Case Law Details
ACIT Vs Financial Inclusion Trust (ITAT Delhi)
Introduction: The Income Tax Appellate Tribunal (ITAT) Delhi recently rendered a significant decision in the case of ACIT vs Financial Inclusion Trust. The dispute revolves around the treatment of Rs. 44.25 crores received by the trust and the applicability of taxation on corpus-specific voluntary contributions.
Detailed Analysis: The crux of the matter lies in the trust’s non-registration under section 12A of the Income-tax Act, rendering it supposedly ineligible for exemption under section 11(1)(d). The Assessing Officer treated the received corpus donation as income, leading to the appeal. The ITAT, however, disagreed, emphasizing the nature of the grant and its capital receipt status.
The ITAT referred to previous judgments and highlighted the distinction between registered and unregistered trusts. Citing cases such as M/s. Pentafour Software Employees Welfare Foundation and Smt Basantidevi and Shri Chakan Lala Garg Education Trust, it affirmed that corpus donations, being capital receipts, are not subject to income tax.
In alignment with judicial precedents, the ITAT emphasized that the corpus nature of the received funds, coupled with their specified utilization, exempted them from taxation. The ITAT dismissed the Revenue’s appeal, affirming the capital receipt status of the corpus-specific voluntary contributions.
Conclusion: The ITAT’s ruling in ACIT vs Financial Inclusion Trust establishes a clear precedent regarding the taxation of corpus donations for unregistered trusts. The decision underscores the capital nature of such contributions and their exemption from income tax. This case serves as guidance for similar disputes and reinforces the principles outlined in earlier judicial decisions.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the Revenue is preferred against the order of the ld. CIT(A) – 40, Delhi dated 28.11.2019 pertaining to A.Y. 2009-10.
2.The solitary grievance of the Revenue is that the ld. CIT(A) erred in treating Rs. 44.25 crores as capital receipt instead of corpus donation since, during the year under consideration, as the assessee was not registered u/s 12A of the Income-tax Act, 1961 [the Act, for short] and, therefore, not eligible for exemption u/s 11(1)(d) of the Act.
3. Briefly stated, the facts of the case are that the assessee filed its return of income on 01.10.2009, which return was selected for scrutiny assessment and assessment was framed u/s 143(3) of the Act vide order dated 19.12.2011. Assuming jurisdiction conferred upon him by provisions of section 263 of the Act, the PCIT held that the assessment order is not only erroneous but also prejudicial to the interest of the Revenue and accordingly, set aside the assessment.
4. Pursuant to the directions of the PCIT, assessment proceedings were once again initiated and, accordingly, statutory notices were issued and served upon the assessee. While scrutinizing the return of income, the Assessing Officer noticed that the DIT, Exemption has rejected the application filed by the assessee for grant of registration u/s 12AA of the Act and exemption u/s 80G of the Act.
5. The Assessing Officer further found that the assessee has received corpus donation grant of Rs. 44.25 crores from another trust, namely, Bandhan-Konnagar, which is registered u/s 12A of the Act. The Assessing Officer was of the opinion that since the assessee trust was not registered u/s 12A of the Act, therefore, it is not eligible for exemption u/s 11(1 )(d) of the Act in respect of corpus donation received by it and, accordingly, treated Rs. 44.25 crores as income of the assessee.
6. The assessee carried the matter before the ld. CIT(A) and reiterated its claim.
7. After considering the facts and submissions and drawing support from various judicial decisions, the ld. CIT(A) observed that the impugned receipt is a capital receipt which is to be kept on permanent basis and only accretions are to be used. The utilization of the grant is governed by the directions of the donor and since grant was not in the form of a corpus donation but was a specified grant given for utilization as per the directions of the donor, hence was a capital receipt and, accordingly, directed the Assessing Officer to delete the impugned addition.
8. Before us, ld. DR strongly supported the findings of the Assessing The ld. DR drew our attention to the decision of this Tribunal by which the co-ordinate bench has upheld the order of the CIT u/s 263 of the Act and read the operative part pointing out specific observations of the Tribunal in support of the order of the Assessing Officer.
9. Per contra, the ld. counsel for the assessee reiterated what has been stated before the lower authorities.
10. We have given thoughtful consideration to the orders of the authorities below. It would be pertinent to refer to the letter of Bandhan-Konnagar dated 30.03.2009 which reads as under:
11. Corpus grant was to be utilized as per will /wish of the donor trust, which can be seen from the following letter:
12. The only quarrel is in respect of non-registration of the assessee u/s 12A of the Act. Similar situation arose before the co-ordinate bench at Vizakapatnam in the case of Hosanna Ministries in ITA No. 558/ VIZ/201 8, 286/VIZ/2019. The relevant findings read as under:
“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, Chennai in Indian Society of Anesthesiologists V. 8 ITA Nos. 558 /VIZ/2018 ITA No.286/VIZ/2019 (M/s. Hosanna Ministries) 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 9 ITA Nos. 558 /VIZ/2018 ITA No.286/VIZ/2019 (M/s. Hosanna Ministries) 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.”
13. Similar view was taken by the Tribunal Pune Bench in the case of Serum Institute of India Research Foundation ITA No. 621 /PUN/2016.
14. On finding parity of facts, respectfully following the decision of the co-ordinate bench [supra], we decline to interfere with the findings of the ld. CIT(A).
15. In the result the appeal of the Revenue in ITA No. 2001/DEL/2020 is dismissed.
The order is pronounced in the open court on 03.11.2023.
