TaxTMI 
TaxTMI 
2016 (11) TMI 1443
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....n 21.02.2014 and upto that time the assesee was not registered u/12AA as such the assessee was not eligible to claim of deduction u/s 11(1)(d) of the IT Act. (ii) building fund received by the assessee is part of fee receipt and it is not voluntary . Any non voluntary contribution cannot be held as donation and never be covered u/s 11(1)(d). (iii) The fee receipts does not have word corpus mentioned there in thus it cannot be treated as corpus donation. (iv) Funds received for specific purposes (i.e. building fund) are for the application for specific purposes. It is not the capital of the society thereby not the corpus of the society. (2) On the facts and in the circumstances of the case and in law the ld. CIT(A)-I, Jaipur has erred in deleting the addition made on account of disallowance u/s 40(a)(ia) of Rs. 11,06,513/-. (3) On the facts and in the circumstances of the case and in law the ld. CIT(A)-I, Jaipur has erred in deleting the addition made on account of disallowance of TDS amounting to Rs. 13862/-. Assessee's grounds of appeal in its cross objection: (1) That the ld. CIT(A) was legally correct in treating the....
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....e these donations towards development of building infrastructure. BY virtue of these directions, it was not entitled to use them for any other purpose or purposes. Consequently, these donations amounted to corpus fund of the assessee trust and constituted its capital receipts. It may be noted that the funds so received were being utilized for development of building infrastructure. (iii) Treatment of amount received towards building fund: It has been held in various judicial pronouncements that voluntary contributions in the nature of tied up grant received by the Trust/institution or society towards capital fund i.e. building construction (in assessee's case) cannot be brought to tax in other words, any amount received by the charitable trust for any specific purposes is the capital receipts and cannot be treated as revenue receipt even though the trust is not registered u/s 12A of the Act. (iv) As per accounting standard having recognition under the Income Tax Act and supported by various judicial pronouncements, there are two types of receipts in such trusts. One is revenue receipt and other is capital receipt. The revenue receipts are part of income and expend....
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....stant case the students are getting their educational qualification in lieu of payment made to institution. Therefore one can easily infer that the amount in question is nothing but the fees received from students in the name of "building fund". (ii) No other parties are giving any voluntary contribution to the assessee as he himself admitted in his reply dated on 18.10.2013 at point No.7. Only the students have made payments in the form of fees. It is neither in the nature of grant which is being given for development of infrastructure nor the students are capable of giving such grants so the contention of the assessee on this point is also not acceptable. (iii) It has also been observed that no separate books of account are being maintained for the use of this fund i.e. no separate account in the form of building fund is being maintained in any bank so that its use can be ascertained. Assessee has failed to establish that these funds are being utilized for the specific purpose. Management is free to use this fund as per his own suitability. Assessee can use these funds in any form either for construction of building or for purchase of vehicles or for acquisition....
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.... the AO as revenue income and addition was made without considering the intention of the Donors. Section 12AA_______ It follows that the Commissioner or Director will enquire whether the object(s) of the trust or institution constitute religious or charitable purposes within the meaning of section 2(15). Further one of the key condition for charitable trust and institutions seeking to claim exemption u/s 11 & 12 of the IT Act, 1961 is registration under the Act. Section 12A enacts that the provisions of section 11 and section 12 which provide for exemption of income to such trusts and institutions, will not be applicable unless such trust or institution has made an application in the prescribed firm for registration to the Commissioner or Director of Income Tax (exemption) and present case has been registered by the Commissioner-I, Jaipur vide certificate dated 08.08.2014 (effective date of registration from 26.03.2014). Further on perusal of certificate issued by the Asst. Commissioner, Devsthan Vibhag, Jaipur, it is also seen that the appellant trust has got its registration w.e.f. 24.11.2003. Income in the form of voluntary contributions made with a sp....
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....en that donations of Rs. 5,30,09,085/- paid through individual receipts for building fund were directly transferred to balance sheet under the head "building fund". From accountancy point of view and also from legal frame work of Income Tax Act, 1961, AO's action for treating balance sheet item i.e. "building fund" as "income" cannot be justified. This shows lack of basis accountancy knowledge and Income Tax Act, 1961 on the part of AO. On the facts and circumstances as narrated above, addition of Rs. 5,30,09,085/- of Building fund forming a part of corpus fund of the appellant trust, cannot be justified and sustained, therefore AO is a directed to delete the same. Appellant gets relief of Rs. 5,30,09,085/-." 2.4 We know refer to the submissions of the ld AR. The ld. AR of the assessee submitted that during the year, the assessee trust has received voluntary donation of Rs. 5,30,09,085/- from students/parents toward building fund and this was one time donation. The building fund so received is neither fixed nor identical amount in all cases of donors, since it is voluntary. No donation towards building fund was received at all from 269 students. The amount so received was proper....
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....y contributions with specific direction as towards building fund are corpus donation which cannot be treated as revenue receipts as held by the ld. AO. In this regard, reliance is placed on the following judgements. 1. JB Educational Society vs. ACIT (2014) 159 TTJ (Hyd) 236. 2. Director of IT(Exemption) vs. National Association of Software & Service Companies (2012) 253 CTR (Del) 331. 3. Director of IT(Exemption) vs. Shri Ramkrishna Seva Asharam (2013) 357 ITR 731 (Karn.) 4. Director of IT(Exemption) vs. National Association of Software & Service Companies (2012) 345 ITR 362(Del) 5. CIT vs. Children's Education Society (2014) 264 CTR 389(Karn) 6. Sukhdeo Charity Estate vs. ITO (1984)149 ITR 470 (Raj.) 7. Sukhdeo Charity Estate vs. ITO (1991)192 ITR 61(Raj.) 2.5 Now, coming to each of the specific grounds of appeal in revenue's appeal, the ld AR submitted as under: (i) Deduction u/s 11(1)(d) without registration u/s 12AA. - Though the assessee trust was qualifying for registration but it was not properly guided by earlier consultant therefore registration was applied late in March 2014. The registration was ....
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....ay of June, 2007, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made: Provided that where registration has been granted to the trust or institution under section 12AA, then, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on the date of such registration and the objects and activities of such trust or institution remain the same for such preceding assessment year: Provided further that no action under section 147 shall be taken by the Assessing Officer in case of such trust or institution for any assessment year preceding the aforesaid assessment year only for non-registration of such trust or institution for the said assessment year: Provided also that provisions contained in the first and second proviso shall not apply in case of any trust or institution which was refused registration or the registrat....
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....hat it is an established position in law that a proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole and accordingly the said insertion of first proviso to section 12A(2) of the Act with effect from 1.10.2014 should be read as retrospective in operation with effect from the date when the condition of eligibility for exemption under section 11 & 12 as mentioned in section 12A provided for registration u/s 12AA as a precondition for applicability of section 12A." 2.11 It is noted that the Coordinate Bench while holding that first proviso to section 12A(2) of the Act with effect from 1.10.2014 should be read as retrospective in above referred case has relied upon the legal proposition laid down by the Hon'ble Supreme Court in case of CIT Vs. Vatika Township Pvt. Ltd. 367 ITR 466(SC) and Allied Motors Pvt. Ltd. Vs. CIT 224 ITR 677 (SC) that any amendment made in t....
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....before the assessing officer' so as to exclude its pendency before the appellate authority, will be doing violence to the provisions of the Statute and, as such, liable to be interfered with." 2.13 Recently, in case of Aadiwasi Meen Bhagwan Jan Sewa Sansthan vs The DCIT Circle-1, Alwar (ITA No. 780 & 781/JP/2015) dated 7.06.2016, the Coordinate Bench (where one of us was the author of the decision) has taken a similar view that: "3.4. In the present case also the assessee was granted registration under section 12AA of the Act and assessment was not pending before the AO but appeal against the order of AO was pending before ld. CIT (A). It is a settled position of law that ld. CIT (A) has coterminous power with the AO. The benefit of exemption has been denied solely on the ground that assessee was not registered u/s 12AA of the Act. After considering the facts of the present case and in view of the binding precedents, we set aside the order of ld. CIT (A) and direct the AO to grant the benefit of exemption under section 11 of the Act. This ground of the assessee is allowed." 2.14 In the present case, when the amendment was made in section 12A of the Act b....
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....oluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution shall be excluded from the total income of the trust or institution. For understanding the background of this amendment, it will be relevant to discuss the amendment made to the definition of the term "income" in section 2(24) by the Amending Act, 1987. 4.3 Under the old provisions of sub-clause (iia) of clause (24) of section 2 any voluntary contribution received by a charitable or religious trust or institution with a specific direction that it shall form part of the corpus of the trust or institution was not included in the income of such trust or institution. Since this provision was being widely used for tax avoidance by giving donations to a trust in the form of corpus donations so as to keep this amount out of the regulatory provisions of sections 11 to 13, the Amending Act, 1987 amended the said sub-clause (iia) of clause (24) of section 2 to secure that all donations received by a charitable or religious trust or institution, including corpus donations, were treated as income of such trust or institution. However, under the provisions of the ne....
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....of Rs. 5,30,09,085/- paid through individual receipts for building fund were directly transferred to balance sheet under the head "building fund" and from accountancy point of view and also from legal frame work of Income Tax Act, 1961, addition of Rs. 5,30,09,085/- of Building fund forming a part of corpus fund of the appellant trust, cannot be justified and sustained. 3.4 It would now be relevant to refer to the questions raised for consideration before the Hon'ble Karnataka High Court in case of CIT vs Children Education Society (2014) 264 CTR 389 which inter-alia includes the following questions: "Whether on the facts, the Tribunal is correct in holding that the funds collected towards construction of building as donation is allowable and cannot be treated as income of assessee under the provisions of the Income-tax Act, 1961? Whether the Tribunal was correct in holding that Building Fund of Rs. 28,04,505/-, Infrastructure Development Fund Rs. 16,39,73,678/- should be treated as the corpus fund of the assessee even though the donors had not been identified and was contrary to section 11(1)(d) of the I.T. Act?" In context of above two questions, the Hon'b....
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.... finding and remand the matter back to the Assessing Authority, giving an opportunity to the assessee to produce the ledger books and other accounts showing the receipt of such payment and utilization of the said amount for the purpose of construction, so that on the aforesaid material, the Assessing Authority can pass suitable orders on merits. Therefore the substantial questions of law Nos. 6, 8 and 10 is not answered, as the matter is remanded back to the Assessing Authority." 3.5 We also refer to the decision of High Court of Karnataka in case of Director of Income-tax, Bangalore Vs. Sri Ramakrishna Seva Ashrama [2012] 18 taxmann.com 37 (Kar.) wherein it was held as under (head notes): "The word 'Corpus' is used in the context of the Act. 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. Therefore, if any voluntary contribution is made with a specific direction, it shall be treated as the capital of the trust for carrying on its charitable or religious activities, then, such an income falls under section 11(1)(d) and i....
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....eant for it, even then the requirement of clause (b) of sub-section (1) of section 11 is complied with. [Para 17]" 3.6 If we were to read the ratio emerging out of the above two judgements, what clearly emerges is to determine the intention of the donor and the treatment of the receipts by the donee trust. Where the intention of the donor is that the amount/donation given is to be treated as capital and the income from that capital has to be utilized for the charitable purposes, then the said voluntary contribution is towards the part of the corpus of the assessee trust. It is not necessary that the persons who made these contributions specifically direct that they shall form part of the corpus of the trust. Similarly, the assessee trust after receiving the amount, keeps the amount in deposit and only utilise the income from the deposit to carry out the educational activities, then also the said amount would be a contribution to the corpus of the trust and the nomenclature in which the amount is kept in deposit is of no relevance as long as the contribution received are kept in deposit as capital and only the income from the said capital is utilized for carrying on educational a....
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....ations. Mere assigning the name of "Building Fund" to receipts of "revenue nature" does not warrant that these receipts will be considered as capital receipts. Students do not have choice to donate the amount for "building fund with specific directions". There is no donor/donee relationship which is perquisite for "donation" but in the instant case the students are getting their educational qualification in lieu of payment made to institution and the amount in question is nothing but the fees received from students in the name of "building fund". It was further submitted that no separate books of accounts are being maintained for the use of this fund i.e. no separate account in the form of building fund is being maintained in any bank so that its use can be ascertained. Assessee has failed to establish that these funds are being utilized for the specific purpose and the management is free to use this fund as per their own suitability. A donation will be treated as corpus donation only if it is accompanied by a specific written direction of the donor. In the absence of any written direction of the donor, a contribution of grant cannot be transferred to corpus fund. 3.8 In our vie....