2024 (6) TMI 1057 - AT - Income Tax

Assessment of trust - tax levied on donations received for acquisition of capital asset - Donation amount has been shown as corpus fund - Treatment of donations as capital receipts or income from other sources - DR argued that the amount of contribution received by the assessee is not a capital receipts but is to be considered an income of any kind as defined u/s. 56(1) - HELD THAT - We are convinced by the argument of Ld. AR in that regard because for attraction of Section 56(1) the amount has to qualify as an income, whereas the assessee has shown the donations as subsidy to be treated as capital assets in the books of accounts. Nothing has been brought on record or submitted by the Ld. DR that a trust registered under the Act cannot claim itself to be a business entity or that it cannot file return as business entity as has been done by the assessee since the A.Y. 2013-14. Since the assessee has rightly and lawfully considered the donations as subsidy which as per legal pronouncements has to be treated due to specific directions of the donor, as capital receipts, therefore, Section 2(24)(iia) is not attracted in the case of the assessee. For these reasons, the Section 56(1) is also not attracted and the arguments of the Ld. DR in that regard does not hold water and is outrightly rejected - we direct the Ld. AO to delete the addition made on account of donations. Decided in favour of assessee.

Issues Involved:

1. Levying tax on donations received for acquisition of capital assets.
2. Condonation of delay in filing the appeal.
3. Treatment of donations as capital receipts or income from other sources.

Summary:

Condonation of Delay:
The appellant's counsel highlighted an 11-day delay in filing the appeal, which was attributed to the delayed notice of the impugned order. The Tribunal condoned the delay, noting it was not extraordinary and admitted the appeal for hearing on merit.

Levying Tax on Donations:
The primary issue was whether the donations of Rs. 1,15,00,000/- received by the appellant for acquiring capital assets should be taxed as income or treated as capital receipts. The appellant argued that these donations were capital receipts, not liable to tax, as they were received with specific directions for acquiring assets.

Arguments by the Appellant:
1. The donations were received for specific purposes, such as purchasing equipment and setting up facilities, thus qualifying as capital receipts.
2. The appellant treated the donations as subsidies in their books, reducing the cost of assets for depreciation purposes.
3. The appellant cited various judicial pronouncements supporting the view that such donations are capital receipts and not taxable.

Arguments by the Department (Revenue):
1. The Assessing Officer (AO) and CIT(A) treated the donations as income from other sources, not capital receipts.
2. The AO argued that the appellant, being a business entity, cannot claim these donations as capital receipts.
3. The Department cited Section 2(24)(iia) and Section 56(1) of the Income Tax Act, asserting that voluntary contributions received by a trust should be considered income.

Tribunal's Findings:
1. The Tribunal referenced a similar case adjudicated by the Coordinate Bench, which treated such donations as capital receipts.
2. The Tribunal agreed with the appellant's argument that donations received with specific directions for capital expenditure should be treated as capital receipts.
3. The Tribunal held that the provisions of Section 56(2)(x) apply to gifts received after 1.4.2017 and do not affect the years under consideration.
4. The Tribunal rejected the Department's argument under Section 56(1), stating that for invoking Section 56(1), the amount must qualify as income, whereas the donations in question were capital receipts.

Conclusion:
The Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition made on account of donations, concluding that the donations received by the appellant were capital receipts and not taxable. The appeal was allowed in favor of the appellant.

← Previous Next →