1994 (7) TMI 355 - AT - Income Tax

Summary

Issues:
1. Whether donations received by a Public Charitable Trust with specific directions to form corpus of the trust are taxable as income.
2. Whether expenses incurred by the trust for buying movable properties are allowable as deductions.

Analysis:
1. The appeal and cross-objection arose from the order of the CIT(A), II Rajkot, regarding donations received by a Public Charitable Trust. The Revenue contended that donations of specific amounts towards "Bldg. Fund A/c" and "Kayami Fund A/c" constituted income under s. 2(24)(iia) of the Act. However, the CIT(A) found that the donations were received with specific directions to form the corpus of the trust, based on receipts issued by the trust. Citing precedents, the CIT(A) directed the Assessing Officer to delete the additions of the donated amounts.

2. The Revenue argued that the donations were voluntary contributions and should be considered income of the trust. The assessee trust maintained that the donations were specifically for the corpus of the trust, supported by receipts indicating the purpose of the donations. The Tribunal analyzed the nature of the donations towards "Bldg. Fund A/c" and "Kayami Fund A/c," concluding that they constituted the corpus of the trust. Relying on legal precedents, the Tribunal held that voluntary contributions with specific directions to form part of the corpus of the trust do not fall within the purview of taxable income under s. 12 of the Act.

3. Regarding the disallowance of expenses amounting to &8377; 42,922 by the ITO, the CIT(A) allowed the deduction, considering the expenses were incurred for running and maintenance of the trust. The Tribunal upheld the CIT(A)'s decision, stating that the expenses were for buying movable properties for the trust's objectives and were therefore allowable deductions.

4. The Tribunal dismissed the cross-objection filed by the assessee as it merely supported the order of the CIT(A). In conclusion, the Tribunal upheld the CIT(A)'s decision, dismissing both the appeal and the cross-objection.

In summary, the Tribunal ruled in favor of the assessee trust, holding that donations with specific directions to form part of the trust's corpus are not taxable as income. Additionally, the expenses incurred for the trust's objectives were allowed as deductions, as they were deemed necessary for the running and maintenance of the trust.