Case Law Details
ITO (Exemptions) Vs Hosanna Ministries (ITAT Visakhapatnam)
In a significant ruling for charitable and religious institutions, the Income Tax Appellate Tribunal (ITAT) Visakhapatnam bench has dismissed appeals filed by the Income Tax Department, affirming that contributions received towards the corpus of a society are capital receipts and not taxable income, even if the society is not registered under Section 12A or 12AA of the Income Tax Act, 1961 during the relevant period.
The consolidated order, covering Assessment Years 2014-15 and 2016-17, pertains to the appeals filed by the Income Tax Officer (Exemptions) against Hosanna Ministries, a society registered under the Societies Registration Act. The core dispute revolved around substantial amounts received by the society, shown in its balance sheet as ‘corpus fund’. For Assessment Year 2014-15, the amount in question was INR 3,33,11,930.
During the assessment proceedings for AY 2014-15, the Assessing Officer (AO) observed that the society had received significant voluntary contributions but lacked registration under Section 12A for that year. The AO took the stance that such contributions constituted ‘income’ as defined under Section 2(24)(iia) of the Act. The Department’s position typically holds that the exemption for corpus donations under Section 11(1)(d) is available only to trusts or institutions registered under Sections 12A or 12AA. Consequently, the AO sought to tax the entire amount received as income.
Hosanna Ministries countered the AO’s view, arguing that the donations received were specifically for the corpus of the society and were, therefore, in the nature of capital receipts. As capital receipts, they contended, these amounts fell outside the purview of taxable income under Section 2(24)(iia), irrespective of the society’s registration status under Section 12AA. The society relied on earlier decisions from other benches of the ITAT, including those from Agra and Bangalore, which had supported the view that corpus donations, being capital in nature, are not chargeable to income tax even without 12AA registration.
The Assessing Officer, however, did not accept the society’s explanation and proceeded to add the entire amount of corpus donations to the society’s total income for AY 2014-15. In the assessment order, the AO briefly stated that the case-laws relied upon by the assessee were distinguishable and did not apply to the facts of the case.
Aggrieved by the assessment order, Hosanna Ministries appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) examined the matter and, after considering the submissions and relevant legal precedents, sided with the assessee society. The CIT(A) passed an order deleting the addition made by the AO. The CIT(A)’s decision was grounded in the principle, established through various judicial pronouncements, that voluntary contributions received specifically for the corpus of a trust or institution are capital receipts and thus fall outside the scope of Section 2(24)(iia), meaning they cannot be brought to tax even if the entity is not registered under Section 12AA.
The CIT(A) specifically relied on several key judicial precedents to support this conclusion. These included the decision of the Hon’ble Bombay High Court in the case of R.B. Shriram Religious and Charitable Trust Vs. CIT, which had held that voluntary contributions specifically directed towards the corpus are capital in nature. This principle was also followed by the Bombay High Court in the case of Trustees of Kasturbai Scindia Commission Trust. The CIT(A) also cited ITAT decisions from Chennai in the case of Indian Society of Anaesthesiologists Vs. ITO and Bangalore in the case of ITO Vs. Vokkaligara Sangha, both of which had held that specific funds or contributions received for specific purposes constitute capital or corpus funds and are not taxable income under Section 2(24)(iia). Furthermore, reliance was placed on an ITAT Pune Bench decision in the case of ITO (Exemptions), Ward-2, Pune Vs. Serum Institute of India Research Foundation, which explicitly held that corpus-specific voluntary contributions are outside the scope of income under Section 2(24)(iia) and cannot be taxed even for trusts not registered under Section 12A/12AA. The CIT(A) also made reference to a Delhi High Court case involving Smt Basantidevi and Shri Chakan Lala Garg Education Trust, which had similarly held corpus donations to be capital receipts.
The CIT(A)’s order included a detailed explanation of the concept of ‘corpus donation’, defining it as a capital sum intended to form a permanent fund, often given with specific directions from the donor on its use. The CIT(A) clarified that while Section 2(24)(iia) includes voluntary contributions as income, Section 12 (read with Section 11(1)(d)) specifically excludes contributions made with a direction that they shall form part of the corpus from being considered as income for registered trusts. The CIT(A) reasoned that Section 2(24)(iia) must be read in the context of Section 12, which makes it clear that corpus contributions are not income for trusts, and judicial pronouncements have consistently held this character even for unregistered entities.
The Income Tax Department, however, was dissatisfied with the CIT(A)’s decision and filed appeals before the ITAT Visakhapatnam for both Assessment Years 2014-15 and 2016-17 (the issue for AY 2016-17 being similar). Before the ITAT, the Department’s representative defended the AO’s order, while the assessee’s representative strongly supported the CIT(A)’s findings, relying on the same set of judicial precedents.
The ITAT Visakhapatnam bench heard both sides and reviewed the material on record, including the orders of the lower authorities and the cited judicial pronouncements. The Tribunal commented on the approach of the Assessing Officer, noting that when the assessee had submitted that the donations were voluntary and for a specific purpose (corpus), the AO should have conducted a proper examination into the details, donors, and purpose of the donations instead of simply rejecting the explanation. The ITAT found that the AO had failed in this duty.
More significantly, the ITAT agreed with the detailed reasoning and conclusion of the CIT(A). The Tribunal held that the CIT(A) had correctly applied the principles laid down by the Hon’ble Bombay High Court and various benches of the ITAT. By adopting the CIT(A)’s finding, which incorporated reliance on established judicial precedents, the ITAT concluded that voluntary contributions received for a specific purpose, intended to form part of the corpus, cannot be regarded as income under Section 2(24)(iia) of the Act. Such receipts maintain their character as capital receipts, irrespective of whether the recipient society is registered under Section 12AA.
Respectfully following the ratios of the judicial pronouncements cited and elaborated upon in the CIT(A)’s order, which the ITAT found to be correct, the Tribunal found no reason to interfere with the CIT(A)’s decision to delete the tax additions.
In its order pronounced on March 11, 2020, the ITAT Visakhapatnam dismissed both appeals filed by the Revenue for Assessment Years 2014-15 and 2016-17, thereby upholding the CIT(A)’s ruling that the corpus donations received by Hosanna Ministries were not taxable income.
FULL TEXT OF THE ORDER OF ITAT VISAKHAPATNAM
These appeals by the Revenue are directed against the separate orders of Commissioner of Income Tax (Appeals)-2, Guntur, dated 17/08/2018 & 26/02/2019 for the Assessment Year 2014-15 & 2016-17 respectively. Since facts and issues are common, clubbed and heard together and disposed of by way of this consolidated order.
ITA No.558/VIZ/2018
2. Facts of the case in brief are that assessee is a registered society registered under the Societies Registration Act, filed its return of income by declaring income of Rs. 25,960/-. The assessee-society has received corpus donations of Rs.3,33,11,930/- and shown in the balance sheet under the head ‘corpus fund’. During the course of assessment proceedings, the Assessing Officer has observed that the assessee has received donations/voluntary contributions to the extent of Rs.3,33,11,930/-. During the A.Y. 2014-15, the assessee has not filed the 12A registration certificate and therefore the provisions of section (11)(1)(d) donations received are exempt from tax only if the assessee-society is registered u/sec. 12A of the Act. He called the assessee by letter dated 25/11/2016 to explain as to why this amount cannot be taxed as per section 2(24)(iia) of the Act. The assessee has submitted before the Assessing Officer that the donations/voluntary contributions not chargeable to tax and he relied on the decision of the ITAT, Agra Bench in the case of ITO Vs. Gaudiya Granth Anuved Trust [ITA No. 386/Agra/2012 (A.Y. 2007-09)] and submitted that corpus donations being in the nature of capital receipt are not chargeable to income-tax even where trust is not registered u/sec. 12AA. He also relied on the decision of ITAT, Bangalore Bench in the case of ITO Vs. M/s.Vokkaligra Sangha, Belur, dated 14/08/2015 wherein it was held that voluntary contributions received for a specific purpose cannot be regarded as income u/sec. 2(24)(iia) of the Act since they are capital receipts and tied up grants for specific purpose. The Assessing Officer considered the submissions, but not accepted the same and observed that case-laws relied on by the assessee are different. Accordingly, the amount received by the assessee is added to the total income of the assessee.
3. On appeal, ld. CIT(A) by following the decision of the Hon’ble Bomay High Court in the case of R.B. Shriram Religious and Charitable Trust Vs. CIT [(1988) 172 ITR 373]; ITAT, Chennai Bench in the case of Indian Society of Anaesthesiologists Vs. ITO [(2014) 47 taxmann.com 183 (Chennai – Trib.)]; ITAT, Bangalore Bench in the case of ITO Vs. Vokkaligara Sangha [(2015) 44 CCH 509 (Bang. Trib.)] has held that assessee has received corpus donations are outside the scope of section 2(24)(iia), the same cannot be brought to tax even the trust is not registered u/sec. 12AA of the Act and allowed the appeal of the assessee.
4. Being aggrieved, the Revenue is in appeal before this Tribunal.
5. DR relied on the order of the Assessing Officer, whereas ld.AR strongly supported the order of the ld. CIT(A).
6. We have heard both the sides, perused the material available on record and orders of the authorities below.
7. The assessee is a society registered under the Societies Registration Act. The year under consideration the assessee has received donations to the extent of Rs. 3,33,11,930/-. During the scrutiny assessment proceedings, the Assessing Officer has noticed that assessee has received contributions but not submitted 12A certificate therefore the amounts received by the assessee as income as per section 2(24)(iia) of the Act and not exempt u/sec. 11(1)(d) of the Act. The assessee was asked to explain why this amount cannot be added to the income of the assessee. The assessee before the Assessing Officer has submitted that these are the corpus donations received for specific purpose and donations are voluntarily given to the assessee, therefore this is not an income u/sec. 2(24)(iia) of the Act. By relying on the decisions in the case of R.B. Shriram Religious and Charitable Trust (supra), Indian Society of Anesthesiologists (supra) and Vokkaligara Sangha (supra), the Assessing Officer not accepted the explanation and added to the total income of the assessee on the ground that the judgments have no application. We find from the assessment order that when the assessee has submitted that the donations received are voluntarily for a specific purpose, then the Assessing Officer ought to have called the assessee for submission of details of donations received, but the Assessing Officer without examining the nature of the donations, simply rejected the explanation of the assessee and added to the total income of the assessee, in our opinion, the Assessing Officer is not correct in adding the income. That apart once the assessee has submitted that the donations received voluntarily for specific purpose, it is the duty of the Assessing Officer to examine who is the person donated and what purpose he has donated all the details has to be examined and thereafter has to decide the donations are in the nature of corpus donations or income of the assessee, without doing simply rejected the explanation. However, on appeal ld. CIT(A) by considering the explanation of the assessee and by following the decision of the Hon’ble Bombay High Court in the case of R.B. Shriram Religious and Charitable Trust (supra) and also the decision of the ITAT, Chennai Bench in the case of Indian Society of Anaesthesiologists (supra) and also the decision of the ITAT, Bangalore Bench in the case of Vokkaligara Sangha (supra) gave a finding that the voluntary contributions received by the assessee for a specific purpose cannot be regarded as income u/sec. 2(24)(iia) of the Act. For the sake of convenience, the relevant portion of the order is extracted as under:-
“6. I have considered the submission of the appellant and giver a careful thought. Corpus donation comprises two words viz, corpus and donation. Corpus is a Latin Expression, which means a body or structure. It also means a direction to constitute a body or substance. In common parlance this term is understood as capital sum. This also includes endowment. The expression endowment means bequest, gift. It is an act of endowing which is a capital sum provided and provides for a permanent income. Endowment also means property or money bestowed as permanent fund. In terms of charity, the corpus symbolizes funds to retain its character as a Principal amount. It also denotes the funds earmarked for a specific purpose. The intention of the corpus is that, the funds should not be depleted and it retains its original character of the fund i.e., principal. Further, the expression corpus is often used from the point of the Donor symbolizing his directions to use the money in a manner as per his wishes. This in other words means that donor gives direction to the Donee for what purpose and how it is to be used.
6.2. The Direct Tax Laws (Amendment) Act 1989 w.e.f. 1.4.89 had revamped corpus donation. The amendment carried out is that, the word voluntary contribution has been brought under section 2(24)(iià) 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.
6.3. 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 provided, it’s tax liability is required to be decided with reference to the scheme of the I.T. Act as held in the case of M/s. Pentafour Software Employees Welfare Foundation and further in the case of Smt Basantidevi and Shri Chakan Lala Garg Education Trust, by Delhi High Court in ITA No.5082/2010. In both the cases, it has been held that corpus donation being in the nature of capital receipt are not chargeable to income tax. So far as section 2(24)(iiá) is concerned, this section has to be read in the context of the introduction of the present section 12. It is significant that section 2(24)(iia) was inserted w.e.f. 01-04-1973 simultaneously with the present section 12. Section 12 makes it clear by the words appearing in parenthesis that contributions made with a specific direction that they should form a part of the corpus of the trust or institution shall not be considered as income of the trust. In the case of RB. Shriram Religious and charitable Trust v. CIT[19881 172 ITR 373/39 Taxman 28 (Born.) Hon’ble Bombay High Court held that even ignoring the amendments to section 12, which means that even before the words appearing to parenthesis in the present section 12, it cannot be held that voluntary contributions specifically received towards the corpus of the trust may be brought to tax. The aforesaid decision was followed by the Hon’ble Bombay High Court in the case of Trustees of Kasturbai Scindia Commission Trust 189 ITR 5. In the present case, the A.O. on evidence has accepted the fact that the impugned donation has been received towards the corpus of the endowment.
6.4. The ITAT, Chennal in Indian Society of Anaesthesiologists V. ITO in decision reported in (2014) 47 taxmann.com 183 (Chennai-Trib.) held that specific funds created for fulfilling specific objectives for which these separate funds are constituted remain as capital funds as the funds can be used for fulfilling specific objectives for which these funds are constituted and hence to be treated as corpus funds and to be excluded from computation of Income.
6.5. The ITAT, Bangalore in ITO v. Vokkaligara Sangha in a decision reported in (2015) 44 CCH 0509 (Bang. Trib.) whereby the Tribunal held that voluntary contributions received for a specific purposes cannot be regarded as income u/s 2(24)(iia) of the Act since they were capital receipts being corpus fund and tied up grants for specific purposes.
6.6. In the instant case, the A.O., in his Assessment Order, has not doubted/disputed the nature of funds received-/purpose of funds utilized by the appellant society as to whether they are of Corpus and Capital Receipts or not or as to whether they have been utilized for the specified purposes. In fact, he had only treated such donations/voluntary contributions received by the appellant society as liable to tax during the period prior to the Registration of the appellant society u/s.12AA of the Income-tax Act, 1961. The appellant got registered its Society u/s.12AA of the Income-tax Act, 1961 before the concerned authority of the Income Tax Department and the Order granting Registration u/s.12AA of the I.T. Act, 1961 was passed by the Commissioner of Income Tax (Exemptions), Hyderabad on 25/09/2017 and copy of the same is filed by the appellant during the course of appellate proceedings.
6.7 Reliance is placed on the decision of Hon’ble ITAT Pune Bench ‘B’ in the case of ITO (Exemptions), Ward-2, Pune Vs. Serum Institute of India Research Foundation wherein it is held that corpus specific voluntary contribution being in nature of capital receipt, are outside scope o income under section 2(24)(iia) and, thus same cannot be brought to tax even in case of trust not registered u/s. 12A / 12AA of the I.T. Act.
6.8 In view of the above and as the appellant got registered u/s.12AA of the Act and as the donations/voluntary contributions received of Rs.3,33,11,930/- by the appellant society are of Corpus and Capital nature, same are to be treated as exempt from tax liability, as the principles relating to judicial discipline assume significance and the priority. Accordingly, following the ratios of the judicial pronouncements mentioned supra, it is treated that the donations/voluntary contributions received by the appellant society are outside the taxations, even for the period prior to its registration u/sec. 12AA. Hence, the Assessing Officer is directed to delete the disallowance/addition made of Rs.3,33,11,930/- in this regard.”
8. In view of the above, we find no reason to interfere with the order passed by the ld. CIT(A). Thus, this appeal filed by the Revenue is dismissed.
ITA No.286/VIZ/2019
9. The facts involved in this appeal are similar to the facts involved in ITA No. 558/VIZ/2018. Therefore, our decision in ITA No. 558/VIZ/2018 shall apply mutatis mutandis to this appeal also.
10. In the result, both the appeals filed by the Revenue are dismissed.
Order Pronounced in open Court on this 11th day of March, 2020.
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