2022 (1) TMI 980 - AT - Income Tax

Exemption u/s 11 denied - Addition of donation received as the income of the assessee because the assessee was not registered under section 12AA - AR argued stating that the assessee received the money from various institutions which was handed over to various parties who expended the money according to the wishes of the donor - HELD THAT - From the facts of the case, it is evident that the assessee is not registered U/s. 12A of the Act. In such circumstances, the assessee would be disentitled to enjoy the benefit of section 11 of the Act. From the first page of the FCRA certificate itself it is evident that the assessee is bound to file a return disclosing the particulars of foreign donation received and how it was applied and even when there is no transaction a nil return is to be filed. There are also various other statutory compliances that has to be fulfilled by the assessee in order to enjoy the benefit of FCRA Certificate and those compliances are not produced before us. The current status of the FCRA registration is also not disclosed before us. The activity of the assessee cannot be treated as business because the assessee had not rendered to any services to the entities from whom the payments are received. The concept of diversion of income by overriding title will also not be applicable in the case of the assessee because the amount collected by the assessee is for the purpose of the religious activities of the assessee and for such fund registration U/s. 12A is mandatory to claim the benefit U/s.11 of the Act. Further, the concept of diversion of income by overriding title is well explained in M/S. CHAMUNDI WINERY AND DISTILLERY 2018 (10) TMI 65 - KARNATAKA HIGH COURT stating that if those principles are not adhered the provisions of section 11, 12, 12A and 12AA of the Act will become redundant. Considering these facts and the decisions of the Hon ble Higher Judiciaries, we are of the view that the action taken by the Ld. Revenue Authorities are as per the provisions of the Act and therefore we do not find it necessary to interfere with their orders. - Decided against assessee.

Summary

Issues:
1. Treatment of donation received by the assessee as income due to lack of registration under section 12AA of the Act.

Analysis:
The appeal was filed against the order of the Ld. CIT(A)-9, Hyderabad regarding the treatment of a donation received by the assessee as income since the assessee was not registered under section 12AA of the Act. The assessee, a registered society engaged in religious activities, had admitted NIL income for the AY 2012-13 under section 11 of the Act. The Ld. AO made an addition of ?77,96,563/- by treating the donation received as income during the scrutiny assessment proceedings. The Ld. CIT(A) upheld this decision based on the lack of clarity regarding the utilization of the donations and compliance with FCRA requirements.

During the proceedings, it was revealed that the donations were received for various purposes such as construction of churches, borewells, burial grounds, and two-wheelers. The Ld. AO considered the donations as income since the assessee was not registered under section 12AA of the Act. The Ld. CIT(A) also noted the lack of clarity on whether the donations were utilized as intended and upheld the addition made by the Ld. AO.

The assessee argued that the donations were received from institutions and distributed to parties as per the donors' wishes. The assessee highlighted its FCRA registration and the nature of its activities related to religious purposes. However, the tribunal observed that the FCRA certificate provided was incomplete, and the assessee had not fulfilled all statutory compliances required to enjoy the benefits of the FCRA registration. Additionally, the tribunal emphasized that registration under section 12A is mandatory to claim benefits under section 11 of the Act.

The tribunal referred to the concept of "diversion of income by overriding title" and cited the judgment of the Hon'ble Karnataka High Court in a relevant case. It was noted that the diversion of income must have statutory or court decreed support, and private contractual obligations should be carefully examined to determine if they are for tax avoidance purposes. The tribunal concluded that the actions of the Revenue Authorities were in line with the provisions of the Act and dismissed the appeal.

In conclusion, the tribunal upheld the decision to treat the donation received by the assessee as income due to the lack of registration under section 12AA of the Act and non-compliance with FCRA requirements. The tribunal emphasized the importance of fulfilling statutory compliances and registration mandates to claim benefits under relevant sections of the Act, ultimately dismissing the appeal of the assessee.