Case Law Details
ITO (Exemptions) Vs Basanti Devi (ITAT Delhi)
In a ruling from the Income Tax Appellate Tribunal (ITAT) Delhi bench, a dispute between the Income Tax Department and the Basanti Devi trust regarding the taxability of funds received by the trust in Assessment Year 2002-03 has been settled in favor of the assessee. The case, bearing the reference ITO (Exemptions) Vs Basanti Devi, centered on whether a sum of INR 1,06,55,343 received by the trust as an ‘infrastructure fund’ could be taxed as income, particularly given that the trust lacked registration under Sections 12A or 12AA of the Income Tax Act, 1961 for that specific year.
The Income Tax Officer (Exemptions) had made an addition of this amount to the trust’s taxable income, arguing that voluntary contributions, irrespective of whether they are designated as corpus or general donations, fall within the definition of ‘income’ as per Section 2(24)(iia) of the Act. The Department contended that the exemption available for corpus donations under Section 11(1)(d) is conditional upon the trust being duly registered under Section 12A or 12AA. Since the Basanti Devi trust was not registered under these sections for AY 2002-03, the Department asserted that the receipt was taxable.
The matter first went before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) reviewed the case and, in a decision that went against the Department’s stance, deleted the tax addition. The CIT(A)’s reasoning was significantly influenced by a previous ruling of the ITAT itself concerning the very same assessee trust, but for a subsequent assessment year, 2003-04. In that earlier decision, the ITAT had held that an amount received by the trust from its settler towards an infrastructure fund was not taxable in the hands of the trust, even though the trust was not registered under Section 12A in that particular year either.
Aggrieved by the CIT(A)’s decision for AY 2002-03, the Income Tax Department lodged an appeal with the ITAT Delhi. The Department’s grounds of appeal reiterated their position on the taxability of voluntary contributions under Section 2(24)(iia) and the necessity of 12A/12AA registration for corpus donation exemption under Section 11(1)(d). A key point of contention for the Department was the CIT(A)’s reliance on the ITAT’s decision for AY 2003-04, which the Department highlighted was under challenge before the Hon’ble Supreme Court. The Department also faulted the CIT(A) for allegedly holding that the receipt of money in the status of an Association of Persons (AOP) should be viewed under normal provisions of the Act, without appreciating the relevance of Section 164, which deals with the taxation of trusts.
Adding another layer to the proceedings, the assessee trust had filed cross-objections to the Department’s appeal. These cross-objections primarily challenged the very initiation of the reassessment proceedings for AY 2002-03 under Section 147/148 of the Income Tax Act, arguing that the reopening was bad in law and not based on any failure by the assessee to disclose material facts during the original assessment. However, during the hearing before the ITAT, the learned counsel representing the assessee trust indicated the intention to withdraw these cross-objections. The Department’s representative raised no objection to this, and consequently, the assessee’s cross-objections were formally dismissed as withdrawn by the Tribunal.
The focus of the ITAT’s deliberation then narrowed down to the Department’s appeal concerning the taxability of the INR 1,06,55,343 received by the trust. The learned counsel for the assessee brought a crucial judicial precedent to the attention of the Tribunal. It was submitted that the aforementioned ITAT order for Assessment Year 2003-04, which had formed the basis of the CIT(A)’s decision in the current year, had not only been passed by the Tribunal but had also been subsequently challenged by the Department before the Hon’ble Delhi High Court and upheld by the High Court. A copy of the Delhi High Court’s order, dated September 23, 2009, in ITA No. 927/09, was presented to the Tribunal.
The ITAT’s order for AY 2002-03 explicitly refers to and reproduces the relevant observation from the Delhi High Court’s order. The High Court, in dismissing the Department’s appeal for AY 2003-04, had categorically stated: “The respondent/assessee is admittedly a Charitable Organization which is a trust registered under the Indian Trust Act which has also been granted registration under the Income Tax Act w.e.f. 1.4.2003. The assessee received certain donations towards its corpus which had been deposited in the bank and the money was admittedly spent for acquiring land for construction of a college. In these circumstances, we are of the opinion that the CIT(A) as well as ITAT rightly concluded that the donations received towards corpus of the trust would be capital receipt and not revenue receipt chargeable to tax. No question of law arises. Dismissed.”
This clear pronouncement from the Delhi High Court, classifying donations received towards the corpus of the trust as ‘capital receipts’ rather than ‘revenue receipts chargeable to tax’, became the decisive factor before the ITAT for the Assessment Year 2002-03.
While the Department’s representative informed the ITAT that the Delhi High Court’s order for AY 2003-04 was under further challenge before the Hon’ble Supreme Court through a Special Leave Petition (SLP), the Tribunal noted that this fact alone was not a sufficient premise to overturn the CIT(A)’s decision. The ITAT emphasized that the High Court’s order had not been shown to have been stayed by the Supreme Court. In the absence of a stay, the ITAT was bound to respectfully follow the decision of the jurisdictional High Court on the matter.
Therefore, the ITAT, guided by the binding precedent set by the Delhi High Court in the assessee’s own case for the immediately succeeding assessment year on a factually similar issue (receipt of funds towards infrastructure/corpus), rejected the grievance raised by the Income Tax Department. The Tribunal concluded that no adjustment on account of the receipt of INR 1,06,55,343 was warranted.
In its final order, pronounced on January 19, 2011, the ITAT dismissed the appeal filed by the Department. Concurrently, the cross-objections filed by the assessee were dismissed as withdrawn, formalizing the assessee’s decision not to pursue the challenge against the reassessment proceedings themselves. The ruling underscores the principle that contributions received towards the corpus of a charitable trust are to be treated as capital receipts, a position affirmed by the Delhi High Court, which the ITAT was obligated to follow.
FULL TEXT OF THE ORDER OF ITAT DELHI
This is Department’s appeal and the assessee’s cross objections for assessment year 2002-03. The Department has taken the following grounds in its appeal:-
“1. On the facts and in the circumstances of the case, the ld. CIT(A) has failed to appreciate that voluntary contributions (whether corpus donations or general donations) received by a Charitable Trust is income as defined vide section 2(24)(iia) of the Act and corpus donations are exempt from tax u/s 11(1)(d) only if assessee is registered u/s 12A/12AA of the Act.
2. On the facts and in the circumstances of the case, ld. CIT(A) erroneously placed reliance upon appellate decision in the assessee’s own case for assessment year 2003-04, which in turn is now under challenge in the Hon’ble Supreme Court. For asstt.year 2003-04 the CIT(A) has erroneously held that receipt of money by the assessee in the status of AOP has to be seen under normal provisions of the Act. Further, for asstt.year 2003-04, ld. CIT(A) failed to appreciate provisions of section 164 of the Income Tax Act while erroneously holding that provisions of Chapter IV would apply.”
2. The assessee’s cross objections are as follows:
“1.0 That the learned Assessing Officer has grossly erred in making the reassessment by reopening the same u/s 147/148 of the Income Tax Act and the CIT(A) has erred in law to uphold the same.
1.1 That the CIT(Appeals) ought to have held that the reopening of the same based on assessment of the subsequent year was bad in law and there was no failure on the part of the assessee to furnish fully and truly all material facts necessary for completion of the assessment.
2.0 That the reassessment order passed by the AO and upheld by the CIT(A) is bad in law.”
3. At the outset, the learned counsel submits that he wishes to withdraw the cross objections. The learned DR would have no objection.
4. Accordingly, the Cross Objections filed by the assessee are dismissed as withdrawn.
5. Apropos the appeal filed by the Department, the assessee trust received a sum of Rs. 1,06,55,343/-, as infrastructure fund. Holding that this amount was not allowable as a deduction u/s 11 of the I.T. Act, the AO brought it to tax.
6. The learned CIT(A), by virtue of the impugned order, deleted the addition, following the Tribunal order in the assessee’s own case, for assessment year 2003-04, passed on 30.1.2009, in ITA No. 3866(Del)07.
7. Aggrieved by the said action of the learned CIT(A), the Department is in appeal.
8. The learned counsel for the assessee has submitted that the aforesaid Tribunal order dated 30.1.2009, in the assessee’s case for assessment year 2003-04, has been upheld by the Hon’ble High Court vide order dated 23.9.2009, a copy thereof has been placed on record.
9. The learned DR has contended that the learned CIT(A) has erred in deleting the addition rightly made and in doing so, he has failed to appreciate the fact that voluntary contributions received by the charitable trust are income u/s 2(24)(iia) of the Act and corpus donations are exempt from tax u/s 11(1)(d) of the Act only when the trust is registered under sections 12A/12AA of the Act; that the Tribunal decision(supra), in the assessee’s own case, for assessment year 2003-04 is now under challenge before the Hon’ble Supreme Court; and that the learned CIT(A) has erred in holding that the receipt of money by the assessee in the status of AOP has to be seen under the normal provisions of the Act.
10. We have heard both the parties and have perused the material on record. The Tribunal, in the assessee’s own case for assessment year 2003-04, vide its order dated 30.1.2009 (supra), held that the amount received by the assessee trust from its settler, towards infrastructure fund, was not taxable in the hands of the assessee, despite the fact that the assessee trust was not registered u/s 12A of the Act in that year.
11. The Hon’ble Delhi High Court, vide its order dated 23.9.2009, in ITA No. 927/09 (supra), have dismissed the Department’s appeal against the aforesaid Tribunal order, by observing as follows:-
“The respondent/assessee is admittedly a Charitable Organization which is a trust registered under the Indian Trust Act which has also been granted registration under the Income Tax Act w.e.f. 1.4.2003. The assessee received certain donations towards its corpus which had been deposited in the bank and the money was admittedly spent for acquiring land for construction of a college. In these circumstances, we are of the opinion that the CIT(A) as well as ITAT rightly concluded that the donations received towards corpus of the trust would be capital receipt and not revenue receipt chargeable to tax.
No question of law arises. Dismissed.”
12.The Department contends that the aforesaid High Court order is under challenge before the Hon’ble Supreme Court by way of a SLP filed by the Department. This, however, is not premise enough to allow the Department’s appeal, particularly when the High Court order has not been shown to have been stayed.
13. In view of the above, respectfully following the High Court decision(supra) in the assessee’s own case for assessment year 2003-04, the grievance of the Department is rejected.
14. In the result, the appeal filed by the Department is dismissed, whereas the cross objections filed by the assessee are dismissed as withdrawn.
Order pronounced in the open court on 19.1.2011.
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