2025 (2) TMI 1126 - AT - Income Tax

Validity of reopening of assessment - Assessment of trust - anonymous donations received by the assessee by way of Hundi collections/Charity box collections taxability u/s 115BBC - HELD THAT - AO has entertained the belief on the basis of view taken by him in AY.2015-16 and the same has been held by the Hon ble Bombay High Court 2024 (12) TMI 1276 - BOMBAY HIGH COURT as the opinion of the AO on legal provisions i.e. the same cannot be considered as a tangible material warranting reopening of assessment of earlier years. We noticed that the revenue has recognized the assessee trust as both charitable and religious in nature in terms of registration/approval granted to the assessee under various provisions of the Act. Hence the assessee would be covered by the exceptions prescribed in sec.115BBC(2) of the Act and hence the anonymous donations received by the assessee are not liable to be taxed u/s 115BBC of the Act. Hence it cannot be held that the AO has formed a legally valid belief and accordingly we hold that the reopening of assessment of the year under consideration is not valid. Applicability of provisions of section 115BBC - CIT(A) has followed the decision rendered in the assessee s own case in the 2023 (11) TMI 497 - ITAT MUMBAI respectively in holding that the provisions of sec.115BBC are not applicable to the assessee. Granting of deduction u/s.11(1)(a) on the net receipts instead of allowing the same on gross receipts as claimed by the assessee - We notice that the claim of the assessee is supported by the decision of CIT vs. Programme for Community Organisation 2000 (11) TMI 4 - SUPREME COURT wherein held that the accumulation allowed u/s.11(1)(a) of the Act is on the income derived from trust and accordingly allowed deduction on the gross receipts. Rejection of enhanced claim of deduction u/s 11(2) - We notice that the assessing officer has found certain deficiencies in Form No.10 and also in the Board resolution for rejecting the enhanced claim made u/s 11(2) - it is pertinent to note that the AO relying on the very same documents has allowed the deduction u/s 11(2) of the Act. Hence we do not find any reason to reject the enhanced claim made by the assessee during the course of assessment proceedings. The question whether the deficiencies if any in Form No.10 will disqualify the assessee from claiming deduction u/s 11(2) of the Act has been examined in the case of CIT (E) vs. Bochasanwasi Shri Akshar Purshottam Public Charitable Trust 2018 (10) TMI 995 - GUJARAT HIGH COURT and it has been held that any inaccuracy or lack of full declaration in the prescribed format by itself would not be fatal to the claimant. AO even after pointing out the deficiencies in Form No.10 has allowed the initial claim for deduction u/s 11(2) of the Act made by the assessee. Hence those deficiencies should not in the way to allow the enhanced deduction claimed by the assessee as per the AO s own action and also as per the decision rendered by Hon ble Gujarat High Court in the above said case. We further notice that the assessee has mentioned specific purposes in the resolution and also earmarked specific amounts for each of the purposes. Thus we are of the view that the AO was not justified in rejecting the enhanced claim made u/s 11(2) of the Act. Assessee appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

• Whether the anonymous donations received by the assessee through Hundi collections/Charity box collections are taxable under Section 115BBC of the Income Tax Act.
• The validity of the reopening of the assessment under Section 147 without new tangible material.
• Whether the deduction of 15% allowed under Section 11(1)(a) of the Act should be on gross receipts or net receipts.
• The justification for rejecting the claim for accumulation of income under Section 11(2) of the Act.

ISSUE-WISE DETAILED ANALYSIS

Anonymous Donations and Section 115BBC

• Legal Framework: Section 115BBC of the Income Tax Act taxes anonymous donations unless the trust is wholly religious or both religious and charitable.
• Court's Interpretation: The Court noted that the assessee is recognized as both a charitable and religious trust under various sections, including Section 10(23C)(v), which exempts it from Section 115BBC.
• Application of Law to Facts: The Court found that the assessee's anonymous donations are not taxable under Section 115BBC due to its dual nature as a charitable and religious trust.

Reopening of Assessment under Section 147

• Legal Framework: Reopening of assessment requires a "reason to believe" that income has escaped assessment, supported by tangible material.
• Court's Interpretation: The Court held that the AO's belief was based on a selective view of the records, ignoring the trust's registration under Section 10(23C)(v).
• Key Evidence and Findings: The AO's reliance on the registration under Section 80G alone was insufficient and ignored the trust's religious status under Section 10(23C)(v).
• Conclusion: The reopening was deemed invalid as it lacked a legally valid belief of income escapement.

Deduction under Section 11(1)(a)

• Legal Framework: Section 11(1)(a) allows a deduction of 15% on income derived from property held under trust.
• Court's Interpretation: The Court, following Supreme Court precedents, held that the deduction should be on gross receipts.
• Conclusion: The Court allowed the deduction on gross receipts, aligning with established legal principles.

Accumulation of Income under Section 11(2)

• Legal Framework: Section 11(2) permits accumulation of income for specified purposes, subject to conditions.
• Court's Interpretation: The Court found that deficiencies in Form No.10 should not disqualify the enhanced claim for deduction.
• Key Evidence and Findings: The AO allowed the original claim despite deficiencies, and the Court found specific purposes and amounts in the resolution.
• Conclusion: The Court directed the AO to allow the enhanced deduction claim under Section 11(2).

SIGNIFICANT HOLDINGS

• The Court held that the assessee's anonymous donations are not taxable under Section 115BBC due to its status as a charitable and religious trust.
• The reopening of the assessment was invalid as it was based on an incomplete view of the records, ignoring the trust's religious status.
• The deduction under Section 11(1)(a) should be on gross receipts, following Supreme Court precedents.
• Deficiencies in Form No.10 should not disqualify the enhanced claim for deduction under Section 11(2), and the AO was directed to allow it.

The judgment thus concludes with the appeal filed by the assessee being allowed and the appeal of the Revenue being dismissed, with the Court pronouncing its order on 17-01-2025.