2014 (4) TMI 1008 - HC - Income Tax

Allowability of exemption u/s 11 of the Act Building fund received as donations to be treated as income u/s 68 of the Act or not Held that - An opportunity was given to the Revenue to substantiate their contentions and asked to verify the Bank Accounts furnished by the assessee- Revenue informed that the details of the donations received through Cheques is in accordance with law the assessee is the charitable trust - any voluntary contribution received by a Trust created wholly for charitable or religious purpose shall be deemed to be income derived from property held under the Trust wholly for charitable and religious purpose. Relying upon Director of Income-Tax (Exemption) Versus Keshav Social And Charitable Foundation 2005 (2) TMI 84 - DELHI High Court the amounts were used for charitable purposes even though the assessee failed to disclose the names and addresses of the donors - the amount was utilized by the Trust wholly for the charitable or religious purposes, the assessee has fulfilled the condition imposed u/s 11 of the Act - Section 11 contemplates that any income derived from property held under Trust wholly for charitable or religious purposes, to the extent to which, such income is applied to such purposes is exempted u/s 11(1)(a) of the Act - the assessee is a charitable Trust and its income is to be exempted u/s 11 of the Act there was no infirmity in the order of the Tribunal Decided against Revenue.

Summary

Issues:
1. Reopening of assessment under Section 148 of the Income Tax Act for assessment years 2001-02 and 2002-03.
2. Treatment of donations received towards building fund as unexplained credit under Section 68 of the Act.
3. Entitlement for exemption under Section 11 of the Act for the donations received.

Analysis:
1. The case involves the Revenue filing appeals under Section 260A of the Income Tax Act, challenging the order passed by the Income Tax Appellate Tribunal and the Commissioner of Income Tax for assessment years 2001-02 and 2002-03. The appeals were based on the reopening of the assessment under Section 148, which the assessee contended was contrary to law and barred by limitation. The Appellate Authority set aside the order of the Assessing Authority, holding that the donations received towards the building fund were entitled to exemption under Section 11 of the Act.

2. The main contention revolved around the treatment of donations received towards the building fund as unexplained credit under Section 68 of the Act. The Assessing Officer assessed the donations as unexplained credit, alleging that the assessee failed to produce the donors and that letters to donors were returned unserved. However, the Appellate Authority and Tribunal found that the donations were utilized for construction and charitable purposes, with a significant portion received through cheques. Citing relevant case law, it was established that even without complete donor details, if the donations were utilized for charitable purposes, exemption under Section 11 of the Act applied.

3. The crux of the issue was the entitlement for exemption under Section 11 of the Act for the donations received. The Tribunal and Appellate Authority found that despite incomplete donor information, the donations were utilized for charitable purposes, meeting the conditions of Section 11. The Court cited judgments supporting this view and emphasized that the donations were used for charitable activities, fulfilling the requirements for exemption under Section 11. The Court held that the assessee, being a charitable Trust, had not violated any conditions of Sections 11 and 12 of the Act, and thus dismissed the appeals filed by the Revenue.

In conclusion, the judgment upheld the entitlement of the assessee for exemption under Section 11 of the Income Tax Act for the donations received towards the building fund, emphasizing the utilization of funds for charitable purposes despite incomplete donor information. The Court found no irregularity in the orders passed by the Tribunal and the Appellate Authority, dismissing the appeals filed by the Revenue.