TaxTMI 
TaxTMI 
2018 (2) TMI 103
X X X X Extracts X X X X
X X X X Extracts X X X X
....TO (Exemptions) vs. Smt. Basanti Devi and Shri Chakan Lal Garg Educational Trust for A.Y. 2003-04, which in turn is now under challenged in the Hon'ble Supreme Court." 3. Briefly stated relevant facts are that the assessee is an AOP as per the AO and filed the return of income declaring total income at NIL. This is the second round of the proceedings before the Tribunal. In the first round, the Tribunal vide ITA Nos. 1539/PUN/2008, order dated 12-09-2012 and the appeal of the assessee is allowed for statistical purposes giving the following directions : "11. . . . . . . . We find the AO brought to tax the corpus donation of Rs. 3 crores on the ground that approval u/s.35(1)(ii) has not been granted to the assessee foundation and that the assessee has also not been registered u/s.12A of the Income Tax Act. . . . . . . . The order of the AO has been upheld by the CIT(A). It is the submission of the learned counsel for the assessee that even if approval u/s.35(1)(ii) is not granted then also the amount cannot be brought to tax since it is in nature of a gift and since this aspect has not been considered by the lower authorities in the light of the various decisions cited t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Act. AO also discussed the following decisions which are relied upon by the assessee : 1. Pandit Kanahya Lal Punj Charitable Trust Vs. DIT 2. J.B. Education Society Vs. ACIT 3. Nirmal Agricultural Society Vs. ITO 71 ITD 152 (Hyd.) These above decisions are relevant for the legal proposition that where there is no approval, the "corpus donation" is not income of the trust as the same constitute a "capital receipt". Eventually, the AO elaborated on the meaning of section 2(24)(iia) of the Act. These provisions enlists the items of income and the voluntary contributions received by the trust or an institution or an association etc. on such items constitute income. Further, the AO also distinguished the judgment of Hon'ble Supreme Court in the case of CIT Vs. Groz Beckert Saboo Ltd. 116 ITR 125 and reasoned that a gift with conditions attached constitutes taxable gift. The socalled gift is not a voluntary contribution. Further, the AO considered the fact that assessee is a registered body under the Bombay Public Trust, 1950 as a Charitable Trust and elaborated on the provisions of section 2(24)(iia) of the Act. Eventually, as per the discussion given in Pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....had revamped corpus donation. The amendment carried out is that, the word voluntary contribution has been brought under section 2(24)(iia) of I.T. Act. The effect of amendment is that every voluntary contribution partakes the character of income. Corpus donation is a Voluntary contribution, therefore, constitutes income under section 2(24) (iia) of I.T. Another amendment was made in section 11(1)(d) by the same Act. The effect of the amendment is that deduction will be allowed under section 11(1)(d) in respect of voluntary contribution with specific direction that they shall form part of the corpus of the trust or institutions. Prior to this amendment, voluntary contribution with a specific direction, which is also known as corpus donation was never considered as an income and was totally excluded from the purview of income. Now, the question arises whether such corpus donation is taxable as income or not, even in the cases in which the trust is not registered u/s.12AA of the I.T. Act because for those trusts which are registered u/s.12AA, exemption to corpus donation has been provided as per provisions of section 11(1)(d). For such trust to which registration u/s.12AA has not been....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e under the I.T. Act being in the nature of capital receipt and therefore addition of Rs. 3,00,00,000/- made by AO. towards the taxable income of the appellant is hereby deleted. Accordingly, Ground No. 1 is allowed. 7. From the above, it is evident that the CIT(A) examined the dictionary meaning of the expression "Corpus" and "Donation" and also analysed the amended provisions of section 2(24) by the Direct Tax Laws Amendment Act, 1989 w.e.f. 01-04-1989 qua the Corpus Donations. He held that, prior to the amendment, the voluntary contributions with specific direction was never considered as income and totally excluded from the taxation. Such corpus donations are exempt in principle only in view of the provisions of section 11(1)(d) of the Act in cases registered u/s.12AA of the Act. In this regard, CIT(A) discussed the case laws of Pentafour Software Employees Welfare Foundation and judgment of Delhi High Court in the case of Smt. Basantidevi and Shri Chakal Lal Garg Education Trust in ITA No.5082/2010(supra). CIT(A) relied on both these case laws for the proposition that the corpus donation being in the nature of capital receipt is not chargeable to tax. CIT(A) further held th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e relevant written submissions from Para Nos. 7.1 to 8 are extracted as under : "7.1. The reliance was placed on the judgment of the Bombay High Court In the case of CIT Vs. Trustees of Kasturbhai Sindhia reported in [1991] 189 ITR 5 in which it held that the donation specifically towards corpus of the donee trust would not constitute income in the hands of the donee trust based on the reading of sec. 12(2) and sec.11 of the IT.Act. This decision was based on its earlier judgment in the case of trustees of Khilachand Devchand Foundation Vs CIT reported in [1998] 172 ITR 382. It is seen from the judgment that the assessment years involved were 1969-70,71-72 and 72-73. These assessment years were prior to the introduction of clause 2(24)(iia). Further, the decision was based on the reading of the then section 12(2) r.w.s.11 of the IT.Act. The appellant case is not covered by sec.11 and 12 of the IT.Act as it is not a registered u/s s 12A of the IT.Act. Therefore, this decision is otherwise also not applicable to the facts of the appellant's case. 7.2. Reliance was also placed on the judgment of the Bombay High Court in the case of R. B.Shriram Religious and Char....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s Welfare Foundation as seen in the appeal order but there is no citation to download the judgment. A close look at the name of the foundation itself reveals that it is not a charitable organisation and therefore, the provisions of sec. 2 (24)(iia) do not apply to such non charitable foundations. So the decision of this case is not relevant to the charitable organizations. 7.5. Reliance was also placed on the judgment of the ITAT Agra in the case of Gaudiya Granth Anuved Trust Vs. Department of Income Tax in ITA No.386/Agra/2012 (A.Y. 07-08) dtd.12/7/2013. It is seen that this decision is based basically on the cases discussed above. Therefore, there is no separate discussion is required on the merits of this case. 8. In result, it is clear that the decisions relied upon by the CIT(A) in his order have no relevance to the facts of the appellant case and none of them have considered the implication of the amendment in sec.2(24)(iia) which came into effect from 1/4/1973. A bare reading of the amended provisions clearly indicates that the corpus donation is also an income in respect of charitable organizations. The corpus donation is specifically exempted in the case....
X X X X Extracts X X X X
X X X X Extracts X X X X
....partment of Scientific and Industrial Research, Ministry of Science and Technology, Government of India till 31.03.2013. On the other hand we have never been assessed as "Charitable Organisation" You may kindly notice that for the purpose of Income Tax a separate distinction is made regarding the scheme of Taxation. The exemption in respect of research Association is provided u/s. 10(21) and the assessment of Charity Trusts are governed by Sec 11, 12, 12AA & 13. 11. Further, the Ld. AR for the assessee also filed further submissions which are extracted as under : "1 It is contended that the corpus donation will in any case be exempt from tax. If CBDT does not grant such approval, then also the amount cannot be taxed as it is not in the nature of income. 2 Provisions of Sec 2(24 )(iia) are not applicable and Donation with a direction to Corpus is not subject to tax The relevant extracts of i.e. section 2(24) (iia) are reproduced below: [(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... they shall form part of the corpus of the trust) shall for the purposes of section 11 be "deemed to be income derived from property held under Trust." This provision, in fact supports the appellants contention as pointed by the Patna High Court in the case of Bihar State Board of Digambar Jain Religious Trusts reported in 187 ITR 295 as even under such fiction, corpus donations are excluded. It is well settled that fiction created has to be strictly & to be confined to the purposes for which it is created. Both the fictions u/s 2(24 )(iia) and u/s 12 are created to deem certain receipts is derived from property held under trust. In this respect Your Honor's attention is drawn to the observations of High Court on page No. 298 which reads as under: "the very fact even under the Income Tax Act a contribution with specific direction that it shall form part of the corpus of the trust does not come within the purview of the definition of income is clearly demonstrative of the fact that such donation cannot come within the purview of the definition of income 9. With the above back ground it is submitted that in order to invoke the provisions of Section 12(1) there i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the case of Gift Tax v. Cawasji Jahangir Co. (P) Ltd. reported in 106 ITR 390 in which it was held that "it permits the Court to take into consideration the basic principles in the allied laws. It does not compel the Court to apply the definition to a case to which having regard to the basic principles, it cannot apply. This case relates to Gift Tax in which the opening words for Section 2 "unless the context otherwise requires" are used. The said opening words are forming part of the Income tax Act in which the definition of income has been embedded." 12. We heard both the parties and perused the orders of the Revenue as well as various decisions cited by both the parties. We have also gone through the written submissions furnished by both the sides. 13. The case of the Revenue is that the Voluntary Contributions made to the corpus of the Trust constitutes "taxable income" of the Trust. Reading from the provisions relating to the definition of income in section 2(24(iia) of the Act and section 12(1) of the Act, the Revenue holds that such income needs to be first included in the total income of the assessee before any exclusion is made as in case of clause (d) of section ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ifference to the case of the assessee. Thus, Ld. DR for the Revenue summarises that the above comments stating that the case laws cited by the assessee has no relevance. Therefore, Ld. DR prayed for reversing the order of CIT(A) as he ignored the fact that subsequent amendments made to the "Voluntary Contributions" to be included in the total income of the assessee vide section 12(1) of the Act, and on the gifts in principle, should also be taxable by virtue of the provisions like the one u/s.56(2) of the Act. 16 (a) Further, Ld. DR submitted that the Income Tax Act, 1961 provides for definition of income u/s.2(24)(iia) of the Act and the same reads as under : "(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes [or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) [or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub-claus....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a different context, like the present assessee. The exclusions provided in section 12(1) of 11(1)(d) of the Act are not available to the assessee. In the absence of supporting provisions like that of section 12(1) and 11(1)(d) of the Act, the provisions left for applying to the case of the present assessee is only the one of section 2(24)(iia) of the Act, which mandates that the "Voluntary Contributions" constitutes "income". Unlike the provisions of section 12(1) of the Act, it does not distinguish Voluntary Contributions or Corpus specific Voluntary Contributions. In other words, this section 2(24)(iia) does not provide any exclusion like the way the "Corpus donations" were excluded by virtue of the provisions of section 12(1) of the Act. Therefore, the Corpus specific Voluntary Contributions become taxable in a case of unregistered Trust under the income-tax provisions. (d). Regarding the Capital nature of such gifts/Voluntary Contributions and therefore, they are not to be included in the total income of the assessee, Ld. DR argued stating that the said decisions belong to the period prior to the amendment to the provisions of section 56(2)(vi) to (viii) by the Taxation Law....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pply to the case of the assessee as demonstrated by the Ld. DR before us. However, there exists no favourable decision to the assessee. Further, we find these decisions relate to the period of post-amendments to section 12(1)/11(1)(d) or section 56(2) of the Act etc. One of such decision of the Tribunal of Mumbai Benches, i.e. Chandraprabhu Jain Swetamber Mandir Vs. ACIT (2017) 82 taxmann.com 245 (Mumbai- Trib.), is relevant and it has exclusively dealt with this issue in detail. Of course, this decision has not considered the amended the provisions of section 56(2) of the Act which governs the taxing of certain gifts despite its capital nature. 20. We have perused the said decision of Mumbai Bench of the Tribunal in the case of Chandraprabhu Jain Swetamber Mandir Vs. ACIT (2017) 82 taxmann.com 245 (Mumbai-Trib.). It is also a case of unregistered trust u/s.12A/12AA of the Act. The question before the Tribunal in this case is allowability of exemption to the Corpus Trust when the Trust is not registered under the income-tax provisions. The Tribunal elaborated on various decisions and concluded by stating that the Corpus Donations are not to be taxed even if the Trust is not regi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....khand Deepak fund - Rs. 12,951/- 6. Dadawadi fund - Rs. 25,020/- 7. Jiv Daya fund - Rs. 18,063/- 8. Ayambil fund - Rs. 13,996/- Total - Rs. 4,55,446/- These above stated specific donations given by the donors to be utilized for specific purposes cannot be diverted for any other purposes by the assessee and are credited to the respective funds in the Balance Sheet , and utilization thereof is also reflected from these specific funds. We have gone through the case laws relied upon by the assesse as set out above and have observed that the Courts/Tribunals have taken a consistent view that these corpus donations are held to be capital receipts being capital in nature and are not taxable despite the fact that trust is not registered u/s 12A/12AA of the Act. In ITO(E) v. Basanti Devi & Shri Chakhan Lal Garg Education Trust in ITA no. 5082(Del.) 2010 for assessment year 2002-03 vide orders dated 19- 01-2011, ITAT, Delhi relying on ITAT, Delhi decision in the taxpayers own case for assessment year 2003-04 whereby the Tribunal held that the amount received by the tax-payer trust from its settler, towards infrastructure f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessing Officer as under: "I have also examined the term corpus fund and corpus donation as it is being generally used with respect to a trust. A corpus fund denotes a permanent fund kept for the basic expenditures needed for the administration and survival of the organisation. The corpus fund is generally not allowed to be utilised for the attainment of the purposes but the interest/dividend accused on such fund can be utilised as well as accumulated. Such fund can also be used for creation of capital asset or property of the trust from which income can be generated. Corpus fund are generally created out of corpus donation. 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. In the present case, the donor, the Bhaktivedanta Book Trust has very categorically in his letter, while providing money to the appellant trust, has mentioned the amount of Rs. 68,50,000 as corpus donation and such amount has been used by the trust for purchasing the land and giving money on interest as loan. Therefore, th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection 12 and section 2(24) has been brought out. Gifts made with clear directions 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 & Charitable Trust v. CIT [1988] 172 ITR 373 (SC) it was held by the Bombay High Court that even ignoring the amendment to section 12, which means that even before the words appearing to parenthesis in the present section 12, it cannot be held that voluntary contributors specifically received towards the corpus of the trust may be brought to tax. The aforesaid decision was followed by the Bombay High Court in the case of CIT v. Trustees of Kasturbai Scindia Commission Trust[1991] 189 ITR 5 (Bom). The position after the amendment is a fortiori. In the present cases the Assessing Officer on evidence has accepted the facts that all the donations have been received towards the corpus of the endowments. In view of this clear finding, it is not possible to hold that they are to be assessed as income of the assessees. We, therefore, hold that the assessment of the corpus donations cannot be supported. 12. For the above reasons, we hold as under : 1. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....6 (Cal), Society for Integrated Development in Urban & Rural Areas v. Dy. CIT [2004] 90 ITD 493 (Hyd), Sri Dwarkadheesh Charitable Trust v. ITO [1975] 98 ITR 557 (All) and Dy. CIT v. Nasik Gymkhana [2001] 77 ITD 500 (Pune). 6. We have heard the learned representatives of the parties and records perused. The grievance of the Revenue is that the Commissioner of Income-tax (Appeals) has wrongly followed the judgment of the hon'ble Delhi High Court in I. T. A. No. 5082/Del./2010, whereas that order has been challenged before the hon'ble Supreme Court. The Revenue did not dispute the facts. We noticed that the Commissioner of Income-tax (Appeals) after considering the decision of three Tribunals, i.e., Incometax Appellate Tribunal, Delhi in the case of ITO (Exemption) v. Smt. Basanti Devi & Shri Chakhan Lal Garg Education Trust [IT Appeal No. 5082 (Delhi) of 2010, dated 30-1-2009] the Revenue filed appeal before the hon'ble Delhi High Court. The hon'ble Delhi High Court confirmed the order of the Income-tax Appellate Tribunal, the Revenue filed appeal before the hon'ble Supreme Court, which has been dismissed for nonprosecution vide judgment Civil Appeal Nos....