TMI Blog2016 (11) TMI 1443X X X X Extracts X X X X X X X X Extracts X X X X ..... enue that there is any change in the objects and activities of the assessee trust and these objects/activities are not the same as those on the basis of which registration under section 12AA has been granted. Further, it is also not the case of the Revenue that assessee trust was refused registration or registration granted earlier was cancelled at anytime. In our view, the assessee trust duly registered under section 12AA of the Act is thus held eligible to claim benefits of section 11 and 12 of the Act for the impunged assessment year. Whether building fund received by the assessee trust, can it be held eligible to claim benefit of section 11(1)(d)? - Held that:- What is relevant to determine is whether there is a voluntary contribution/donations by the students/parents with a direction to utilise the same towards construction of the building infrastructure and secondly, how the same has been accounted for and utilised by the assessee trust. However, given the contradictory position taken by the assessee and the Revenue and in absence of any tangible material on record produced by either of the two parties, it would be in interest of justice and fair play that the matter is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts and in the circumstances of the case and in law the ld. CIT(A)-I, Jaipur has erred in deleting the addition made on account of disallowance of TDS amounting to ₹ 13862/-. Assessee s grounds of appeal in its cross objection: (1) That the ld. CIT(A) was legally correct in treating the assessee Trust being entitled for benefit of registration under section 12AA of the IT Act after considering various judicial pronouncements, Trust deed dated 24 th November, 2001 on the basis of which ld. CIT has granted registration u/s 12AA of IT Act and the intention of the Act in inserting first proviso to section 12A of the IT Act. (2) That the ld. CIT(A) was legally justified that: (a) Deleting addition of corpus donation of ₹ 5,30,09,085/- received through individual receipts in cash or through cheques for specific purpose as towards building fund which is corpus donations as per provisions of section 11(1) (d) of IT Act. (b) Deleting addition of ₹ 11,06,513/- made u/s 40(a)(ia) of IT Act and ₹ 13,862/- being interest on TDS for the reason that surplus after including both sums but after excluding addition for corpus donation towards b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 12A of the Act. (iv) As per accounting standard having recognition under the Income Tax Act and supported by various judicial pronouncements, there are two types of receipts in such trusts. One is revenue receipt and other is capital receipt. The revenue receipts are part of income and expenditure account whereas capital receipts are directly transferred to corpus and termed as corpus donations. (v) Discretion of the assessee to treat the receipts as per his own choice: There is no discretion left with the management/trustees of the assessee trust. Since assessee trust is running educational institution in which about 2500 students are studying, their fee and other receipts are acknowledged by issuance of receipts in duplicate. Original is issued to the students whereas carbon copy is kept for the records of assessee trust. The category of the income (whether revenue or capital receipt) is marked in these receipts as per the direction of the students/parents of the students to whom original receipts are issued and not as per the discretion of the Trustees or their employees. Through carbon copies of the receipts, relevant entries are made in the books of account. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to establish that these funds are being utilized for the specific purpose. Management is free to use this fund as per his own suitability. Assessee can use these funds in any form either for construction of building or for purchase of vehicles or for acquisition of any capital assets or can use it for day to day affairs. There is no bar for using it as revenue expenditure. Even there is no distinction of fees receipts itself. On close scrutiny of fees receipt, it can easily be seen that building fund nomenclature has been added afterwards just to divert the nature of receipts. (iv) Assessee has also referred about the corpus fund in his reply. I have examined the term corpus fund and corpus donation as it is being generally used with respect to a trust. A corpus fund donates a permanent fund kept for the basic expenditure needed for the administration and survival of the organization. The corpus fund is generally not allowed to be utilized for the attainment of the purposes, but the interest/dividend accrued on such fund can be utilized 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 gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Further on perusal of certificate issued by the Asst. Commissioner, Devsthan Vibhag, Jaipur, it is also seen that the appellant trust has got its registration w.e.f. 24.11.2003. Income in the form of voluntary contributions made with a specific direction from the donor that they shall form part of the corpus of the trust or institution, are generally referred to as corpus donations . Further the IT Act, 1961 is not concerned with form of organization. The same treatment is provided to public trusts, societies, sec. 25 companies, and even to charitable funds set up by companies etc. corpus donations, are not to be spent, but have to be invested so that the resulting income can be used. Income tax Act, allows trust to set these corpus donations aside permanently. These are excluded from income. Therefore the minimum expenditure requirement does not apply to donations received as corpus. Accordingly, such corpus donations are fully exempt from tax u/s 11(1)(d) of the Act. Accordingly, corpus donations are to be excluded entirely from the assessable income of the trust or institution u/s 11(1)(d) of the Act. In other words, voluntary contributions received with a specific direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this was one time donation. The building fund so received is neither fixed nor identical amount in all cases of donors, since it is voluntary. No donation towards building fund was received at all from 269 students. The amount so received was properly accounted for and credited directly to Building Fund account of the assessee. The building fund donations were applied in construction of buildings for educational purposes after receipt whereas the other receipt-tuition fee, charged separately was utilized for imparting education. The Assessee trust was granted registration u/s 12AA of IT Act on 08.08.2014 after considering the trust deed dated 24.11.2001, meaning thereby assessee trust was qualifying and was eligible for registration u/s 12AA of IT Act from very beginning from 2001. This view further get strength from insertion of proviso to section 12A(2) of IT Act by Finance (no.2) Act 2014 which was made applicable on all pending assessments, which shows that intention of the Act to allow benefit of registration u/s 12AA liberally. Had the donation toward building fund been treated as revenue income, the assessee trust would not have resorted to charge separately the monthl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough the assessee trust was qualifying for registration but it was not properly guided by earlier consultant therefore registration was applied late in March 2014. The registration was granted by CIT on the basis of original Trust deed dated 24.11.2001. Moreover we rely on decision in the case of JB Educational Society. (ii) Building fund received as part of fees: - It was voluntary donation. Had it been part of fee, it would have been of equal amount in all cases and would have been charged from all students whereas as per para 3 at page No.2 it was not received from 269 students. (iii) Fee receipts do not have the word corpus: No need under the Act that in receipts corpus word be mentioned. It should be for specific purpose (357 ITR 731 (Karn) 149 ITR 470 (Raj.) The intention of donor donee to be seen (Sukhdeo Charity Estate 192 ITR 71 (Raj.) (iv) Fund received for specific purpose is not capital of society and therefore not corpus: This ground appears to be general in nature where ld. AO after examining the records has admitted that donations were for specific purposes, when it is for specific purpose it is corpus donation as held in various judicial pronouncements. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions contained in the first and second proviso shall not apply in case of any trust or institution which was refused registration or the registration granted to it was cancelled at any time under section 12AA. 2.8 In the instant case, there is no dispute as to the fact that the assessee trust was granted registration u/s 12AA of the Act on 8.8.2014 by CIT-I, Jaipur w.e.f. 26.03.2014. As on the date of grant of registration, the assessment order u/s 143(3) was passed by the AO and the appeal against such assessment order was pending before the ld CIT(A)-I, Jaipur. The amendment made by the FA, 2014 by insertion of proviso to sub section 2 of section 12A effective from 01.10.2014 has been explained in CBDT Circular No. 01/2015 dated 21.1.2015 which contains the explanatory Notes to the provisions of the Finance (No. 2), 2014 as under:- 8.2 Non-application of registration for the period prior to the year of registration caused genuine hardship to charitable organizations. Due to absence of registration, tax liability is fastened even though they may otherwise be eligible for exemption and fulfill other substantive conditions. However, the power of condonation of delay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of CIT Vs. Vatika Township Pvt. Ltd. 367 ITR 466(SC) and Allied Motors Pvt. Ltd. Vs. CIT 224 ITR 677 (SC) that any amendment made in the Act which is intended to remove unintended and undue hardship should be given retrospective effect. 2.12 The next question that arises for consideration is where the assessment order has been passed and the appeal against the said assessment order is pending before the ld CIT(A), can it be said that the assessment proceedings are pending as on the date of the registration. This issue has been dealt with by the Coordinate Bench in case of Shree Bhanushali Mitra Mandal Trust Vs. ITO (2016) 47 CCH 197 where at para 7.3 and 7.4, it held as under:- 7.3 When section 12A of the Act was amended by introducing new provisos to sub-section (2) of Section 12A by Finance Act, 2014 with effect from 01.10.2014, the assessment orders passed by the assessing officer in respect of the present assessee were pending in appeal before the first appellate authority. During such pendency, the assessee was granted registration u/s 12AA of the Act on 17.12.2013 w.e.f. the assessment year 2013-14. The appeal is the continuation of the original proceedings and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ground of the assessee is allowed. 2.14 In the present case, when the amendment was made in section 12A of the Act by the FA, 2014, the appeal was pending before the ld CIT(A). During such pendency, the assessee was granted registration u/s 12AA of the Act on 8.8.2014 by CIT-I, Jaipur w.e.f. 26.03.2014. Thus, in view of the above discussions, ld CIT(A) has rightly exercised his power whereby he has considered and taken into consideration the grant of registration to assessee u/s 12AA for the impunged assessment year as appeal was pending before him and an assessment proceeding which is pending in appeal before the appellate authority should be deemed to be assessment proceedings pending before the AO within the meaning of the term as envisaged under the proviso to section 12A(2) of the Act. We may add that it is not the case of the Revenue that there is any change in the objects and activities of the assessee trust and these objects/activities are not the same as those on the basis of which registration under section 12AA has been granted. Further, it is also not the case of the Revenue that assessee trust was refused registration or registration granted earlier was cancelle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corpus donations, were treated as income of such trust or institution. However, under the provisions of the new section 80F, also introduced by the Amending Act, 1987, such corpus donations, along with other income of the trust or institution would have been exempt if spent for charitable purposes or invested in specified assets mentioned in section 80F. 4.4 As already pointed out, the Amending Act, 1989 omitted the new section 80F introduced by the Amending Act, 1987 and revived the old section 11. Consequently, corpus donations to trusts, etc., would also be governed by the provisions of section 11. Since stipulations in clauses (a) and (b) of sub-section (1) of section 11 that 75% of the income of the trust should be spent during the year and only 25% can be accumulated for application to its purposes in future could not have been made applicable to corpus donations, the Amending Act, 1989 has further amended section 11 to exclude corpus donations from the total income of the trust, as explained in para 4.2 above. 4.5 The effect of the amendment of definition of income contained in section 2(24) by the Amending Act, 1987 and the amendment of sub-section (1) of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntified and was contrary to section 11(1)(d) of the I.T. Act? In context of above two questions, the Hon ble Karnataka High Court has held as under: 27. This addition relates to assessment year 2001 to 2003. This addition is under the head of Building Fund. The Assessing Authority treated the Building Fund as revenue receipt. According to the society even if the addition is considered as income, that sum being an income of the society they can claim for exemption under Section 10(23C) of the Act. Therefore the society sought for exemption. The Tribunal held that the Building Fund are received specifically towards the corpus of the assessee-society for being applied in the construction of the building, the receipt is capital in nature and therefore it is credited directly to the corpus fund. The grievance is, the Assessing Authority has considered the same as revenue receipt and has made addition. It is not in dispute that the assessee and the various educational institutions run by the assessee have received substantial donations. The amount so received from the Building Fund is not included in the income and expenditure account of the society. The amounts receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rust for carrying on its charitable or religious activities, then, such an income falls under section 11(1)(d) and is not liable to tax. Therefore, it is not necessary that a voluntary contribution should be made with a specific direction to treat it as corpus. If the intention of the donor is to give that money to a trust which they will keep it in trust account in deposit and the income from the same is utilized for carrying on a particular activity, it satisfies the definition part of the corpus. The assessee would be entitled to the benefit of exemptions from payment of tax levied. [Para 13] Therefore, what ultimately reveals that, - (i) the intention of the donor and (ii) how the recipient-assessee treats the said income. If the intention of the donor is that the amount/donation given is to be treated as capital and the income from that capital has to be utilized for the charitable purposes, then the said voluntary contribution is towards the part of the corpus of the trust. Similarly, the assessee after receiving the amount, keeps the amount in deposit and only utilise the income from the deposit to carry out the charitable activities, then also the said amount would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re kept in deposit as capital and only the income from the said capital is utilized for carrying on educational activities of the assessee trust. Further, the voluntary contribution/donation, can be made by the parents of the students studying in the education institutions, with a specific direction towards the building fund. The directions could be in writing or oral. Where the directions are oral, what is essential is that the contributions are properly accounted for and income from such contributions are utilized for construction of the building. In light of these discussions, ground no. 1(iii) and 1(iv) taken by the Revenue are dismissed. 3.7 In the instant case, the ld AR has submitted that the voluntary contributions made with specific direction towards building fund are corpus donation which cannot be treated as revenue receipts and the same is eligible for exemption under section 11(1)(d) of the Act. It was submitted that during the year, the assessee trust has received voluntary donation of ₹ 5,30,09,085/- from students/parents toward building fund and this was one time donation distinct from the regular tuition fees. The building fund so received is neither fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsence of any written direction of the donor, a contribution of grant cannot be transferred to corpus fund. 3.8 In our view, what is relevant to determine is whether there is a voluntary contribution/donations by the students/parents with a direction to utilise the same towards construction of the building infrastructure and secondly, how the same has been accounted for and utilised by the assessee trust. However, given the contradictory position taken by the assessee and the Revenue and in absence of any tangible material on record produced by either of the two parties, it would be in interest of justice and fair play that the matter is remanded back to the Assessing officer who shall taking into consideration the legal propositions as laid down by the various Courts as discussed above, will examine the matter a fresh. We accordingly set-aside the matter relating to eligibility to claim benefit of section 11(1)(d) of the Act to the file of the Assessing officer. Hence, Revenue s ground no. 1(ii) and assessee s ground no. 2(a) are allowed for statistical purposes. 4. Now coming to ground no. 2 3 of the Revenue s appeal and ground no. 2(b) of assessee s cross objection, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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