2024 (7) TMI 637 - AT - Income Tax

Exemption u/s 11 - assessment of trust - Treatment of dividend received from shares as corpus fund or income - as per DR investment in shares was not a specified mode u/s 11(5) - dividend received on the shares, which were received by the assessee as donation towards corpus fund, could also be treated as part of corpus fund or to be treated as income of the assessee which was to be applied or invested as per the provisions of section 11 HELD THAT - We find that in the case of Mata Amrithanandamayi Math 2017 (9) TMI 1232 - KERALA HIGH COURT that when a corpus donation in the form of fixed deposit has been given to the assessee with the specific direction that said asset along with any interest earned thereon shall also to be added to the corpus of the trust, then said interest partake character of the income in the form of voluntary contribution mode with the corpus of the trust and therefore, the dividend income received also forms part of the corpus donation. Thus, same is not liable to be considered for application of income under the provisions of section 11(5) of the Act. Since, the assessee has already invested the dividend received in the form of fixed deposits and saving account in the HDFC Bank and therefore, same qualifies for the purpose of section 11(5) of the Act. In the instant case rather than fixed deposits shares have been donated as corpus donation and therefore, the dividend income earned thereon under the direction of the donor to treat is same as part of corpus donation has been correctly held by the Ld. CIT(A) as part of the corpus donation. CIT(A) has validly followed the decision of the Hon ble Kerala High Court Mata Amrithanandamayi Math (supra) which has been uphold by the Hon ble Supreme Court. 2018 (5) TMI 1028 - SC ORDER Appeal of the Revenue is dismissed.

Issues Involved:
1. Applicability of Section 13(1)(d)(ii) of the Income-tax Act, 1961 concerning investments in shares.
2. Treatment of dividend income received from shares donated as corpus fund under Section 11 of the Income-tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Applicability of Section 13(1)(d)(ii) of the Income-tax Act, 1961 concerning investments in shares:
The primary issue was whether the assessee was hit by the provisions of Section 13(1)(d)(ii) of the Income-tax Act, 1961, as investment in shares is not a specified mode under Section 11(5). The Revenue contended that the dividend received from such shares could not qualify as an investment in specified modes under Section 11(5) of the Act. The Assessing Officer (AO) disallowed the benefit of dividend income for exemption under Section 11 and made an addition of Rs. 48,70,00,000/- to the returned income of the assessee.

The assessee, a registered charitable institution, argued that the shares were received as a corpus donation with a specific direction from the donor that any receipt from these shares, including dividends, should be treated as part of the corpus fund. The Ld. CIT(A) deleted the addition made by the AO, relying on the decision of the Hon'ble High Court of Kerala in the case of Commissioner of Income-tax (Exemption) v. Mata Amrithanandamayi Math, which was affirmed by the Hon'ble Supreme Court. The CIT(A) observed that the provisions of Section 11(5) prescribe only the mode of investment for trusts and not the mode of acceptance of donations. The assessee had time until 31.03.2022 to comply with Section 11(5) and had disinvested the shares in Majesco Ltd. on 23.06.2021, duly investing as per Section 11(5). The CIT(A) concluded that the assessee complied with Section 13(1)(d) concerning the acceptance, holding, and disposal of the shares received.

2. Treatment of dividend income received from shares donated as corpus fund under Section 11 of the Income-tax Act, 1961:
The second issue was whether the dividend received from shares donated as a corpus fund should be treated as part of the corpus fund or as income to be applied or invested per Section 11 of the Act. The AO argued that once an asset is donated, the generation of future income from that asset should be governed by the Act's provisions and not by any conditions set by the donor. The AO assessed the dividend income under the head 'income from other sources,' asserting that the assessee wrongly interpreted Section 11(1)(d).

The Ld. CIT(A) rejected the AO's contention, observing that the income received by way of dividend was further invested in fixed deposits with HDFC Ltd. and a savings bank account with HDFC Bank, qualifying as specified investments under Section 11(5)(iii) and 11(5)(ix). The CIT(A) clarified that the provisions of Section 11(5) prescribe the modes of investment for trusts instead of acceptance modes of donations. The assessee had received equity shares as a corpus donation and had time until 31.03.2022 to comply with Section 11(5). The CIT(A) noted that the AO's observation regarding invoking Sections 11(3) and 11(4) was inconsequential as the assessee had not carried out any business activity and held the shares as part of the corpus in compliance with Sections 11(1)(d) and 13(1)(d).

The Tribunal found that the CIT(A) had validly followed the decision of the Hon'ble Kerala High Court, upheld by the Hon'ble Supreme Court, in treating the dividend income as part of the corpus donation. The Tribunal dismissed the Revenue's appeal, affirming that the dividend income received from shares donated as a corpus fund should be treated as part of the corpus donation and not liable for application under Section 11(5).

Conclusion:
The Tribunal upheld the CIT(A)'s decision, concluding that the dividend income received from shares donated as a corpus fund should be treated as part of the corpus fund, and the assessee had complied with the provisions of Section 13(1)(d) and Section 11(5) concerning the acceptance, holding, and disposal of the shares. The Revenue's appeal was dismissed.

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