2022 (4) TMI 1329 - HC - Income Tax

Exemption 11 - utilization of corpus fund towards revenue expenditure as application of income under Section 11(1)(d) - HELD THAT - A perusal of the paper book reveals that both CIT(A) and ITAT have set aside the assessment order on the ground that ₹ 19 crore cannot be added as additional income of the Trust since exemption on corpus donation is allowed on purchase of land, as it is a purchase of capital asset. This Court also finds that there is no ground of appeal either before the ITAT or before this Court challenging the concurrent finding of the CIT(A) and the ITAT that the substance of the transaction was that the corpus fund had been utilised for a purchase of a capital asset. This Court is further in agreement with the findings of the CIT(A) and ITAT that the substance of the transaction must prevail over the form and, if required, the Appellant must examine the nature of the transaction. In fact, this approach is commended by the Allahabad High Court in Sri Dwarkadheesh Charitable Trust 1974 (4) TMI 31 - ALLAHABAD HIGH COURT which has been quoted by the appellant in the present appeal. No substantial question of law

Issues:
1. Challenge to the order of the Income Tax Appellate Tribunal (ITAT) in ITA No. 6012/Del./2015 for the Assessment Year 2010-11.
2. Interpretation of Section 11(1)(d) of the Income Tax Act, 1961 regarding the utilization of corpus fund towards revenue expenditure.
3. Dispute over the exemption claim for the donation received and transferred from corpus to general reserve.
4. Examination of the nature of the transaction in terms of utilizing corpus fund for the purchase of a capital asset.
5. Application of the principle that the substance of the transaction prevails over the form in determining tax implications for charitable trusts.

Analysis:
The appellant challenged the ITAT's order dated 03rd September, 2019, regarding the utilization of corpus fund of ?19 crore towards revenue expenditure under Section 11(1)(d) of the Income Tax Act, 1961. The appellant argued that the ITAT erred in allowing the utilization of corpus fund for revenue expenditure, highlighting that the nature of expenses incurred from the general reserve should not grant exemption under Section 11(1)(d). The appellant contended that even if the expenses from the general reserve were charitable in nature, the exemption should not apply when donation received is transferred from corpus to general reserve. The Court noted that both the CIT(A) and ITAT had set aside the assessment order, emphasizing that the corpus fund was utilized for purchasing a capital asset, which is exempt under the Act. The Court found no grounds challenging this concurrent finding by the lower authorities.

Furthermore, the Court referred to the Allahabad High Court judgment in Sri Dwarkadheesh Charitable Trust vs. Income Tax Officer, which emphasized that the substance of the transaction should prevail over the form. The judgment highlighted that if a trust makes a gift on the express condition that it constitutes the capital or corpus of the receiving trust, then the donation does not constitute income of the receiving trust. The Court agreed with this principle and dismissed the appeal, stating that no substantial question of law arose for consideration. The judgment emphasized the validity of bilateral contracts specifying the donation as part of the corpus or capital of the receiving trust, which does not deem it as income subject to tax implications.

In conclusion, the Court's decision upheld the principle that the nature and substance of the transaction, along with the specific conditions of the donation, determine the tax implications for charitable trusts, emphasizing the importance of examining the actual utilization of funds rather than the mere form of the transaction.

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