2014 (10) TMI 1033 - AT - Income Tax

Exemption u/s 11 - Corpus donation - whether is taxable as income or not even in the cases in which the trust is not registered under section 12AA ? HELD THAT - As decided in M/S. GAUDIYA GRANTH ANUVED TRUST 2013 (8) TMI 875 - ITAT AGRA corpus donation is in the nature of a capital receipt and are not taxable, irrespective of the fact whether the trust is registered under section 12AA or not. CIT (Appeals) considering the material on record gave a specific finding of fact that the assessee society was meant for charitable and religious purposes and was totally devoted to the Buddhist temple/monastery in the year under consideration. The assessee was thus at the stage of construction of the temple and has not carried out any other profession or occupation for earning the income. Therefore, no income accrues to the assessee. The assessee has also specifically pleaded that the donations were received as corpus towards the construction of the temple. Therefore, the learned CIT (Appeals) was justified in holding that there is no receipts in the hands of the assessee in the nature of income - Decided against revenue.

Summary

Issues:
1. Condonation of delay in filing departmental appeals.
2. Treatment of donations as taxable revenue receipts.
3. Treatment of expenditure for construction as capital expenditure.
4. Classification of the assessee as a non-charitable AOP.
5. Application of sections 11 and 12 of the Income Tax Act.
6. Justification for deleting the additions made by the Assessing Officer.

Condonation of Delay in Filing Departmental Appeals:
The departmental appeals were filed 8 days beyond the time limit. The Assessing Officer explained the delay due to receiving the order late, which was accepted by the bench. The delay was deemed unintentional, and the appeals were allowed after condonation.

Treatment of Donations as Taxable Revenue Receipts:
The appellant, a Tibetan Buddhist Temple, received donations for constructing a monastery. The Assessing Officer treated these donations as taxable income, despite the appellant's claim that all receipts were of capital nature and used for construction purposes only. The CIT (Appeals) deleted the additions, emphasizing that no income accrued as the temple was under construction and no other income was generated.

Treatment of Expenditure for Construction as Capital Expenditure:
The Assessing Officer disallowed expenditure for monastery construction as capital expenditure. The CIT (Appeals) found the Assessing Officer's actions misdirected, stating that the donations were meant for construction only and no income was earned. The additions were deemed baseless and were deleted.

Classification of the Assessee as a Non-Charitable AOP:
The Assessing Officer treated the appellant as an AOP and taxed the donations as income. However, the bench found that the appellant, being a society for charitable and religious purposes, did not earn income as the donations were solely for constructing a monastery. The bench emphasized that the provisions of sections 11 and 12 would apply only if the appellant was registered under section 12AA.

Application of Sections 11 and 12 of the Income Tax Act:
The Assessing Officer applied section 12(1) to treat donations as income, despite the appellant's non-registration under section 12A. The bench held that without registration under section 12AA, sections 11 and 12 would not apply. The bench also noted that the appellant did not generate any income apart from construction-related donations.

Justification for Deleting Additions by the Assessing Officer:
The CIT (Appeals) correctly deleted the additions made by the Assessing Officer. The bench found no merit in the departmental appeal, as the appellant did not earn any income and the donations were used exclusively for construction. The bench dismissed the appeals filed by the Revenue and the Cross Objections filed by the assessee were also dismissed.

The judgment highlights the importance of correctly interpreting the Income Tax Act provisions concerning charitable institutions and the treatment of donations for specific purposes. It underscores the necessity for proper documentation and adherence to legal requirements to avoid erroneous tax assessments.