2020 (3) TMI 496 - AT - Income Tax

Exemption u/s 11 - Corpus donation receipt - AO has noticed that assessee has received contributions but not submitted 12A certificate therefore the amounts received by the assessee as income as per section 2(24)(iia) of the Act and not exempt u/sec. 11(1)(d) - HELD THAT - We find from the assessment order that when the assessee has submitted that the donations received are voluntarily for a specific purpose, then the Assessing Officer ought to have called the assessee for submission of details of donations received, but the Assessing Officer without examining the nature of the donations, simply rejected the explanation of the assessee and added to the total income of the assessee, in our opinion, the Assessing Officer is not correct in adding the income. That apart once the assessee has submitted that the donations received voluntarily for specific purpose, it is the duty of the Assessing Officer to examine who is the person donated and what purpose he has donated all the details has to be examined and thereafter has to decide the donations are in the nature of corpus donations or income of the assessee, without doing simply rejected the explanation. However, on appeal ld. CIT(A) by considering the explanation of the assessee and by following the decision of the Hon'ble Bombay High Court in the case of R.B. Shriram Religious and Charitable Trust 1987 (1) TMI 13 - BOMBAY HIGH COURT and also the decision of the ITAT, Chennai Bench in the case of Indian Society of Anaesthesiologists 2014 (5) TMI 1031 - ITAT CHENNAI and also Vokkaligara Sangha 2015 (8) TMI 920 - ITAT BANGALORE gave a finding that the voluntary contributions received by the assessee for a specific purpose cannot be regarded as income u/sec. 2(24)(iia) A s the appellant got registered u/s.12AA of the Act and as the donations/voluntary contributions received by the appellant society are of Corpus and Capital nature, same are to be treated as exempt from tax liability, as the principles relating to judicial discipline assume significance and the priority. Accordingly, following the ratios of the judicial pronouncements mentioned supra, it is treated that the donations/voluntary contributions received by the appellant society are outside the taxations, even for the period prior to its registration u/sec. 12AA. Hence, the Assessing Officer is directed to delete the disallowance/addition - Decided in favour of assessee.

Summary

Issues involved:
Interpretation of tax laws regarding corpus donations, applicability of section 2(24)(iia) of the Income Tax Act, treatment of voluntary contributions as income, impact of registration under section 12AA, and the assessment of donations for tax liability.

Detailed Analysis:

1. Interpretation of Tax Laws on Corpus Donations:
The case involved a registered society receiving corpus donations and the dispute arose regarding the tax treatment of these donations. The Assessing Officer contended that the donations should be treated as income under section 2(24)(iia) of the Act since the society was not registered under section 12A. However, the society argued that corpus donations, being capital receipts, are not chargeable to income tax even without registration under section 12AA. The society relied on various judicial decisions to support its position, emphasizing the nature of corpus donations and their exclusion from taxable income.

2. Applicability of Section 2(24)(iia) and Section 11(1)(d) of the Act:
The Assessing Officer insisted on adding the donated amount to the total income of the society based on the provisions of section 2(24)(iia) and section 11(1)(d) of the Act. However, the society contended that voluntary contributions for specific purposes, like corpus donations, should not be considered as income under section 2(24)(iia). The society's argument was supported by the decisions of the Hon'ble Bombay High Court and various ITAT benches, which highlighted the distinction between voluntary contributions and income.

3. Impact of Registration under Section 12AA:
The society's registration under section 12AA was a crucial aspect in determining the tax liability of corpus donations. The society's registration was granted before the relevant assessment period, and this registration played a significant role in establishing the exempt status of the corpus donations. The society's compliance with the registration requirements under section 12AA was pivotal in asserting the non-taxable nature of the donations.

4. Assessment of Donations for Tax Liability:
The Assessing Officer's approach of adding the donation amount to the society's income without examining the nature and purpose of the donations was criticized. The Tribunal emphasized the importance of assessing whether the donations were corpus in nature and intended for specific purposes. The Tribunal highlighted the duty of the Assessing Officer to scrutinize the details of donations and determine their classification as corpus donations or income. The Tribunal upheld the decision of the CIT(A) in considering the donations as corpus funds and excluding them from tax liability.

In conclusion, the Tribunal dismissed the appeals filed by the Revenue, affirming the non-taxable status of the corpus donations received by the society. The judgment underscored the significance of judicial precedents, the nature of corpus donations, and the impact of registration under section 12AA in determining the tax treatment of voluntary contributions for specific purposes.