2017 (4) TMI 765 - AT - Income Tax

Taxability of Corpus donations receipt - scope of total income u/s 2(24)(iia) - unregistered trust u/s 12AA - Applicability of provisions of Section 11 (1)(d) - capital receipt - Held that - Tribunal in Chandraprabhu Jain Swetamber Mandir Versus Assistant Commissioner of Income-Tax 2016 (11) TMI 1041 - ITAT MUMBAI has made an elaborate discussion with respect to taxability of capital receipt. In the aforesaid case also, the assessee trust was not having registration u/s.12A / 12AA of the Act. In that case also the Assessing Officer held that the provisions of Section 11 & 12 of the Act are not applicable to the assessee and thus the provisions of Section 11 (1)(d) of the Act with respect to voluntary contribution made with specific direction that they should form corpus of the trust shall not be included in the total income and the Assessing Officer added the same as income of the assessee. The Tribunal also considered various judicial pronouncements as contained at page 5 (page 54 of the paper book) of the order. It is also noted that various case laws, relied upon by the assessee, which are discussed at page 7 (page 56 of the paper book) were analysed and thereafter, reached to a particular conclusion. The Tribunal held that the corpus donation, received by the trust, for specific purposes cannot be brought to tax despite the fact that the assessee is not registered u/s. 12A / 12AA of the Act. Identical facts are available in the present appeal before us, thus, following the aforesaid order of the co-ordinate Bench, this ground of the assessee is allowed and the learned Assessing Officer is directed that the voluntary contribution received by the assessee for specific purposes (in the present appeal building fund) cannot be regarded as income u/s.2 (24)(iia) of the Act being capital receipt, being corpus fund and tied up grants for specific purposes. This ground of the assessee is therefore, allowed.

Summary

Issues Involved:

1. Surplus of ?6,62,623/- treated as income.
2. Registration of the assessee under Section 12A.
3. Corpus donation of ?10,56,555/- claimed as exempt.
4. Applicability of Section 164(2) of the Income Tax Act.
5. Taxability of corpus donation of ?4,55,446/- as capital receipt.

Issue-wise Detailed Analysis:

1. Surplus of ?6,62,623/- Treated as Income:
The assessee contested the treatment of a surplus amount of ?6,62,623/- as income. However, the learned Counsel for the assessee admitted that no evidence was produced to show that the assessee is a registered trust under Section 12A of the Act. Consequently, this ground was decided against the assessee.

2. Registration of the Assessee under Section 12A:
The assessee claimed that it was a registered trust under Section 12A, which would entitle it to certain exemptions. However, the assessee failed to provide any evidence of such registration at any stage. As a result, the claim for exemption based on Section 12A was denied, and this ground was also decided against the assessee.

3. Corpus Donation of ?10,56,555/- Claimed as Exempt:
The assessee argued that the corpus donation of ?10,56,555/- should be treated as a capital receipt and hence not taxable. The assessee's counsel referenced the Tribunal's decision in the case of Chandraprabhu Jain Swetamber Mandir vs. ACIT and the Delhi Bench decision in Patanjali Yogpeth (Nyas) vs. ADIT. However, the Department contended that the Tribunal's decision had not been accepted and an appeal was likely to be filed before the High Court. The Tribunal reviewed the relevant portions of the previous orders and concluded that the corpus donation, being capital in nature, is not taxable even if the trust is not registered under Section 12A/12AA of the Act. Therefore, this ground was allowed in favor of the assessee.

4. Applicability of Section 164(2) of the Income Tax Act:
The assessee argued that the provisions of Section 164(2) were not applicable as all surplus/corpus donations were exempt under Section 11. However, this ground was not pressed by the learned Counsel for the assessee and was dismissed as not pressed.

5. Taxability of Corpus Donation of ?4,55,446/- as Capital Receipt:
The assessee received corpus donations amounting to ?4,55,446/- with specific directions for their application. The Assessing Officer (AO) added this amount to the total income, as the assessee was not registered under Section 12A/12AA of the Act. The AO held that the provisions of Section 11 and 12 were not applicable, and thus, the corpus donations were taxable. The CIT(A) upheld this view but directed that the income be taxed at normal rates instead of maximum marginal rates.

The Tribunal reviewed various case laws and decisions, including those from the Delhi and Agra Benches, 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 received by the assessee cannot be brought to tax, following the principle that such donations are capital receipts. Therefore, this ground was allowed in favor of the assessee.

Conclusion:
The appeal was partly allowed, with the Tribunal directing that the voluntary contributions received by the assessee for specific purposes cannot be regarded as income under Section 2(24)(iia) of the Act, being capital receipts and corpus funds. The order was pronounced in the open court on 15/03/2017.