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2010 (3) TMI 854 - HC - Income TaxCorpus Donation - Exemption under section 11 of the Income-tax Act - Assessing Officer found that the assessee had not maintained proper books of account and that the assessee was receiving cash from unknown sources which was not explained properly Tribunal allowed exemption - Held that - Assessee was not able to give the name and address of the donors as well as the mode payments, etc., the fact that such amount has been received by the trust is not in dispute. The Tribunal in fact has not accepted the contention of the assessee that the said donation has to be treated as corpus donation. On the other hand, the Tribunal has held that the said amount since it has come from third parties the same could have to be treated as income. However, if the said amount is utilised or expended for charitable purpose, then the said amount would be eligible for exemption under section 11(1)(d) of the Act. The Tribunal rightly rejected the claim of the assessee to treat the said amount as corpus donations and has correctly granted the relief under section 11(1)(d) on this aspect of the matter also, substantial questions of law raised in this appeal will have to be answered against the Revenue.
Issues:
Challenge to order denying exemption under section 11 of the Income-tax Act, 1961 for an association of persons for the assessment year 2001-02. Detailed Analysis: 1. The appeal was filed by the Revenue challenging the order denying exemption under section 11 of the Income-tax Act, 1961 for the assessment year 2001-02. The Assessing Officer found discrepancies in the maintenance of accounts by the assessee, including unexplained cash receipts and denied the exemption. The Commissioner of Income-tax (Appeals) upheld this decision, which was further appealed to the Income-tax Appellate Tribunal. The Tribunal ruled in favor of the assessee, stating that the organization's dominant object was charitable and held a valid registration under section 12A of the Act, entitling it to benefits under section 11. 2. The Tribunal also addressed specific amounts disallowed by the Assessing Officer, including donations from students, corpus donations, and cash credits. The Tribunal found in favor of the assessee on these issues, leading to the formulation of substantial questions of law for the appeal. 3. The key questions raised in the appeal included whether donations received from students violated the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, whether corpus donations were contrary to section 11(1)(d) of the Act, and whether the organization was entitled to exemption under section 11 despite the Assessing Officer's disallowances. 4. The Revenue argued that the organization, an educational trust, was prohibited from receiving donations from students under the Karnataka Educational Institutions Act and failed to provide sufficient evidence for corpus donations. The Revenue contended that the Tribunal erred in reversing the findings on these aspects. 5. In response, the assessee argued that the donations were not capitation fees and were eligible for exemption. Regarding corpus donations, the assessee maintained that the trust's reputation and nature warranted such contributions, qualifying for exemption under section 11(1)(d) of the Act. 6. The High Court examined the arguments and evidence presented. It found that the Revenue's contentions lacked sufficient support and that the donations were not linked to seat allotments. The Court upheld the Tribunal's decision, granting relief to the assessee. 7. Regarding corpus donations, the Court acknowledged the lack of detailed donor information but recognized the receipt of the amount by the trust. The Court agreed with the Tribunal's decision to treat the donations as income, eligible for exemption under section 11(1)(d) if used for charitable purposes. 8. Consequently, the High Court ruled in favor of the assessee, dismissing the appeal by answering the substantial questions of law against the Revenue. The judgment affirmed the Tribunal's decision to grant exemption under section 11 to the organization.
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