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Case Law Details

Case Name : ITO (E) Vs Bhavitha Foundation (ITAT Mumbai)
Appeal Number : ITA No. 4766/MUM/2023
Date of Judgement/Order : 30/05/2024
Related Assessment Year : 2021-22
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ITO (E) Vs Bhavitha Foundation (ITAT Mumbai)

In the case of ITO (E) Vs Bhavitha Foundation, the Income Tax Appellate Tribunal (ITAT) Mumbai addressed a crucial question: Should dividend received on shares donated to a corpus fund be treated as part of the corpus or as income from other sources? This case has significant implications for charitable trusts and their taxation under the Indian Income Tax Act.

Bhavitha Foundation received a donation of 5,00,000 equity shares of Majesco Ltd. as a corpus donation. The donor specified that the shares, any receipts from them (dividends, sale proceeds), and earnings from their investments were to be treated as part of the corpus donation. Bhavitha Foundation claimed the dividend received on these shares as exempt under Section 11(1)(d) of the Income Tax Act while filing their return of income.

The Assessing Officer (AO) contested this claim, asserting that once an asset is donated and transferred, any income generated from it should be governed by the provisions of the Income Tax Act, not by any conditions set by the donor. The AO argued that the interpretation of Section 11(1)(d) by Bhavitha Foundation was incorrect and that the dividend should be assessed under the head ‘income from other sources.’

Bhavitha Foundation appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who supported their claim by citing the Kerala High Court’s decision in Commissioner of Income-tax (Exemption) v. Mata Amrithanandamayi Math. This ruling affirmed that if a donor specifies that income earned on corpus donations should also be added to the corpus, such income should indeed be treated as part of the corpus. CIT(A) observed that the Foundation had complied with this by treating the dividend and interest as corpus donations and investing them accordingly.

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