2020 (7) TMI 39 - AT - Income Tax

Exemption u/s 11 12 - Donation is a corpus donation - according to AO assessee was not carrying on educational activity in terms of Section 2(15) - HELD THAT - According to Section 11(1)(d) of the Act wherein certain income are not to be included in the income of the recipient when income in the form of voluntary contribution made with a specific direction that they shall form part of the corpus of the trust. It is not the intention of the donee but the direction of the donor that is important to determine whether the voluntary contribution received by the assessee trust is towards corpus or not. Admittedly before us no such direction of the donor was placed. On a specific query by the Bench the learned Authorized Representative submitted that the same was never asked by the lower authorities and, therefore, the same was not submitted. However, she hurriedly agreed that same would be submitted. CIT (Appeals) also held that there is no letter of confirmation from the donor that the amount of donation is for the corpus fund and neither the receipt issued by the assessee say that the amount of donation is towards corpus of the trust. DR did not raise any serious objection to the fact that if the assessee produces a direction of the donor i.e. Unitech Southcity educational Trust that above sum of ₹ 1.30 crores received by the assessee is with a specific direction that it shall form the part of the corpus of the trust. Assessee does not have the directions of the donor that it shall form part of the corpus of the trust naturally benefit of Section 11(1)(d) cannot be given to the assessee. Assessee relied up on decision of dated 17.10.2011 of the Honourable Karnataka High court in the case of Director of IT Ors. v. V. Ramakrishna Seva Ashrama 2011 (10) TMI 369 - KARNATAKA HIGH COURT . The issue before the honourable court was that even if the sum is credited to a specific account can it be considered to be corpus donation. There are no details that how this money is utilized as held by the high court in para no 16. Thus, it does not help the case of the assessee. In view of this we set aside this issue to the file of the Assessing Officer with a direction to the assessee to submit such direction of the donor , if available, as prescribed under Section 11(1)(d) of the Act within 60 days of this order. If the assessee fails to do so, the Assessing Officer is duty bound to consider it as voluntary contribution. In that circumstances the assessee would be entitled to benefit of Section 11 and 12 of the Act - Appeal of the assessee is allowed

Summary

Issues:
1. Denial of exemption under Section 11 & 12 of the Income Tax Act to a charitable trust.
2. Taxation of corpus donation received by the trust.

Analysis:

Issue 1: Denial of exemption under Section 11 & 12:
The case involved an appeal by the Deputy Commissioner of Income Tax (Appeals) and the assessee against the order of the Commissioner of Income Tax (Appeals) regarding the denial of exemption under Section 11 & 12 of the Income Tax Act for the Assessment Year 2009-10. The assessee, a charitable trust running an institute, had its taxable income assessed at ?89,07,340 due to the Assessing Officer's belief that the educational activity did not qualify under Section 2(15) of the Act. However, subsequent appeals upheld the assessee's entitlement to exemption under Section 11 and 12. The Revenue contended that the trust was engaged in commercializing education and lacked necessary approvals. The Tribunal, following precedent, held that disallowances did not preclude the trust from benefiting under Sections 11 and 12, upholding the earlier decisions.

Issue 2: Taxation of corpus donation:
Subsequently, the Assessing Officer found that a corpus donation of ?1.30 crores received by the trust was not appropriately treated and was added to the income. The assessee argued that the donation was for the corpus fund, supported by a letter to the donor and bank account details. However, the absence of a specific direction from the donor regarding the corpus status led to the denial of benefit under Section 11(1)(d) of the Act. The Tribunal cited a Karnataka High Court case to emphasize the importance of donor directions for corpus donations. The matter was remanded to the Assessing Officer with directions for the assessee to provide the necessary donor direction within 60 days; failure to do so would result in the contribution being treated as voluntary, affecting the trust's eligibility for Sections 11 and 12 benefits.

In conclusion, the Tribunal upheld the exemption under Sections 11 and 12 for the trust's activities but directed a reevaluation of the corpus donation issue based on the availability of donor directions. Both appeals were disposed of accordingly.