A division bench of the Kerala High Court held that a Trust can claim exemption under section 11(1)(d) of the Income Tax Act, 1961 on interest on voluntary contributions earned by it on instruction of the donor.
The question before Justices Antony Dominic and Dama Seshadri Naidu “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?
During the assessment year under consideration, the assessee, Mata Amrithanandamayi Math, earned interest on the voluntary contributions received by it upon the instructions from the donors themselves. The assessees’ claim for exemption under Section 11(1)(d) of the Act was rejected by the department and tax was imposed on such income.
On appeal, the Tribunal held that the interest on corpus funds received by the assessee as corpus donations u/s 11(1)(d) of the IT Act, is exempted from Income Tax while the provision 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.
Hearing the arguments from both sides, the division bench said that exemption under section 11(1)(d) of the Act can be given to the assesse. “A reading of Section 11 shows that subject to the provisions of Sections 62 and 63, the incomes enumerated therein shall not be included in the total income of the previous year of the person in receipt of the income. The person in receipt of the income, insofar as these cases are concerned, is the respondent assessee.”
Concurring with the findings of the Tribunal, the bench observed that “one of the income that is enumerated in clause (d) of sub-Section (1) of the Section is the income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution. The fact that the donors had instructed that the interest earned shall be added to the corpus of the trust is undisputed. If that be so, the interest earned on the contributions already made by the donors 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.”
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