2016 (8) TMI 1532 - AT - Income Tax

Exemption u/s 11 - assessability of Voluntary Corpus Donations received by the assessee during the year under consideration - registration under section 12A - HELD THAT - The year under appeal is assessment year 2011-12, wherein the order of assessment under section 143(3) of the Act was passed on 16.12.2013 i.e. after the date of filing the application for registration under section 12A of the Act on 12.11.2013. On the date when the application for registration was moved u/s 12A of the Act, the assessment proceedings relating to instant assessment year were pending. Admittedly, the objects and activities of trust remains the same i.e. running of an old age home and there is no change in that. Whether the assessee since has been granted registration under section 12A of the Act in lieu of application moved on 12.11.2013, on which date the assessment proceedings were pending, then whether the assessee is entitled to the claim of exemption under sections 11 and 12 of the Act ? - The answer to the same is yes, in view of proviso inserted under section 12A(2) of the Act. The proviso very clearly provides that in case the assessment proceedings were pending and the assessee has been granted registration under section 12A of the Act, then the provisions of sections 11 and 12 of the Act would apply to such income derived from any property under the trust, of any assessment year, for which the assessment proceedings were pending. Applying the said ratio to the facts of the present case, we hold that the assessee is entitled to the aforesaid claim. We find support from the ratios laid down by Kolkata Bench of Tribunal in Sree Sree Ramkrishna Samity Vs. DCIT 2015 (11) TMI 119 - ITAT KOLKATA and Shree Bhanushali Mitra Mandal Trust Vs. ITO 2016 (4) TMI 578 - ITAT AHMEDABAD Departmental Representative for the Revenue on the other hand, has placed reliance on the ratio laid down by Cochin Bench of Tribunal in Al-Madeena Charitable Trust Vs. ACIT 1999 (11) TMI 104 - ITAT COCHIN wherein the said trust was engaged in the business of printing newspaper and it was held that it had not carried out any charitable activities and hence, it was held to be not entitled to the benefit of section 11 of the Act in respect of income as well as its voluntary contributions received towards corpus - in the facts of the present case, the assessee has received the corpus donations and has utilized the amount for purchase of land to the extent which has been referred to by the CIT(A) and in the totality of the above said facts and circumstances of the case, we find no merit in the orders passed by the authorities below and reversing the same, we hold that the assessee is entitled to the claim of deduction under sections 11 and 12 of the Act. The grounds of appeal raised by the assessee are thus, allowed.

Summary

Issues Involved
1. Computation of total income.
2. Taxability of Voluntary Corpus Donations without registration under section 12A.
3. Adoption of general principles of taxation and accounting for determining income.

Issue-wise Detailed Analysis

1. Computation of Total Income
The primary issue was whether the CIT(A)-I, Pune erred in computing the total income of the appellant at ?5,28,86,710/- as against ?28,56,705/- declared by the appellant in its revised return. The appellant trust initially declared a taxable income of Nil, claiming exemptions under sections 11 and 12 of the Income-tax Act, 1961. However, the Assessing Officer (AO) denied these exemptions due to the absence of registration under section 12A, resulting in the inclusion of corpus donations amounting to ?5,00,30,000/- as taxable income. The AO treated these donations as income under section 2(24) of the Act and assessed the total income accordingly.

2. Taxability of Voluntary Corpus Donations without Registration under Section 12A
The appellant argued that voluntary corpus donations received with specific directions should be treated as capital receipts and not taxable, even in the absence of registration under section 12A. The AO and CIT(A) held that without registration under section 12A, the appellant could not claim exemptions under sections 11 and 12, making the corpus donations taxable. The CIT(A) emphasized that the definition of income under section 2(24) included voluntary contributions, and without registration, the appellant could not benefit from the exemptions under section 11(1)(d).

Upon appeal, the Tribunal considered the proviso under section 12A(2), effective from 01.10.2014, which allows exemptions for assessment years preceding the year of registration if the assessment proceedings were pending as of the registration date. The Tribunal noted that the appellant's application for registration was pending during the assessment proceedings, and the registration was eventually granted, thus entitling the appellant to exemptions under sections 11 and 12 for the assessment year 2011-12.

3. Adoption of General Principles of Taxation and Accounting
The appellant contended that the CIT(A) should have adopted general principles of taxation and accounting, allowing deductions for corresponding expenditures necessary to carry on activities. The CIT(A) rejected this plea, stating that the corpus donations were utilized for capital expenditure (purchase of land) and not for operational expenses. The Tribunal, however, held that since the appellant had received registration under section 12A, the exemptions under sections 11 and 12 applied, and the corpus donations should not be taxed.

Conclusion
The Tribunal allowed the appeal, holding that the appellant was entitled to claim exemptions under sections 11 and 12 of the Act for the assessment year 2011-12, given the registration under section 12A was granted and related back to the date of application. Consequently, the corpus donations were not taxable, and the appellant's revised total income of ?28,56,705/- was accepted. The grounds of appeal raised by the appellant were thus allowed, reversing the orders passed by the AO and CIT(A).