2019 (10) TMI 306 - AT - Income Tax

Addition u/s 68 to the case of society - Corpus donations receipts - Assessee is a society registered under the UP Society registration Act is a society registered under the UP Society registration Act - AR argued that Section 68 cannot be invoked when the trust has maintained the details of the donors and addition can only be done u/s 115BBC of the Act and Section 68 is not applicable to the case of society - HELD THAT - The assessee s contention that after the introduction of Section 115BBC, Section 68 is not applicable to the case of society is also equally faulty. Ld.CIT(A) held that Section 115BBC acts in domain of anonymous donation as referred earlier; while Section 68 is applicable in the domain of any cash credit, including any donation or voluntary contribution in case assessee is not able to explain the source properly. Even if names and addresses of the creditors/donors are furnished; still the proof regarding identity of the donors, and the genuineness of transaction showing such donation, and, above all, creditworthiness of such donors-are essential to be laid down before the AO. Thus, it was held that Section 115BBC and Section 68 are mutually exclusive and can both operate in their own domain as per facts and circumstances of the case. In the case of Shree Shiv Vankeshawar Educational Social Welfare Trust Vs ACIT 2019 (5) TMI 1057 - ITAT DELHI it was held that corpus donation is never credited to the income and expenditure account of the trust whereas the normal donation is credited to the income and expenditure account as income. If a normal donation is doubted by the AO about its genuineness, and identity of the donors, the addition cannot be made u/s 68 of the income tax act in the case of the trust as it has already been offered as an income. The anonymous donations will not be covered if donations received by any trust or institution created or established wholly for religious purposes or donations received by any trust or institution created or established for both religious as well as charitable purposes other than any anonymous donation made with a specific direction that such donation is for any university or other educational institution or any hospital or other medical institution run by such trust or institution. Donations /voluntarily contributions received by a trust created wholly for a charitable or religious purpose (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purpose Section 11 of the Act deemed it to be the income derived from the property held under trust wholly for charitable or religious purposes in the provisions of Sections 11 13 of the Act shall apply accordingly. The assessee offers the donations to income and incurs expenditure for the purpose of the trust, no addition u/s 68 of the Act is warranted. However, the judgments do not accord any such privilege to the corpus donations received by the trust or institution. The judgment of Keshav Social and Charitable Foundation 2005 (2) TMI 84 - DELHI HIGH COURT specifically excluded corpus donations and held that only the donations included in the income and expenditure statement are precluded from the purview of Section 68 of the Act. Hence, we hereby uphold the action of the ld. CIT (A). - Decided against assessee.

Summary

Issues Involved:

1. Applicability of Section 68 and Section 115BBC of the Income Tax Act, 1961 on corpus donations received by a society.
2. Whether the corpus donations received can be treated as unexplained cash credits under Section 68.
3. Entitlement to exemptions under Sections 11 and 12 of the Income Tax Act, 1961.

Detailed Analysis:

1. Applicability of Section 68 and Section 115BBC of the Income Tax Act, 1961 on corpus donations received by a society:

The assessee society, registered under the UP Society Registration Act and Section 12AA of the Income Tax Act, received ?1,08,71,826/- towards the corpus fund from its members. The Assessing Officer (AO) added ?58,57,770/- out of this corpus fund under Section 68 of the IT Act, treating it as unexplained cash credits. The AO did not allow the benefits of Sections 11 and 12. The assessee argued that Section 68 cannot be invoked as the trust maintained details of the donors and that the addition could only be made under Section 115BBC, which deals with anonymous donations. The assessee contended that the provisions of Section 68 are not applicable to charitable organizations after the introduction of Section 115BBC.

2. Whether the corpus donations received can be treated as unexplained cash credits under Section 68:

The CIT(A) confirmed an addition of ?16,16,500/- out of the ?58,57,770/- added by the AO, stating that the assessee failed to discharge its onus under Section 68 satisfactorily for certain donations. The CIT(A) held that Section 115BBC and Section 68 are mutually exclusive and operate in their own domains. The assessee must prove the identity, genuineness, and creditworthiness of the donors. The CIT(A) emphasized that if the assessee fails to discharge its onus under Section 68, the unexplained credit entries would be deemed income from undisclosed sources. The CIT(A) also noted that Section 68 applies to any cash credit, including donations, where the source is not properly explained.

3. Entitlement to exemptions under Sections 11 and 12 of the Income Tax Act, 1961:

The assessee argued that the corpus fund was applied towards the purchase of land for charitable purposes, qualifying for exemption under Sections 11 and 12. The AO accepted part of the corpus fund as genuine and applied towards charitable purposes, but treated the other part as unexplained cash credits. The CIT(A) held that the society must prove the identity and creditworthiness of the donors to claim exemptions under Sections 11 and 12. The Tribunal upheld the CIT(A)'s decision, stating that the assessee must provide satisfactory explanations for the credit entries to claim exemptions.

Conclusion:

The Tribunal dismissed the assessee's appeal, upholding the CIT(A)'s decision that Section 68 applies to unexplained cash credits, including donations, and that the assessee must prove the identity, genuineness, and creditworthiness of the donors to claim exemptions under Sections 11 and 12. The Tribunal also held that Section 115BBC and Section 68 are mutually exclusive and operate in their respective domains.