Corpus Donations Received By A Trust For A Specific Purpose Are Not Taxable, Even If The Trust Is Not Registered: ITAT Mumbai

The Assessee Versova Kokni Sunni Jamat Trust filed its income tax return for the relevant assessment year. The Assessing Officer (AO) disallowed exemption with respect to the voluntary contributions received by the Assessee Trust including the corpus donation received by it for the purpose of purchase of an immovable property. The Assessee filed an appeal before the Commissioner of Income Tax (Appeals)(CIT (A)) against the order of the AO. The Assessee submitted before the CIT(A) that though the Assessee trust was not registered under Section 12A of the Income Tax Act, the corpus donation received by the Assessee was in the nature of a capital receipt and thus it was not taxable in the hands of the Assessee Trust. The CIT (A) held that the Assessee was not registered under Section 12 A of the Act and thus no benefit of exemption could be allowed to it under Section 11. The CIT(A) rejected the contention of the Assessee and upheld the order of the AO. The Assessee filed an appeal before the ITAT against the order of the CIT(A).

The Assessee submitted before the ITAT that the Assessee was not registered under Section 12A of the Income Tax Act and therefore the exemption under Section 11 and 12 of the Act could not be claimed it. The Assessee, however, contended that a corpus donation received by the Assessee Trust for the purpose of purchase of an immovable property was not taxable since it was in the nature of a capital receipt. The Assessee averred that a corpus donation received for a specific purpose is not taxable in the hands of a Trust even if the Trust is not registered under Section 12A of the Income Tax Act.

Section 11 of the Income Tax Act provides for exemption of income from property held under a trust for charitable or religious purposes, to the extent to which such income is applied to such purposes in India. Section 12 A provides that the benefit of exemption under Section 11 shall not be available in relation to the income of any trust or institution if the person in receipt of the income has not made an application for registration of the trust or institution in accordance with the provisions specified therein.

The ITAT noted that a Coordinate Bench of ITAT Pune had ruled in the case of ITO versus Serum Institute of India Research Foundation (2018) that "corpus donations" received for a specific purpose by a Trust, which is not registered under Section 12A/12AA of the Income Tax Act, are not taxable as they are in the nature of a capital receipt.

The ITAT noted that the Assessee had filed various documents in support of its submission that corpus donations were received by it for the specific purpose of purchase of an immovable property and therefore they were in the nature of capital receipt. The ITAT observed that the Assessee had also furnished the details of the donors along with their PAN cards and proof of purchase of the specified property in the given financial year. However, the ITAT noted since no scrutiny proceedings were conducted by the revenue department, the AO could not verify the documents submitted by the Assessee.

The ITAT thus set aside the order passed by the CIT(A) and remanded the matter back to CIT(A) for de novo adjudication after verifying all the documents submitted by the Assessee Trust in support of its claim. The ITAT directed that if the donations were found to be received with respect to the corpus of the trust for the specific purpose of purchase of a property, the same would not be taxable since it would be in the nature of a capital receipt.

The ITAT thus allowed the appeal of the Assessee Trust.

Case Title: Versova Kokni Sunni Jamat Trust versus Centralised Processing Centre Bangalore

Dated: 05/04/2022 (ITAT Mumbai)

Representative for the Appellant/Assessee: Shri Firoz Andhyarujina

Representative for the Respondent: Shri Chandra Vijay, CIT-DR

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