Vardhman Stanakvasi Jain Vs ITO (ITAT Ahmedabad)
In a significant ruling for charitable organizations, the Income Tax Appellate Tribunal (ITAT) Ahmedabad bench today allowed an appeal filed by Vardhman Stanakvasi Jain, a registered trust, challenging an income addition made by the Income Tax Department. The tribunal’s decision clarifies the scope of adjustments permissible under Section 143(1) of the Income Tax Act, 1961, and re-emphasizes the procedural nature of filing Form 10B, an audit report crucial for claiming tax exemptions.
The case centered on a dispute arising from the assessment year 2020-21. Vardhman Stanakvasi Jain had received a donation of Rs. 17,96,000, specifically designated as “building fund” and treated as a corpus donation. Corpus donations, by nature, are intended for the permanent endowment of a trust and are generally exempt from tax, provided certain conditions are met. The trust disclosed this amount as corpus donation in its income tax return, maintaining it was exempt.
However, the Centralized Processing Centre (CPC) of the Income Tax Department, during the processing of the return under Section 143(1) of the Act, reclassified this corpus donation as a “voluntary donation.” Consequently, the CPC subjected the entire amount to tax, leading to an adjustment in the trust’s tax liability. This action by the CPC was the genesis of the legal challenge.
