TaxTMI 
TaxTMI 
2017 (12) TMI 111
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.... The assessee society had filed the application in Form No.10A on 31.03.2011 before the Commissioner of Income Tax, Rajahmundry seeking grant of registration u/s 12AA of the Income Tax Act and the Commissioner of Income Tax rejected the proceedings vide order dated 20.09.2011. Subsequently, the assessee went on appeal before the ITAT. Consequent to the order of ITAT, Visakhapatnam, the CIT(Exemptions), Hyderabad granted the registration w.e.f. 31.03.2011 i.e. the date of filing of the application in Form No.10A by the assessee. Hence, the assessing officer (AO) noted that there was no registration u/s 12A of I.T.Act to the assessee society, thus, the assessee is not eligible or exemption u/s 11 of the I.T.Act. Accordingly, AO treated the status of the assessee as "Association of Persons (AOP)and taxed the entire receipts. 3. During the previous year, relevant to the assessment year, the assessee had received sum of Rs. 1,49,26,785/- consisting of donations and contributions of Rs. 56,45,286/- and the donations forming part of Corpus was Rs. 92,81,499/-. The assessee has spent the entire amount of the donations received for the purpose of corpus by purchase of fixed assets. The A....
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....ese amendments is that any voluntary contribution received by a trust would form part of its income, even if it is contribution made towards corpus with effect from 01.04.1989. However, donation made with a specific direction to the corpus will be exempt from tax in view of provisions contained in Sec.11(l)(d) and Sec.12 and when the conditions stipulated therein are satisfied. However, in those cases where the trusts or the institutions lose the exemption under section 11, either by not complying with the conditions laid down in section 12A or by falling within the mischief of section 13, the corpus donations will be included in their income and taxed. Thus every voluntary contribution received by a trust, including corpus donation would constitute 'income' as per the definition of income u/5.2(24)(jja) of the Act. 5.2. In view of the above legal position, the contention that the corpus donations are capital receipts and not liable for taxation is without merit. The, voluntary contributions including corpus donation fall within the ambit of 'income' defined in Sec.2(24). The corpus donations are specifically exempt from taxation if the conditions for exemp....
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....specific purpose these donations required to be treated as capital receipts and cannot be held to be revenue receipts. Ld.AR further argued that even if it is treated as revenue receipts since the assessee has spent the entire amount for the purpose for which the same was received and there was no surplus in hand following the decision of Delhi High Court in the case of DIT Vs. Society for Development Alternatives 205 Taxman 0373, only the surplus required to be brought to tax, but not the total sum of donations received. In the assessee's case, there was no surplus available with regard to the corpus donations. The Ld.AR also relied on the following decisions : (i) Commissioner of Income Tax vs. S.R.M.T.Staff Association (ii) Commissioner of Income Tax vs. Beldih Club (iii) Income Tax Officer vs. Vokkaligara Sangha (iv) Nirmal Agricultural Society vs. Income Tax Officer 5. On the other hand, Ld.DR submitted that exemption in this case was granted from the assessment year 2011-12 by an order of the Commissioner of Income Tax (Exemption), Hyderabad dated 08.08.2016 and the assessee is not entitled for exemption u/s 11, hence, the entire donatio....
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....bunals including the decision of Coordinate Bench, ITAT, Hyderabad in Nirmal Agricultural Society Vs. Income Tax Officer, J.B. Educational Society vs. ACIT, Hon'ble Delhi High Court in the case of Basanti Devi & Sri Chakhan Lal Garg Education Trust. For the sake of convenience and clarity, we extract the relevant paragraphs of the order of the Tribunal which reads as under : "5.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited and placed reliance upon. Firstly, we would like to consider the legal position with regard to the voluntary contributions urged by the parties. The case of the assessee before the authorities below was that the voluntary contributions received by it was for the specific purpose of construction of a „Kalyan Mantap‟. In short, the assessee has pleaded that the amount received by the assessee was a tied up grant or an amount received for a specific purpose as being capital in nature. In support of this proposition, the assessee has cited / placed reliance on several decisions of various benches of the ITAT, wherein it has been held that voluntary ....
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....ight or title over those properties. Those expenses were incurred as part of its normal activities for which the society was formed. Therefore, the money spent by the assessee- society in constructing houses, reclaiming the land, for non-formal education, etc., had to be allowed as deduction in the computation of income. The grants received from foreign donor were for specific purposes. The grants which were for specific purposes did not belong to the assessee-society; such grants did not form corpus of the assessee or its income. Those grants were not donations to the assessee so as to bring them under the purview of Section 12. Voluntary contributions covered by Section 12 are those contributions freely available to the assessee without any stipulation, which the assessee can utilise towards its objectives according to its own discretion and judgment. Tied-up grants for a specified purpose would only mean that the assessee which was a voluntary organisation, had agreed to act as a trustee of a special fund granted by donor with the result that it need not be pooled or integrated with the assessee‟s normal income or corpus. In the instant case, the assessee was acti....
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....ovisions of Section 12(2)." In Yet another judgment in the case of Sukhdeo Charity Estate (supra), the Honourable Rajasthan High Court held as follows (as per head note):- "The intention of the donor-trust as well as the donee-trust was to treat the money as capital to be spent for the Ladnu Water Supply Scheme. It was of no significance whether the amount had since been paid to the State Government or kept in the account of the said scheme by the assesseetrust. The amount of Rs. 70,000/- did not constitute income of the petitioner. The reassessment proceedings were not valid and were liable to be quashed." This Bench of the Tribunal in the case of Arya Vysya Abhyudaya Sangham (supra) for asst. year 1998-99, in its order dated 25-6-2002 to which one of us was a party, was inclined to uphold the view of the Commissioner (Appeals) in that case by holding in para 15 of that order as follows: "Though we find considerable force in the other argument of the assessee‟s counsel i.e. the income should be computed on commercial principles, as we have held that the assessee-society is eligible for exemption Under Section 11 of the Act and as we have a....
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....ion, Vol.1, at page 424, under the heading "Income, when falls into the tax net", observed as follows:- "Although Section 14 of the 1961 Act classifies income under six heads, the main charging provision is Section 4(1) which levies income-tax, as only one tax, on the "total income" of the assessee as defined in Section 2(45) of that Act. AO income in order to come within the purview of that definition must satisfy two conditions. Firstly, it must comprise the "total amount of income referred to in Section 5". Secondly, it must be "computed in the manner laid down in this Act". If either of these conditions fails, the income will not be a part of the total income that can be brought to charge [CIT v. Harprasad & Co. P. Ltd., (1975) 99 ITR 118, 125 (SC)]". 28. As argued by the Revenue, though by virtue of Section 2(24)(iia) voluntary contributions are income, to our mind this by itself does not entitle the tax gatherer to ignore all other well settled principles of taxation and general law and levy tax on gross receipts without considering the claim for deductions. Principles such as capital versus revenue, doctrines of overriding title, form versus substance, interpretatio....
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....sregarded." 5.3.3 After, relying on the observations from the decision of the coordinate bench (supra), the Hyderabad Bench in the case of J.B. Educational Society (supra) observes as under :- 58. Further, in the case of Shri Shankar Bhagwan Estate vs. ITO (61 ITD 196) wherein even after considering section 2(24)(iia) of the Act it was held as follows: "Section 2(24)(iia) has to be read in the context of the introduction of present section 12. In the instant case the Assessing Officer on evidence had accepted the fact that all the donations had been received towards the corpus of the endowments. In view of this clear finding, they could not be assessed as income of the assessees. Therefore, the voluntary contributions received by the assessees towards the corpus could not be brought to tax." 59. Now the issue for our consideration is whether the amounts received by the assessee were in the nature of voluntary donations received for specific purpose. If yes, whether the same could be considered towards corpus of the trust. Alternatively, if the donations are not voluntarily made, then whether such donations could be considered as income chargeable....
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....-tax (10th Edition), in which the interrelation between sections 12 and 2(24) has been brought out. Gifts made with clear direction that they shall form part of the corpus of the religious endowment can never be considered as income. In the case of R.B. Shreeram Religious and Charitable Trust v. CIT (172 ITR 373) (Bom) the Hon‟ble High Court held that even ignoring the amendment to section 12, which means that even before the words appearing in parenthesis in the present section 12, it cannot be held that voluntary contributions specifically received towards corpus of the trust may be brought to tax.. The aforesaid decision was followed by the Bombay High Court in the case of CIT vs. Trustees of Kasturbai Scindia Commission Trust (189 ITR 5) (Bom). In the present case donations being received for specific purpose, towards corpus of the trust, cannot be assessed as income of the assessee. 61. Same view was taken in the case of Shri Dwarakadeesh Charitable Trust vs. ITO (98 ITR 557), DCIT vs. Nasik Gymkhana (77 ITD 500), ITO vs. M/s. Gaudiya Granth Anuved Trust in ITA No. 386/Agra/2012 order dated 2.8.2013, Penta Software Employees Welfare Foundation vs. ACIT in ITA No....
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.... objectives according to its own discretion and judgment. Tied-up grants for a specified purpose would only mean that the assessee, which is a voluntary organisation, has agreed to act as a trustee of a special fund granted by Bread for the World with the result that it need not be pooled or integrated with the assessee‟s normal income or corpus. In this case, the assessee is acting as an independent trustee for that grant, just as same trustee can act as a trustee of more than one trust. Tied-up amounts need not, therefore, be treated as amounts which are. required to be considered for assessment, for ascertaining the amount expended or the amount to be accumulated. 11. The assessee should have actually credited that grant in the personal account of the donor, Bread for the World and any amount spent against that grant should have been debited to that separate account of the donor. That incoming and outgoing need not be reflected in the income and expenditure account of the assessee. At the end of the project, the balance, if any, available to the credit of Bread for the World, the donor, could be treated as income of the assessee, if the donor did not insist for th....
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....th Anved Trust (supra) wherein similar issue raised has been considered by both the Delhi and Agra Benches of the ITAT. We also find that the Hon'ble Delhi High Court in the case of Basanti Devi & Sri Chakhan Lal Garg Education Trust vide its order in ITA No.927/09 dt.23.9.2009 has also affirmed the view taken by the Hon'ble ITAT in holding that corpus donations cannot be regarded as income under Section 2(24)(iia) of the Act. 5.3.5 Following the above decisions of the Tribunal (supra), relied upon by the assessee, we hold that voluntary contributions received for a specific purpose cannot be regarded as income under Section 2(24)(iia) of the Act since they are capital receipts and tied up grants for specific purpose" 6.1. Further, Hon'ble Delhi High Court in the case of DIT vs. Society for Development Alternatives relied upon by the assessee has considered the decision of Hon'ble Rajasthan High Court in the case of Sukhdeo Charity Estate v. CIT [149 ITR 470] and upheld the order of the Ld.CIT holding that if the assessee fails to utilize the grants for the purpose for which it was sanctioned, the amounts so unutilized required to be brought to tax, if it is not....