TMI Blog2019 (2) TMI 1986X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 56,81,976 with the deficit of ₹ 50,08,844 will result to surplus of ₹ 6,73,132 which is within the 15% stipulated amount allowed for accumulation. Interestingly this computation was made by the ld. A.O in her Pre-Assessment Order dated 14.03.2015 (page no 17 of paper book). Therefore, setting aside the order of A.O and denying the status of corpus donation has not resulted any loss to the revenue. Hence pertinent condition of section 263, of the order being ''prejudicial to the interest of the revenue has not been fulfilled and therefore makes the order of ld.CIT(E) bad in law. Provisions of section 11(1)(d) in no way have been violated by the assessee. There has been excess of expenditure over income for the year under consideration and the same has been carried forward to the general fund in the balance sheet accumulated over the years whereas Corpus donations are separately appearing in balance sheet. Therefore, the observations of the ld. CIT that the deficit for the year has been met out of the corpus donation, is not correct as is evident from the final accounts. The assessee is also entitled to carry forward the deficit for the year and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The case was posted for hearing on 09.03.2018. On the date of hearing none was present nor was any written submission filed on behalf of the assessee. Therefore, the CIT passed revisionary order u/s 263 of the I.T.Act vide order dated 19.03.2018. The CIT set aside the assessment order and directed the A.O. to examine whether a sum of ₹ 56,81,961 being part of Corpus donation was utilized in violation of section 11(1)(d) of the I.T.Act. The relevant finding of the CIT reads as follows:- 5. On a perusal of the details available on record, it is seen that the assessee has received foreign contribution of ₹ 2,38,15,619/- out of such a sum of ₹ 1,82,93,750/- was received as corpus donation u/s 11(1)(d) of the Income Tax Act with specific direction. Therefore it seems that the balance available for application was only ₹ 55,21,869/- against the application claimed by the assessee at ₹ 1,12,03,845/-. Considering the claim of the assessee and the availability of fund for application, it indicated that the balance amount of fund of ₹ 56,81,976/- was utilized from the corpus donation violating the proviso to section 11(1)(d) of the Income Tax Act, 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table purposes. 6. The learned Departmental Representative strongly supported the order of the CIT. 7. We have heard the rival submissions and perused record. The CIT(A), in his order has held the order of the ld. A.O to be erroneous and prejudicial to the interest of revenue. The said observations have been made for foreign contributions of ₹ 2,38,15,619 received during the year under consideration. It was mentioned that out of the above sum of ₹ 2,38,15,619, an amount of ₹ 1,82,93,750 was received as corpus donation u/s 11(1)(d). The CIT noted that total amount available for application was ₹ 55,21,860 (2,38,15,619 1,82,93,750), whereas the total application was ₹ 1,12,03,845. Therefore, the CIT was of the view that amount of ₹ 56,81,976 (1,12,03,845 55,21,860) was utilization out of corpus donations in violation of proviso to section 11(1)(d) of the I.T.Act and directed the A.O. to examine the issue. To understand whether the CIT has correctly assumed jurisdiction u/s 263 of the I.T.Act, the relevant provision needs to be examined. Section 263 of the I.T.Act reads as follows: Sec 263. (1) The Principal Commissioner or Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n worth ₹ 56,81,976 is considered as violating the provisions of section 11(1)(d), even then, the said donation remains to be voluntary contribution and in accordance with the provisions of section 12(1) read with section 11(1)(a), are utilized for charitable purpose as the same is evident from the deficit of ₹ 50,08,844 (i.e excess of expenditure over income). Adjustment of ₹ 56,81,976 with the deficit of ₹ 50,08,844 will result to surplus of ₹ 6,73,132 which is within the 15% stipulated amount allowed for accumulation. Interestingly this computation was made by the ld. A.O in her Pre-Assessment Order dated 14.03.2015 (page no 17 of paper book). Therefore, setting aside the order of A.O and denying the status of corpus donation has not resulted any loss to the revenue. Hence pertinent condition of section 263, of the order being ''prejudicial to the interest of the revenue has not been fulfilled and therefore makes the order of ld.CIT(E) bad in law. 7.3 In the case of Malabar Industrial Co Ltd Vs CIT [2000] (SC) 243 ITR 0083, the Hon'ble Supreme Court held as under:- 5 A bare reading of this provision makes it clear that the prere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ITO is unsustainable in law. 7.5 The provisions of section 11 (1)( d) stipulate that the income in form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution shall not be included in the total income of the previous year. Accordingly, corpus donations amounting to ₹ 1,82,93,750 received by the assessee during the year under consideration, with the specific direction to be treated as corpus donation are eligible to be excluded from the total income of the assessee in accordance with the provisions of section 11(1)(d). Before discussing the merits of the case, for general understanding and to delve upon the issues involved, it is pertinent to understand the tax treatment for the following: (a)Voluntary Contribution (b)Corpus Donations (c) Project Grants/restricted contributions (a)Voluntary contribution has not been defined under the Act, however, Supreme Court in the case of Padamaraje R Kadambande Vs CIT [1992] 195 ITR 877 held that compassionate payment received by the assessee cannot be treated as income. It was observed in a different context that when the amount received was under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tary contributions per se as stipulated in section 2(24)(iia) subject to section 11. 7.7 The observation of the ld. CIT to treat an amount of ₹ 56,81,976 (out of the total deficit for the year of ₹ 1,12,03,845 after reducing foreign donation of ₹ 55,21,860 for other than corpus) is against the spirit of the statute. Provisions of section 11(1)(d) in no way have been violated by the assessee. There has been excess of expenditure over income for the year under consideration and the same has been carried forward to the general fund in the balance sheet accumulated over the years whereas Corpus donations are separately appearing in balance sheet. (Page 1 to 12 of the paper book filed by the assessee). Therefore, the observations of the ld. CIT that the deficit for the year has been met out of the corpus donation, is not correct as is evident from the final accounts. Although no such adjustment has been made by the assessee, however there is no bar on such adjustment as per the provisions of section 11(1)(d) or u/s 12(1). The same has been held by the Delhi Bench of the Tribunal in the case of Dharma Pratishthanam Vs ITO [(1985) Del 11 ITD 0040]. The relevant findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he money is spent out of the donation of ₹ 1 lakh for the purchase of books, utensils, etc. Would it mean that the sum of ₹ 1 lakh would become taxable as income of the trust? We do not think that this is the object of the legislation. In any case, this is contrary to what is recommended by the Direct Taxes Enquiry Committee, which was accepted by the Government. What is earmarked for corpus is not to be treated as income not because it is spent for the purpose of the trust but because that forms the fund of the trust. It is nowhere laid down that the funds of the trust should never be spent for the purposes of the trust unless it is a direction of the donor that the fund shall be invested in such a way as to produce income and only the income shall be spent for the purposes of the trust. Even so, if a departure is made by the trustee in the implementation of this wish of the donor, the trustee is to be penalised and not the trust. Looked at from any angle, we find it difficult to subscribe to the view so forcefully put forward before us by the learned Departmental Representative and so explained in the orders of the authorities below. 7.8 Relying on the above or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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