2014 (5) TMI 1031 - AT - Income Tax

Capital receipt or Revenue receipt - Corpus fund - Held that - The capital fund of a charitable society is built-up mainly by the life membership fee. This is more true in respect of associations like assessee. The assessee is a society of practising anaesthesiologists. Therefore, among other items, the life membership fee contributed by the members is also capital fund of the society. There should not be any doubt that the life membership fee always remains as contribution to the corpus fund of the society. The amount received by the society towards award fund is a specific fund. The contribution received to that specific fund is accumulated as capital fund in the accounts of the assessee-society and interest income arising out of that fund is used by the society for giving awards. Therefore, it is to be seen that contribution made towards award fund is not a voluntary donation conceived under section 12, but, corpus donation explained in section 12(1) of the Income-tax Act, 1961. - The said award fund stands separate and even though technically not termed as corpus fund, it is in the nature of capital fund and by virtue of that nature, it always stands in pari passu with capital fund of the assessee-society. This is the same case with the amounts received towards IJA fund and WSJA fund. Those funds are specifically created for procuring journals, books and other professional materials for the development of practising anaesthesiologists. - all the four items objected to by the Assessing Officer are essentially part of the capital fund and therefore, have to be considered as corpus of the assessee-society. These are all specific funds for fulfilling specific objectives. Further, all those funds always remain as capital funds and those funds are used only for the purpose of fulfilling the objectives for which those separate funds are constituted. - lower authorities have grossly erred in treating the above stated four funds as voluntary contributions in the nature of income as provided under section 12 of the Income-tax Act, 1961. We set aside the findings of the lower authorities. We direct the Assessing Officer to treat the four funds as capital funds and exclude them from the computation of income for the impugned assessment year. - Decided in favour of assessee.

Summary

Issues Involved:
Assessment of specific funds as capital or income under the Income-tax Act, 1961.

Detailed Analysis:

Assessment Year and Background:
The appeal pertains to the assessment year 2007-08 and challenges the order of the Commissioner of Income-tax (Appeals) at Salem, passed on December 31, 2013, regarding the assessment completed under section 143(3) of the Income-tax Act, 1961.

Nature of the Assessee:
The assessee is a society registered under the Societies Registration Act and also registered under section 12AA of the Income-tax Act, 1961, with both registrations still in force.

Receipt of Specific Funds:
In the relevant year, the assessee received funds for various purposes, including award fund, IJA fund, WSJA fund, and life membership fees, totaling Rs. 43,43,771.

Dispute Over Classification of Receipts:
The assessee treated these receipts as capital forming part of the corpus fund, while the Assessing Officer considered them as general income without specific directions under section 11(1)(d), categorizing them as voluntary contributions under section 12.

Judicial Review and Interpretation:
The Commissioner of Income-tax (Appeals) upheld the Assessing Officer's position, leading to the appeal before the Appellate Tribunal. The Tribunal analyzed the term "corpus fund" and its exclusion from voluntary contributions under section 12(1) of the Income-tax Act, emphasizing the capital nature of corpus donations for charitable societies.

Interpretation of "Corpus Fund":
The Tribunal delved into the concept of "corpus" and its significance as the capital fund of a charitable society, distinct from revenue funds. It highlighted that corpus donations are essential for building the capital fund and are not to be treated as income.

Specific Fund Analysis:
The Tribunal examined each specific fund, such as the award fund, IJA fund, and WSJA fund, emphasizing their distinct purposes and capital nature. It concluded that these funds constitute the capital of the society and are utilized for specific objectives, thus falling outside the purview of voluntary contributions.

Decision and Ruling:
The Tribunal overturned the lower authorities' decision, directing the Assessing Officer to treat the funds as capital and exclude them from income computation for the assessment year. The appeal by the assessee was allowed, rendering other grounds raised in the appeal unnecessary for consideration.

Conclusion:
In summary, the Appellate Tribunal ruled in favor of the assessee, recognizing the specific funds as capital contributions rather than income under the Income-tax Act, 1961, based on the nature and objectives of the funds as essential components of the society's corpus fund.