2022 (6) TMI 336 - AT - Income Tax

Exemption u/s 11 - Life Membership Fees claimed as capital receipt of the corpus donation - AO was of the view that since the receipt is not in the nature of corpus donation within the meaning of provision of section 11(1)(d) - HELD THAT - As per section 11(1)(d) income in form of voluntary contributions made with a specific direction that it shall form part of the corpus of the trust or institution shall not be included in the total income of the previous year of the person in receipt of the income. In the present case, the assessee did not furnish any specific direction of the donors/members regarding the amount it received. Moreover, by no stretch of imagination, membership fee can partake character of voluntary contribution so as to qualify being voluntary contribution with a specific direction that it shall form part of corpus of the trust. The membership fee is paid in anticipation/in lieu of services rendered by the assessee. The case law as relied by the assessee is not applicable on the facts of the present case. Hence, ground related to life membership fee is rejected. Donation Receipt - As stated before the authorities below that the amount was received and spent on construction of building etc. The AO rejected the claim on the basis that the assessee had received it as an ordinary donation but not as a corpus donation. Looking to the direction given by the donors and the same was credited in land building fund account. The authorities below ought to have taken a liberal approach in construing the direction of the donors. We therefore, direct the AO to delete this addition and allow the claim of the assessee. Hence, this ground raised by the assessee is allowed.

Issues:
1. Addition of life membership fee as revenue receipt.
2. Addition of donation for land building as revenue receipt.
3. Charging of interest under section 234B of the Income Tax Act, 1961.

Analysis:

Issue 1: Addition of life membership fee as revenue receipt
The Assessing Officer (AO) made an addition of Rs. 18,40,000 as life membership fee, considering it as a revenue receipt instead of a capital receipt. The AO contended that the fee did not meet the requirements of law as it was not a voluntary contribution but given in lieu of services. The AO's decision was based on the fact that the fee did not have a specific direction to form part of the corpus of the trust. The Tribunal upheld the AO's decision, stating that membership fees are paid in anticipation or in lieu of services rendered, and do not qualify as voluntary contributions under section 11(1)(d) of the Act. Therefore, the ground related to life membership fee was rejected.

Issue 2: Addition of donation for land building as revenue receipt
The AO also made an addition of Rs. 8,20,000, which was credited to the balance sheet under "Land & Building Fund," as a revenue receipt. The AO considered this donation as an ordinary donation and not a corpus donation. However, the Tribunal disagreed with the AO's decision and directed the AO to delete this addition, allowing the claim of the assessee. The Tribunal emphasized that a liberal approach should be taken in construing the direction of the donors, leading to the allowance of this ground raised by the assessee.

Issue 3: Charging of interest under section 234B of the Income Tax Act, 1961
The assessee raised a ground regarding the charging of interest under section 234B of the Act. The Tribunal held that charging of interest is consequential and upheld the same.

In conclusion, the Tribunal partly allowed the appeal of the assessee, rejecting the addition of life membership fee as a revenue receipt but allowing the claim related to the donation for land building. The Tribunal also upheld the charging of interest under section 234B of the Income Tax Act, 1961.

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