2022 (11) TMI 672 - HC - Income Tax

Exemption u/s 11 - donations received by the Appellant - whether Only voluntary contributions can be considered to give exemption under Section 11 and not involuntary contributions? - HELD THAT - Section 11(1)(d) of the Act relied upon by Shri. Sanmathi, makes it clear that the voluntary donation made with a specific direction shall form a part of the corpus. The person who makes a contribution can make such contribution either with a specific direction or without any direction. Section 11(1)(d) of the Act refers to only such contribution which are made for a specific purpose. For example, the donor may desire that his donation be used for construction of a building. If no direction is given by the donor, the money received by the assessee shall be taxable subject to such exemption which may be claimed u/s 11 of the Act. In the instant case, it is not in dispute that the entire amount received as 'contribution' has been shown in the Income and Expenditure account. The denial of benefit u/s 11 of the Act is on the premise that the donations received are not voluntary in nature. AO under the Income Tax Act cannot deny the exemption u/s 11 on the assumption that there is violation of any other statutory provision. He also adverted to Section 12(AA) (4) (b) and contended that the said provision has been substituted with effect from 01.09.2019, giving power to the Principal Commissioner or the Commissioner of Income Tax to cancel the registration of a trust or institution. Thus, it is clear that should there be any violation with regard to receipt of capitation fee, the AO could not have denied the benefit under Section 11 of the Act so long as the certificate is in force. - Decided in favour of the assessee.

Summary

Issues:
1. Denial of benefit under Section 11 of the Income Tax Act for the Assessment Years 2009-2010, 2010-2011, and 2011-2012.
2. Classification of donations received by the appellant as capitation fees and taxability of the same.
3. Exemption under Section 11 of the Act in case of capitation fees.

Analysis:
1. The appellant, a charitable Trust, challenged the denial of benefits under Section 11 of the Income Tax Act for the Assessment Years 2009-2010 and 2010-2011. The CIT(A) initially granted relief, but the ITAT reversed the decision, leading to the denial of benefits for these years. For the Assessment Year 2011-2012, all authorities denied the Section 11 benefits to the appellant.

2. The appellant argued that all contributions, whether voluntary or involuntary, must be shown in the Income and Expenditure account for taxation purposes. The ITAT denied benefits under Section 11 based on the premise that the donations were akin to capitation fees. The Madras High Court's decision in a similar case highlighted that the nature of contributions, whether voluntary or involuntary, does not affect taxation if the funds are not used for charitable purposes. The tribunal's reasoning was accepted by the court.

3. The court emphasized that under Section 11(1)(d) of the Act, voluntary contributions with specific directions form part of the corpus, while other contributions are taxable unless exempted under Section 11. The denial of benefits was based on the assumption that donations were not voluntary. The court concurred with the Madras High Court's view that the Revenue must prove non-utilization of funds for charitable purposes to deny exemption. Each assessment year must be evaluated independently. The Assessing Officer's inquiry into the voluntariness of donations for the A.Y. 2011-2012 was considered valid.

4. The appellant argued against the Assessing Officer's view that capitation fees were collected in violation of another statutory provision, stating that the Income Tax Act cannot deny exemptions based on such assumptions. The court noted that the Assessing Officer cannot deny benefits under Section 11 if the certificate under Section 12(A) is valid. The court ruled in favor of the appellant, allowing the appeals and answering the questions of law in favor of the assessee against the Revenue.