2017 (8) TMI 918 - AT - Income Tax

Benefits of section 11 & 12 denied - proof of charitable activities - excess of income over expenditure - corpus donation receipt - Held that - Assessee has received and reflected in the books the corpus donations, which has not been disputed by the AO as corpus donation to the trust, it being not the income and in any excess of receipts over expenditure which is less than 15% of receipt cannot any stretch be brought to tax. It is also not a case where there was any income from any source and hence the AO has erred in failing to appreciate that in any case it being a trust, the excess of income over expenditure since did not exceed 15% of the receipt, the same i.e. ₹ 13,03,859/- is not a part of total income as is statutorily provided and lastly that the assessee being a trust the corpus donation is not taxable and in the absence of any income of the trust income assessed is contrary to the provisions of section 5 of the I.T. Act. Lower authorities has overlooked that the assessee admittedly is a charitable institution and have been formed with the charitable objects and that is how registration u/s. 12A of the Act was granted. In the instant year the assessee trust in the absence of corpus donation which is not an income applied such corpus donation to achieve the aims and objects of the trust. It is a case where it would be seen that what the AO had taxed was a capital receipt and otherwise too even if the same was held to be income then too the excess of receipts was than 15% of receipts and in the absence of there being any income such excess is outside the scope of total income. As observed that assessee trust has carried out extensive research on topics ranging from India s educational systems, India s scientific achievements, Indian Philosophy, India music and dances and travel in India with a view to develop programme content for lectures and workshops, TV programmes on digital video tapes as well as for publishing content through print platform like journals etc. Numerous workshops and lectures were organized all over India, yet went on to hold it is not engaged in any charitable acitivity, which is contrary to the judgement of the Hon ble Supreme Court of India in the case of Sole Trustee Loka Shiksha Trust vs. CIT 1975 (8) TMI 1 - SUPREME Court - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of initiation of proceedings under Section 148 of the Income Tax Act.
2. Existence of tangible material for "reason to believe" that income has escaped assessment.
3. Eligibility for exemption under Section 11 of the Income Tax Act for a charitable institution.
4. Assessment of income and application of Section 11(1)(a) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Initiation of Proceedings under Section 148:
The Assessee contended that the CIT(A) erred in upholding the initiation of proceedings under Section 148 without any tangible material. It was argued that mere subjective opinion without material evidence cannot form the basis for such proceedings. The Tribunal noted that the AO initiated proceedings based on information from the Addl. DIT (Vig.), North Zone-I, Delhi, regarding large deposits in the Assessee's bank accounts, which were not reflected in the return of income. The Tribunal found that the initiation of proceedings was justified due to the apparent discrepancy between the bank deposits and the declared receipts.

2. Existence of Tangible Material for "Reason to Believe":
The Assessee argued that the AO had no tangible material to support the belief that income had escaped assessment. The Tribunal observed that the AO had obtained copies of the bank accounts showing significant deposits, which were not accounted for in the Assessee's return. This provided a rational nexus and relevant material for the AO's belief. The Tribunal upheld the validity of the proceedings under Section 148, noting that the AO had sufficient material to form a reason to believe that income had escaped assessment.

3. Eligibility for Exemption under Section 11:
The Assessee, a charitable institution, claimed exemption under Section 11, arguing that it had utilized its receipts for charitable purposes. The Tribunal reviewed the Trust Deed and found that the Assessee's objects were charitable in nature, including promoting research into India's scientific, cultural, and spiritual heritage. The Tribunal noted that the Assessee had been granted registration under Section 12A and a certificate under Section 80G(5)(vi). It was observed that the Assessee had received corpus donations and applied them towards its charitable activities. The Tribunal concluded that the Assessee was entitled to exemption under Section 11, as it had applied its income for charitable purposes.

4. Assessment of Income and Application of Section 11(1)(a):
The AO had assessed the Assessee's income at ?16,77,870, disallowing the benefits of Sections 11 and 12, and treating the Assessee as an AOP. The Tribunal found that the Assessee had received corpus donations amounting to ?1,41,93,101, which were not taxable as income. The Tribunal noted that the Assessee's application of income exceeded its receipts, and the excess of receipts over expenditure was less than 15% of the gross receipts. Citing the Supreme Court's judgment in S. RM. M. CT. Tiruppani Trust vs. CIT, the Tribunal held that the unutilized corpus donations could not be treated as income. The Tribunal concluded that the AO erred in bringing the excess of receipts over expenditure to tax, as it was less than the permissible limit under Section 11(1)(a).

Conclusion:
The Tribunal allowed the Assessee's appeal, cancelling the assessment made by the AO and sustained by the CIT(A). It held that the Assessee, being a charitable institution, was entitled to exemption under Section 11, and the corpus donations received were not taxable as income. The Tribunal emphasized that the excess of receipts over expenditure, being less than 15% of the gross receipts, could not be included in the total income. The assessment was deemed untenable, and the appeal was allowed.