2010 (1) TMI 699 - AT - Income Tax

Receipt of donation - voluntary donation or towards corpus - for construction of the building - Held that - The manner in which such donations have been collected by the assessee is not disputed by the AO. The only dispute is that the assessee could not provide the names and addresses of individual donors who have contributed towards building construction fund . Quite clearly the donations are being collected from the devotees at large and the insistence of the AO of production of individual names and addresses is not justified. Moreover the bona fides of such practice being carried out by the assessee either in the past or during the year under consideration is not doubted. Therefore in our considered opinion having regard to facts and circumstances of the case the donations to the extent of Rs. 40, 55, 480 collected by the assessee can be considered as carrying specific directions for being used for construction of building. Ostensibly the devotees putting money in the donation box did so in the face of the appeal by the society that the amounts collected would be used for construction of building. In such circumstances the plea of the assessee that it should be taken as donation towards the corpus is reasonable. - Decided in favor of assessee.

Issues Involved:
1. Addition of Rs. 40,55,480 by the AO.
2. Eligibility of the assessee for benefits under sections 11 and 12 of the Act.
3. Classification of donations received as voluntary contributions or corpus donations.

Detailed Analysis:

1. Addition of Rs. 40,55,480 by the AO:
The primary dispute in this appeal is the addition of Rs. 40,55,480 made by the AO to the assessee's income. The AO treated the said amount as voluntary donations rather than corpus donations, citing a lack of evidence showing that the donations were specifically directed for building construction. The assessee argued that the donations were received with specific directions for building construction and thus should not be treated as voluntary contributions. The CIT(A) upheld the AO's decision, stating that the assessee failed to provide requisite details or documentary evidence to prove the specific direction for building construction.

2. Eligibility of the Assessee for Benefits under Sections 11 and 12 of the Act:
The AO also noted that the CIT granted registration under section 12AA of the Act effective from 1st April 2007, which would mean the benefits under sections 11 and 12 were not available for the year under consideration (2006-07). However, the assessee later obtained an order from the CIT revising the registration date to 28th February 2002, making the assessee eligible for benefits under sections 11 and 12 for the year under consideration. This factual matrix was uncontroverted by the Revenue, making the assessee eligible for the benefits, subject to fulfilling the requisite conditions.

3. Classification of Donations Received as Voluntary Contributions or Corpus Donations:
The assessee claimed that the donations of Rs. 40,55,480 were received with specific directions to be used for building construction and thus should form part of the corpus, making them exempt from being treated as income under section 12(1) of the Act. The assessee supported this claim with evidence of a system where different donation boxes were kept for different purposes, including building construction, and resolutions and certificates from local authorities confirming this practice. The AO's insistence on providing specific names and addresses of donors was deemed unjustified given the nature of the donations collected from the public at large.

The Tribunal considered the facts and circumstances, including the resolution of the society and the practice of collecting donations in earmarked boxes, and concluded that the donations were indeed received with specific directions for building construction. Hence, they should be treated as corpus donations and not as income for the purposes of sections 11 and 12 of the Act.

Conclusion:
The Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition of Rs. 40,55,480, allowing the appeal of the assessee. The donations were deemed to have been received with specific directions for building construction and thus were part of the corpus of the appellant society, exempt from being treated as income under section 12(1) of the Act.

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