2013 (11) TMI 1594 - HC - Income Tax

Entitlement to claim exemptions as a charitable institution under section 11 - Held that - The recipient has accounted the receipt as the amount receive towards building funds and thereafter a separate account is maintained for the said amount. Form this it could be inferred that there is a Specific direction by the donor . The said amount is used as part of the corpus. It may be possible that in a given case the provision may be abused and unaccounted monies could be converted into corpus fund without furnishing the particulars of the person who are contributing and to avoid tax liability to have benefit of exemption but that is a question of fact. The court has to decide on the material available on record whether the said provision is abused in the aforesaid manner or not. In the absence of any material to show that the said provision is abused and if it is demonstrated that the educational institution has collected money in the form of voluntary contributions from public and may be from the parents of the students who are studying in the institution and when they have issued receipts acknowledging the said amount towards building fund and made requisite entries in the books and deposited the same in the bank if the court is satisfied with the genuineness of the transaction it is well within the power of judicial authority to hold that the requirement of Section 11(1)(d) of the Act is fulfilled and the assessee in entitled to be exempted. In the fact of the case we are satisfied from the material on record that these voluntary contribution made by the public to the assessee was with a specific direction to use the name for building purpose and therefore the said donations shall form part of the corpus of the trust and assessee is entitled to the benefit under Section 11 of the Act.

Summary

Issues:
1. Exemption under Section 11 of the Income Tax Act for donations collected by a charitable trust towards a specific fund.
2. Requirement of specific directions from donors for donations to be considered as part of the corpus fund of the trust.

Analysis:
1. The judgment revolves around the appeal challenging the order passed by the Tribunal regarding the exemption claimed by a charitable trust under Section 11 of the Income Tax Act for donations collected towards a specific fund, i.e., corpus fund. The trust allowed its assets to be used by another association for educational purposes and collected donations for a building fund, claiming exemption under Section 11. The Assessing Officer denied the exemption, treating the donations as taxable income under Section 68. However, the First Appellate Authority ruled in favor of the trust, stating that the donations were for a specific purpose and exempt under Section 11. The Tribunal upheld this decision, emphasizing that the donations were for a corpus fund and the trust was eligible for exemption as a charitable institution under Section 11, dismissing the revenue's appeals for multiple years.

2. The key issue raised was whether donations received by the trust without specific directions from donors could be considered part of the corpus fund and eligible for tax exemption under Section 11. The revenue contended that without explicit directions from donors, the donations should not be exempt. In contrast, the trust argued that the donations were received over many years, with receipts issued for amounts exceeding certain thresholds, indicating the purpose of the donation. The appellate authorities found that the trust had accounted for the donations, maintained separate accounts, and utilized the funds for building purposes, satisfying the requirement of a specific direction towards the corpus fund under Section 11(1)(d) of the Act. The court upheld the authorities' decision, emphasizing that the genuineness of the transactions and the trust's compliance with accounting practices justified the exemption, concluding that the donations formed part of the corpus fund and the trust was entitled to the benefit under Section 11.

In conclusion, the judgment clarifies the conditions for tax exemption under Section 11 of the Income Tax Act concerning donations collected by charitable trusts towards specific funds. It underscores the importance of maintaining proper records, demonstrating specific directions for donations, and ensuring compliance with legal requirements to qualify for exemptions as a charitable institution.