2019 (11) TMI 757 - AT - Income Tax

Exemption u/s 11 - building fund receipts received on capital account - tribunal restored the registration granted to the assessee under section 12AA - assessee contended that development fund is charged from the students for development of the infrastructure of the society/college/institution for construction of the building and purchase of capital asset and submitted that this fund is part of the corpus fund of the society and has been shown as part of the capital fund of the society - whether the contribution received for construction of building etc. from the student falls under the voluntary contribution for corpus of the trust as per section 11(1)(d) of the Act or not? - HELD THAT - It is evident from section 11(1)(d) of the Act that there is no condition of prescribed amount of application of the income received in the form of voluntary contribution made with a specific direction that they shall form part of the corpus of the trust or institution, thus, the Learned CIT(A) is not justified in considering the development fund received under section 11(1)(a) or 11(1)(b) for the purpose of application of income upto 85% towards charitable purposes. But we find that Ld CIT(A) has not examined the building development fund in the light of the requirement of section 11(1)(d) of the Act that donors should specifically direct that said voluntary contribution shall form part of the corpus of the trust or institution. As this important requirement of the law has not been examined either by the ld. CIT(A) or by the Assessing Officer, we feel it appropriate to restore this issue to the file of the Assessing Officer for deciding afresh with the direction to the assessee to produce necessary documentary evidence to substantiate that donors have specifically directed to treat the development fund given by them shall form part of the corpus of the trust of the institution. The Assessing Officer shall after verification of the documentary evidences produced by the assessee decide the issue in accordance with law. Appeal of the assessee is accordingly allowed for statistical purposes.

Summary

Issues:
- Exemption under section 11 of the Income-tax Act for building fund receipts
- Application of income derived from property for charitable purposes
- Interpretation of section 11(1)(d) regarding voluntary contributions forming part of the corpus

Analysis:

1. Exemption under section 11 for building fund receipts:
- The assessee appealed against the denial of exemption under section 11 for building fund receipts of ?23,62,500.
- The Assessing Officer initially canceled the registration, but it was later restored by the Tribunal.
- The CIT(A) deleted certain additions but upheld the denial of exemption for the building fund.
- The CIT(A) observed that the amount collected as development fund was not shown in the income and expenditure account.
- The CIT(A) held that the exemption under section 11 was not applicable as the funds were not applied for educational purposes as required by the Act.
- The Tribunal found that the CIT(A) did not consider whether the funds qualified as voluntary contributions forming part of the corpus, as per section 11(1)(d).
- The issue was remanded to the Assessing Officer for further examination with necessary documentary evidence.

2. Application of income derived from property for charitable purposes:
- The requirement of applying income derived from property for charitable purposes is outlined in section 11 of the Act.
- The CIT(A) applied the 85% application rule to the building fund receipts, which the Tribunal found to be incorrect.
- The Tribunal noted that the CIT(A) did not assess whether the funds met the criteria of voluntary contributions forming part of the corpus under section 11(1)(d).
- The issue was directed to be reconsidered by the Assessing Officer with appropriate evidence.

3. Interpretation of section 11(1)(d) regarding voluntary contributions forming part of the corpus:
- Section 11(1)(d) does not specify a prescribed amount of application for income received as voluntary contributions forming part of the corpus.
- The CIT(A) did not analyze the building fund receipts in light of section 11(1)(d) requirements.
- The Tribunal remanded the issue to the Assessing Officer for a fresh decision based on documentary evidence regarding the nature of the contributions.

In conclusion, the Tribunal allowed both appeals for statistical purposes, directing a reevaluation of the issues related to the building fund receipts and the application of income derived from property for charitable purposes. The case highlighted the importance of complying with the specific provisions of the Income-tax Act and providing necessary evidence to support claims for exemptions under different sections.