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TMI Blog2024 (6) TMI 1057X X X X Extracts X X X X X X X X Extracts X X X X ..... "the Act" since 1973 and has been granted the benefit of exemption under section 11 of "the Act" in the past till Assessment Year 2008-09. 3. During the financial year 2013-14 pertaining to A.Y. 2014-15, the appellant has received donation of Rs. 30,00,000/- to corpus fund from Diamond Exporters Association Ltd. and also Rs. 85,00,000/- from Gem and Jewellery Export Promotion Council for research and development activities and towards the formulation of the quick Detection Centre, respectively. The said contribution was desired to be utilized toward capital expenditure to be incurred towards buying the testing instruments, furniture and fixtures, etc. and also to augment research and development facilities. Out of the total donations of Rs. 1,15,00,000/-, the appellant purchased equipment worth Rs. 67,32,557/- for the specified purposes, and treated it as a capital asset. The appellant filed e-return of income on 25.09.2014 declaring total income as 56,97,623/- and has itself offered its income as business income and not claimed exemption u/s. 11 of "the Act". 4. Since the contributions are received for acquisition of equipment, the appellant has reduced the amount of such contri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demands against the appellant were being verified in e-filing account. The said Appellate Order has not so far been served on the Appellant either physically or through e-mail. It is stated that the delay in filing of the appeal is neither deliberate nor intentional and the same may condoned. The Ld. DR with respect to the condonation of delay has very fairly stated that since the delay is not extraordinary, the same may be considered sympathetically. Accordingly, in view of the submissions made by the parties, the delay in filing the appeal is condoned. The request made by the appellant in that regard is allowed. The appeal is admitted for hearing on merit. 8. We have also heard the Ld. AR as well as Ld. DR with respect to the grounds of appeal. It is argued on behalf of the appellant by the Ld. AR that the Ld. AO has failed to appreciate the submissions of the appellant with regard to the donations having been considered as subsidy in the books of accounts for the relevant year thereby treating the said donations as capital receipts and the observations of the Ld. AO in para 4 of the order dated 26.11.2016 are therefore not legally sustainable because the Ld. AO has wrongly conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the paper book to point out that the amount of Rs. 30,00,000/- has been referred to be corpus fund towards the research and development studies and cannot be considered to be a gift or donation because the appellant cannot solicit gift and therefore, the said amount has to be considered as income as defined u/s. 56(1) of "the Act" and the question of applicability of Section 56(1) has not been adjudicated by the Ld. Coordinate Bench referred. 13. In reply to the contentions of the Ld. DR, the Ld. AR on behalf of the appellant stated that the said submissions were never raised before Ld. CIT(A) by the revenue regarding the donations amount not qualifying to be gift. It is further argued that for invoking Section 56(1) of "the Act", there has to be income whereas the donation received by the appellant has to be treated as capital receipts as it was the intention and the purpose mentioned by the donors while making the said donations and the judgment of the Ld. Coordinate Bench referred and relied by the appellant/assessee is squarely applicable to the current A.Y. 2014-15 subject matter of the appeal. It is further argued that it is not the case of the Ld. DR and the revenue that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the CIT(A) has confirmed the order of the AO. c). Upto the A.Y. 2011-12 the assessee has claimed exemption u/s 11 in its return of income but in BY.2012-13 the assessee has revised its return of income and filed its return as business entity for the above said reasons. d). Though the assessee has shown the said donation under the head capital receipts in the Audit Report in Form No. 3CB and 3CD, it cannot change the nature of amount and receipts. Therefore, it cannot be treated as capital receipts of the assessee trust and no exemption is allowed on the same. e). The above four factors establishes that the assessee is a business entity and not eligible for any exemption u/s. 11 of the Income Tax Act, 1961. i). Further, the judgement on which the assessee has relied upon has been perused wherein the question arised before the Hon'ble Supreme Court was as under: The question in this case is whether the subsidy received by the assessee-Company from the Andhra Pradesh Government is taxable as revenue receipt or not" The facts of the assessees case are totally different from the case relied upon. The assessee has received donation and the same has been shown as capital rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng exemptions u/s. 11. The Supreme Court dismissed the appeal filed by the Revenue on account of low tax effect. Hence, the order of the High Court attained finality. Copy of the above orders are enclosed as Annexure 1. 2009-10 Yes, claimed Not selected Not Applicable Not Applicable 2010-11 Yes, claimed Not selected Not Applicable Not Applicable 2011-12 Yes, claimed Yes AO denied exemption u/s. 11 CIT(A) confirmed the denial of section 11 exemption by the Ao. ITAT set aside the case to the file of the Ao for re-adjudication on the nature of activities whether educational or any other object of general public utility carried out by the appellant trust. Copy of the ITAT order is enclosed at Annexure 2. 2012-13 Not claimed Yes Returned income accepted as assessed income. Copy of assessment order is enclosed as Annexure 3. 2013-14 Not claimed Yes Corpus donations were treated as revenue receipt. CIT(A) confirmed the addition made by the AO. An appeal was filed before ITAT, the appellant settled the appeal under Vivaad se Vishwas Scheme. Point 3: Status of assessments made for AY 2018-19 to AY 2022-23 is as under: Assessment Year Whether section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic purpose that it shall be spent towards the promotion of the Quick Detection Centre for bearing the capital expenditure to be incurred by the appellant, it is therefore vehemently argued: i. Since these donations are made to fulfill specific objectives in the capital field, therefore, has to be considered as contributions towards the purpose of the appellant trust. ii. It is settled legal proposition that voluntarily contribution towards the corpus are outside the scope of income as defined in Section 2(24)(iia) due to their capital nature and are not taxable. iii. As mandated by the donors, out of total donations of Rs. 1,15,00,000/- the appellant purchased equipment worth Rs. 67,32,557 (i.e., Rs. 27,52,165/- towards purchase of research and development Equipment and Rs. 39,80,357/- towards setting up of BDB Laboratory) and treated these as capital assets. iv. Therefore, the donations received with specific directions of donor towards corpus fund are capital receipts only and hence the donation of Rs. 1,15,00,000/- are capital receipts not considerable to tax. 16. The arguments before the Ld. Coordinate "G" Bench, Mumbai in ITR NO. 3783,3784,3785/Mum/2023, order dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a trust and it has received donations. Merely because the assessee claimed itself to be a business concern, it cannot change the nature of amount and receipts in the hands of trust (since such receipts are in the nature of income u/s 2(24)(iia) and sec. 12 of the Act). Accordingly, the AO held that the donation amounts cannot be treated as Capital receipts. Accordingly, the AO added the donation amounts received by the assessee to the total income of the assessee in all the three years. 7. The Ld. CIT(A) noticed that the assessee has stopped claiming exemption u/s 11 of the Act from AY 2012-13 onwards. He also concurred with the view taken by the AO that mere treatment of donation as capital receipt in the tax audit report cannot change the character of the amount of receipts. Before Ld. CIT(A), the assessee put up an alternative contention, viz., if the donation amount is held to be taxable, then the depreciation should be allowed on the full value of assets without reducing the donation amount. The Ld. CIT(A) accepted the alternative contention of the assessee and accordingly directed the AO to allow depreciation on the full value of assets. The assessee is aggrieved by the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 which were not registered u/s 12A of the Act. Even though the assessee herein is registered u/s 12A of the Act, yet it did not claim exemption u/s 11 of the Act, apparently on the reasoning that it is not entitled for exemption u/s 11 of the Act due to the operation of the proviso to sec.2(15) of the Act. However, the tax authorities have taken the view that the provisions of sec.11 to 12 of the Act relating to charitable trust shall be applicable to the assessee, even if it is not eligible to claim exemption u/s 11 of the Act. 13. Under sec. 2(24)(iia) and sec. 12 of the Act, the voluntary contributions are deemed to be income derived from property held under the trust and hence the donations received by the assessee was held to be taxable by the tax authorities. In our view, both the above said sections shall be applicable only if the assessee computes its income in accordance with the provisions of sec.11 to 13 of the Act. In the instant cases, the assessee is held to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions 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 towards donations. Since we have held that the donations are capital receipts and not taxable, the order passed by Ld CIT(A) accepting alternative contention of the assessee is also liable to be set aside, i.e., the donations given for the specific purpose of purchasing asset should be reduced from the cost of asset for the purpose of allowing depreciation as required by Explanation 10 to sec.43 of the Act. 16. In the result, all the three appeals of the assessee are allowed." 12. It is thus evident from the order of the Ld. Coordinate Bench reproduced as above that all the points raised before us were raised by the revenue as well as by the appellant and has been duly considered and adjudicated upon the Ld. Coordinate Bench. Therefore, we are in respectful agreement with finding of the Ld. Coordinate Bench and found it relevant for the present A.Y. 2014-15 also and the said finding squarely covers the facts and circumstances of the present case also. 13. It is to be ..... 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