9911796707
TMI Blog2024 (6) TMI 1057X X X X Extracts X X X X X X X X Extracts X X X X ..... legal pronouncements has to be treated due to specific directions of the donor, as capital receipts, therefore, Section 2(24)(iia) is not attracted in the case of the assessee. For these reasons, the Section 56(1) is also not attracted and the arguments of the Ld. DR in that regard does not hold water and is outrightly rejected - we direct the Ld. AO to delete the addition made on account of donations. Decided in favour of assessee. - Shri. Padmavathy S., Accountant Member And Shri. Raj Kumar Chauhan, Judicial Member For the Assessee : Ms. Vasanti Patel For the Department : Shri. Dr. Kishor Dhule CIT DR ORDER PER RAJ KUMAR CHAUHAN (J.M.): 1. This appeal is filed by the appellant/assessee against the order dated 28.08.2023 of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the CIT(A) ], passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as the Act ] for the A.Y. 2014-15, wherein the Ld. CIT(A) has upheld the additions made to the total income of the appellant by the Ld. AO in respect of donations received to the tune of Rs. 1,15,00,000/-. 2. The facts in brief are that the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals), National Faceless Appeals Centre [CIT(Appeals)] erred in upholding the additions made to the total income of the Appellant by the learned Assessing Officer in respect of the Donations received Rs. 1,15,00,000/- to be utilized for acquisition of the assets for the purposes of the Trust/as per directions of the donors. 1.2. The learned Assessing Officer and the learned CIT(Appeals) failed to appreciate that the donations received by the Trust with specific direction towards acquisition of assets to be used as per the directions of the donor are Capital Receipts not liable to tax. 1.3. The learned Assessing Officer and the learned CIT(Appeals) failed to appreciate the submissions made and explanations furnished by the Appellant as also the legal position emerging from various judicial pronouncements in this behalf. The Appellant prays that the additions made by the learned Assessing Officer may kindly be deleted as the same are unwarranted and unjustified. 7. At the very outset before opening the arguments the Ld. Counsel/Ld. AR on behalf of the appellant brought to the notice of the Tribunal that there is a delay of around 11 days in filing the appeal. He has referred to aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A). It was argued that the present appeal could not be clubbed with those appeals and therefore the ratio of the Coordinate Bench applies to the present A.Y. 2014-15 and for that reasons, the impugned order needs to be set aside. 11. The Ld. DR on behalf of the revenue has argued that the amount of contribution received by the assessee is not a capital receipts but is to be considered an income of any kind as defined u/s. 56(1) of the Act . It is further argued by the Ld. DR that the Ld. Coordinate Bench of Mumbai Tribunal has not considered the applicability of Section 56(1) as it could not be noticed by the Ld. Tribunal. It is further argued that the assessee has referred the donations amount for corpus fund and as mentioned in page 29 of the paper book assessee has referred itself as business entity. Therefore, for the above reasons, it cannot be stated to have a corpus fund because the corpus fund is described as assets of a charitable trust and not of a business entity as has been claimed by the appellant/assessee. The Ld. DR has further referred to Section 2(24)(iia) of the Act and submitted that the voluntary contributions received by a trust created for charitable purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order and has concluded that it is not acceptable. I find the argument of the Ld. AO very relevant in the context of the facts and circumstances of the case. The relevant part of the order of the Ld. AO is as under- The above submission of the assessee has been perused but not found tenable for the following reason: a). Firstly, it is very clear that the assessee trust is in receipt of donation income of Rs. 30,00,000 from Diamond Exports Association Ltd and Rs. 85,00,000/- from Gem and Jewellery Export Promotion Council for purchase of asset for research and development instrument, however, the case law relied upon by the assessee deals with sales tax issue. The rules for the grant and donations are totally different and cannot be taken conjointly. Therefore, it held that the facts are totally distinguishable. Secondly the assessee himself treats themselves as business concern and filed the return of income as business concern only. lt means the assessee trust is a business entity covered by proviso to section 2(15) and is not eligible for any exemption u/s. 1 1 of the lncome Tax Act, 1961 . b). For the Asst. Year 2011-12, the assessment in the assessees case has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business income and not claimed exemption u/s 11. |n view of the above Section 2(15) is not invoked by the assessee. 6. Subject to the above remarks, the total income of the assessee is determined as under: Rs. Income as per return of income 56,97,623 Add: Donation received (as discussed above) 1,15,00,000 Less Depreciation @ 15% of Rs. 1,15,00,000/- 17,25,000 Total Income 1,54,72,623 Round Off u/s288A 1,54,72,620 7.0 I find that the appellant treats itself as a business entity as is evident from the return filed. As the appellant is a business concern, the provisions of exemption of section 11 of the income tax are not applicable in its case. The appellant is covered by section 2(15) of the Act. In the preceding and succeeding years also, the appellant has filed its return as a business concern. The AY wise treatment of donation is summarized as under- Assessment Year Whether section 11 exemption was claimed Whether the case was selected for scrutiny? If yes, whether section 11 claim was allowed in scrutiny assessment by AO Status before the appellate authorities 2008-09 Yes, claimed Yes AO denied exemption u/s. 11 CIT(A), ITAT and Bombay High Court held in favour of the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant. The case laws cited by the appellant also do not help as the facts are distinguishable. Decisions cited by the appellant have been rendered in the context of sales tax. Accordingly, these case laws are of no help to the appellant I am also in the agreement with the view of the Ld. AO that as per accounting standards business entity cannot claim capital expenditure as expense in the income and expenditure account but can claim depreciation on the said capital asset which are purchased out of the said donation. Therefore, I am of the view that the treatment of these donations by the Ld. AO as income from other sources of income is correct. Accordingly, I confirm the order passed by the Ld. AO. grounds of the appellant are dismissed. 15. Thus, it was argued before the Ld. CIT(A) by the assessee/appellant that the donation of Rs. 30,00,000/- was received from the diamond Exporters Association Ltd. with a specific direction that it shall be part of the corpus of the appellant trust and the contribution/donation of Rs. 85,00,000/- from Gem and Jewellery Exports Promotion and Council was received for the specific purpose that it shall be spent towards the promotion of the Quick Detec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g officer noticed that the assessee has received donations of following amounts in these three years and did not offer them for taxation: - Assessment Year Amount 2015-16 2,70,00,000 2016-17 3,61,62,120 2017-18 3,20,00,000 When questioned about the same, the assessee contended that the donation amounts are not taxable for the following reasons: - (a) The donations are capital receipts and hence not taxable. It was stated that the donors have given these donations for a specific purpose of purchasing assets and hence the same constitutes capital receipts in the hands of the assessee. (b) It was further submitted that the assessee has purchased assets out of the above said donations and while claiming depreciation on those assets, the cost of the assets was reduced by donation amount as required under Explanation 10 to sec. 43 of the Act and the depreciation has been claimed on Net amount only. The assessee relied upon various case laws in support of the above said propositions. 6. The AO did not accept the above said contentions of the assessee. He observed that the assessee is a trust and it has received donations. Merely because the assessee claimed itself to be a business concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and such kind of gifts have been made taxable u/s 56(2)(x) of the Act. 10. In the rejoinder, the Ld A.R submitted that the provisions of sec.56(2)(x) shall apply to the gifts received after 1.4.2017 and hence the said provision will not apply to the years under consideration. 11. We have heard rival contentions and perused the record. We notice that the assessee has received donations in all the three years under consideration and the Year wise break-up details of donations received by the assessee are detailed below:- Name of Donor AY 2015-16 AY 2016-17 AY 2017-18 Dimond Exports Assn. 30,00,000 25,00,000 20,00,000 Gem Jwellery Export 2,40,00,000 1,86,62,120 Promotion Council Bharat Diamond Bourse 1,50,00,000 Government under ASIDE scheme 3,00,00,000 TOTAL 2,70,00,000 3,61,62,120 3,20,00,000 It is the submission of the assessee that these donations have been given by the above said institutions for purchase of assets 12. The ld A.R relied upon various case laws in support of her contention that the donations given for a specific purpose are in the nature of capital receipts. We notice that all the decisions relied upon by the assessee are related to the cases of charitable trusts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above said cases can be conveniently applied in the present case also, since the assessee was not eligible to claim exemption u/s 11 of the Act. 14. Further, it is the submission of the assessee that the donations have been given to the assessee by the above cited associations for the specific purpose of purchasing assets. It is also the submission of the assessee that it has considered these donations as subsidy and accordingly claimed depreciation on the cost of assets as reduced by the donations. This action of the assessee reinforces the fact that these donations were given with a specific purpose of acquiring assets for the use of the assessee. Accordingly, we hold that the above said donations received by the assessee shall constitute capital receipts in the hands of the assessee. Further, the provisions of sec.56(2)(x) shall apply to the gifts/donations received after 1.4.2017 only and the above said donations have been received prior to that date. Hence the provisions of sec.56(2)(x) shall also be not applicable to these years. 15. Accordingly, we set aside the orders passed by Ld CIT(A) in all the three years under consideration and direct the AO to delete the addition tow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as [2023] 151 taxmann.com 379, judgment dated 05.07.2023 is relevant wherein it is held : Since as per subsidy scheme, subsidy could be utilized either for setting up of new biomass co-generation system or to promote existing system and its benefits, such subsidy was capital receipts in hands of assessee. 15. We are convinced by the argument of Ld. AR in that regard because for attraction of Section 56(1) the amount has to qualify as an income, whereas the assessee has shown the donations as subsidy to be treated as capital assets in the books of accounts. Nothing has been brought on record or submitted by the Ld. DR that a trust registered under the Act cannot claim itself to be a business entity or that it cannot file return as business entity as has been done by the assessee since the A.Y. 2013-14. Since the assessee has rightly and lawfully considered the donations as subsidy which as per legal pronouncements has to be treated due to specific directions of the donor, as capital receipts, therefore, Section 2(24)(iia) is not attracted in the case of the assessee. For these reasons, the Section 56(1) is also not attracted and the arguments of the Ld. DR in that regard does not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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