Case Law Details
Marudhar Sewa Samiti Vs ITO (ITAT Ahmedabad)
Introduction: The ITAT Ahmedabad in Marudhar Sewa Samiti Vs ITO case, has ruled that voluntary contributions received towards the corpus of an unregistered trust under Section 12A are considered capital receipts, hence not taxable. The case offered new insights into the interpretation of tax liabilities for unregistered trusts.
Analysis: The appeal revolved around the core question of whether voluntary contributions received towards the corpus of an unregistered trust were taxable. According to ITAT, these contributions fall under the category of capital receipts, not income. Hence, they are not liable to taxation, irrespective of whether the trust is registered under Section 12AA or not. The ITAT leaned on the precedent set by the Serum Institute of India Research Foundation case, further solidifying this principle.
Conclusion: This ruling by ITAT is a significant step towards understanding the tax liabilities for unregistered trusts. It clarifies that contributions made towards the corpus of an unregistered trust are seen as capital receipts, not income, and hence are non-taxable. The implications of this judgment could potentially alter how trusts operate and manage their contributions in the future.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Assessee against order dated 30.05.2022 passed by the CIT(A), National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year 2018-19.
2. The Assessee has raised the following ground of appeal:-
“1. Ld. CIT(A) erred in law as well as in fact in confirming addition of voluntary contribution forming part of the Corpus Fund received in earlier years treated as income by Ld. AO, he ought to have held that same is not taxable being capital receipt.”
3. The assessee Trust has filed its return of income for the Assessment Year (A.Y.) 2018-19 on 30.08.2018 declaring total income of Rs.1,08,550/- after claiming exemption under Section 11 of the Income Tax Act, 1961. The assessee vide its application dated 29.08.2020 requested that the corpus of Rs.6,00,000/- was by mistake considered as income but it was a voluntary contribution from members forming part of Corpus of Trust. The Assessing Officer observed that the trust wanted to apply for 12AA registration under the Income Tax Act, 1961. The Assessing Officer, after careful consideration of the application of the assessee, held that trust is not eligible for exemption under Sections 11 & 12 of the Act as the trust is not having registration under Section 12AA of the Act. Therefore, exemption under Section 11(1)(d) for corpus donation is not allowable in the case of the assessee. Thus, the Assessing Officer held that the trust is liable to tax at maximum marginal rate under section 164 as it is not registered under Section 12AA of the Act. The application under Section 154 of the Act was rejected by the Assessing Officer vide order dated 03.09.2020.
4. Being aggrieved by the Order under Section 154 of the Act, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
5. The Ld. AR submitted that the assessee trust is not registered under Section 12AA of the Act nor with The Charity Commissioner. As the said trust is association of persons, 64 persons have joined hands together and contributed Rs.6,40,000/- to common pool by making voluntary contribution towards corpus of trust. In other words, this is a kind of mutual association having common intention and hence contribution made by them to common fund cannot be considered as income of common fund. Considering all previous judgement on the issue, in recent decision in Income Tax Officer (Exemptions), Ward-2, Pune vs. Serum Institute of India Research Foundation (2018) 90 com 229 (Pune Tribunal), the Tribunal has held that voluntary contribution received towards corpus by unregistered trust under Section 12A is capital receipt and not taxable. The Ld. AR further submitted that the amount of voluntary contribution received towards corpus of trust was received in earlier years by trust and not in assessment year under consideration. The Ld. AR pointed out the said aspect from the ledger account from books of the trust as well as audited account. Ld. AR further submitted that the trust has commenced aits activities since long time, however, formal deed was not created and executed, which was created and executed on 02.09.2017. Hence, funds already lying in bank account of the said trust were taken as opening balance in books of accounts. Therefore, the Ld. AR submitted that the CIT(A) erred in confirming the addition of voluntary contribution forming part of the corpus fund received in earlier years and treating the same as income and the CIT(A) should not have held that the same is taxable being capital receipt.
6. The Ld. DR submitted that the trust was not a registered trust under Section 12AA of the Act. Ld. DR further submitted that regarding opening balance contention that the assessee was having voluntary contribution in the previous years are not justifiable as the bank account was opened in the present year and the cash derived was not explained by the assessee.
7. Heard both the parties and perused all the relevant material available on record. There is a delay of 119 days in filing the present appeal for which the assessee has filed condonation of delay application thereby giving valid reasons. The reasons appear to be genuine for non-filing of the appeal within the stipulated time and hence the delay is condoned. It is pertinent to note that from the perusal of trust deed an amount of Rs.6,40,000/- was contributed by 64 persons of whom the signatures were attached to the trust deed and these are from common pool by making voluntary contribution towards corpus of trust. This aspect was not disputed by the Revenue and, therefore, the decision of Serum Institute of India Research Foundation passed by the Tribunal is applicable in the present case as the Tribunal in the said case held that the corpus donation is considered to be in the nature of capital receipt and is not taxable irrespective of fact that the assessees is reregistered under Section 12AA or not. Therefore, the assessee’s case is also identical and there is no distinguishing fact pointed out by the Ld. DR at the time of hearing. Appeal of the assessee is thus allowed.
8. In the result, appeal filed by the assessee is allowed.
Order pronounced in the open Court on this 16th June, 2023.
