Cash Transaction Restrictions on Charitable Trusts under Income Tax

Cash Restrictions on Charitable Trusts

INTRODUCTION

A charitable or religious institution has substantial source of receipts in the form of donations. Such donations may be corpus or voluntary. The Income Tax Law provides blanket exemption to corpus contributions (received for a particular purpose such as for construction of a building) whereas it requires application of voluntary contributions in general for charitable or religious purposes.

Donations can also be bifurcated into anonymous and non-anonymous form i.e. a donation where donor identity is available and disclosure thereof, if required by the authorities is not denied can be termed non-anonymous donation whereas the other form in which anonymity of donor particulars’ is maintained are called anonymous donation (GuptDaan).

RESTRICTIONS ON THE DONOR

1. SECTION 80G

It is only a charitable trust who can get registered under section 80G and provide receipts to the donors making them eligible to claim deduction under section 80G (in computation of donor’s total income). Thus, religious trusts are not eligible for section 80G registration.

The Finance Act 2017 has amended the provisions of section 80G (5D) wef AY 2018-19 providing that “No deductions shall be allowed under this section in respect of donation of any sum exceeding two thousand rupees unless such sum is paid by any mode other than cash.” Thus a person donating more than Rs. 2,000 in cash on or after 01.04.2017 shall not be entitled to claim benefit of such deduction under section 80G. It is further to be noted that this limit is for donor and not for donee.

Example: If a person donates Rs. 1,000 each in cash to 5 trusts registered u/s 80G, he shall be eligible to claim deduction only for Rs. 2,000 and not for total Rs. 5,000.

If Rs. 5,000 is donated in cash to 1 trust registered u/s 80G, then no deduction shall be allowed u/s 80G.

For a charitable trust, there is no limit per donee or on aggregate basis on receipt of donation in cash. The only limit is that the aggregate anonymous donation (where records of identity of donor not available) should not exceed higher of Rs. 1,00,000 or 5% of total donations in a financial year.

The taxation of such donation in the hands of recipient charitable trust would depend on this fact even that whether donor identity is available with the trust or not.

RESTRICTIONS ON THE DONEE i.e. TRUST

1. TAXATION OF ANONYMOUS DONATION

The expression “anonymous donation” has been defined as follows –

1. It is a voluntary contribution referred to in section 2(24)(iia).

2. The person receiving such contribution does not maintain a record of –

a. the identity indicating the name and address of the person making such contribution; and

b. such other records as may be prescribed

“Anonymous donation” would be taxable at the rate of 30 per cent (+EC) on the aggregate of anonymous donations received in excess of the higher of the following :

A. five per cent of the total donations received by the assessee

B. one lakh rupees

Example. Total donations Rs. 25 lakhs Anonymous donations Rs. 5 lakhs 5% of total donation

(A) Rs. 1.25 lakhs standard deduction (B) Rs. 1 lakh

(A) or(B) whichever is higher Rs. 1.25 lakhs

Upto AY 2014-15, tax would be on Rs. 3.75 lakhs (Rs. 5 lakhs – Rs. 1.25 lakhs) @ 30% (+EC) and balance donations of Rs. 20 lakhs (Rs. 25 lakhs – Rs. 5 lakhs) would be added to other receipts of the trust.

A.Y. 2015-16 onwards, tax would be on Rs. 3.75 lakhs (Rs. 5 lakhs – Rs. 1.25 lakhs) @ 30% (+EC) and balance donation of Rs. 21.25 lakhs (25 lakhs – 3.75 lakhs) would be added to other receipts. Institutions affected by the above provisions [Sec. 115BBC(1)]. It is to be noted that w.e.f. A.Y. 15-16 the exempted anaymous donation of Rs. 1,25,000/- will be added back to other income and will be chargeable at normal rate.

ILLUSTRATION:

POINTS TO BE NOTED

(i) Anonymous donations received by a trust wholly for charitable purposes are taxable under section 115BBC

(ii) Anonymous donations which are taxable under section 115BBC shall not be entitled to exemption under section 11 and 12 as per provision of section 13(7).

(iii) Anonymous donations to the extent not taxable @30% under section 115BBC i.e., 5% of total donations or Rs.1,00,000/- whichever is higher are eligible for adhoc deduction of 15% and are taxable at normal rates.

The above provisions are applicable in the case of following:

a. any trust or institution referred to in section 11;

b. any university or other educational institution referred to in section 10(23C)(iiiad) & (vi);

c. any hospital or other institution referred to in section 10(23C)(iiiae) and (via);

d. any fund or institution referred to in section 10(23C)(iv); and

any trust or institution referred to in section 10(23C)(v).

Donations not affected by the above provisions [SEC. 115BBC(2)] –

The following anonymous donations shall not be covered by the provisions of section 115BBC –

(i) donations received by any trust or institution created or established wholly for religious purposes; and

(ii) donations received by any trust or institution created or established for both religious as well as charitable purposes. However, donation mentioned in (ii)does not include any anonymous donation made with a specific direction that such donation is for any university or other educational institution or any hospital or other medical institution run by such trust or institution.

ANONYMOUS DONATIONS – S. 115BBC

• Section 115BBC does not apply in the below mentioned caseswhere anonymous donations are received:

ANONYMOUS DONATIONS – S. 115BBC

(a) Tax payable @30% plus applicable surcharge on the aggregate ofanonymous donations received in excess of the higher of the following –

• 5% of the total donations received by the assessee trust; or
• Rs 1 lakh

(b) S.13(7) provides that the exemption u/s11, 12 & 10(23C) not applicableto such anonymous donations.

(c) Such donations shall not be included in the total income eligible forexemption& therefore, 85% thereof need not be spent. Nor would it beconsidered for calculating the permissible 15% accumulation.

The taxability of anonymous donation is covered by the provisions of section 115BBC of the Income Tax Act 1961 attracting tax liability @ 30% depending on the status of trust being charitable or religious i.e. if a trust is a religious trust it need not pay tax per above section 115BBC whereas if it is a charitable trust,the anonymous donations are taxable @30% (if anonymous donation exceeds- Rs. 1,00,000 or 5% of total donations whichever is higher)

Any donation received by trust or institution established:

• Wholly for RELIGIOUS purpose – 115BBC NOT applicable, Section 11 & 12 shall apply. So, if any temple, gurdwara, mosque, Church, etc. owned by trust and donations received from devotees, without disclosing their names and address shall not be taxed under section 115BBC.
• Wholly for CHARITABLE purpose – 115BBC applicable
• Partly for RELIGIOUS & Partly for CHARITABLE purpose – 115BBC NOT applicable. But where donation is made with specific direction that such donation is for any university / educational institutional hospital / medical institutional run by such trust / institution, then such anonymous donations is covered under section 115BBC and taxable at the rate of 30%.

NOTE: Sec. 13(7) provides that the exemption provided u/s 11 and 12 shall not be applicable for the anonymous donation chargeable to tax under section 115BBC.

ANALYSIS: For example, section 11(1)(d) of the Act provides that any income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution shall not be included in the total income of such trust/institution for charitable purposes. However, any anonymous donation received with a specific direction that it shall form part of the corpus of the trust/institution, would not be exempt by virtue of section 11(1)(d). It would be taxable at 30% as provided in section 115BBC.

2.TAXATION OF NON-ANONYMOUS DONATION

Any kind of non-anonymous donations received by a trust can be claimed exempt subject to the provisions of section 11 & 12 of the Income Tax Act 1961. In other words, a trust may accumulate 15% of such donations and required to apply remaining 85% for public charitable or public religious purposes. The law further provides exemption from tax if the conditions specified for deemed application or accumulation are duly satisfied.

It’s important to note that anonymous donations received by religious trust which are not taxable as per section 115BBC are dealt at par level of non-anonymous donations for taxation of religious trusts.

WHETHER CASH DONATIONS ARE ANONYMOUS DONATIONS:

Where the donor identity is available and can be disclosed, if required, even if such donation is received in cash it can’t be called as anonymous donation. Therefore, treating cash donations as anonymous is not prima-facie correct proposition.

APPLICABILITY OF SECTION 269ST ON CASH DONATIONS

The Finance Act 2017 has inserted a new section 269ST in the Income Tax Law to restrict a person receiving Rs. 2 lakh or more in cash from a person in aggregate in a day or in respect of a single transaction or in respect of transactions relating to one even or occasion from a person. The contravention of such provision shall attract penalty under new section 271DA i.e. equivalent to the amount so received by the recipient.

Therefore, in case of receipt of cash donations by a trust (may be charitable or religious) if donations are found received in contravention of section 269ST then relevant trust shall be liable to attract penal consequences. Thus, a trust must be cautions that cash donations received by it should not fall under the ambit of section 269ST detailed above.

For example, a temple trust receiving cash amount of Rs. 3,50,000 from a donor towards ‘Pooja’ program can be said to be non-compliant for the purposes of section 269ST.

In such circumstances, it will be a herculean task for a trust to establish that none of the total cash donations received during a particular financial year are in contravention of the provisions of section 269ST

Q. The Management of the Gurudwara receives Rs. 5 lakhs from various devotees on opening of Golak?

Ans: Golak or Guru kiGolak is the term used to refer to the collection box that is usually laid in the gurudwaras where the congregation deposits their offerings in the form of coins or paper notes before kneeling or bowing to the Guru. No penalty will be leviable u/s. 269ST r.w.s. 271DA as the amount are received from various devotees below Rs. 2 Lakhs.

B. RESTRICTIONS ON PAYMENT OF EXPENDITURE

The Finance Act, 2018 has inserted Explanation 3 to Section 11(1). The said Explanation 3 provides as under

“For the purposes of determining the amount of application under clause (a) or clause (b), the provisions of sub-clause (ia) of clause (a) of section 40 and sub-sections (3) and (3A) of Expenses or payments not deductible in certain circumstances section 40A, shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head “Profits and gains of business or profession”.

Thus, a new Explanation 3 has been inserted after section 11(1) with effect from assessment year 2019-20 to provide that for the purposes of determining the amount of application of income under section 11(1)(a)/(b), the provisions of section 40(a)(ia), and of section 40A(3)/(3A), shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head “Profits and gains of business or profession”. Section 40(a)(ia) provides that in computation of profits and gains of business, 30% of any sum payable to a resident on which tax is not deducted/paid in accordance with the said section is not allowable as a deduction.

If any amount paid or credited to resident and if TDS not deducted in Previous Year or deducted but not paid to Government upto due date of ROI then 30% of such expenditure not allowed as application for trust. The same would be treated as application in the year in which TDS deposited.

Section 40A(3) provides that no deduction is allowable in computation of profits and gains in respect of cash payments exceeding Rs.10,000. Section 40A(3A) provides that if a deduction is allowed in year 1 on mercantile basis and subsequently in year 2 the assessee makes cash payment, the payment so made shall be deemed to be profits and gains of business of year 2, if the payment exceeds Rs.10,000.

As per the Memorandum to the Finance Bill 2018, the Explanation is inserted to encourage cash less economy and curb generation of black money. The relevant extract is as under :

“At present, there are no restrictions on payments made in cash by charitable or religious trusts or institutions. There are also no checks on whether such trusts or institutions follow the provisions of deduction of tax at source under Chapter XVII-B of the Act. This has led to lack of an audit trail for verification of application of income.

Prior to insertion of Explanation 3, the department were making the provisions of section 40(a)(ia) and 40A(3) applicable to the trust. However, in following decisions it was held that said provisions were not applicable for computing income of the trust u/s 11 :

Bombay Stock Exchange Ltd. v. Dy. DIT [2015] 228 Taxman 195 (Mag.) (Bom);

Vidya Pratishthan v. Dy. CIT [2011] 44 SOT 90 (Pune) (URO);

ITO v. Mother Theresa Educational Society [2016] 68 taxmann.com 320 (Visakh)(Trib.);

ITO v. Haryana State Counseling Society [2016] 71 taxmann.com 274 (Chd)(Trib);

Kendriya Academy VidhyalayaShikshaSamiti v. Asstt. CIT [2016] 73 taxmann.com 391 (Jp)(Trib.);

ITO v. Kalinga Cultural Trust [2018] 61 ITR (Trib.) 24 (Hyd) 

EXPLANATION 3 IS APPLICABLE PROSPECTIVELY

The Explanation is applicable from A.Y. 2019-2020 and subsequent years. Though the provisions of Section 40(a)(ia) and 40A(3) are made applicable to computation of Income u/s 11 by way of an explanation, it cannot be said that the explanation will be applicable retrospectively. This is because there is a presumption under the law that the amendment is prospective unless made applicable retrospectively. The Finance Act, 2018 itself states that the Explanation is applicable prospectively. Further, Section 40(a)(ia) and 40A(3) are specific disallowances only applicable for computing income under the Head profit and gains of business and profession and thus it could not have been presumed to be applicable to computation of income u/s 11 prior to insertion of Explanation 3.

MUTATIS-MUTANDIS

As per websters dictionary the expression “mutatis mutandis” means “with the necessary changes having been made” and/or “with the respective differences having been considered” . It means “with due alteration of details”.

Thus, when a law directs that a provision made for a certain type of case shall apply mutatis mutandis in another type of case, it means that it shall apply with such changes as may be necessary, but not that even if no change be necessary, some change shall nevertheless be made. The phrase is an adverbial phrase, qualifying the verb “shall apply” and meaning “those changes being made which must be made”. The phrase has its own and usual meaning, viz., that only such verbal changes are to be made in the statute as would make the principles embodied therein applicable in respect of an application for reference. [See Paresh Chandra Chatterjee v. The State of Assam AIR 1962 SC 167 & Aparna Trading Corporation (I) Private Limited v. CCT (1982) 51 STC 199 (Cal)]

Thus, the expression permits due alteration of changes as may be necessary.

 APPLICABILITY OF EXPLANATION 3 TO CAPITAL EXPENDITURE

The provisions of section 40(a)(ia) and 40A(3) are not applicable to capital expenditure as same is not claimed as a deduction while computing total income. This legal position has been laid down by several judicial precedents. As far as computation of income u/s 11 is concerned, it has been held that Capital Expenditure incurred towards the objects of the trust are allowed as application of Income. Thus, if the legal position existing u/s 40(a)(ia)/40A(3) is applied, then while computing income u/s 11, application of capital expenditure without deducting TDS or incurred in cash cannot be disallowed. However another view is also possible that as provisions of section 40(a)(ia)/40A(3) are applicable mutatis mutandis (ie with the necessary changes having been made and/or with the respective differences having been considered) capital expenditure incurred without complying with the provisions of Section 40(a)(ia) /40A(3) shall not be allowed as application of income.

A similar restriction has been provided by proviso in clause (23C) of section 10 so as to provide similar restrictions on the entities covered under item (a) of the third proviso which refer to only sub-clauses (iv), (v), (vi) or (via) of said clause in respect of application of income. Even the memorandum explaining the provisions speaks only about sub clauses (iv),(V),(vi) or (via). This means the proposed amendment will not apply to other fund/ institution/trust covered under sub-clauses (i) to (iiiae) of clause (23C) of section 10 since the amendment will apply only to sub-clause (iv) to (via).

The sub-clauses (i) to (iiiaaaa) are pertaining to certain funds created by the Central Government like Prime Minister, Chief Minister relief funds and such other funds. But sub-clause (iiiab), (iiiac) (iiiad) and (iiiae) are applicable to educational and medical institutions which are falling under certain criteria or within certain prescribe limits are fully exempted but these are not covered under the proposed amendment. The proposed amendment is applicable for determining the application of income which will be restricted to the extent of disallowance. The impact of these provisions will not be very effective since the whole income of the Trust even after the reduction in application of income will be exempt.

RECEIPT OF DONATION BY PLACING COLLECTION BOXES BY RELIGIOUS & CHARITABLE TRUSTS

Collection Boxes (Golaks) are generally placed at temples, gurdwaras, mosque, church etc. for collection of donations and contributions. Charitable Trusts owning hospitals, schools etc. also have donation boxes at these institutions. At times, some of the donation boxes have an inscription or a sign nearby stating that the donation made in that particular box would be for a particular capital purpose, or that it is for the corpus of the trust.  The issue here is whether these donations are voluntary contributions or will form part of corpus of fund and whether these receipts can be taxable as anonymous donations u/s 115BBC.

 The provisions are different for religious trusts and charitable trusts which are discussed as:

A. Wholly Religious Trusts:In case of donations received in collection boxes, it is not possible to maintain identity and record of the donors. These donations and contributions are anonymous donations as defined by sec 115BBC(3). However, the provisions of sec 115BBC i.e taxation of anonymous donations (in excess of higher of Rs. 1,00,000 or 5% of total donations) at the rate of 30% is not applicable to trusts which are established wholly for religious purposes. It is provided in sec 115BBC(2) that the provisions of taxation of anonymous donations shall not apply in case of wholly religious trusts.

In Gurudev Siddha Peeth vs. ITO 59 taxmann.com 400, the Mumbai bench of the Tribunal also held that amount of offerings put by various devotees in donation boxes of the assessee-trust, a sidhpeeth/deity, could not be treated as anonymous donations taxable u/s. 115BBC merely on ground that assessee had not maintained any records of such offerings. According to the Tribunal, it is clear that the provisions of section 115BBC(1) will not apply to donations received by the assessee in donation boxes from numerous devotees who have offered the offerings on account of respect, esteem, regard, reference and their prayer for the deity/siddha peeth. Such type of offerings are made/put into the donation box by numerous visitors and it is generally not possible for any such type of institutions to make and keep record of each of the donors, with his name, address etc.

B. Wholly Charitable Trusts: The donations received in collection boxes by wholly charitable trusts are anonymous donations as record of identity of donor is not maintained by the trust. As per sec 115BBC, anonymous donations are taxable at the rate of 30% of anonymous donations received in excess of higher of Rs. 1,00,000 or 5% of total donations.

However, in DCIT vs. All India Pingalwara Charitable Society 67 taxmann.com 338, the Amritsar bench of the Tribunal took a view that section 115BBC does not apply at all to box collections of genuine charitable trusts. According to the Tribunal, the object of the section was to catch the ‘unaccounted money’ which was brought in as tax free income in the hands of charitable trusts, and this section was never meant for taxing the petty charities. The Legislature intended to tax the unaccounted money or black money which was brought in the books of charitable trusts in bulk, and not to tax the small and general charities collected by genuine charitable trusts.

C. Wholly Religious & Charitable Trust: Sec 115BBC(2) provides that anonymous donations shall not be taxable for wholly religious & charitable trusts. However, if any anonymous donation is received with specific direction that such donation is for any university/ educational institution/ hospital/ medical institution run by such trust/ institution shall be taxable.

 Example : A trust runs a temple and a hospital. Two collection boxes are placed in a temple. One of the boxes has an inscription that it is for temple and other has an inscription that it for hospital. The donations received in box with inscription that it is for temple shall not be taxable as anonymous donation whereas the collections in box with inscription that it is for hospital shall be taxable as anonymous donations.

Conclusion:

ISSUE: WHETHER DONATIONS IN COLLECTION BOXES ARE VOLUNTARY CONTRIBUTIONS OR WILL FORM PART OF CORPUS OF FUND?

Many times, some of the donation boxes have an inscription or a sign nearby stating that the donation made in that particular box would be for a particular capital purpose such as for construction of building, or that it is for the corpus of the trust.

We know that voluntary contributions received by a charitable or religious trust are taxable as its income, by virtue of the specific provisions of section 2(24)(iia) of the Income-tax Act, 1961, subject to exemption under sections 11 and 12. Section 12(1) provides that any voluntary contribution received by a trust created wholly for charitable or religious purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust), shall be deemed to be income derived from property held under trust wholly for charitable or religious purposes for the purposes of section 11. Section 11(1)(d) provides for a specific exemption for income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust. Therefore, on a comprehensive reading of sections 2(24), 11 and 12,  it can be inferred that corpus donations are entitled to the benefit of exemption, irrespective of whether the trust has applied 85% of the corpus donations for charitable or religious purposes, or not. The issue has been considered at various judicial forums. The observations given are as under:

Shree MahadeviTirathSharda Ma SevaSangh’s case.

The issue came up before the Chandigarh bench of the tribunal in the case of Shree MahadeviTirathSharda Ma SevaSangh vs. ADIT 133 TTJ 57(Chd.) (UO).

In the case, the assessee was a society registered under the Societies Registration Act, 1860 and u/s. 12AA of the Income-tax Act, 1961, running a temple, Vaishno Mata Temple, at Kullu. A resolution had been passed whereby the different boxes were decided to be kept in the temple premises for enabling the devotees to make donations according to their discretion. It included keeping of a box for collection of donations, which were to be used for undertaking construction of building. Any devotee/donor desirous of making a donation towards construction of buildings would put the money in this box. In the temple premises, donation boxes were kept with different objectives. One donation box was kept for “Construction of Building”, and other boxes for donations meant for langar and general purposes. At specified intervals, the boxes were opened and the amounts collected were put into respective accounts. The donations were duly entered in either the building fund donation register or the normal donation account, and thereafter entered in the books of account accordingly.

The return of income was filed, claiming exemption for donations received in the box kept for donations for construction of building. The donations were reflected in the balance sheet under the head “Donation for Building Construction with Specific Directions from Individuals”.

The assessing officer however, treated such donations of Rs. 40,55,480 as donations, and not as receipts towards corpus, and included the donations in the total income liable to tax. It was done on the reason that the assessee did not possess any evidence to show that the donation credited under the Building Fund had been donated by donors with the specific direction to utilise the same for building construction only.

The Commissioner(Appeals) rejected the appeal of the assessee, on the ground that the assessee failed to provide the requisite details or any documentary evidence to prove that the donations were made with specific directions for construction of building.

Before the Tribunal, it was pointed out that the assessee had collected donations earmarked for being spent on construction of building in the same manner as in the past years. It was pointed out that the amount was credited to the Building Fund in the balance sheet, which also included the opening balance, and, on the assets side, the assessee had shown the expenditure on construction of the building. The amount had been spent exclusively towards construction of the building, on which there was no dispute. The fact that the donation boxes were kept with different objectives in the temple premises was demonstrated with the help of photographs and certificates from the local gram panchayat, Councillor, etc. It was claimed that the certificates testified the system evolved by the assessee since earlier years for collection of donations towards construction of building.

It was further argued that in view of the nature of collection undertaken by the assessee, which was supported by past history, the assessing officer was not justified in insisting on production of specific names of donors.

On behalf of the revenue, it was pointed out that the assessee could not furnish the complete names and addresses of the donors who had made the donations with specific directions for building construction, though such details were asked for during the course of assessment proceedings. It was only because such information was not available that the amounts had been treated as voluntary/general donations, and not as corpus donations.

The Tribunal considered the various facts placed before it, supported by photographs, testimony of the local gram panchayat, resolution, the fact that different boxes were kept for separate purposes, the utilisation of the Building Fund, etc. It noted the fact that the assessee had received general donations of Rs. 19,53,094 and other incomes, which were credited to the income and expenditure account.

Analysing the provisions of section 12(1), the Tribunal noted that any voluntary contributions made with a specific direction that they shall form part of the corpus of the trust were not to be treated as income for the purposes of section 11. It observed that the moot question was whether or not the manner in which the assessee had collected the donations could be said to signify a direction from the donor that the funds were to be utilised for the construction of building. It noted that the manner in which the specific direction was to be made had not been laid down in the Act or the Rules; there was no method or mode prescribed by law of giving such directions. Therefore, according to the Tribunal, it was in the fitness of things to deduce that the same was to be gathered from the facts and circumstances of each case.

The Tribunal noted that the resolution of the Society clearly showed that a donation box had been kept in the temple premises with the appeal that the amount collected would be spent for building construction. The devotees visiting the temple or other donors were depositing money in the donation box, which was to be utilised for construction of building only. The assessing officer had not disputed the manner in which such donations had been collected by the assessee. The only dispute was that the assessee could not provide the names and addresses of individual donors who had contributed towards Building Fund. According to the Tribunal, since the donations were being collected from the devotees at large, the insistence of the assessing officer of production of individual names and addresses was not justified. Further, the bona fides of such practice being carried out by the assessee, either in the past or during the year under consideration, was not doubted.

Therefore, in the opinion of the Tribunal, having regard to the facts and circumstances of the case, the donations of Rs. 40,55,480 collected by the assessee were to be considered as carrying specific directions for being used for construction of the building. Ostensibly, the devotees putting money in the donation box did so in response to the appeal by the society that the amounts collected would be used for construction of building. Under such circumstances, the Tribunal was of the view that the assessee’s plea, that these amount should be taken as donations towards corpus, was reasonable.

The Tribunal accordingly held that such amounts received in the box for construction of building would form part of the corpus of the Society, and would not constitute income for the purposes of section 11.

However, there are two contrary judgments given by Bombay Bench and Calcutta Bench of ITAT which are given here:

PrabodhanPrakashan’s case

The issue first came up before the Bombay bench of the Tribunal in the case of PrabodhanPrakashan vs. ADIT 50 ITD 135.

In that case, the main object of the assessee was promotion and propagation of ideologies, opinions and ideas for furtherance of national interest, and for this purpose, publishing of books, magazines, weeklies, dailies and other periodicals. Contributions were invited by the assessee from the public towards the corpus fund of the trust through an appeal.The words “donations towards corpus” were written on the offeratory boxes. The boxes were opened in the presence of Trustees, and the amount of Rs. 13,77,465 found in these boxes was credited to the account “Donations Towards Corpus”.

Before the assessing officer, it was claimed that the donations were made to the corpus of the trust, and were therefore exempt u/s. 11(1)(d). The assessee was asked to furnish specific letters from the donors confirming that they had given directions that the donations were to be utilised towards the corpus of the trust. Such letters could be furnished only for donations of Rs. 3,90,277, but not for the balance of Rs. 9,86,188. For such balance amount, it was submitted that the Income-tax Act did not specify that the directions of the donors should be in writing. It was claimed that in view of the appeal issued for donations, and the words “donations towards corpus” on the offeratory boxes, it should be held that specific directions were indeed given by the donors. The assessing officer did not accept this contention, and treated donations of Rs. 9,86,188 as ordinary contributions, which were taxable.

The Commissioner(Appeals) referred to the provisions of section 11(1)(d), according to which, income in the form of voluntary contributions made with the specific direction that they shall form part of the corpus of the trust, would not be included in the total income of the person in receipt of the income. According to him, a specific direction of the donor was necessary, and the circumstances relevant to prove such direction included the need to establish the identity of the donor, which was not established in this case. According to the Commissioner(Appeals), merely writing “donations towards corpus” on the offeratory boxes was not sufficient, since many of the donors might not even know as to what was the corpus of the trust. He therefore, upheld the action of the assessing officer in treating the donations of Rs. 9,86,188 as voluntary contributions in the nature of income.

Before the Tribunal, on behalf of the assessee, it was argued that the appeal had been issued for donations towards the corpus, and the offeratory boxes had the inscription that the donations were towards the corpus and that the directions were to be inferred from the facts and circumstances.

Considering the provisions of section 11(1)(d), the Tribunal noted that it was true that there was no stipulation in that section that the specific directions should be in writing. It agreed that it should be possible to come to a conclusion from the facts and circumstances of the case, whether a specific direction was there or not, even where there were no written directions accompanying the donation. However, according to the Tribunal, at the same time, it needed to be kept in mind that the specific direction was to be that of the donor, and not that of the donee. In the opinion of the Tribunal, when there was no accompanying letter to the effect that the donation was towards corpus, at least such subsequent confirmation from the donor was a necessity. In the case before it, such subsequent confirmation was also absent, and all that was there, according to the Tribunal, was the intention of the donee and the actual carrying out of that intention.

The Tribunal therefore held that the facts did not fulfil the requirement of section 11(1)(d), and that it could not be said that there was a specific direction from the donor to use the contribution towards the corpus of the trust. It accordingly held that the amount was not exempt u/s. 11(1)(d).

A similar view was taken by the Calcutta bench of the Tribunal in the case of Shri Digambar Jain Naya Mandir vs. ADIT 70 ITD 121

> The common thread running through both these decisions is that both confirm that the direction of the donors, that the amount of donation is towards corpus need not be in writing, and that it is sufficient if the surrounding circumstances indicate that the donors intended to give the funds put in the boxes for corpus/capital purposes, for such amounts to be treated as corpus donations.

>  There should be evidence to show that the direction came from the donor. The onus is on the

>  trust to show the existence of the directions from the donors.

(Republished with amendments)

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