Interest Earned On Voluntary Contributions Made By Donors Under Specific Instructions To Charitable Institutions Exempt Under Sec. 11(1)(D) Of I-T Act, 1961: Kerala HC [Read Judgment]

In Commissioner of Income Tax (Exemptions) vs M/s Mata Amrithanandamayi Math (ITA.No. 34 of 2017 ), a division bench of the Kerala High Court has held that if the donors to a charitable institution had instructed that the interest earned on their voluntary contributions shall be added to the corpus of the trust, then the interest earned on such contributions would also partake the character of income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust.

The issue came for consideration in a group of appeals filed by the revenue concerning the assessment years 2007-2008, 2008-2009, 2009-2010 and 2012-2013. The assessee is a charitable institution, entitled to exemption under Section 11 of the Income Tax Act, 1961. During the aforesaid assessment years, it was found that interest was earned on the voluntary contributions that were received by the assessee, and that the income earned on the contributions were added by the assessee to its corpus, acting upon the instructions in that behalf issued by the donors themselves. The interest that was earned in this manner was sought to be taxed upon by the revenue.

The court framed the following questions for consideration in the aforesaid matter:

1. Whether the Income Tax Appellate Tribunal has erred on facts and law in treating the interest on corpus funds received by the assessee as corpus donations u/s 11(1)(d) of the Income Tax Act, 1961, to be exempt from Income Tax while section 11(1)(d) covers donations with specific direction that they shall form part of corpus and not interest thereon since it will result in exemption to interest in perpetuity defeating the legislative intent?


2. Whether voluntary contributions received by a trust with specific direction that they shall form part of the corpus includes interest accruing/credited on deposits from above donations?

Hearing both sides, the court, upholding the order of the Tribunal, held that the interest so earned on the voluntary contributions made by the donors to the charitable institution would qualify for exemption under Section 11(1)(d) of the Income Tax Act, 1961.