2023 (9) TMI 1522 - AT - Income Tax

Exemption u/s 11 - voluntary donations and corpus donations received by the assessee - AO also noted that entire corpus funds had been received from various persons in cash and that this fact indicated that the donations were in fictitious names - computation of income as per normal provision - whether corpus donations are to be treated as capital or revenue and accordingly its treatment as income in the hands of the assessee - HELD THAT - Voluntary contributions received by the assessee are taxable. Even otherwise we agree with the Ld.DR that the definition of income in section 2(24)(iia) of the Act categorically includes voluntary contributions received by trusts created for charitable purposes. Definition of income being clear enough to include all voluntary contributions received by trusts for charitable and religious purposes there remains no scope therefore for excluding them from being treated as income treating them as gifts. Corpus donations - In view of overwhelming view of the ITAT in numerous decisions as above uniform view on the issue is that corpus donations are capital in nature. We have even noted that decision relied upon by the ITAT Chennai Bench while taking up contrary view of U.P. Forest Corporation 2007 (11) TMI 699 - SUPREME COURT has been considered in the case of R.D. Foundation 2019 (2) TMI 787 - ITAT DELHI and after considering the same has still held that corpus donations to be capital in nature. In view of the same therefore we have no hesitation in confirming the finding of the ld.CIT(A) that corpus donations were capital in nature and could not be added therefore to the income of the assessee while computing the same as per normal provisions of the Act. As for the argument of the ld.DR that since section 11(d) specifically exempts corpus donation therefore corpus donations are to be treated as income in terms of section 2(24)(iia) of the Act need not to be dealt with by us considering the uniform view taken by the ITAT on the issue as above treating it as capital in nature. In conclusion on the first aspect of the income of the assessee computed by the AO by including voluntary donations we find the same to be in accordance with law. Corpus donations however have been rightly held to be capital in nature by the Ld.CIT(A). The grounds raised by the Revenue in ground no.1 2 are partly allowed. AO treating the donations as anonymous donations and subjecting them to tax in terms of provisions of section 115BBC - We find that two situations envisaged by the AO for assessing the income of the assessee are not alternate situation but a contradictory situation for the reason that in the first situation the income of the assessee has been assessed considering the fact that it is not registered as charitable entity in terms of section 12A of the Act and hence not entitled to exemption of its income under section 11 of the Act. The alternative position taken by the AO of taxing the assessee s corpus donations received as anomalous donations on flat rate of 30% in terms of section 115BBC of the Act we find that section 115BBC of the Act is only applicable to trust which are registered under section 12A of the Act and does not deal with unregistered charitable trust. We shall deal with this aspect in the later part of our order but suffice to say that the alternate position taken by the AO are applicable in contrary facts and situations and cannot be by any stretch stated to be alternate method for taxing the income of the assessee. For the above reason we agree with the ld.CIT(A) that the AO could not have assessed the income of the assessee alternatively under section 115BBC of the Act. Section 115BBC(1) brings out the scope of applicability of the provision to assesses being trusts referred to in section 11 of the Act. Section 11 of the Act which deals with exemption of income of trusts involved in charitable activities applies only to trusts registered u/s 12A of the Act. There is no dispute vis-a-vis this position of law. Therefore a bare reading of section 11BBC of the Act reveals that it applies only to trusts enjoying exemption u/s 11 of the Act. The assessee in the present case admittedly not being registered u/s 12A of the Act we completely agree with the Ld.CIT(A) that section 115BBC of the Act cannot be invoked in the present case.Ground of appeal No.5 of the Revenue is dismissed. Addition u/s 68 - We agree with assessee that the finding of non genuine credits has to be specifically arrived at with respect to all such credits. It cannot be based on generalizations and assumptions. After all the entire donations have been treated as ingenuine u/s.68 of the Act and hence anonymous donations for invoking section 115BBC - there has to be finding of all donations being ingenuine and it cannot be based on generalizations. Even otherwise based on the theory of sampling also quantum of data based on which the AO has sought to generalize his finding to the rest of the corpus donors is too miniscule and by theory of sampling also generalization cannot be applied from such a small sample data. Pleading of the ld.DR before us that affidavits of other co- donors had been entertained by the CIT(A) without confronting to the AO and the Ld.CIT(A) should have exercised his coterminous powers of the AO in effect is asking for examination of these four donors. Which as we have held above is of no consequence to the rest of the donors. At the most therefore the CIT(A) in exercising of his co- terminus power would also be accepted to examine these five donors only. Therefore we hold that there is no case for holding the entire donations received by the assessee as non genuine u/s 68 of the Act. Conclusion - We agree with the Revenue and uphold the order of the AO treating the voluntary donations as income of the assessee for computing its income as per the normal provisions of the Act. The corpus donations are we hold capital in nature and not to be treated as income of the assessee. Also we set aside the order of the AO alternately treating both the donations as ingenuine and hence anonymous and taxing them u/s 115BBC of the Act.

Summary

Issues Involved:

1. Taxability of voluntary donations as revenue receipts.
2. Taxability of corpus donations as income or capital receipts.
3. Applicability of Section 115BBC regarding anonymous donations.
4. Genuineness of corpus donors and the treatment of donations as anonymous.

Detailed Analysis:

1. Taxability of Voluntary Donations as Revenue Receipts:

The AO treated voluntary donations of Rs. 1,09,50,000/- as revenue receipts, arguing that as per Section 2(24)(iia) of the Income Tax Act, voluntary contributions received by trusts created for charitable and religious purposes are considered income. The CIT(A) excluded these donations from being treated as income, holding them as gifts. The Tribunal agreed with the AO, stating that the definition of income under Section 2(24)(iia) clearly includes voluntary contributions, leaving no scope for treating them as gifts and excluding them from income. Thus, the voluntary contributions received by the assessee are taxable.

2. Taxability of Corpus Donations as Income or Capital Receipts:

The AO included corpus donations of Rs. 1,93,75,000/- in the taxable income, arguing that these are voluntary contributions and thus income as per Section 2(24)(iia). The CIT(A) treated them as capital receipts, relying on various ITAT decisions. The Tribunal upheld the CIT(A)'s view, citing consistent ITAT rulings and a Delhi High Court decision confirming that corpus donations are capital in nature and not taxable as income. The Tribunal dismissed the AO's reliance on a contrary ITAT Chennai decision, emphasizing the overwhelming consistent view treating corpus donations as capital.

3. Applicability of Section 115BBC Regarding Anonymous Donations:

The AO alternately treated the donations as anonymous and taxed them under Section 115BBC, applicable to trusts registered under Section 12A. The CIT(A) held that Section 115BBC applies only to registered trusts. The Tribunal agreed, stating that Section 115BBC clearly applies to trusts enjoying exemption under Section 11, which requires registration under Section 12A. As the assessee was not registered, Section 115BBC could not be invoked.

4. Genuineness of Corpus Donors and Treatment of Donations as Anonymous:

The AO questioned the genuineness of corpus donations, noting that most were received in cash and some donors did not appear for examination. Based on this, the AO treated the donations as bogus and anonymous. The CIT(A) found merit in the assessee's contention that the genuineness of donors was established, and the Tribunal agreed. The Tribunal emphasized that findings of non-genuine credits must be specific and cannot be generalized based on a small sample. The Tribunal dismissed the Revenue's plea, stating that the AO's generalization from a minuscule sample was unjustifiable.

Conclusion:

The Tribunal upheld the AO's treatment of voluntary donations as taxable income but confirmed the CIT(A)'s view that corpus donations are capital in nature and not taxable. The Tribunal also set aside the AO's alternate treatment of donations as anonymous under Section 115BBC, agreeing with the CIT(A) that the section applies only to registered trusts. The appeal of the Revenue was partly allowed.