• Oct
  • 17
  • 2012

Donation towards corpus can’t be added to Income if Assessee furnishes full details

IN THE ITAT, AHMEDABAD BENCH ‘d’ (THIRD MEMBER)

Income-tax Officer, Ward-6(1), Surat

versus

Sardar Vallabhbhai Education Society

IT APPEAL NO. 2984 (AHD.) OF 2008

(c.o. no. 223 (ahd.) of 2008)

[ASSESSMENT YEAR 2000-01]

JULY 13, 2012

ORDER

Mukul Kr. Shrawat, Judicial Member

This is an appeal filed by the Revenue and cross-objection filed by the assessee both arising from the order of ld.CIT(A)-IV, Surat dated 30/06/2008. Ground raised by the Revenue is reproduced below:

[1]  On the facts and in the circumstances of the case and in Law, the ld. CIT(A)-IV, Sural has erred in deleting the addition of Rs. 1,54,67,621/- made by the Assessing Officer on account of donations which were not a part of the corpus of the assessee trust.

2. Facts in brief as emerged from the corresponding assessment order passed u/s. 143(3) r.w.s. 147 of the I.T. Act were that the assessee-trust is an educational society. To start a college and to fulfil the objects of the trust, it was appealed to the public to give donation for a technical college. Donation was collected for establishment and development of a technical education centre in a village. A query was raised in this regard and in compliance it was stated that the donation amounting to Rs. 1,54,67,621/- was collected and in support receipts issued to the donors were furnished before the Assessing Officer. On the basis of those receipts, it was alleged by the Assessing Officer that those were prepared by the employee of the trust and signed by an official of the trust. As per Assessing Officer’s allegation, none of those receipts borne the signatures of the donors. It was further alleged that the donation receipts were self-made evidence furnished in support of the corpus fund collected.) As per Assessing Officer, vide section 11(1) of the IT Act there must be a specific direction from the donor in respect of their donations that it should be for the purpose of the corpus. By assigning those reasons Assessing Officer had taxed the entire amount in the hands of the Trust. Being aggrieved the matter was carried before the first appellate authority.

3. Before ld.CIT(A) it was contested that there was no infringement of the provisions of the Act because the said donated amount was treated as a corpus fund and utilized for the establishment of the said educational institution. The ld.CIT(A) has granted relief as per the following observations:-

“1 have considered the submissions and gone through the details. There are two basic issues involved in the said appeal. One whether the donation received by the appellant were for the purpose of corpus and whether the same was utilized for any non-corpus expenditure, while the other issue is whether the appellant trust can claim exemption u/s. 10(23C) of the IT Act. These two issues are inter-connected since if the donation is treated as being not for the purpose of corpus, the income of the appellant would be more than Rs.1 crore. In the instant case a perusal of the receipts issued by the appellant for donations received from 60 donors aggregating to Rs. l,54,67,621/- indicates that in all the cases the column of corpus funds has been tick marked and in most of the cases the donors have specifically stated that the donation was towards corpus of the trust. The Assessing Officer’s objection that the receipts were signed by the official of the trust and no signature of donor was taken and therefore this was a self-made evidence is without appreciating the appellant’s submission. A receipt issued by the trust would obviously have to be signed by the employee or the official of the trust and there is no provision that the signature of the donor should also be taken on such receipt. Further, I also find that no part of the corpus can be said to have been utilized for any other expenditure. Corpus donation cannot he brought as income because even if a part of the amount is temporarily utilized, the character of donation does not change and it cannot be treated as income for the purpose of taxation. I have also gone through the Judicial decisions cited by the Id. AR and find that when the trust is running a educational institution, the said institution would be part of the appellant trust which would come within the expression of educational institution. Therefore, the rent paid by the College to the appellant trust and transfer of surplus to the trust is only an intra-institute transactions were no element of income is involved. I am therefore of the considered view that the donation receipt by the appellant was towards the corpus which would be out of the purview of taxation as per provisions of section 11 of the IT Act and since the other receipt of the trust is less than Rs. 1 crore and it is an educational institution, benefit of exemption u/s 10(23C) of the IT Act is allowable to it. Therefore, the addition made to the returned income because of denial of this exemption and treating donation as not for the purpose of corpus is not sustainable and is directed to be deleted.”

4. We have heard both the sides. We have also perused the orders of the authorities below. The compilation consisted the evidence in respect of the corpus donation receive by this trust. One of the donation was found to be received of Rs. 10 lakhs through cheque by the G.H. Bhakta Memorial Foundation Trust and the donor has categorically stated that the donated amount is to form part of the corpus of the trust towards a Chemical Engineering, one of the Department of the Institution. There is an another evidence on corpus donation of Gujarat State Co-operative Fruit & Vegetable Marketing Federation Ltd., Bardoli of Rs. 1 lakh donated through a cheque with the direction to accept the donation as a corpus fund of the trust. Likewise a sum of Rs. 4 lakhs was received through draft from Radhaben & Khushalbhai Foundation. Likewise, a sum of Rs. 5 lakhs was received through cheque as a corpus for the assessee-trust by Shree Khedut Sahakari Khand Udyog Mandli Ltd. A finding has been given by the first appellate authority alter appreciation of those cogent evidences that in all 60 donors have donated the amount towards corpus fund of the trust and totalling to Rs. 1,54,67,621/-. The receipts as issued by the assessee have been duly “ticked” at the marked column as “corpus fund”. Those receipts were found to be duly signed by the employees of the trust. On the basis of those appreciation of facts, it was held that merely those receipts have not been signed by the donors, the Assessing Officer had wrongly treated the corpus fund as the income of the assessee. We are also of the view that the reason assigned by the Assessing Officer that the receipts were not counter signed by the donors should not be held as a logical basis for assuming that the corpus fund received by the assessee-trust was the taxable income, further, it has also been found that the corpus fund was utilized towards the objects of the trust to establish a technical institution. On appreciation of the factual aspect of the utilization of corpus funds, it was found by the learned CIT (Appeals) that no part of the corpus could be said to have been utilized for any other expenditure except for the establishment of the said educational institution. A corpus of the trust cannot be held as income because corpus is nothing but towards capital of the trust. Few case laws in support of the above contention have also been cited as follows:-

Sl. No.(s) Decision on the case of Reported in
1.  Sri Dwarkadheesh Charitable Trust v. ITO [1975] 98 ITR 557 (All.)
2.  Sukhdeo Charity Trust v. CIT [1984] 149 ITR 470
3.  CIT v. Billeswara Charitable Trust [1984] 145 ITR 29
4.  CIT v. Bal Utkarsh Society [1979] 119 ITR 137 (Guj.)
5.  CIT v. Eteral Science or Man’s Society [1981] 128 ITR 456 (Delhi)

5. Respectfully following the above decision and after due appreciation of the evidences placed on record and the finding on facts given by the authorities below, we hereby affirm those findings and dismiss this ground of the Revenue.

6. In the result, Revenue’s appeal stands dismissed.

7. In Cross-Objection, following ground has been raised by the assessee:-

(1)  On the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) ought to have held that the reopening was bad in law.

8. The cross objection has not been pressed by the Learned Authorised Representative of the assessee. Therefore, the same is hereby dismissed as such.

9. In the result, the appeal of the Revenue as well as cross objection filed by the Assessee both are dismissed.

ORDER


ITA No. 2984/Ahd/2008

A.K. Garodia, Accountant Member – I have carefully gone through the proposed order of Learned brother but I am unable to agree with the view taken there in that the order of ld. CIT(A) is to be upheld and appeal of Revenue is to be dismissed.

2. The only issue involved in this appeal of the Revenue is regarding deletion of addition made by the Assessing Officer of Rs. 1,54,67,621/- on account of donation which were not a part of the corpus of the assessee/trust as per the AO. The AO has noted in the assessment order in para-20 that the assessee has produced copy of receipts claimed to be issued to the donors in respect of donation received by it amounting to Rs. 1,54,67,621/-. The AO further noted that said receipts were prepared by the employee of the Trust and signed by official of the Trust and on none of the receipts produced by the assessee during the course of assessment proceedings, signature of the donor was available. He further noted that hence, it is self-made evidence in support of corpus fund. He further noted that as per section 11(1), there must be a specific direction from the donor that their donation should create corpus. Thereafter the AO noted that assessee failed to submit any such evidence in respect of donors. Under these facts, the AO rejected the claim of the assessee that donation is on account of corpus of the Trust and made addition of the donation in the assessment order. Before ld. CIT(A), the assessee has furnished certain letters from the donors in which it is stated by them that the donation given by them is towards corpus of the assessee/trust. These letters are available in the paper book of the assessee filed on 24-05-2011 and in the certificate of the paper book, it was certified as under:-

“certified that enclosed papers (P. 1-52) are copies of papers (being donation receipts with complete names and addresses of donors for the donations towards corpus fund with specific direction) filed with Commissioner of Income Tax (Appeals).”

3. The above certificate submitted by the assessee along with paper book filed before us clearly shows that such declaration from the donors were produced by the assessee for the first time before ld. CIT(A) and same was never produced before the Assessing Officer. In the impugned order of ld. CIT(A), there is no mention as to how and why ld. CIT(A) admitted the same because it was additional evidence. There is no mention in his order that he has called for any remand report from the AO and still he decided the issue regarding corpus donation in favour of assessee by making reference to those letters from the donors which were never produced before the AO and which were never confronted by ld. CIT(A) to the AO by calling remand report. The decision of ld. CIT(A) is mainly on this basis that in most of the cases, the donors have specifically stated that donation was towards corpus of the Trust. It goes to show that he has based his decision on the additional evidence filed before him for the first time and that too without confronting the same to the AO and without obtaining the remand report from the AO on this aspect, it was the submission of ld. DR of the Revenue at the time of hearing that no remand report was called for by ld. CIT(A) and there is’ no finding of ld. CIT(A) as to under which clause of Rule 46A, additional evidence was admitted by him. Hence, in my considered opinion, this issue should go back to the file of ld. CIT(A) for a fresh decision after obtaining remand report from the Assessing Officer regarding admissibility of additional evidence and also after seeking his comments on this of the AO on additional evidence if it is found that additional evidence deserves to be admitted. Thereafter, ld. CIT(A) should decide the issue afresh after providing reasonable opportunity of being heard to both the sides.

4. In the result, the appeal of the Revenue stands allowed for statistical purposes.

CO No.223/Ahd/2008 (by assessee).

5. Regarding the decision of ld. JM in his proposed order for the CO filed by the assessee I agree with his decision because the same has been dismissed by him on this basis that CO has not been pressed by ld. AR of the assessee.

6. In the result, appeal by Revenue is allowed for statistical purposes and CO filed by assessee is dismissed.

Reference under section 255(4) of the Income-tax Act, 1961

On a difference of opinion between the Members constituting the aforesaid Bench, the matter is being referred by virtue of section 255(4) to the Hon’ble President of ITAT with a request that following questions may be referred for the esteemed view of a Third Member or pass such order as the Hon’ble President may think fit.

 1.  “Whether under the facts and circumstances of the case, the matter is required to be restored back to the file of learned CIT(A) for a fresh decision as proposed by the A.M. or the Tribunal can decide the matter as per the proposed order of the J.M.”

 2.  Whether under the facts and circumstances of the case, since the receipts issued in respect of the said “Corpus Fund” was prepared by the employees of the society, an enquiry was still required to decide the nature of the said “Corpus Fund”?

 3.  Whether under the facts and circumstances of the case, the amount of Rs. 1,54,67,621/- constituted the “Corpus Fund” of the assessee-society ?

Third Member ORDER


G.C. Gupta, Vice-President (AZ) (As a Third Member) – On account of difference in opinion between the learned Judicial Member and learned Accountant Member of ITAT, Ahmedabad Benches, this matter has been referred to me by the Hon’ble President, ITAT for consideration and disposal under section 255(4) of the Income-tax Act, 1961. The Hon’ble President has referred the following questions:

“1.  Whether under the facts and circumstances of the case, the matter is required to be restored back to the file of learned CIT(A) for a fresh decision as proposed by the AM or the Tribunal can decide the matter as per the proposed order of the J.M.?

 2.  Whether under the facts and circumstances of the case, since the receipts issued in respect of the said “Corpus fund” was prepared by the employees of the society, an enquiry was still required to decide the nature of the said “Corpus Fund”?

 3.  Whether under the facts and circumstances of the case, the amount of Rs. 1,54,67,621/- constituted the “Corpus Fund” of the assessee-society ?”

2. At the time of hearing of this case before me, as Third Member, none appeared on behalf of the Revenue. Accordingly, the questions referred to me by the Hon’ble President are being disposed of ex parte qua the Revenue on merit after hearing the learned counsel for the assessee. I have carefully considered the above questions referred to me by the Hon’ble President and have perused the orders of the learned JM and learned AM and also the order of the AO and the CIT(A).

3. I have heard the learned counsel of the assessee. The contention of the learned counsel for the assessee were similar as advanced before the regular Bench and recorded in the proposed orders of the learned JM and the learned AM.

4. The learned counsel for the assessee submitted that with regard to first question referred to by the Hon’ble President to the Third Member, no such ground of appeal was taken by the department before the Tribunal with regard to the violation of Rule 46A of the I.T. Rules, and therefore, there is no mistake in the order of the learned JM on the issue. He submitted that the account books along with original receipts book wherein the receipts for the corpus donation were issued by the assessee were produced before the AO. The complete names and addresses of the 60 donors to the corpus donation fund were given to the AO. In the receipt book for the corpus donation, the column of corpus fund donation was tick marked and was signed by the employee of the assessee-trust. With regard to the issue of admission of declaration from these 60 donors to the effect that the donation were towards the corpus fund of the assessee, were produced by the assessee before the learned CIT(A). He submitted that the CIT(A) has admitted the same and the Revenue has preferred not to raise any ground of appeal before the Tribunal as to the violation of provision of Rule 46A, and therefore, the question No.1 referred by the Hon’ble President has to be answered accordingly.

5. The learned counsel for the assessee submitted that with regard to second question that whether an inquiry was required to decide the nature of the said corpus fund, it was for the AO to make necessary inquiry or call for the witnesses and the CIT(A) has passed speaking order on this issue and no mistake could be pointed out in the order of the CIT(A) by the Revenue.

6. The learned counsel for the assessee, with regard to question No. 3 referred to by the Hon’ble President to the Third Member, submitted that the answer to the question  No. 3 that whether the amount of Rs. 1,54,67,621/- constituted the corpus fund of the assessee-society, the same is depended on the answer to the question No. 2 referred by the Hon’ble President to the Third member. He submitted that the assessee has produced enough evidence on record to prove that the donations made were towards the corpus fund of the assessee-society. He submitted that the AO never called for or issued summons to the donors of the corpus fund. He submitted that there is no provision of signature of the donors on the receipt book of the corpus fund of the assessee-society.

7. I have considered submissions of the learned counsel for the assessee carefully and have perused the proposed orders of the learned JM and the learned AM. The assessee-society is a charitable trust registered by the Commissioner under section 12A of the I.T. Act vide its order dated 17.9.1996. The assessee-society is an educational society and intended to start a college. To fulfil the objects of the trust, it appealed to the general public to give donation for establishment of technical college in the rural area of Gujarat. The assessee has claimed that it has received donation of Rs. 1,54,67,621/- towards its corpus fund from 60 donors. The learned JM has recorded in its proposed order that Rs.10 lakhs were received by the assessee-trust through cheque from G.H. Bhakta Memorial Foundation Trust and the donor has categorically stated that the donation amount was to form part of the corpus of the trust towards Chemical Engineering, one of the departments of the institution. The learned JM has further recorded that the Gujarat State Cooperative Fruit & Vegetable Marketing Foundation Ltd, Bardoli has donated Rs.1 lakh through cheque with direction to accept the donation as corpus fund of the assessee-trust. Likewise a sum of Rs. 4 lakhs was received through demand drafts from Radhaben & Khushalbhai Foundation towards the corpus fund and a sum of Rs.5 lakhs was received through cheque as a corpus for the assessee-trust from Shree Khedut Sahakari Khand Udyog Mandli Ltd. The learned JM has recorded that in the donation receipts issued by the assessee the word corpus fund have been duly “ticked” at the marked column as “corpus fund” and were signed by the employees of the trust. I found that the assessee has produced its books of account along with names and complete addresses of the donor along with original receipt book of corpus fund before the AO. The AO has chosen not to make further inquiry by calling for production of the donors or by issuing summons to any of the said 60 donors. The assessee has filed declaration from these donors to the corpus fund before the learned CIT(A) and they were admitted by the learned CIT(A) as additional evidence. I find that the Revenue has not taken any ground of appeal before the Tribunal with regard to the admission of additional evidence by the learned CIT(A) in the form of confirmation by the donors to the corpus fund or violation of provision of Rule 46A of the I.T. Rules. In the absence of any specific ground of appeal to the effect, I am of the considered opinion that the learned JM was justified in not restoring back the issue to the file of the CIT(A) for a fresh decision, as proposed by the learned AM. It is well-settled that the role of Third Member while disposing of a reference made by the Hon’ble President u/s.255(4) is limited to the extent of agreeing either with the order of the ld. JM or with the order of ld. AM. In this case, since the Department has not taken any ground of appeal before the Tribunal regarding violation of Rule 46A of I.T. Rules by the CIT(A) in admitting confirmation letters from the donors of the “corpus fund”, I agree with the learned JM that the issue could not be restored back to the file of lower authorities for a fresh decision on this count. Accordingly, the question No.1 referred to the Third Member by the Hon’ble President is answered in favour of the assessee and against the Revenue.

8. With regard to question No. 2, referred to the Third Member by the Hon’ble President that whether any inquiry was still required to decide the nature of the said “corpus fund”, I find that it was for the AO to decide what type of inquiry is required in a particular case while framing the assessment of the assessee. In this case, the assessee has produced his complete account books along with original receipt book of the corpus fund wherein complete names and addresses of the donors were recorded and the column “Corpus Fund” has been duly “ticked” and signed by the employees of the trust. It was for the AO to make or not to make further inquiry in the facts and circumstances of the case with regard to the genuineness of the donation claimed by the assessee-trust to have received by it towards its “corpus fund”. The Tribunal as a second appellate authority could not direct the AO to make detailed inquiry for the reason that the issue of “inquiry” is not before the Tribunal. The AO has not made any detailed inquiry further and added the amount of corpus fund as income in the hands of the assessee on the plea that such receipts were prepared by the employees of the trust and in none of the receipts, signature of the donors was available. This approach of the AO in finalizing the assessment of the assessee is not appreciable in law. In these facts of the case, I agree with the order of the ld. JM on the issue and is of the view that the question No.2 referred to the Third Member has to be answered in favour of the assessee and against the Revenue.

9. The question No.3 referred to the Third Member by the Hon’ble President as to whether the amount of Rs. 1,54,67,621/- constituted the corpus fund of the assessee-trust, I find that in view of my answer to question nos.1 and 2 referred to by the Hon’ble President, in favour of the assessee and in view of the fact that the CIT(A) after considering declaration from all the 60 donors of the corpus fund certifying that they have donated towards corpus fund of the assessee-society and the Revenue has not raised any ground of appeal against the admission of these declarations produced by the assessee before the CIT(A), the amount in question has to be held as constituting “Corpus Fund” of the assessee-society and accordingly, I agree with the order of the ld. JM on the issue and the question No.3 referred to Third Member is answered in favour of the assessee, and against the Revenue.

10. In the facts of the case and in accordance with the relevant provisions of law, I have no hesitation to hold that all the three questions referred to Third Member by the Hon’ble President have to be answered in favour of the assessee and against the Revenue. In view of this, I agree with the learned JM on three issues referred to me by the Hon’ble President and hold that the amount of Rs. 1,54,67,621/- constituted the corpus fund of the assessee-trust.

11. The matter will now go back to the Division Bench for passing order in accordance with majority view.

ORDER


Mukul Kr. Shrawat, Judicial Member – Since there was a difference of opinion between the ld. Members constitution “D” Bench of I.T.A.T. Ahmedabad with regard to the following issues, the matter was referred to Third Member u/s 255(4) of I.T. Act, 1961 for his opinion as proposed by ld. JM.

“1.  Whether under the facts and circumstances of the case, the matter is required to be restored back to the file of learned CIT(A) for a fresh decision as proposed by the A.M. or the Tribunal can decide the matter as per the proposed order of the J.M.

 2.  Whether under the facts and circumstances of the case, since the receipts issued in respect of the said “Corpus Fund” was prepared by the employees of the society, an enquiry was still required to decide the nature of the said “Corpus Fund”?

 3.  Whether under the facts and circumstances of the case, the amount of Rs. 1,54,67,621/- constituted the “Corpus Fund” of the assessee-society?”

2. The Hon’ble Vice-President (AZ), as Third Member in this case, after hearing the ld. AR of the assessee and considering the facts and circumstances of the cases, vide order dated 18/06/2012, has concurred with the proposed order of the ld. J.M., by observing as under :-

“10. In the facts of the case and in accordance with the relevant provisions of law, I have no hesitation to hold that all the three questions referred to Third Member by the Hon’ble President have to be answered in favour of the assessee and against the Revenue. In view of this, I agree with the learned JM on three issues referred to me by the Hon’ble President and hold that the amount of Rs. 1,54,67,621/- constituted the corpus fund of the assessee-trust.

11. The matter will now go back to the Division Bench for passing order in accordance with majority view.”

3. Therefore, in accordance with the majority view, the appeal of the Revenue and the cross-appeal of the assessee both are dismissed.


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