Introduction: The case of Ayyappa Seva Samgham Bombay Vs CIT(A) (ITAT Mumbai) presents a significant ruling on the nature of Corpus Donations received for Capital Projects. ITAT directed re-adjudication, assessing Corpus Donations as regular income and examining claims under various sections of the Act. This article delves into the facts, arguments, and conclusions of the case, providing a comprehensive overview of the judgment.
The main contention in the case revolved around the classification of certain donations as “Corpus donations” rather than regular donations. The assessee, registered as a charitable organization, claimed these donations as exempt. The donation receipts contained “CHF” (Community Hall Fund), indicating their corpus nature. The AO’s and CIT(A)’s refusal to acknowledge them as Corpus donations led to an appeal.
Depreciation Claims: Another critical aspect was the disallowance of the claim for depreciation u/s 11(6) of the Act. Both the AO and CIT(A) rejected the claim due to a lack of details, causing further contention.
Re-Adjudication: ITAT restored both the issues to the file of AO, recognizing the need to examine sample copies of receipts and the assessee’s claim for depreciation. Their emphasis on natural justice and proper examination marked the order’s significance.
Conclusion: The case of Ayyappa Seva Samgham Bombay Vs CIT(A) offers a crucial perspective on the legal understanding of Corpus Donations and depreciation claims. By restoring the matter to the AO for re-examination, ITAT emphasized the importance of due process and natural justice.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The assessee has filed this appeal challenging the order dated 22.11.2022 passed by NFAC for assessment year 2016-17. The assessee is aggrieved by the decision rendered by Ld CIT(A) on the following issues:-
(a) Assessment of Corpus Donations as regular income of the assessee.
(d) Disallowance of claim for depreciation u/s 11(6) of the Act.
2. The facts relating to the case are discussed in brief. The assessee is registered as charitable organization u/s 12A of the Act. It is running a temple, besides doing certain types of charitable activities in the form of organizing medical camps and relief of poor. The assessee claimed exemption of its income u/s 11 of the Act.
3. The AO noticed that the assessee has claimed certain donations as “Corpus donations” and accordingly claimed the same as exempt. According to the AO, the receipts and application of income shown in the computation of income did not match. Further it is the case of the AO that the assessee did not furnish details of corpus donations nor furnished copies of direction letters. He also noticed that the depreciation has been claimed by the assessee as application of income in violation of provisions of sec.11(6) of the Act. Accordingly, he re-computed the total income of the assessee by assessing corpus donations as normal donations and also did not consider depreciation as an application of income. While computing the deduction for accumulation of income allowable u/s 11(1)(a) of the Act, the AO did not allow the correct amount. Accordingly, the total income of the assessee trust was determined by the AO at Rs.69,33,373/-.
4. The Ld CIT(A) confirmed the additions relating to corpus donation and depreciation. He directed the AO to allow correct amount of deduction u/s 11(1) of the Act towards accumulation of income. Aggrieved, the assessee has filed this appeal before the Tribunal.
5. The first issue relates to the assessment of Corpus donations received by the assessee as regular donations. It is the submission of the assessee that the donations have been received for specific projects for construction of buildings. Hence, in the donation receipts, it is mentioned as “CHF”, meaning ‘Community Hall Fund’. In support of this submission, the assessee furnished sample copies of certain receipts, which mentioned “CHF” in it. The Ld A.R submitted that there is no requirement of obtaining specific direction letter as opined by the AO. The mentioning of “CHF” in the donation receipt would mean that it has been received towards corpus donations. He submitted that these sample receipts have been furnished before Ld CIT(A), but the Ld CIT(A) has found fault with numbering, name of donors etc., and hence refused to accept these receipts. It is the submission of the Ld A.R that the donations are usually collected by different people holding different set of receipt books and hence it cannot be expected that the numbering of receipts should be continuous one. He submitted that all these receipts have been duly accounted for in the books of accounts. Accordingly, the Ld A.R submitted that the identity of corpus donations should be accepted.
6. The Ld D.R, on the contrary, supported the order passed by Ld CIT(A) on this issue.
7. We heard rival contentions and perused the record. Though the assessing officer mentions in the initial part of assessment order that he has examined the details filed, yet he observes in the later part of the assessment order that the assessee did not furnish details of corpus donations. However, it is seen that the assessee has furnished sample copies of certain receipts. We notice that most of the receipts contain the wording “CHF”, which according to the assessee is “Community Hall Fund”. We agree with the submission of the assessee that the donation received for capital projects should be considered as Corpus donations. When the wording of “CHF” is stated in the receipt, it can safely be presumed that the said wording has been mentioned as per the direction of the donor. Accordingly, the said donations can be considered as “Corpus donations”. However, the Ld CIT(A) has extracted a copy of donation receipt, which is given towards “Annadhanam” and accordingly came to the conclusion that the name of specific fund was not mentioned, i.e., the ld CIT(A), either conveniently or otherwise did not look into other donation receipts.
8. We have held earlier that the donations given for capital projects should be considered as Corpus donations, which are not liable to be taxed. We notice that the copies of receipts/details of corpus donations have not been examined by the tax authorities. Accordingly, we restore this issue to the file of AO for the limited purpose of examining sample copies of receipts and compute Corpus donations as per our discussions made supra and allow exemption thereof.
9. The next issue relates to the rejection of claim for depreciation as an application of income. It is the submission of the assessee that the depreciation has been claimed on those assets, which have not been earlier claimed as application of income. We notice that the tax authorities have rejected the claim of the assessee for want of details. Accordingly, in the interest of natural justice, we restore this issue also to the file of the AO for examining the above said claim of the assessee. We also direct the assessee to furnish relevant details in support of its submissions.
10. In the result, the appeal filed by the assessee is treated as allowed for statistical purposes.