2017 (12) TMI 111 - AT - Income Tax

Non eligibility of exemption u/s 11 - donations received for specific purpose - voluntary contribution received by Trust as income of the Trust as per section 2(24)(iia)? - Held that - The donations were received for specific purpose for acquiring the fixed assets. This is evidenced by the letters placed before us from the donors. The funds are not freely available to the assessee society, for utilizing its objectives other than acquiring specified assets. The entire amount received for acquiring the fixed assets was utilized by the assessee and there are no surplus funds available to the assessee. The above facts are not disputed by the Ld.DR. The fact that the amount was utilized was evidenced by the Balance Sheet, thus the facts of the case is squarely covered by the decision of the Coordinate Bench of Bangalore in the case of Vokkaligara Sangha 2015 (8) TMI 920 - ITAT BANGALORE , wherein the Coordinate Bench held that contributions received for specific purpose cannot be regarded as income u/s 2(24)(iia) of the act. Respectfully following the view taken by the ITAT, Bangalore, we hold that the donations received for specific purpose of acquiring the capital assets are tied up grants and cannot be treated as income u/s 2(24)(ii)(a) of I.T.Act. Accordingly, we set aside the orders of the lower authorities and allow the appeal of the assessee

Summary

Issues Involved:
1. Eligibility for exemption under Section 11 of the Income Tax Act.
2. Taxability of voluntary contributions received for a specific purpose.
3. Treatment of corpus donations as income under Section 2(24)(iia) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Eligibility for Exemption under Section 11 of the Income Tax Act:
The appellant, a registered trust, sought exemption under Section 11 of the Income Tax Act. The application for registration under Section 12AA was filed on 31.03.2011 and granted effective from that date. For the assessment year 2010-11, the Assessing Officer (AO) noted the absence of registration under Section 12A, thus denying the exemption under Section 11 and treating the trust as an "Association of Persons (AOP)" for tax purposes.

2. Taxability of Voluntary Contributions Received for a Specific Purpose:
The trust received donations amounting to ?1,49,26,785, including ?92,81,499 for the corpus. The AO taxed the entire amount as income under Section 2(24)(iia) due to the lack of exemption under Section 11. The CIT(A) upheld the AO's decision, stating that voluntary contributions, including corpus donations, form part of the trust's income post the amendment to Section 2(24)(iia) effective from 01.04.1989. However, the appellant argued that the donations were received for specific purposes (acquisition of fixed assets) and should be treated as capital receipts, not taxable as income.

3. Treatment of Corpus Donations as Income under Section 2(24)(iia) of the Income Tax Act:
The CIT(A) confirmed the AO's view that corpus donations are taxable as income if the trust fails to meet the conditions under Sections 11 and 12A. The appellant contended that tied-up grants for specific purposes should not be considered income, citing various judicial precedents. The ITAT referred to several cases, including the Hyderabad Bench's decision in J.B. Educational Society and the Delhi High Court's ruling in DIT vs. Society for Development Alternatives, which supported the appellant's stance that specific-purpose donations are capital receipts, not income.

Conclusion:
The ITAT concluded that the donations received for specific purposes (acquisition of fixed assets) are tied-up grants and cannot be treated as income under Section 2(24)(iia). The appeal was allowed, setting aside the lower authorities' orders. The ITAT emphasized that voluntary contributions for specific purposes are capital receipts and not taxable as income, aligning with the legal precedents and the factual evidence presented by the appellant.