• Jul
  • 25
  • 2012

Donation to corpus fund not asssassable u/s. 68

Corpus fund is the property of the Trust. The donors contributed the donations therefore could not form part of the income & expenditure account as prescribed by law. The development fees received later on was from students was to be identified by the assessee over and above the corpus funds when the students were made aware that they are contributing the amount apart from development fees, tuition fees, bus fees and other annual charges. The learned Counsel for the assessee before us has submitted that the development fees was received to contribute to the building when the committee seeking such funds made it voluntary was therefore directly held as a liability to identify with the general fund when the major portion was from the students and the remaining was contributed by the managing committee. The managing committee had started construct building was therefore within the parameter specified under the provisions of Sections 11 and 13 of the I.T.Act. The property held by the assessee in trust has been rendered in accordance with the provisions of the Act therefore was the only criteria in the mind of the Assessing Officer of not having been routed through the income & expenditure account. We have perused the assessment order when the Assessing Officer has made efforts to determine the income for consideration of exemption u/s.11 but holding the sum of ₹52 lakhs taxable under the provisions of Section 68 he has determined the same when actually he has allowed the application of income of assets amounting to ₹4,51,93,129. This really indicates that the Assessing Officer misinterpreted the provisions of Sections 11 and 13 to isolate the corpus funds to be taxed as income u/s.68 which was appealed before the learned CIT(A) on all the other relevant observations made by the Assessing Officer which stood contradicted by itself was aptly dealt with by the learned CIT(A) deleting the entire addition but to a specific addition of ₹37,000 u/s.68. We find merit in the contention of the learned Counsel for the assessee that the Assessing Officer misdirected himself to hold a view that Vidya Jyoti Trust was not the school which was seeking corpus funds or voluntary contribution in the form of building or general fund when all the property of the Trust has been created for the purpose it was registered u/s.12AA.Therefore, the contention of the learned CIT-DR is on the effort to identify the trust Vidya Jyoti Trust as different from the educational institution it runs for which purpose the learned CIT granted registration. The Assessing Officer by observing hat the excess of expenditure over income rendered by the trust amounting to ₹ 24,88,855 was not to be taxed therefore concluded that the return filed by the assessee was in accordance with the provisions of I.T.Act,1961 as applicable to Trusts and Societies claiming exemption u/s.12A.This resulted in his allowing the claims u/ss.11 and 13 therefore could not be revisited for the purpose of taxation of ₹ 52,00,000 as corpus fund introduced in the impugned year u/s.68 when he acknowledged that ₹ 4,51,93,129 stood applied to the application of income in the assets of the Trust. The learned CIT(A) therefore rightly considered the deletion of ₹ 52,00,000 but ₹ 37,000 therein in the light of the facts as mentioned earlier. The learned Counsel for the assessee has stated that the two donors corrected themselves to submit that it was school to which they applied for the corpus fund therefore negates the learned CIT(A) finding that the amounts be confirmed u/s.68, was declared as fund by the Trust who runs the School.

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK

I.T.A.No. 333/CTK/2012

Cross objection No.31/CTK/2012 (C.O.filed by assessee)

Asst. Commissioner of  Income-tax

Versus

 Vidya Jyoti Trust

Date of pronouncement: 20.07.2012

ORDER

Shri K.K.Gupta, Accountant Member. The appeal by the Revenue raises the following grounds.

“1. Whether the Ld.CIT(A) was justified to hold that the development fees collected from the students was part of the admission fees – when such development fee of ₹ 15,06,000 had not been reflected in the income-expenditure statement.

2. Whether the Ld.First Appellate Authority was justified to hold that the gift of land made by the Mg.trustee worth of ₹ 3,38,400 to the trust itself would not be assessable as unexplained investment — when in absence of any declaration mentioned to the effect that the donor had intended the gift to be part of the corpus fund.

3. In the facts and circumstances of the case, the Ld.CIT(A) was not justified to restrict the disallowance amounting to ₹ 37,000 out of ₹ 52,00,000 made by the AD towards addition of donation to the corpus fund u/s.68 of the I.T.Act. On test check of two donors revealed that their names have been entered in the long donor list, when they had neither the resources to donate nor they had actually made any donations to the trust. Further it is not possible to examine all the donors on oath in the entire long list for total donation of ₹52,00,000 which had not been entered in the income-expenditure account. ”

2. A Cross-objection has been preferred by the assessee-respondent supporting the impugned order of the learned CIT(A) insofar as relief granted by the learned CIT(A) against which the Revenue is in appeal. However, in the Cross objection the assessee has disputed the confirmation of the disallowance of ₹37,000 by raising the following ground: “For that the Ld. CIT(A) Cuttack is not at all justified in making disallowance of ₹37,000 when in fact the affidavits endorsing the payments of the said donation amount were furnished, and thus the said addition deserves to be deleted.”

3. The brief facts as have been brought on record are that the assessee is a charitable trust in the name and style of “Vidya Jyoti Trust” created by a deed of trust duly executed on 28.06.2001 with the objective of ‘imparting quality education at primary and secondary level to the students of Orissa’. The activities of the trust in establishing an educational institution in collaboration with Delhi Public School (in short DPS) had practically commenced from December,2003 and onwards. When the trust started its own educational institution in the name and style of ‘DPS KaIinga’ near Adhalua, besides NH 5 in between the Cuttack Bhubaneswar stretch of the road. The DPS was established to impart quality education to the students of Orissa affiliated to the Central Board of Secondary Education, New Delhi. Immediately after establishment of the school, an application in form No.10A read with rule 1 7A was filed before the Commissioner of Income Tax, Cuttack Charge, Cuttack on 01.11.2004 along with a petition for condonation of delay praying interalia for registration U/s 12A of the LT. Act to be effective from the date of creation of the trust i.e., 28.06.2001. The learned CIT granted registration U/s 12A of the I.T. Act in favour of the assessee vide registration No. Tech./12A/337-08/2010-11, dated 07.05.2010 effective from 28.06.2001. Since the assessee trust fulfilled all the requirements as defined U/s 2(15) of the I.T.Act. The said section defines charitabIe purposes that includes relief to Poor, education, medial relief and the advancement of any other object of general public utility for which the assessee trust is created. Thus, the income of the assessee trust being charitable in nature does not form a part of total income as per Provisions of Sections 11, 12,12A and 13 of the Income-tax Act. The Assessing Officer initiated assessment proceeding for the assessment year 2004-05 by issuing notices u/s 148 of the Income-tax Act, The appellant trust though not eligible to pay income tax, complied all the notices issued by the said authority as a law abiding entity, explaining the stand that upon registration being granted by the learned CIT, it is no more liable to be assessed as on by citing the decision of the Ld. CIT(A), Cuttack for the assessment year 2006-07. In the said compliance, the appellant made it clear that no technicalities should come in its way in recognizing the genuineness of the trust. This educational institution has carried a niche for itself in educational map of eastern India. For this proposition the assessee further relied on the authorities i.e., C.l.T. vrs. Geetanjali Education Society (2008) 174 Taxman 440 (Raj) and Director of Income Tax (Exemption) Vrs. Keshab Social and Charitable Foundation (2005)278 ITR 152 ( DeL). Since the activity of the appellant trust is charitable in nature and more than 85% of the revenue receipts are being applied for the charitable purpose the sections from 25 to 38 have no application to the present trust. Despite this explanation, the Assessing Officer questioned the propriety of the development fee to the tune of ₹15,06,000 and gift of the land for ₹3,38,400 by observing that —

a) Verification of the balance sheet and income expenditure statement revealed that ₹15,06,000 received as development fee does not appear in Expenditure statement on development fee it was submitted by the assessee that the fees were collected at the time of admission of students as per the fees structure. On the other words, it was part of the admission fee and needed no separate treatment. Hence it is added to the income expenditure statement as income.

b) In absence of any mention to the effect that the donor had intended the gift to part of corpus fund, the gift cannot be accepted as such it is therefore, added to the income and expenditure account.

c) The A.O. has further questioned the genuineness of the donation to the corpus fund for a sum of ₹52 lakhs by citing example of two donors Sri Bishnu Prasad Mohanty and Sri Susanta Ku.Pradhan who are alleged to be denied any contribution to the trust fund. As a matter of fact, the so called statement obtained on oath from them have been concluded by the A.O. behind the back of the assessee and those two donors being scared of the income tax officials have denied their involvement in order to be in safe side. Would the A.O. have allowed the examination of the donors in front of the assessee appellant truth could have come to the light.

Depending upon the said hearsay the Assessing Officer concluded that the whole amount of ₹52 Iakhs shown as cash received from various persons as contribution to the corpus fund is treated as cash credit under section 68 of the 1.1. Act. 1961. Since, deemed income under section 68 of the I.T. Act. is neither a voluntary contribution, nor an income from the property held by the trust, it cannot be exempted U/s 11 while computing the income of a trust regd. U/s 12A of the. l.T. Act. It is considered as income chargeable to tax. In other words, the assessee had income chargeable to tax of an amount of ₹52 Iakhs. Accordingly, vide para-4,5, & 6 of the order, the A.O. computed the income and tax component as under -

A. Income from other sources vide 3.3.4. .. ₹ 52,00,000

B. Income in the income-expenditure statement .. ₹ 80,22,031

Add. Development fee being revenue receipt. .. ₹ 15,06,000

Cost of land received on gift And taken into corpus fund Being revenue receipt. .. .. ₹ 3,38,400

Total Income: ₹ 98,66,431

Less:

i) expenditure in the income expenditure statement. .. ₹1,05,10,886

ii) Application of income in assts. .. ₹ 4,51,93,129

Expenditure in excess of income .. ₹4,58,37,584

4. Aggrieved, the assessee appealed before the first appellate authority. The learned CIT(A) on the various grounds raised by the assessee appellant before him as mentioned above held the initiation of proceedings u/s.148 proper in view of the details of the amount shown as the addition in the corpus funds had not been properly filed by the assessee. On the issue of disallowance of whole of the amount of entire corpus fund as cash credit u/s.68, he observed as under:

“The AO examined two of the donors and the result of it was conveyed by him to the assessee. The said two donors were shown by the AO the entries in the books of the assessee. On oath, they denied of making any contribution to the assessee at all. The learned A/R of the appellant during the course of appellate proceeding filed a copy of the affidavit by Shri Bishnu Prasad Mohanty and Shri Susanta Kumar Pradhan. Both the affidavits are dated 01.02.2012. The above two affidavits were not filed by the assessee before the AO. Also the affidavit contains only bare assertions. In K.P.Davis v. ITO (1995) 53 LTD 79, 84, 85, 86, 87 (Coch) = 52 TTJ (Coch) 362, it has been held that an affidavit is certainly entitled to the utmost consideration, but if it contains only bare assertions without even citing the nature of the transaction or purpose for which the impugned amounts are made available with the assessee, and if the assertions are not supported by any material on record, the affidavit would not be worth the paper on which it is written. In view of the above, the AO is directed to restrict the addition made by him u/s 68 of the Act amounting to Rs 37,000 (₹ 18,700 contributed by Shri Bishnu Prasad Mohanty and ₹18,300 contributed by Shri Susanta Kumar Pradhan) in place of ₹52,00,000.”

5. With respect to the remaining, he considered as under: “The trust was registered u/s.12AA on 07.5.2010 with retrospective effect from its inception i.e. 28.6.2001. The Assessing Officer has not brought in record evidence in support of his addition of ₹15,06,000 and ₹3,38,400. In CIT v. Shyama Shyam Dham Samiti Kripalu Kunj (2010) 323 ITR 299 (All), the assessee was a trust registered u/s.12A of the Act. During the relevant period the assessee had received plots of land by way of gift/donation from donors. The AO had added the amount towards value of land and expenses as unexplained investment u/s.69 of the Act. The Hon’ble High Court held that value of land and registration charges were not assessable as unexplained investment. In view of the above judgment, the addition of ₹15,06,000 and ₹3,38,400 made by the AO are deleted. ”

6. The learned CIT-DR initiating her arguments pointed out that the learned CIT(A) has not considered the issues in the manner so as to consider the increase in the corpus fund in accordance with the finding of the Assessing Officer. The cash receipts in the books of account of the assessee remained unexplained. The whole amount of ₹ 52 lakhs shown as cash receipts from these persons has contributed to corpus fund was treated by the Assessing Officer u/s.68 because the donations cannot be said to have been voluntarily contributed for as the income from property held by the trust which cannot be claimed as exempt u/s.11 while computing income of the Trust registered u/s.12A of the Act. Similarly the contribution is received as development fees was not part of the corpus or the fees received from the students therefore was brought to tax by the Assessing Officer development fees being revenue receipts. On the specific receipt of ₹3,38,400 she argued that the Assessing Officer had observed that the gift of land by the Managing Trustee was supported by a gift deed but it did not mention that the value of land at ₹3,38,400 was the value of the land was to be part of the corpus fund. As it was not mentioned in the gift deed it was to be routed as income in the income & expenditure account. She pointed out that the learned CIT(A) on the test check considered the two donors alone as not having explained their identity, creditworthiness and genuineness considered it fit for confirming the same as income in the hands of the assessee goes to the root of the contention of the Assessing Officer that the whole of the corpus fund was on the basis of such donations not received voluntarily as the statements indicate that the donors had not given donation to the assessee but to a school. She supported the order of the Assessing Officer for her part of submissions.

7. The learned Counsel for the assessee submitted that the corpus fund has not to be routed through the income & expenditure account insofar as the endeavor of the Assessing Officer was to tax the corpus fund u/s.68. The Assessing Officer contradicted his own finding when the two donors appeared before him by way of sworn affidavit submitted that the donations were to the corpus funds for the school which the Trust is running on the basis of registration granted to it by the learned CIT. The income & expenditure account therefore rightly did not have the receipts thereof when it was submitted that the corpus fund was on the basis of amounts received by the Managing Trustees who had gifted the land or a donation to the corpus funds being the managing trustees. It was not the case of the Assessing Officer to conduct enquiries for establishing identity, genuiness and creditworthiness as provided u/s.68 but to verify the income rendered from the property which belonged to the Trust. The learned CIT(A) thereafter verified the income & expenditure account to uphold the contention of the assessee that the corpus funds have been received without being routed through income & expenditure account cannot be subject to taxation u/s.68 of the I.T.Act. Once the purpose has been met for which the certificate granting registration u/s.12A has been made the learned CIT(A) verified only the two donors who corrected themselves later to indicate that the donation to the corpus fund was to the school which alone was the income & expenditure account of the school run by them i.e., Vidya Jyoti Trust. However, he confirmed the two loan creditors amounting to ₹37,000 against which the assessee has filed Cross objection as mentioned above. Furthermore, he continued to consider the addition of ₹15,06,000 and ₹3,38,400 for the purpose of holding a view that the contribution to the corpus fund can be received by the assessee in the form of land and other gifts. The development fund has been received from the students for the purpose of utilization held by the assessee as general fund when the addition of ₹15,06,000 has increased the general fund hold by the assessee to ₹24,88,855. This indicates that the capital fund which as per the accounting of the assessee was to be identified by the property created by the Trust was acceptable in accordance with the provisions of the I.T.Act Sections 11 and 13. The gift of land amounting to ₹3,38,400 was from the Managing Trustees which valuation was not to be disturbed insofar as the trust was receiving the land and being a recipient of donation held as corpus fund in appreciation of the Managing Trustees’ gestures. It was nobody’s case that the land should have been received by the assessee to be held as corpus when the Assessing Officer reiterating his earlier observation for the sum of ₹52 lakhs considered the same should have been routed through income & expenditure account.

8. On the appeal by the Revenue therefore he supported the order of the learned CIT(A) for part of his submissions. However, he pointed out that the assessee has preferred to object the confirmation of addition of ₹ 37,000 out of ₹52 lakhs in view of the fact that the learned CIT(A) misdirected himself to hold that school namely Delhi Public School was the educational institution run by the assessee trust namely Vidya Jyoti Trust therefore alone could not be faulted on a finding out amongst so many donors that the remaining two donors who stood corrected later on when they filed affidavits holding that they were not aware of Vidya Jyoti Trust being the trust which Delhi Public School is property of. He prayed that this petty addition may also be directed to be deleted which goes against the very finding of the learned CIT(A) otherwise.

9. We have heard the rival contentions and perused the impugned orders of the authorities below and the material available on record. On consideration of the facts and circumstances of the case, we are inclined to find merit in the contention of the learned Counsel for the assessee supporting the order of the learned CIT(A). Corpus fund is the property of the Trust. The donors contributed the donations therefore could not form part of the income & expenditure account as prescribed by law. The development fees received later on was from students was to be identified by the assessee over and above the corpus funds when the students were made aware that they are contributing the amount apart from development fees, tuition fees, bus fees and other annual charges. The learned Counsel for the assessee before us has submitted that the development fees was received to contribute to the building when the committee seeking such funds made it voluntary was therefore directly held as a liability to identify with the general fund when the major portion was from the students and the remaining was contributed by the managing committee. The managing committee had started construct building was therefore within the parameter specified under the provisions of Sections 11 and 13 of the I.T.Act. The property held by the assessee in trust has been rendered in accordance with the provisions of the Act therefore was the only criteria in the mind of the Assessing Officer of not having been routed through the income & expenditure account. We have perused the assessment order when the Assessing Officer has made efforts to determine the income for consideration of exemption u/s.11 but holding the sum of ₹52 lakhs taxable under the provisions of Section 68 he has determined the same when actually he has allowed the application of income of assets amounting to ₹4,51,93,129. This really indicates that the Assessing Officer misinterpreted the provisions of Sections 11 and 13 to isolate the corpus funds to be taxed as income u/s.68 which was appealed before the learned CIT(A) on all the other relevant observations made by the Assessing Officer which stood contradicted by itself was aptly dealt with by the learned CIT(A) deleting the entire addition but to a specific addition of ₹37,000 u/s.68. We find merit in the contention of the learned Counsel for the assessee that the Assessing Officer misdirected himself to hold a view that Vidya Jyoti Trust was not the school which was seeking corpus funds or voluntary contribution in the form of building or general fund when all the property of the Trust has been created for the purpose it was registered u/s.12AA.Therefore, the contention of the learned CIT-DR is on the effort to identify the trust Vidya Jyoti Trust as different from the educational institution it runs for which purpose the learned CIT granted registration. The Assessing Officer by observing hat the excess of expenditure over income rendered by the trust amounting to ₹ 24,88,855 was not to be taxed therefore concluded that the return filed by the assessee was in accordance with the provisions of I.T.Act,1961 as applicable to Trusts and Societies claiming exemption u/s.12A.This resulted in his allowing the claims u/ss.11 and 13 therefore could not be revisited for the purpose of taxation of ₹ 52,00,000 as corpus fund introduced in the impugned year u/s.68 when he acknowledged that ₹ 4,51,93,129 stood applied to the application of income in the assets of the Trust. The learned CIT(A) therefore rightly considered the deletion of ₹ 52,00,000 but ₹ 37,000 therein in the light of the facts as mentioned earlier. The learned Counsel for the assessee has stated that the two donors corrected themselves to submit that it was school to which they applied for the corpus fund therefore negates the learned CIT(A) finding that the amounts be confirmed u/s.68, was declared as fund by the Trust who runs the School.

9.1. In view of the above, the Cross objection by the assessee-Respondent is bound to be allowed and as it also supports the order of the learned CIT(A) on the issues appealed by the Revenue we find no infirmity in the findings of the learned CIT(A) which we uphold. The appeal of the Revenue is dismissed.

10. In the result, the appeal of the Revenue is dismissed and the Cross objection filed by the assessee is allowed.


One Response to “Donation to corpus fund not asssassable u/s. 68”

  1. M.P.Raju says:

    The higher authorities of IT has taken the issue very seriously and gave a good judgement.In the process the lower authorities of IT should not take it otherwise.
    If a company could not spend the two percent of net profit under CSR in any particular year for various reasons can the amount be deposited in the foundation account exclusively formed for this purpose ? In such case how the IT dept will take that amount? Can the company show this amount both in income and expenditure?The foundation is of six years old and doing good CSR activities.
    Pl reply if possible

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