2016 (11) TMI 1041 - AT - Income Tax

Taxability of Corpus donations receipt - scope of total income u/s 2(24)(iia) - unregistered trust u/s 12AA - Entitlement to exemption u/s 11 - Held that - The Income-tax Appellate Tribunal, Chennai in Indian Society of Anaesthesiologists v. ITO in decision reported in 2014 (5) TMI 1031 - ITAT CHENNAI held that specific funds created for fulfilling specific objectives for which these separate funds are constituted remain as capital funds as the funds can be used for fulfilling specific objectives for which these funds are constituted and hence to be treated as corpus funds and to be excluded from computation of income. The Income-tax Appellate Tribunal, Bangalore in ITO v. Vokkaligara Sangha in a decision reported in 2015 (8) TMI 920 - ITAT BANGALORE whereby the Tribunal held that voluntary contributions received for a specific purposes cannot be regarded as income under section 2(24)(iia) of the Act since they were capital receipts being corpus fund and tied up grants for specific purposes Corpus donations received by the assessee-trust cannot be brought to tax despite the fact that the assessee-trust was not registered under section 12A/12AA of the Act.

Summary

Issues Involved:
1. Treating corpus donation of ?4,55,446 as income.
2. Invoking section 164(2) of the Income-tax Act, 1961.

Detailed Analysis:

1. Treating Corpus Donation of ?4,55,446 as Income:

The primary issue is whether the corpus donation of ?4,55,446 received by the assessee-trust should be treated as income. The assessee-trust, a religious charitable trust registered under the Bombay Public Trusts Act, 1950, contends that these donations are capital receipts and thus not taxable. The Assessing Officer (AO) observed that the trust was not registered under section 12A/12AA of the Income-tax Act, 1961, and therefore, the benefit provided by section 2(24)(iia) read with section 12 of the Act is not available to the assessee. Consequently, the AO assessed the trust as an association of persons (AOP) and taxed the corpus donations at the maximum marginal rate under section 167B(1) of the Act.

The assessee argued that the donations were made with specific directions to form part of the corpus and should not be considered as income under section 2(24)(iia) read with section 12 of the Act. However, the AO rejected this argument due to the lack of registration under section 12A/12AA. The Commissioner of Income-tax (Appeals) upheld the AO's decision but directed that the income should be taxed at normal rates under section 164(2) instead of the maximum marginal rate.

The Tribunal considered various case laws, including decisions from the Delhi High Court and the Income-tax Appellate Tribunal, which consistently held that corpus donations are capital receipts and not taxable, even if the trust is not registered under section 12A/12AA. The Tribunal concluded that the corpus donations of ?4,55,446 received by the assessee-trust cannot be brought to tax despite the lack of registration under section 12A/12AA of the Act.

2. Invoking Section 164(2):

The second issue involves the applicability of section 164(2) of the Act. The AO had taxed the assessee's income at the maximum marginal rate, treating the trust as an AOP. The assessee contended that the provisions of section 164(2) were not applicable as the surplus corpus donations were exempt under section 11. The Commissioner of Income-tax (Appeals) held that the assessee's status as an unregistered trust warranted treatment as an AOP, but directed that the income be taxed at normal rates under section 164(2) due to the trust's public nature.

The Tribunal, after reviewing the facts and relevant case laws, agreed with the Commissioner of Income-tax (Appeals) that the income should be taxed at normal rates under section 164(2) and not at the maximum marginal rate. The Tribunal's decision was based on the consistent judicial view that corpus donations are capital receipts and not taxable, irrespective of the trust's registration status under section 12A/12AA.

Conclusion:

The Tribunal allowed the appeal filed by the assessee-trust, ruling that the corpus donations of ?4,55,446 are not taxable, and the income should be taxed at normal rates under section 164(2) instead of the maximum marginal rate. The decision was pronounced in the open court on August 12, 2016.