2023 (6) TMI 815 - AT - Income Tax

Denial of benefit of section 11(1)(d) - earmarked funds being corpus donation - assessee- trust being a public charitable trust, runs a school primarily to address students from the very lower strata of the society and relying on donors to fund the school - HELD THAT - AO has grossly erred in treating the Earmarked funds as revenue receipts particularly when the clear evidence before the assessing officer had demonstrated that what the donors had given was nothing but Earmarked funds for new building, room and campus developments. We note that stand taken by AO is not tenable in law, reason being that trust deed is only constitution of the trust and the nature and character of donation can be decided based on the intention of the donor and the direction given by the donor. Intention of the donor can be judged through receipt given by the donee or letter of the donor to the effect that he is donating the amount in the corpus fund. It is a well-settled position in law when a trust received a particular sum, which is earmarked, for a specific purpose, it constitutes nothing but a receipt to be treated as forming part of the corpus. As decided in case of Shri Ramakrishan Seva Ashrama 2011 (10) TMI 369 - KARNATAKA HIGH COURT wherein it was held that Where donation received by assessee-trust is kept in deposit account and income earned therefrom is utilized for charitable purposes, assessee is entitled to benefit of exemption u/s 11(1)(d) in respect of said income. Ground No.1 raised by the assessee allowed. Excess cash deposits into the bank account - HELD THAT - We note that the position taken by the AO is that since total cash deposits into the bank account exceeded the total fees received, the excess needs to be treated as income of the assessee. However, we note that reconciliation filed before the Bench clearly states that there should not be any difference. We note that it is second round of appeal before this Tribunal on the same issue, hence we note that third inning should not be given to the assessee for this small addition. Thus addition sustained partly. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Denial of benefit of section 11(1)(d) on Rs. 51.38 lacs received as earmarked funds being corpus donation.
2. Addition of Rs. 2,00,000 received as unsecured loan.
3. Addition of Rs. 3,80,657/- being excess cash deposit into the bank.
4. Alternate plea regarding benefit of over application to absorb the additions.
5. Assessee's right to alter or vary grounds of appeal.

Summary:

Issue I: Denial of benefit of section 11(1)(d) on Rs. 51.38 lacs received as earmarked funds being corpus donation:
The assessee argued that the earmarked funds should be treated as corpus donations under section 11(1)(d) of the Income Tax Act. The Assessing Officer (AO) rejected this claim, stating that the trust deed did not specify these funds as corpus funds and lacked specific directions from donors. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision. However, the Tribunal found merit in the assessee's submission, noting that the nature and character of donations are determined by the donor's intention and specific directions. The Tribunal cited several precedents supporting the treatment of earmarked funds as corpus donations and allowed the assessee's claim, stating, "It is an established law that when a Trust receives a particular sum which is earmarked for a specific purpose, it constitutes nothing but capital receipt which needs to be treated as forming part of the corpus."

Issue II: Addition of Rs. 2,00,000 received as unsecured loan:
The assessee did not press this ground of appeal, and it was dismissed as not pressed.

Issue III: Addition of Rs. 3,80,657/- being excess cash deposit into the bank:
The AO added Rs. 3,80,657/- to the assessee's income, citing excess cash deposits over reported cash fees. The CIT(A) confirmed this addition. The Tribunal heard both parties and noted the difficulty in reconciling old records. The Tribunal partially accepted the assessee's reconciliation, reducing the addition to Rs. 95,146/- and deleting the balance of Rs. 2,85,511/-. The Tribunal stated, "Taking into account the reconciliation filed by the assessee before the Bench, we are of the view that addition to the tune of Rs. 95,146/- should be sustained, and balance addition of Rs. 2,85,511/- is directed to be deleted."

Issue IV: Alternate plea regarding benefit of over application to absorb the additions:
The assessee did not press this ground of appeal, and it was dismissed as not pressed.

Issue V: Assessee's right to alter or vary grounds of appeal:
The Tribunal did not specifically address this issue as it was a general plea.

Conclusion:
The appeal was partly allowed, with the Tribunal granting relief on the treatment of earmarked funds as corpus donations and partially reducing the addition for excess cash deposits. The final order was pronounced on 16/06/2023.