News Update

I-T - Corpus donation utlized for carrying out extensive research in field of education, is not taxable in hands of trust: ITAT

By TIOL News Service

NEW DELHI, SEPT 13, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether corpus donation utlized by a trust for carrying out extensive research in the field of education which is beneficial for public at large, cannot be taxed as income from other sources. YES is the answer.

Facts of the case:

The assessee trust who was granted registration u/s 12 and also a certificate u/s 80G(5)(vi), had declared NIL income after exemption u/s 11 & 12 of the Act. Upon receipt of information that the trust had two bank accounts which had large deposits in them, and whose total deposits were found to be at Rs.2,13,34,135/-. In the computation of income filed, total income before exemption was shown Rs. 1,52,17,236/-. However, as per Audit Report u/s 12A(b) and Income & Expenditure account and Balance Sheet for the year ending 31.3.2004, the total receipts were shown at Rs. 1,42,00,062/-. Application of income is shown at Rs. 1,52,17,236/-. In such circumstances, and in light of the apparent difference of Rs. 61,16,899/- between the receipts shown in the return of income and deposits in the bank account, proceedings u/s 147 were initiated and notice u/s 148 was issued. Thereby, the AO also observed that not only did the activity as such assume an unverifiable character but, the lack of evidence on the sources of the cash receipts & donations raised questions on the nature of account’s maintained by the assessee. Therefore, the AO held that the assessee failed in observing the basic tenets of Section 2(15) governing the claim of exemption, and so the benefits of section 11 & 12 were not allowable.

Tribunal held that,

++ the assessee had received a corpus donation of Rs. 1,41,93,101/- out of aggregate receipt of Rs. 1,42,00,062/-. From such receipts, the assessee applied such corpus donation to achieve its objects, when it was only incurred expenses and no income has been earned. The assessee has no source of income other than of Rs. 6961/-. Thereby, the AO erred in taxing the excess of receipts over expenditure as income, which has been adopted by him at Rs. 1303859/-and in any case as would be seen, as has been provided u/s 11(1)(a), income derived from property held under trust only in excess of 15% of the income of the property, if not applied for charitable purposes is to be included to the total income. It It is also not a case where there was any income from any source and hence the AO has erred in failing to appreciate that in any case it being a trust, the excess of income over expenditure since did not exceed 15% of the receipt, the same i.e. Rs. 13,03,859/- is not a part of total income as is statutorily provided and lastly that the assessee being a trust the corpus donation is not taxable and in the absence of any income of the trust income assessed is contrary to the provisions of section 5 of the Act;

++ the lower authorities overlooked that the assessee admittedly was a charitable institution and was formed with the charitable objects, explaining how registration u/s 12A was granted. In the instant year the assessee trust, in the absence of corpus donation which is not an income, applied such corpus donation to achieve the aims and objects of the trust. It is a case where it would be seen that what the AO had taxed was a capital receipt and otherwise too even if the same was held to be income then too the excess of receipts was than 15% of receipts and in the absence of there being any income such excess is outside the scope of total income. The CIT(A) had observed that assessee trust has carried out extensive research on topics ranging from India’s educational systems, India’s scientific achievements, Indian Philosophy, India music and dances and travel in India with a view to develop programme content for lectures and workshops, TV programmes on digital video tapes as well as for publishing content through print platform like journals etc. Numerous workshops and lectures were organized all over India, yet it was held that the assessee was not engaged in any charitable acitivity which is contrary to the judgement of the Supreme Court of India in the case of Sole Trustee Loka Shiksha Trust vs. CIT - 2002-TIOL-875-SC-IT-LB. Moreover, neither in the preceding year nor in the succeeding year any income by way of donation, had been brought to tax. Hence, the assessment made by the AO and sustained by the CIT(A) is bad in law and merit being set aside.

(See 2017-TIOL-1249-ITAT-DEL)