Corpus Donation received by Non-Registered Charitable Trust shall be termed as Capital in Nature and shall not be Taxable u/s 115BBC: ITAT [Read Order]

The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) held that the corpus donation received by a non-registered charitable trust shall be termed as capital in nature and shall not be taxable under Section 115BBC of the Income Tax Act, 1961 which states that the anonymous donation shall be taxable at the rate of 30%.

The assessee is a trust engaged in educational activities. The return of income had been filed by the assessee declaring a nil income. During assessment proceedings, the Assessing Officer that the assessee had not been granted registration as a Charitable Trust under Section 12 of the Income Tax Act and was therefore not eligible to claim its income as exempt as per the provisions of Section 11 of the Income Tax Act.

The Assessing Officer computed the income of the assessee as per the normal provisions of the Income Tax Act and he picked up the total profit from the income and expenditure account of the assessee amounting to Rs.3,45,721/-. The corpus donations of Rs.1,93,75,000/-, were added the same to the said profits, holding that exemption of corpus donation was available only as per Section 11(1)(d) of the Income Tax Act and since the assessee was not eligible to an exemption under Section 11 of the Income Tax Act, provisions of Section 11(1)(d) would not be applicable.

The assessee before the Commissioner of Income Tax (Appeal) [CIT(A)] contended that the corpus donations could not be treated as its income, pleading that the voluntary donations were in the nature of gift and corpus donations were capital receipts. Section 115BBC of the Income Tax Act contends that it could be invoked only in the case of those trusts which were registered under Section 12A of the Income Tax Act. The CIT(A) allowed the appeal of the assessee.

The Departmental Representative contended that it was only by virtue of Section 11(1)(d) of the Income Tax Act that corpus donations were specifically excluded from being treated as income in the case of trusts claiming exemption under Section 11 of the Income Tax Act. For the trusts that were not so claiming exemption, the corpus donation had to be treated as their income.

It was further submitted that for the purpose of claiming exemption of income under Section 11 of the Income Tax Act, Section 12A of the Income Tax Act makes it mandatory for eligible trust/society to be registered as a charitable trust under the said section and it is only when such registration is granted, the eligibility of claiming exemption came into force.

The counsel contended that the CIT(A) had relied on various decisions of ITAT by treating the same as capital in nature. He drew our attention to one such decision relied upon by the CIT(A) in the case of ITO Vs. Gaudiya Granth Ayurvedic Trust, pointing that in the said case the issue was identical, whether corpus donation could be treated as income in view of the definition given in section 2(24)(iia) of the Income Tax Act read with Section 12A and 11(1)(d) of the Income Tax Act as pleaded by the Departmental Representative before us above.

The Two-member bench comprising of Annapurna Gupta (Accountant member) and T.R. Senthil Kumar (Judicial member) held that corpus donations shall be capital in nature. In view of the same, therefore, there was no hesitation in confirming the finding of the CIT(A) that corpus donations were capital in nature and shall not be added to the income of the assessee while computing the same as per normal provisions of the Income Tax Act. Thus, the appeal of the assessee was allowed.

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