2019 (8) TMI 456 - HC - Income Tax

Exemption u/s 11 - corpus donations whether regarded as income under Section 2(24)(iia) ? - HELD THAT - Substantial question of law which is sought to be raised by revenue would not arise for consideration, as it is a question of fact which has been resolved by First Appellate Authority as well as Tribunal in favour of assessee, by arriving at a conclusion that voluntary contribution received for a specific purpose cannot be regarded as income under Section 2(24)(iia) since they are capital receipt and tied up grants for specific purpose. Tribunal noticed that assessee has considered the said voluntary contribution as a loan and had refunded the same to the donors though would not have any relevancy to the facts on hand, since it is held that this is a capital receipt and cannot be regarded as income under Section 2(24)(iia) of the Act and it would be immaterial as to whether same amount was converted by the assessee as loan and refunded to the donors. Tribunal has held, and rightly so, that said amount cannot be subjected to tax on the ground that assessee was not granted registration under Section 12-AA of the Act, inasmuch as, assessee did not claim eligible for exemption under Section 11 of the I.T. Act, but on the other hand, claim of the assessee was to the affect that it was a voluntary contribution and not liable to tax and it is not an income.

Summary

Issues:
Assessment of income under Section 11 of the Income Tax Act, 1961 for a trust claiming exemption. Application for registration under Section 12-AA rejected. Addition of net gross receipts by assessing authority. Appeal before Commissioner of Income Tax (Appeals) allowed. Appeal by Revenue before Commissioner of Income Tax Appellate Tribunal (ITAT) dismissed. Question of law regarding treatment of voluntary contributions as income under Section 2(24)(iia).

Analysis:

1. Assessment of Income under Section 11: The assessee, claiming to be a trust, filed its return of income for the assessment year 2010-2011 declaring nil income. The source of income claimed by the assessee was donations, corpus, and entrance/membership fees, seeking exemption under Section 11 of the Income Tax Act, 1961. However, the application for registration under Section 12-AA was rejected due to the failure to produce necessary documents.

2. Addition of Net Gross Receipts: Subsequently, re-assessment proceedings were initiated under Section 143(3) read with Section 147 of the Income Tax Act, 1961. The assessing authority added net gross receipts amounting to ?2,53,80,309, not applying the principle of mutuality to the assessee, considered as an AOP (Charitable Trust). The Commissioner of Income Tax (Appeals) allowed the appeal filed by the assessee, granting relief by considering a different amount of ?2,52,59,808.

3. Treatment of Voluntary Contributions: The Revenue appealed before the Commissioner of Income Tax Appellate Tribunal (ITAT), challenging the addition of net gross receipts. The Tribunal dismissed the appeal, relying on previous orders and holding that corpus donations cannot be treated as income under Section 2(24)(iia) of the Act. The Tribunal emphasized that voluntary contributions for a specific purpose are capital receipts and not taxable income.

4. Legal Interpretation: The Tribunal concluded that the amount in question could not be taxed as the assessee did not claim eligibility for exemption under Section 11 of the Income Tax Act. The voluntary contributions were treated as capital receipts and not income, following the precedent set in earlier cases. The Tribunal's decision was based on the principle that specific purpose donations are not liable to tax as they are considered capital receipts.

5. Final Decision: Given the facts and legal precedents, the High Court held that there was no substantial question of law to be addressed in the appeal. The decision of the ITAT in a similar case had already been finalized, and the issue at hand was adequately covered by previous judgments. Consequently, the appeal was dismissed, confirming the ITAT's order for the assessment year 2010-11 without imposing any costs.