treated the application requirement as satisfied on evidence before it. Ratio vs. Obiter: Ratio - where documentary evidence supports that more than 85% of available receipts (including receipts otherwise characterized as voluntary) have been applied to charitable purposes, exemption under section 11 must be allowed; capital expenditure and non-penal statutory fees may be included as application where supported by facts and legal authority. Conclusion: The Court directed computation of income allowing section 11 exemption, holding that the assessee satisfied the 85% application test. Issue 4 - Applicability of proviso to section 2(15) for receipts from medical services to a corporate employer Legal framework: The proviso to section 2(15) treats certain receipts from services rendered to specific entities as commercial where such receipts exceed 20% of total receipts, thereby defeating charitable character; factual determination of whether the receipt is commercial or for charitable activity is required. Precedent treatment: Lower authorities applied the proviso because receipts of Rs.16,45,911 were treated by AO as commercial and exceeded 20% of total declared receipts (per AO's computation). The assessee contended these receipts arose from nominal-fee medical camps for the employer's workers and were not commercial in nature; when total receipts are adjusted by inclusion of corpus, the percentage falls below 20%. Interpretation and reasoning: The Court accepted the assessee's characterization that the receipt related to provision of medical services on a non-profit/nominal fee basis and, critically, that once corpus donation is included in total receipts (as required for the 85% computation), the amount received from the corporate undertaking falls below the 20% threshold. Therefore the proviso to section 2(15) did not apply. Ratio vs. Obiter: Ratio - application of proviso to section 2(15) is a fact-sensitive enquiry; if the concerned receipts are not commercial in nature and do not exceed 20% of total receipts (properly computed), the proviso is inapplicable. Distinguishing contrary assessment where AO's base computation excluded corpus. Conclusion: The proviso to section 2(15) did not apply on the facts; receipts from the corporate employer were not commercial in character or, in percentage terms, did not cross 20% when total receipts are correctly computed. Overall Conclusion and Disposition The appeal was allowed: the Court held that (i) failure to produce a physical 12AA certificate did not justify denial of section 11 exemption where other official records established registration; (ii) even if corpus donations were treated as voluntary receipts, the assessee applied more than 85% of receipts to charitable purposes (including relevant capital expenditure and allowable statutory fees) so as to retain exemption; and (iii) the proviso to section 2(15) did not apply to the receipts from medical services to the corporate employer on the facts. The matter was remitted for recomputation of income allowing exemption under section 11.