2022 (9) TMI 1086 - AT - Income Tax

Exemption u/s 11 - assessee-trust had accumulated the capital receipt - nature of corpus donation is capital receipt irrecoverable - Whether corpus donation was received for specific purpose related charitable activity of the assessee-trust before the registration u/s 12A/12AA? - HELD THAT - Corpus donations received by the Trusts, which is not registered u/s.12A/12AA of the Act, are not taxable as they assume the nature of 'Capital receipt' the moment the donations are given to the Corpus of the Trust . We find the provisions of section 2(24)(iia)/12(1)/11(1)(d)/35/56(2) are relevant for deciding the current issue. It is a settled legal proposition, in case of a registered Trust under the Income-Tax Act, the corpus specific Voluntary Contributions are outside the scope of income as defined in section 2(24)(iia) of the Act due to their Capital nature . But it is a case of un-registered Trust. Despite the detailed deliberations made by the DR, we find the principles relating to judicial discipline assume significance and the priority. It is also decided issue that there is need for upholding the favourable view if there exist divergent views on the issue. As discussed in the preceding paragraphs above, there are multiple decisions in favour of the assessee. The two issues must be settled during registration u/s 12AA which are genuinity of trust activities are related to main object of trust. The two limbs must be considered during registration. CIT(E) is silent about the second issue. The first issue is adjudicated in favour of assessee-trust.

Summary

Issues:
- Registration u/s 12AA denied based on alleged activities beyond trust deed objectives and tax evasion on corpus receipts.
- Whether corpus donations are taxable before registration u/s 12AA.
- Genuineness of trust activities and compliance with main objectives for registration.

Analysis:
1. The appeal challenged the rejection of registration u/s 12AA by the ld. CIT(E) for A.Y. 2020-21, citing activities beyond trust deed objectives and tax evasion on corpus receipts.
2. The assessee, a charitable trust operational since 2018, applied for registration under section 12AA, which was denied by the ld. CIT(E) based on concerns regarding commercial nature income generation and corpus donations.
3. The counsel argued that the trust's activities align with charitable objectives under section 2(15) of the Act, emphasizing contributions for genuine charitable purposes, as supported by legal precedents like Bhartiya Kisan Sangh Sewa Niketan case.
4. Regarding corpus donations, the counsel contended that they are capital receipts and not taxable pre-registration, citing legal references such as the Versova Kohni Sunni Trust case.
5. The ld. CIT DR supported the ld. CIT(E)'s decision, highlighting the trust's commercial income generation activities beyond its deed objectives.
6. The tribunal observed that corpus donations to unregistered trusts are capital receipts and not taxable, referencing relevant sections like 2(24)(iia)/12(1)/11(1)(d)/35/56(2), and emphasized the need for trust genuineness and alignment with main objectives for registration under section 12AA.
7. Ultimately, the tribunal ruled in favor of the assessee, quashing the revenue's order and allowing the appeal, emphasizing the importance of trust genuineness and adherence to main objectives during the registration process.