Case Law Details
T.R. Gupta Public Charitable Trust Vs CIT (Exemptions) (ITAT Amritsar)
ITAT held that Corpus donations received by Trusts, which is not registered u/s.12A/12AA of Income Tax Act, are not taxable as they assume the nature of ‘Capital receipt’ the moment the donations are given to ‘Corpus of the Trust’. We find the provisions of section 2(24)(iia)/12(1)/11(1)(d)/35/56(2) are relevant for deciding the current issue. It is a settled legal proposition, in case of a registered Trust under the Income-Tax Act, the corpus specific Voluntary Contributions are outside the scope of income as defined in section 2(24)(iia) of the Act due to their “Capital nature”. But it is a case of un-registered Trust. Despite the detailed deliberations made by the Ld. DR, we find the principles relating to judicial discipline assume significance and the priority. It is also decided issue that there is need for upholding the favourable view if there exist divergent views on the issue. As discussed in the preceding paragraphs above, there are multiple decisions in favour of the assessee. The two issues must be settled during registration U/s 12AA which are genuinity of trust & activities are related to main object of trust. The two limbs must be considered during registration.
FULL TEXT OF THE ORDER OF ITAT AMRITSAR
The instant appeal of the assessee is directed against the order of the ld. Commissioner of Income Tax (Exemptions), Chandigarh, [in brevity the ld. CIT(E)] bearing appeal no. DIN & Order No. ITBA/EXM/S/EXM1/2020-21/1028017799(1),date of order 21.09.2020, the order passed u/s 12AA(1)(b)(ii) of the Income Tax Act 1961, [in brevity the Act] for A.Y. 2020-21.
2. The assessee has taken the following grounds which reads as under:
“1. The Worthy CIT Exemptions is not justified in not granting registration u/s 12AA to the assessee trust on the alleged ground that:
i) The appellant is going beyond the aims and objectives of trust deed and investing in capital assets which will yield commercial rental income.
ii). The appellant has not paid tax on corpus receipts treating these as unexplained cash credits, amounting to evasion of tax and thus, holding these as not a genuine activity of trust.
2. The appellant craves leave to amend, alter or substitute any/ all the grounds of appeal before or at the time of hearing.”
3. The brief fact of the case is that the assesseeis running a charitable trust with operation since 22.10.2018. The object of the trust is to provide financial help/assistance by way of scholarship stipend to the poor and needy irrespective of their caste language or religion for their education, academic, technical or vocational or of any other kind and also to improve their skills in the field of sports. The assessee filed an application for registration before the ld. PCIT u/s 12AA of the Act. After completion of hearing the ld. CIT(E) had rejected the application of registration by raising the following observation.
i. On construction of structure for generation of income by way of rent, which is commercial in nature.
ii. Issue of corpus donation, that without registration of trust u/s 12AA. So, the corpus is taxable.
iii. Donation in cash of petty amount which was unexplained.
3. The aggrieved assessee filed an appeal before us.
4. The ld. Counsel for the assessee Mr. R.K. Gupta filed a brief synopsis which is kept in the record. He further argued that the ld. CIT(E) has raised the three points related to rejection of registration. The object of the trust is a charitable in nature and the activities are covered u/s 2(15) of the Act. The settler had contributed the property and the funds for initiation of charitable activity of the trust. On this property the building was developed and the rental income is utilized for activity of the trust. Mr Gupta further relied on the order of Bhartiya Kisan Sangh Sewa Niketan, vs. CIT (Exemptions), Lucknow in ITA No. 6721/Del/2015 order dated 25.08.2017 is reproduced as under:
“6.9 We further of the view that at the stage of granting registration u/s 12A the Ld. CIT(E) has required to see the objects of society and not required to examine on the application of income which will have to be undertaken by the Assessing Officer (AO) on a year to year basis after assessee files return of income claiming exemption u/s 11. This position is now well settled by several authoritative pronouncements on the subjects. On the facts of present case there cannot be even an iota of doubt that the objectives of assessee society are charitable in nature being an objective of general public utility within the meaning of section 2(15) of the Act as detailed herein above.
7. Keeping in view of the facts and circumstances of the case as explained above and respectfully following the legal position as discussed above, we are of the considered opinion that the assessee is entitled for registration u/s. 12A of the Act. Therefore, we set aside the impugned order passed by the Ld. CIT(Exemptions), Lucknow and accordingly, direct the Ld. CIT(E), Lucknow to grant registration under section 12A of the Act to the applicant.”
4.1 Mr. Gupta further argued that the ld. CIT(E) will only verify about the genuineness of the trust and object of the trust is related to the activity of the trust. In this respect, Mr. Gupta has annexed the trust deed which is inpage no. APB 5 to 12.
4.2 As per the ld. CIT(E) the corpus donation is taxable before granting the registration. In the result registration U/s 12AA is denied. Mr. Gupta explained that the nature of corpus donation is capital receipt & irrecoverable. Immunity was granted for taxation under Section 62 of the Act. The ld. Counsel, Mr Gupta has referred the order of Versova Kohni Sunni Trust vs. CPC, Bangalore in ITA No.5905/Mum/2019 order dated 05.02.2022.
4.3 The ld. Counsel further argued that the said corpus donation was received for specific purpose related charitable activity of the assessee-trust before the registration u/s 12A/12AA of the Act. The assessee-trust had accumulated the capital receipt and the said donation from F.Y. 2018-19, 2019-20 and upto 31st August 2020 and all the donations are not unanimous donation and not the unexplained money. The assessee-trust had maintained proper record for all the donations. He further relied on the order of Chadraprabhu Jain Swetamber Mandir vs. ACIT’, (2017) 82 taxmann.com 245 (Mum-Trib.).
“3. I have also come across another decision of the hon’ble Income-tax Appellate Tribunal, Kolkata in the case of Shri Shankar Bhagwan Estate v. ITO [1997] 61 ITD 196 (Cal) in which, the taxability of corpus donation has been examined in the light of section 12 read section 2(24)(iia) of the Income-tax Act and in this decision, it has been held as under :
‘So far as section 2(24)(iia) 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 with effect from April 1, 1973 simultaneously with the present section 12, both of which were introduced from the said date by the Finance Act, 1972. Section 12 makes it clear by the words appearing in parenthesis that contributions made with a specific direction that they shall form part of the corpus of the trust or institution shall not be considered as income of the trust. The Board’s Circular No. 108 dated March 20, 1973 is extracted at page 1277 of Volume I of Sampath Iyengar’s Law of Income-tax, 9th edn. In which the inter-relation between section 12 and section 2(24) has been brought out. Gifts made with clear directions that they shall form part of the corpus of the religious endowment can never be considered as income. In the case of R. B. Shreeram Religious & Charitable Trust v. CIT [1988] 172 ITR 373 (SC) it was held by the Bombay High Court that even ignoring the amendment to section 12, which means that even before the words appearing to parenthesis in the present section 12, it cannot be held that voluntary contributors specifically received towards the corpus of the trust may be brought to tax. The aforesaid decision was followed by the Bombay High Court in the case of CIT v. Trustees of Kasturbai Scindia Commission Trust [1991] 189 ITR 5 (Bom). The position after the amendment is a fortiori. In the present cases the Assessing Officer on evidence has accepted the facts that all the donations have been received towards the corpus of the endowments. In view of this clear finding, it is not possible to hold that they are to be assessed as income of the assessees. We, therefore, hold that the assessment of the corpus donations cannot be supported.”
5. The ld. CIT DR, vehemently argued and relied on the order of the ld. CIT(E) and he relied on the specific para of the order of CIT(E) in page 7 Para 6 is reproduced as under:
“6.On perusal of trust deed, it is noted that founder of trust is desirous of construction of structure for generation of income by way of rent, which is commercial in nature. Moreover, these are no such aims & objects of trust as per deed. Hence, there is inherent contradiction in the trust deed whereby assessee is willing to pursue commercial activities by way of earning rental income, which is beyond the scope of aims & objects of trust. In this regard applicant was asked to furnish detailed explanation which is submitted by applicant.”
6. We have heard both the parties, perused material available on record and gone through orders of the authorities below. Our observation is that the Corpus donations received by the Trusts, which is not registered u/s.12A/12AA of the Act, are not taxable as they assume the nature of ‘Capital receipt’ the moment the donations are given to the “Corpus of the Trust”. We find the provisions of section 2(24)(iia)/12(1)/11(1)(d)/35/56(2) are relevant for deciding the current issue. It is a settled legal proposition, in case of a registered Trust under the Income-Tax Act, the corpus specific Voluntary Contributions are outside the scope of income as defined in section 2(24)(iia) of the Act due to their “Capital nature”. But it is a case of un-registered Trust. Despite the detailed deliberations made by the Ld. DR, we find the principles relating to judicial discipline assume significance and the priority. It is also decided issue that there is need for upholding the favourable view if there exist divergent views on the issue. As discussed in the preceding paragraphs above, there are multiple decisions in favour of the assessee. The two issues must be settled during registration U/s 12AA which are genuinity of trust & activities are related to main object of trust. The two limbs must be considered during registration. The ld. CIT(E) is silent about the second issue. The first issue is adjudicated in favour of assessee-trust. The order passed by revenue is quashed accordingly.
7. In the result, the appeal of the assessee bearing ITA No. 148/Asr/2020 is allowed.
Order pronounced in the open court on 20.09.2022
