CSR Funds Received With Specific Donor Conditions Not Automatically Taxable Income: ITAT Remands JM Financial Foundation Case [Read Order]

The Income Tax Appellate Tribunal (ITAT) Bench in Mumbai found that if a donor designates funds obtained through Corporate Social Responsibility (CSR), they cannot be automatically classed as taxable income. The matter should be returned to the Assessing Officer (AO) for re-assessment following appropriate processes outlined by law.

JM Financial Foundation, a charitable trust formed under section 12A of the IncomeTax Act 1961, filed taxes with zero income for the assessment years 2017‐18 and 2018‐19. The Foundation had been engaged by various group businesses to act as a CSR executing body in accordance with the Companies Act, 2013. During the relevant years, the trust received substantial amounts towards corporate social responsibility contributions, which were treated as earmarked or restricted grants to be utilised strictly in accordance with donor directions.

The assessments were reopened on the ground that such corporate social responsibility receipts had escaped assessment. The AO treated the unspent CSR funds as income under Section 11 of the Income Tax Act, 1961, and made additions on the basis that the trust had not complied with the procedural requirement of intimating accumulation by filing Form 10 within the prescribed time. These additions were confirmed by the National Faceless Appeal Centre, leading the trust to file appeals before the Tribunal.

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Dr. K. Shivram for the appellant contended that the CSR funds were received with specific directions from donor companies regarding their utilisation and were not voluntary contributions available for the general purposes of the trust as the trust acted only in a fiduciary capacity and had no discretion over the application of these funds.

Further, it was submitted that the amounts were shown as restricted funds in the balance sheet and, in the event of non-utilisation, were liable to be returned to the donors. Since the funds were capital in nature and could not be treated as income under the Income Tax Act, 1961. For the Assessment Year 2018-19, the appellant also sought condonation of delay in filing Form 10, contending that the delay was bona fide and purely technical.

Kavitha Kashik for the Revenue argued that the CSR receipts formed part of the income of the trust and that exemption under Section 11 of the Income Tax Act, 1961 could not be granted in the absence of strict compliance with statutory conditions. Further, the failure to file Form 10 within the prescribed time disentitled the trust from claiming accumulation of income, and therefore the unspent amounts were rightly brought to tax.

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The Bench comprising Judicial Member, Beena Pillai and Accountant Member, Makarand Vasant Mahadeokar observed that the genuineness of the charitable trust was not in dispute and that the CSR funds were received with specific donor-imposed restrictions.

The Tribunal noted that such tied-up grants could not be freely applied by the trust and therefore, required careful examination before being treated as income. With respect to the delay in filing Form 10, the Tribunal held that the lapse was not attributable to any mala fide intent and that denying consideration of the claim would cause genuine hardship.

The Tribunal has also directed that the Board of Central Direct Taxes examine the matter regarding delay and after they do so, the AO will determine if the funds received through CSR payments are taxable. Additionally, the Tribunal has set aside the prior rulings of the above bodies within the scope of their duties, and directed the AO to perform a reassessment for both years.

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