2022 (11) TMI 272 - AT - Income Tax

Exemption u/s 11(1)(d) - addition being specific donation received by the appellant trust as corpus donation as income of the assessee - whether contributions are Voluntary - Assessee was required to explain the nature of the corpus donations and to explain the source of such donation - HELD THAT - As referring to Copy of Resolution passed by the assessee titled to discuss regarding donation received on per kg fat clearly show that the contributions are not Voluntary in nature. The assessee has suo moto passed a resolution to collect donation form the made by Milk Producers, which goes contrary to the assertion made by the assessee that contributions are Voluntary in its character. Apparently, the Milk producers do not any choice or say in the matter whatsoever. Merely producing a receipt which states that the amount has been paid towards the corpus fund of the appellant cannot lead us to accept that the contribution qualifies as a Corpus donation when notably these receipts do not even state the specific purpose that they are being given for. Moreover, as noted above, the donations are clearly not voluntary . The quantum of the cess, as well as the mode of computation thereof, has been decided by the Assessee and the Donor have no discretion or say in the matter. In Russel v. Vestry of St. Giles 3E B 416, Lord Campbell observed 'voluntary contributions' here do not mean annual subscriptions paid for value received or expected to be received by the party paying, but means a gift made from disinterested motives for benefit of others. In Society of Writers v. I.R. 2 TC 257 the Court held that the entrance fees and subscriptions paid by entrants to a society or institution as a condition precedent to their membership and as the price of admission to the privileges and benefits of the society or institution are given under a contract and are not voluntary. The Delhi High Court in the case of Divine Light Mission 2004 (4) TMI 25 - DELHI HIGH COURT held that membership fee and subscription amounts received by trust/society from its members cannot be characterized as voluntary contribution within meaning of expression fund in Section 12. We find no infirmity in the order of Ld. Assessing Officer and Ld. CIT(A) and we are of the view that the assessee is not eligible for claim of deduction under Section 11(1)(d) of the Act. In the result, the appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Whether the contributions received by the appellant trust qualify as corpus donations exempt under Section 11(1)(d) of the Income Tax Act.
2. Whether the contributions were voluntary and with a specific direction to form part of the corpus of the trust.

Issue-wise Detailed Analysis:

1. Qualification of Contributions as Corpus Donations:

The primary issue is whether the contributions amounting to Rs. 7,44,14,182/- received by the appellant trust qualify as corpus donations exempt under Section 11(1)(d) of the Income Tax Act. The appellant argued that these contributions were received with a specific direction to form part of the corpus of the trust and should not be considered as income. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, stating that the contributions were not voluntary but were compulsorily collected as a cess linked to the milk fat supplied by the donor societies to the Mehsana District Cooperative Milk Producers Union Ltd. (MDCMPUL).

The AO observed that the contributions were not voluntary donations but were collected as a fixed cess based on the quantity of milk fat supplied. The AO concluded that these contributions did not meet the criteria for corpus donations, which require the donation to be voluntary and with a specific direction from the donor.

2. Voluntariness and Specific Direction of Contributions:

The appellant contended that the contributions were voluntary and accompanied by a specific direction to form part of the corpus. However, the AO and CIT(A) found that the contributions were not voluntary. The contributions were collected as a fixed cess, and the donor societies had no discretion over the amount or the decision to contribute. The CIT(A) noted that the contributions were made in exchange for services provided by the appellant trust, such as maintenance of milk quality and veterinary services, and were therefore not voluntary.

The CIT(A) further observed that the recurring and operational nature of the receipts indicated that they were not corpus donations. The receipts did not specify a particular purpose and were collected based on a set formula. The CIT(A) concluded that the contributions were revenue receipts generated from the operational activities of the trust and could not be considered as corpus donations.

Conclusion:

The tribunal upheld the findings of the AO and CIT(A), concluding that the contributions amounting to Rs. 7,44,14,182/- did not qualify as corpus donations under Section 11(1)(d) of the Income Tax Act. The tribunal noted that the contributions were not voluntary, lacked a specific direction from the donors, and were collected as a fixed cess linked to the milk fat supplied. The tribunal dismissed the appeal of the assessee, affirming that the contributions were income of the trust and not exempt as corpus donations.

Final Judgment:

The appeal of the assessee was dismissed, and the contributions were held to be income of the trust, not qualifying for exemption under Section 11(1)(d) of the Income Tax Act. The judgment was pronounced in open court on 11/10/2022.