2017 (4) TMI 1650 - AT - Income Tax

Denial of exemption u/s 11 - Treating corpus donations as anonymous donations taxable u/s 115BBC - AO after going through the object clauses of the assessee trust observed that the assessee trust is not a religious trust - HELD THAT - We have observed that the assessee has shown additions to corpus donations - The assessee has submitted in paper book filed with the tribunal copies of some of such direction letters of donation issued by the donors whereby instructions are issued by the donors that the donations shall form part of the corpus of the trust. The names of the donors were given in the letters but the addresses and PAN of the donors were not given. These are standard letters which are identical for all the donors. The said letters contained the name of village/taluka/district and State of the donor but the addresses, father s name and PAN of the donors are not there. Another peculiar feature is that it is a common direction letter issued by multiple donors ranging from 2-5 donors and Demand draft/Pay order mentioned in said common donation letter are also same being consolidated amount covered for the donation in the said letter as donated by 2-5 donors. We find that assessee is not a religious trust hence the amount is hit by provisions of Section 115 BBC of the Act and the onus is on the assessee to prove that it is covered by exceptions to chargeability to tax as is provided by provisions of Section 115BBC of 1961 Act, namely that the assessee maintained a record of the identity indicating the name and address of the person making such contribution and such other particulars as may be prescribed or else it is a religious trust. The selection of donors shall be on random basis at the sole discretion of the AO, which short listed list of donors shall be supplied by the AO to the assessee for necessary compliance as per our above directions. If so required for ensuring compliance of Section 115BBC of 1961 Act and for establishing genuineness of the said donations the AO can enhance the number of persons to be produced by the assessee before him higher than minimum stipulated by us as above. Denial of the exemption for 15% of income being set aside for accumulation to be spent for charitable purposes in the next year as provided u/s 11(1) - The assessee had stated that the trust was actively considering launching of projects in the next year after plans are finalized and the amount so aside was spent in the next year. In our considered view and in the interest of justice and fair play, this claim of the assessee that the said amount was kept for launching of project next year after plans are finalized and was spent in the next year accordingly also need verification and as such the matter is set aside and restored to the file of the A.O. for proper verification with respect to the contentions of the assessee to be decided by the AO in accordance with law. The evidences and contentions of the assessee in its defense shall be admitted by the AO in set aside proceedings in the interest of justice.

Summary

Issues Involved:

1. Disallowance of the assessee's claim of receipt of corpus donations.
2. Treatment of corpus donations as anonymous donations taxable under Section 115BBC of the Income Tax Act, 1961.
3. Invocation of provisions of Section 115BBC without appreciating the facts and circumstances.
4. Non-appreciation of facts and explanations offered in support of the assessee's claim of corpus donations.
5. Denial of exemption for unspent income under Section 11(1) of the Income Tax Act.
6. Non-appreciation of facts and explanations regarding the option exercised under Section 11(1) for unspent income.

Detailed Analysis:

1. Disallowance of Corpus Donations:
The assessee, a registered charitable trust, claimed receipt of corpus donations totaling Rs. 2,42,26,508/-. The Assessing Officer (AO) disallowed this claim, citing lack of verifiable identity and address of donors. The assessee provided direction letters from donors indicating that donations were meant for the corpus fund. However, the AO observed that the letters were in a uniform format without complete addresses or PAN details, leading to the disallowance.

2. Treatment as Anonymous Donations:
The AO treated the corpus donations as anonymous under Section 115BBC, which taxes anonymous donations at a higher rate. The AO's decision was based on the absence of complete addresses and PAN details, making it impossible to verify the identity of donors. The CIT(A) upheld this view, emphasizing that the third-party verification of donors was not feasible due to vague and general information provided by the assessee.

3. Invocation of Section 115BBC:
The Tribunal noted that the assessee failed to provide sufficient details to exempt the donations from being classified as anonymous under Section 115BBC. The assessee was not a religious trust, thus not qualifying for exceptions under the said section. The Tribunal directed the assessee to furnish PAN, addresses, and other relevant details of donors to the AO for verification.

4. Non-appreciation of Facts and Explanations:
The assessee argued that the authorities failed to appreciate the explanations and supporting documents provided. The Tribunal acknowledged the assessee's request for an opportunity to produce donors and furnish necessary details for verification. The Tribunal set aside the matter to the AO for further inquiry and verification, emphasizing the assessee's burden to prove compliance with Section 115BBC.

5. Denial of Exemption for Unspent Income:
The AO denied exemption for an unspent amount of Rs. 1,35,70,000/- under Section 11(1), stating that the assessee failed to specify reasons for accumulation. The CIT(A) agreed, noting that the reasons provided were general and not specific, as required by law. The Tribunal, however, recognized the need for verification of the assessee's claim that the amount was intended for future projects and was spent in the subsequent year.

6. Non-appreciation of Facts Regarding Unspent Income:
The Tribunal directed the AO to verify the assessee's claim that the unspent amount was accumulated for specific projects to be launched in the next year. The Tribunal instructed the AO to provide the assessee with an opportunity to present evidence and arguments in support of its claim, ensuring compliance with principles of natural justice.

In conclusion, the Tribunal allowed the appeal for statistical purposes, setting aside the assessment and directing the AO to conduct a detailed verification of the corpus donations and the unspent income, in line with the provisions of the Income Tax Act.