No.- I. T. A. No. 230/Mum/2016

Saktijit Dey (Judicial Member) And Ramit Kochar (Accountant Member)

For the Appellant : Rahul R. Hakani
For the Respondent : Vishwas S. Jadhav, Senior Authorised Representative

ORDER

The order of the Bench was delivered by

Ramit Kochar (Accountant Member)- This appeal, filed by the assessee-trust, being ITA No. 230/Mum/2016, is directed against the appellate order dated October 21, 2015 passed by the learned Commissioner of Income-tax (Appeals)-3, Thane (hereinafter called "the CIT(A)"), for the assessment year 2011-12, the appellate proceedings before the learned Commissioner of Income-tax (Appeals) arising from the assessment order dated January 31, 2014 passed by the learned Assessing Officer (hereinafter called "the AO") under section 143(3) of the Income-tax Act, 1961 (hereinafter called "the Act").

2. The grounds of appeal raised by the assessee-trust in the memo of appeal filed with the Income-tax Appellate Tribunal, Mumbai (hereinafter called "the Tribunal") reads as under :

"I. Treating corpus donation of Rs. 4,55,446 as income

1. The learned Commissioner of Income-tax (Appeals) failed to appreciate that the appellant is a duly registered trust, and hence, corpus donation of Rs. 4,55,446 was income derived from property held under trust, and hence, entitled to exemption.

2. Without prejudice to the above, the learned Commissioner of Income-tax (Appeals) failed to appreciate that Rs. 4,55,446 is capital receipt, and hence, not taxable.

3. Without prejudice to the above, even if Rs. 4,55,446 is held liable to tax, the deficit of Rs. 2,00,897 in receipt and expenditure account should have been deducted from the same, and only balance should have been taxed.

III. Invoking section 164(2)
4. The learned Commissioner of Income-tax (Appeals) failed to appreciate that all surplus corpus donation of the appellant was exempt under section 11. Hence, the provisions of section 164(2) of the Act are not applicable."

3. The brief facts of the case are that the assessee is a religious charitable trust registered under the Bombay Public Trusts Act, 1950 engaged in providing stay facilities to sadhus and sadhvis, and pooja facilities to Swetamber Jains. During the course of assessment proceedings under section 143(3) read with section 143(2) of the Act, the Assessing Officer observed that the assessee has not submitted copy of registration under section 12AA or under section 10(23C) of the Act. The assessee was asked to explain as to why the trust should not be assessed as association of persons (AOP) and also to tax corpus donations received by the trust. In reply, the assessee submitted that the assessee has misplaced the copy of application submitted to the Commissioner of Income-tax, Thane (CIT). The Assessing Officer observed that the assessee has not submitted the copy of registration under section 12AA of the Act granted in favour of the assessee or the application made to the Commissioner of Income-tax for granting of registration and made the claim without any supporting evidence, therefore, the trust was assessed as association of persons and also taxed at maximum marginal rate under section 167B(1) of the Act. On perusal of the balance-sheet of the assessee, the Assessing Officer noted that the assessee has received a corpus donations, the details of which are as under :

The Assessing Officer asked the assessee to explain why corpus fund donations received of Rs. 4,55,446 should not be added to the income of the assessee and taxed as deduction under section 11 is not available to the trust. The assessee submitted that any receipt cannot be taxed unless it is an income within the meaning of section 2(24)(iia) read with section 12 of the Act. It is submitted by the assessee that contribution made with a specific direction that they shall form part of the corpus of the trust would not be considered as income of the trust. The Assessing Officer rejected the contentions of the assessee as the assessee is not having registration under section 12A/12AA of the Act and the benefit given by section 2(24)(iia) read with section 12 of the Act is not available to the assessee. The Assessing Officer held that the provisions of sections 11 and 12 are not applicable to the assessee as the assessee is not a registered trust under section 12A/ 12AA of the Act. The Assessing Officer observed that as per the provisions of section 11(1)(d) of the Act income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust shall not be included in the total income of the previous year of the trust in receipt of the income. In the absence of registration under section 12A or 12AA of the Act the immunity granted by section 11(1)(d) is not available to the assessee for corpus donation as section 11 of the Act is not applicable for association of persons. Thus, the Assessing Officer added an amount of Rs. 4,55,446 to the total income of the assessee being corpus donation received by the assessee, vide assessment order dated January 31, 2014, passed under section 143(3) of the Act.

4. Aggrieved by the assessment order dated January 31, 2014 passed by the Assessing Officer under section 143(3) of the Act, the assessee filed its first appeal before the learned Commissioner of Income-tax (Appeals).

5. Before the learned Commissioner of Income-tax (Appeals), the assessee-trust submitted that the assessee is charitable trust formed for religious and charitable purposes and is duly registered with the Charity Commissioner under the Bombay Public Trusts Act, 1950 vide registration certificate dated September 5, 1953 and was also registered with the Commissioner of Income-tax. The assessee submitted that the assessee has received corpus donation to the tune of Rs. 4,55,446 and filed its return of income declaring nil income. The assessee submitted that the certificate under section 12A of the Act granted in favour of the assessee-trust was not traceable and the assessee filed another application for obtaining copy of the certificate of registration under section 12A/12AA of the Act with the Commissioner of Income-tax long back but no reply has been received and hence it shall be deemed that registration has been granted. The assessee submitted that the corpus fund of Rs. 4,55,446 received are in the nature of donations with specific directions as to its application towards specific purposes for which respective funds were created which cannot be used for any other purposes as per religious customs and thus being capital receipts cannot be taxed. Thus, it was submitted that by virtue of provisions of section 11(1)(d) and section 12(1) of the Act, donations received towards corpus of the trust/various funds shall not be deemed to be income derived from property held under trust wholly for charitable or religious purposes. It was submitted that receipt cannot be taxed as income unless it is an income within meaning of section 2(24)(iia) of the Act read with section 12 of the Act. Section 12 of the Act makes it clear that contributions made with a specific directions that they shall form part of the corpus of the trust or institution shall not be considered as income of the trust. The assessee also submitted that being association of persons, by virtue of provisions of section 56(2)(vii) of the Act, such receipts are not taxable in the hands of the assessee as income from other sources. It was also submitted that the Assessing Officer also erred in taxing the assessee's income at maximum marginal rate in the status of association of persons. It was submitted that no part of the assessee's income is liable to be charged at maximum marginal rates since no part of the income of the assessee enures or is used or applied directly or indirectly for the benefit of specified category of persons referred to in section 13(3) of the Act, that no part of the trust funds are invested in contravention of the investment pattern prescribed under section 13(5) of the Act, the assessee-trust is not engaged in any business and the objects of trust is not to earn profit and to share among the members. The assessee relied upon the following caselaw :

1. ITO v. Peetadhipathi Trust ITA Nos. 1382 and 1535/Bang/2010, dated January 31, 2012.
2. Sree Sree Ramkrishna Samity v. Deputy CIT [2015] 44 ITR (Trib) 678 (Kol), ITA Nos. 1680 to 1685/2012 dated October 9, 2015.
3. ITO v. Gaudiya Granth Anuved Trust [2013] 28 ITR (Trib) 161 (Agra) ITA No. 386/Agra/2012.
4. Shri Shankar Bhagwan Estate v. Income-tax Officer, [1997] 61 ITD 196 (Cal).
5. Society for the promotion of Education, Adventure Sport and Conservation of Environment v. CIT [2015] 372 ITR 222 (All) (Appnx.) ; [2008] 171 Taxman 113 (All).
6. Rev Father Trust Oscar Colasco Memorial Medical Association v. CIT [2009] 31 SOT 1 (Mum).
7. R. B. Shreeram Religious and Charitable Trust v. CIT [1988] 172 ITR 373 (Bom).

The assessee submitted that the Assessing Officer has erred in bringing to tax the income of the assessee at maximum marginal rate in the status of association of persons.

The learned Commissioner of Income-tax (Appeals) after considering the submissions of the assessee rejected the contention of the assessee. The learned Commissioner of Income-tax (Appeals) held that the assessee failed to submit the copy of registration under section 12AA or under section 10(23C) of the Act nor copy of application made to the Commissioner of Income-tax for applying for registration was produced before the Assessing Officer, hence, exemption claimed under section 11 of the Act was rightly rejected by the Assessing Officer. The learned Commissioner of Income-tax (Appeals) further held that the assessee is not entitled to exemption under section 11 of the Act being unregistered trust, therefore, the assessee's status had to be treated as association of persons and the corpus fund donation receipt is liable to be taxed. However, in the absence of elaborate discussion by the Assessing Officer as to whether the association of persons has to be taxed under section 167B(1) or under section 164(2), and the objects of the setting up of the trust is for public trust, therefore the provisions of section 164(2) of the Act are applicable and the assessee's income shall be taxed at normal rates instead of maximum marginal rates, vide appellate orders dated October 21, 2015.

6. Aggrieved by the appellate order dated October 21, 2015 passed by the learned Commissioner of Income-tax (Appeals), the assessee is in second appeal before the Tribunal.

7. The learned counsel for the assessee submitted that the assessee is religious charitable trust duly registered under the Bombay Public Trusts Act, 1950. It is submitted that the assessee has received corpus donations of Rs. 4,55,446 during the previous year relevant to the assessment year. The learned counsel submitted that the assessee is not registered under section 12AA of the Act. The assessee has received corpus donations of Rs. 4,55,446 which cannot be charged to tax under the Act. The learned counsel submitted that the assessee could not trace the application made to the Commissioner of Income-tax for applying for copy of certificate of registration under section 12A/12AA of the Act, which was not rejected by the Commissioner of Income-tax and the same shall be deemed to be granted. It was submitted that the Assessing Officer denied the exemption to the assessee and brought to tax corpus donation at maximum marginal rate of tax. It is submitted that there is corpus donations of Rs. 4,55,446 which is not taxable even if the trust is not registered under section 12A/ 12AA of the Act. It is submitted that the donors have donated the corpus donations with specific directions about its application towards specific purpose for which the respective funds were created and it cannot be used for any other purposes. The learned counsel relied upon the following decisions :

1. ITO (Exemptions) v. Smt. Basanti Devi and Shri Chakhan Lal Garg Education Trust ITA No. 5082/Delhi/2010 dated January 19, 2011, Delhi Tribunal.
2. DIT v. Smt. Basanti Devi and Shri Chakhan Lal Garg Education Trust ITA No. 927 of 2009 dated September 23, 2009, Delhi High Court.
3. ITO v. Gaudiya Granth Anuved Trust [2013] 28 ITR (Trib) 161 (Agra).
4. Indian Society of Anaesthesiologists v. ITO [2014] 32 ITR (Trib) 152 (Chennai).
5. ITO v. Vokkaligara Sangha [2015] 44 CCH 509 (Bang)
6. Shri Shankar Bhagwan Estate v. ITO [1997] 61 ITD 196 (Cal).

The assessee contended that the corpus donations cannot be brought to tax and also the learned Commissioner of Income-tax (Appeals) directed the Assessing Officer to bring these income to tax at the normal rate and not maximum marginal rate as held by the Assessing Officer and in view of the relief granted by the learned Commissioner of Income-tax (Appeals) to the extent of charging corpus donation at normal rates, ground No. III(4) has become infructuous.

8. The learned Departmental representative, on the other hand, relied on the order of the learned Commissioner of Income-tax (Appeals).

9. We have considered the rival contentions and also perused the material available on record including the caselaw relied on. We have observed that the assessee is a religious charitable trust duly registered under the Bombay Public Trusts Act, 1950. The assessee could not produce registration under section 12A/12AA of the Act and hence it could be presumed that the assessee is not registered under section 12A/12AA of the Act as the onus was on the assessee to bring on record the evidences to prove its contentions which it want court to believe and consequently to seek immunities and protections granted to a registered trust. The assessee has received corpus donations to the tune of Rs. 4,55,446 during previous year relevant to the assessment year which are being given with specific directions by the donors to be applied towards specific purpose for which the respective funds were created. This is an admitted position between the parties and there is no dispute with respect to this proposition. The details of the corpus donations are as under :

These above stated specific donations given by the donors to be utilised for specific purposes cannot be diverted for any other purposes by the assessee and are credited to the respective funds in the balance-sheet, and utilisation thereof is also reflected from these specific funds. We have gone through the case law relied upon by the assessee as set out above and have observed that the courts/Tribunals have taken a consistent view that these corpus donations are held to be capital receipts being capital in nature and are not taxable despite the fact that trust is not registered under section 12A/12AA of the Act.

In ITO (Exemptions) v. Basanti Devi and Shri Chakhan Lal Garg Education Trust in ITA No. 5082(Delhi) 2010 for the assessment year 2002-03 vide orders dated January 19, 2011, Income-tax Appellate Tribunal, Delhi relying on the Income-tax Appellate Tribunal, Delhi decision in the taxpayers own case for the assessment year 2003-04 whereby the Tribunal held that the amount received by the taxpayer trust from its settler, towards infrastructure fund, was not taxable in the hands of the taxpayer trust, despite the fact that the taxpayer trust is not registered under section 12A of the Act, and consequently the Tribunal dismissed the Revenue's appeal. The Revenue went in appeal and the hon'ble Delhi High Court dismissed the appeal of the Revenue against the Tribunals order for the assessment year 2003-04 in ITA No. 927 of 2009 vide orders dated September 23, 2009 in Smt. Basanti Devi and Shri Chakhan Lal Garg Education Trust. Similar view was taken by the Income-tax Appellate Tribunal, Agra in the case of ITO v. Gaudiya Granth Anuved Trust reported in [2013] 28 ITR (Trib) 161 (Agra) ; [2014] 48 taxmann.com 348 (Agra) whereby Tribunal held as under (page 162 of 28 ITR (Trib)) :

"This is an appeal filed by the Revenue against the order dated February 24, 2012 passed by the learned Commissioner of Income-tax (Appeals)-I, Agra for the assessment year 2007-08.

The Revenue has raised the following grounds of appeal :

'1. The learned Commissioner of Income-tax (Appeals) has erred in law and on facts in failing to appreciate that voluntary contributions (whether corpus donations or general donations) received by a charitable trust are income as defined vide section 2(24)(iia) of the Act and corpus donations are exempt from tax under section 11(1)(d) only if assessee is registered under section 12A/12AA of the Act.

2. The learned Commissioner of Income-tax (Appeals) has erred in placing reliance upon the appellate decision of the hon'ble Delhi High Court in ITA No. 5082/Delhi/2010 in the case of ITO (Exemptions) v. Smt. Basanti Devi and Shri Chakhan Lal Garg Education Trust for the assessment year 2003-04, which in turn is now under challenge in the hon'ble Supreme Court.

3. The order of the Commissioner of Income-tax (Appeals)-1, Agra being erroneous in law and on facts be set aside and the order of the Assessing Officer be restored.

4. The appellant craves to amend the grounds of the appeal stated above and when need for doing so may arise.'

The brief facts of the case are that the assessee-trust has shown donation of Rs. 68,50,000 from BBT, Mumbai. The Assessing Officer computed the assessment on total income of Rs. 68,70,000 rejecting the assessee's contention that donation received towards the corpus of the trust. The Commissioner of Income-tax (Appeals) deleted the addition of Rs. 68,50,000 out of the addition of Rs. 68,70,000 made by the Assessing Officer as under :

'I have also examined the term corpus fund and corpus donation as it is being generally used with respect to a trust. A corpus fund denotes a permanent fund kept for the basic expenditures needed for the administration and survival of the organisation. The corpus fund is generally not allowed to be utilised for the attainment of the purposes, but the interest/dividend accused on such fund can be utilised as well as accumulated. Such fund can also be used for creation of capital asset or property of the trust from which income can be generated. Corpus fund are generally created out of corpus donation. A donation will be treated as corpus donation only if it is accompanied by a specific written direction of the donor. In the absence of any written direction of the donor, a contribution of grant cannot be transferred to corpus fund. In the present case, the donor, the Bhaktivedanta Book Trust has very categorically in his letter, while providing money to the appellant trust, has mentioned the amount of Rs. 68,50,000 as corpus donation and such amount has been used by the trust for purchasing the land and giving money on interest as loan. Therefore, the amount of Rs. 68,50,000 shown by the appellant trust has been found to be in the nature of corpus donation.

Now, the question arises whether such corpus donation is taxable as income or not even in the cases in which the trust is not registered under section 12AA because for those trusts which are registered under section 12AA, exemption to corpus donation has been provided as per the provision of section 11(1)(d). For such trust to which registration under section 12AA has not been provided, its taxability is required to be decided with reference to the scheme of the Act as held in the decision of Pentafour Software Employees Welfare Foundation v. Asst. CIT (supra). In both the decisions referred by the learned authorised representative, in case of Pentafour Software Employees Welfare Foundation v. Asst. CIT, it has been held that corpus donation being in the nature of capital receipt are not chargeable to Income-tax. The decision of the Income-tax Appel late Tribunal, Delhi in the case of Smt. Basanti Devi and Shri Chakhan Lal Garg Education Trust for both the assessment years 2002-03 and 2003-04 are annexed with this order as annexure A-1 in which reference to the decision in the case of Pentafour Software Employees Welfare Foundation is also given.

I have also come across another decision of the hon'ble Income-tax Appellate Tribunal, Kolkata in the case of Shri Shankar Bhagwan Estate v. ITO, dated January 13, 1997, reported in [1997] 61 ITD 196 (Cal) in which, the taxability of corpus donation has been examined in the light of section 12 read with section 2(24)(iia) of the Income-tax Act and in this decision, it has been held as under :

"So far as section 2(24)(iia) is concerned, this section has to be read in the context of the introduction of the present section 12 it is significant that section 2(24)(iia) was inserted with effect from April 1, 1973 simultaneously with the present section 12, both of which were introduced from the said date by the Finance Act, 1972. Section 12 makes it clear by the words appearing in parenthesis that contributions made with a specific direction that they shall form part of the corpus of the trust or institution shall not be considered as income of the trust. The Board's Circular No. 108 dated March 20, 1973 is extracted at page 1277 of Volume I of Sampath Iyengar's Law of Income-tax, 9th edition. In which the inter-relation between sections 12 and section 2(24) has been brought out. Gifts made with clear directions that they shall form part of the corpus of the religious endowment can never be considered as income. In the case of R. B. Shreeram Religious and Charitable Trust v. CIT [1988] 172 ITR 373 (Bom) it was held by the Bombay High Court that even ignoring the amendment to section 12, which means that even before the words appearing to parenthesis in the present section 12, it cannot be held that voluntary contributors specifically received towards the corpus of the trust may be brought to tax. The aforesaid decision was followed by the Bombay High Court in the case of CIT v. Trustees of Kasturbai Scindia Commission Trust [1991] 189 ITR 5 (Bom). The position after the amendment is a fortiori. In the present cases the Assessing Officer on evidence has accepted the facts that all the donations have been received towards the corpus of the endowments. In view of this clear finding, it is not possible to hold that they are to be assessed as income of the assessees. We, therefore, hold that the assessment of the corpus donations cannot be supported.

12. For the above reasons, we hold as under :

1. The religious endowments are not invalid on the ground that neither the temple nor the image had been consecrated at the time of creating the endowments.
2. The assessees have to be assessed in the status of 'individual' since they are artificial juridical entities and
3. The voluntary contributions received by the assessee towards the corpus cannot be brought to tax."

6.5 Even after considering the definition of section 2(24)(iia) read with section 12, the hon'ble Income-tax Appellate Tribunal, Kolkata arrived to the conclusion that the voluntary contribution in the nature of corpus donation raised by the appellant cannot be brought to tax. In this case also, the trust under appeal was a private religious trust not registered under section 12AA and hence, corpus donation received by it should not be taxable as its income.

6.6 After considering the position of law as it is prevailing at present on the basis of the decision of three Tribunals, i.e., Income- tax Appellate Tribunal, Chennai, Income-tax Appellate Tribunal, Delhi and Income-tax Appellate Tribunal, Kolkata and further confirmed by the Delhi High Court, the corpus donation is in the nature of a capital receipt and are not taxable, irrespective of the fact whether the trust is registered under section 12AA or not. Therefore, I agree with the learned authorised representative that the amount of Rs. 68,50,000 being in the nature of corpus donation is not taxable under the Income-tax Act being in the nature of capital receipt and therefore, the addition of Rs. 68,50,000 made by the Assessing Officer towards the taxable income of the assessee is hereby deleted and accordingly, Ground No. 2 is allowed.'

The learned Departmental representative relied upon the order of the Assessing Officer, whereas the learned authorised representative relied upon the order of the Commissioner of Income-tax (Appeals) and submitted that the Commissioner of Income-tax (Appeals) has followed the orders of the Income-tax Appellate Tribunal, Delhi Bench, which has been confirmed by the hon'ble Delhi High Court, thus, the issue is covered in favour of the assessee.

The learned authorised representative has submitted that the issue is covered by various orders of the Income-tax Appellate Tribunal in the cases of Shri Shankar Bhagwan Estate v. ITO [1997] 61 ITD 196 (Cal), Society for Integrated Development in Urban and Rural Areas (SIDUR) v. Deputy CIT [2004] 90 ITD 493 (Hyd), Sri Dwarkadheesh Charitable Trust v. ITO [1975] 98 ITR 557 (All) and Deputy CIT v. Nasik Gymkhana [2001] 77 ITD 500 (Pune).

We have heard the learned representatives of the parties and records perused. The grievance of the Revenue is that the Commissioner of Income-tax (Appeals) has wrongly followed the judgment of the hon'ble Delhi High Court in I. T. A. No. 5082/Delhi/2010, whereas that order has been challenged before the hon'ble Supreme Court. The Revenue did not dispute the facts. We noticed that the Commissioner of Income-tax (Appeals) after considering the decision of three Tribunals, i.e., Income-tax Appellate Tribunal, Delhi in the case of Smt. Basanti Devi and Shri Chakhan Lal Garg Education Trust, the Revenue filed appeal before the hon'ble Delhi High Court. The hon'ble Delhi High Court confirmed the order of the Income-tax Appellate Tribunal, the Revenue filed appeal before the hon'ble Supreme Court, which has been dismissed for non-prosecution vide judgment Civil Appeal Nos. 7036 of 2011, judgment dated January 28, 2013, Income-tax Appellate Tribunal Chennai Bench in the case of Pentafour Software Employees Welfare Foundation v. Asst. CIT (I.T. Appeal Nos. 751 and 752 (Mds.) of 2007) and others and Income-tax Appellate Tribunal, Kolkata Bench in the case of Shri Shankar Bhag wan Estate v. ITO, dated January 13, 1997, [1997] 61 ITD 196 (Cal) decided the issue in favour of the assessee. We find that the facts of the case under consideration are identical to the facts of the case decided by the Income-tax Appellate Tribunal, Delhi Bench in the case of Smt. Basanti Devi and Shri Chakhan Lal Garg Education Trust and other orders of the Income-tax Appellate Tribunal. Since facts are identical, therefore, to maintain consistency, we follow the above orders of the Income-tax Appellate Tribunal and the light of facts we do not find any infirmity in the order of the Commissioner of Income-tax (Appeals). The order of the Commissioner of Income-tax (Appeals) is confirmed.

In the result, the appeal of the Revenue is dismissed."

The Income-tax Appellate Tribunal, Chennai in Indian Society of Anaesthesiologists v. ITO in decision reported in [2014] 47 taxmann.com 183 (Chennai) held that specific funds created for fulfilling specific objectives for which these separate funds are constituted remain as capital funds as the funds can be used for fulfilling specific objectives for which these funds are constituted and hence to be treated as corpus funds and to be excluded from computation of income.

The Income-tax Appellate Tribunal, Bangalore in ITO v. Vokkaligara Sangha in a decision reported in [2015] 44 CCH 509 (Bang) whereby the Tribunal held that voluntary contributions received for a specific purposes cannot be regarded as income under section 2(24)(iia) of the Act since they were capital receipts being corpus fund and tied up grants for specific purposes. In our considered view keeping in view our detailed discussions above and the case law cited before us, these corpus donations of Rs. 4,55,446 received by the assessee-trust cannot be brought to tax despite the fact that the assessee-trust was not registered under section 12A/12AA of the Act. We order accordingly.

10. In the result, the assessee's appeal in ITA No. 230/Mum/2016 for the assessment year 2011-12 is allowed.

The order pronounced in the open court on August 12, 2016.