Case Law Details

Case Name : ITO Vs M/s. Vokkaligara Sangha (ITAT Bangalore)
Appeal Number : I.T.A. Nos. 281 to 285/Bang/2014
Date of Judgement/Order : 14/08/2015
Related Assessment Year : 2005-06 to 2009-10
Courts : All ITAT (1731) ITAT Bangalore (63)

Brief about the case

The assessee is a society registered under the Karnataka Societies Registration Act, 1960 for carrying on activities for charitable purposes and was granted registration under Section 12A of the Income Tax Act, 1961 w.e.f. Assessment Year 2012-13 onwards. The Assessing Officer observed that as per the returns of income for Assessment Years 2005-06 to 2009-10, the income from voluntary donations were claimed to be exempt from taxation by claiming application towards charitable purposes, even though the income of the assessee was not eligible for exemption as it did not have the benefit of registration under Section 12A of the Act for these assessment years. Consequently, the Assessing Officer initiated proceedings under Section 147 of the Act to bring to tax income of the assessee that had escaped assessment for Assessment Years 2005-06 to 2009-10 and issued notices under Section 148 of the Act, treating the voluntary donations as taxable income.

The assessee contended that the voluntary contributions received for specific purposes is a capital receipt, hence not taxable.The CIT(Appeals) decided in favour of the assessee. The revenue knocked the door of ITAT.

The ITAT considered numerous case laws and verified whether the donations were genuinely voluntary and tied up.

Finally, The Bangalore ITAT stated that, in the interest of justice it is necessary to direct the Assessing Officer to examine and verify the donation receipts maintained by the assessee, to come to the conclusion as to whether the amounts credited as building fund corpus in the accounts are supported by donation receipts issued. Subject to the examination and verification of the donation receipts as directed above, the amounts credited cannot be regarded as income as the same has been credited to the corpus fund/building fund and the order of the learned CIT (Appeals) is upheld.

Facts of the case:

  • The assessee is a society registered under the Karnataka Societies Registration Act, 1960 for carrying on activities for charitable purposes.
  • The assessee was granted registration under Section 12A of the Income Tax Act, 1961 w.e.f. Assessment Year 2012-13 onwards.
  • In the course of proceedings for registration under Section 12A of the Act, the Assessing Officer noticed that the assessee society had received certain voluntary contributions in the period relevant to Assessment Years 2005-06 to 2009-10 for the purpose of construction of a ‘Kalyana Mantapa’; which were credited to the Building Fund in the Balance Sheet, treating these amounts as capital receipts and not as income by crediting the profit and loss account.
  • The Assessing Officer observed that as per the returns of income for Assessment Years 2005-06 to 2009-10, the income from voluntary donations were claimed to be exempt from taxation by claiming application towards charitable purposes, even though the income of the assessee was not eligible for exemption as it did not have the benefit of registration under Section 12A of the Act for these assessment years.
  • In that view of the matter, the Assessing Officer initiated proceedings under Section 147 of the Act to bring to tax income of the assessee that had escaped assessment for Assessment Years 2005-06 to 2009-10 and issued notices under Section 148 of the Act.
  • Subsequently, the Assessing Officer completed the assessments for Assessment Years 2005-06 to 2009-10 under Section 143(3) rws 147 of the Act by separate orders dt.28.9.2012, wherein the Assessing Officer rejected the assessee’s contentions that the voluntary contributions received was not income and held the same as liable to be treated as income and brought the same to tax accordingly.
  • Aggrieved by the orders of assessment for Assessment Years 2005-06 to 2009-10, all dt.28.9.2012, the assessee preferred appeals before the CIT (Appeals), Mysore
  • The learned CIT (Appeals) disposed off these appeals by way of a common order dt.20.8.2013 and allowed the assessee’s appeals by following the decision of a co-ordinate bench of the ITAT, Bangalore in the case of St.Anns Home for the Aged V ITO 10 TTJ 144 relied on by the assessee.
  • The issue that was considered by the learned CIT (Appeals) in these appeals was whether the voluntary contributions received for the specific purpose of construction of ‘Kalyana Mantap’ is falling within the definition of income under Section 2(24)(iia) of the Act.
  • Aggrieved by the common order of the CIT (Appeals), Mysore dt.20.8.2013 for Assessment Years 2005-06 to 2009-10, revenue appealed before the Bangalore ITAT.
  • The Bangalore ITAT considered a few cases, one of them being 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 that the voluntary contributions received by the assessees towards the corpus could not be brought to tax, even if the trust is not registered. Alternatively, if the donations are not voluntarily made, then whether such donations could be considered as income chargeable to tax.
  • Since, there was no material on record to suggest that such donations are given against the will of the donors or by any compulsion or under any obligation, it can be said that the donations are voluntary.
  • The Bangalore ITAT was of the opinion that, in the interest of justice it is necessary to direct the Assessing Officer to examine and verify the donation receipts maintained by the assessee, to come to the conclusion as to whether the amounts credited as building fund corpus in the accounts are supported by donation receipts issued. Subject to the examination and verification of the donation receipts as directed above, the amounts credited cannot be regarded as income as the same has been credited to the corpus fund/building fund and the order of the learned CIT (Appeals) is upheld.

Contention of the Revenue

  • The learned Departmental Representative submitted that the assessee society has secured registration only w.e.f. Assessment Year 2012-13 and therefore the voluntary contributions received by the assessee in the period relevant to Assessment Years 2005-06 to 2009-10 are liable to be considered as income under Section 2(24)(iia) of the Act.
  • The learned Departmental Representative contends that there is no difference between voluntary donations received for specific purpose and voluntary donations that are general in nature and that since section 2(24)(iia) of the Act speaks only of voluntary contributions therefore all voluntary contributions are includable as income irrespective of whether they are for a specific purpose or otherwise.

 Contention of the Assessee

  • The ld. A.R. submitted that voluntary contributions received for a specific purpose cannot be regarded as income, as they do not fall within the ambit of the provisions of Section 2(24)(iia) of the Act.
  • The ld. A.R. contended that the voluntary contribution received for specific purposes is a capital receipt, hence not taxable.

Held by ITAT (Bangalore)

  • It was held by ITAT 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.
  • The Bangalore ITAT considered a handful of identical cases whereby it relied on the Hyderabad Bench decision of the ITAT, Delhi Bench in the case of Smt. Basanthi Devi (supra) and Sri Chakhan Lal Garg Education Trust (supra) and in the case of Gaudiya Granth Anved Trust (supra) wherein similar issue raised has been considered by both the Delhi and Agra Benches of the ITAT. It also found 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.

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