2020 (12) TMI 176 - AT - Income Tax

Exemption u/s 11 - tax-payer trust is not registered u/s 12A - corpus fund receipt - HELD THAT - The assessee produced the receipt issued by itself to various parties wherein it is mentioned that it has been received as a corpus donation. There is no evidence regarding specific direction given by the donor treating that the said amount was given towards corpus fund of present assessee. In the absence of any material to show that the provisions is abused and if it is demonstrated that the educational institution has collected money in the form of voluntary contributions from public and may be from the parents or the students who are studying in the institution and when they have issued receipts acknowledging the said amount towards building fund and made requisite entries in the books and deposited the same in the bank, if the court is satisfied with the genuineness of the transaction, it is well within the power of judicial authority to hold that the requirement of section 11(1)(d) fulfilled and assessee is entitled to be exempted. In the present case, it is nobody s case that donors herein have collected any donation on behalf of the present assessee from the students or from parents for giving the admission in the institutions run by the present assessee - AO in this case without looking into this issue, straightaway treated as the donation income of assessee. AO has failed to carryout necessary enquiry with regard to sources from which such donors have donated the amount to the present assessee and are unable to comment on this aspect.- Appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Treatment of donations received from sister trusts as corpus donations under section 11(1)(d) of the Income Tax Act.
2. Applicability of the amendment to section 11(1)(d) introduced by the Finance Act, 2017.
3. Examination of the non-taxability of corpus donations despite the inapplicability of certain provisions of the Income Tax Act.
4. Requirement of specific direction by the donor for donations to be treated as corpus donations.

Detailed Analysis:

1. Treatment of Donations from Sister Trusts as Corpus Donations:
The primary issue revolves around whether donations received from sister trusts should be treated as corpus donations under section 11(1)(d) of the Income Tax Act. The assessee trust received corpus donations amounting to ?41,92,32,911/-, out of which ?36,16,88,341/- was from sister trusts. The Assessing Officer (AO) disallowed the claim of corpus nature and treated the amount as regular income, arguing that such donations could lead to manipulation by transferring regular income as corpus donations, making them immune from application during the year. The CIT(A) directed the AO to treat the donations as corpus donations, emphasizing that corpus donations from one charitable trust to another are not prohibited until the amendment to section 11(1)(d) by the Finance Act, 2017, which is effective from 01.04.2018.

2. Applicability of the Amendment to Section 11(1)(d):
The Revenue contended that the amendment to section 11(1)(d) introduced by the Finance Act, 2017, should be considered. This amendment, effective from 01.04.2018, specifies that contributions with a specific direction that they shall form part of the corpus of the trust or institution shall not be treated as an application of income for charitable or religious purposes. The CIT(A) and the Tribunal held that this amendment is prospective and not retrospective, and therefore, it does not apply to the assessment year 2015-16.

3. Examination of Non-Taxability of Corpus Donations:
The Tribunal examined various judicial precedents to determine the non-taxability of corpus donations. It referred to the Mumbai Bench of the Tribunal in Chandraprabhu Jain Swetamber Mandir vs. ACIT, where it was held that voluntary contributions towards the corpus cannot be brought to tax due to their capital nature. The Tribunal also considered decisions from other cases, such as ITO vs. Basanti Devi & Shri Chakhan Lal Garg Education Trust, where it was held that corpus donations are not taxable even if the trust is not registered under section 12A. The Tribunal concluded that corpus donations are capital receipts and are not taxable, irrespective of the trust's registration status under section 12AA.

4. Requirement of Specific Direction by the Donor:
The Tribunal also addressed the requirement of specific direction by the donor for donations to be treated as corpus donations. The jurisdictional High Court in Bharatiya Samskriti Vidyapith Trust held that if the recipient trust has accounted for the donations as corpus funds and maintained separate accounts, it can be inferred that there was a specific direction by the donor. In the present case, the assessee produced receipts indicating that the donations were received as corpus donations. However, there was no evidence of specific directions from the donors. The Tribunal noted that the AO failed to conduct a necessary inquiry into the sources of the donations and the donors' intentions. In the absence of such findings, the Tribunal upheld the CIT(A)'s order treating the donations as corpus donations.

Conclusion:
The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order directing the AO to treat the donations received from sister trusts as corpus donations under section 11(1)(d) of the Income Tax Act. The Tribunal emphasized that corpus donations are capital receipts and are not taxable, and the amendment to section 11(1)(d) by the Finance Act, 2017, is prospective and not applicable to the assessment year in question. The Tribunal also highlighted the importance of specific directions from donors and the need for proper inquiry by the AO into the nature and sources of the donations.