Solicited Donations Still Voluntary in Nature: ITAT allows Corpus Contributions to Rohilkhand Educational Charitable Trust [Read Order]

The Bench of the Income Tax Appellate Tribunal, Lucknow, has ruled that corpus donations made voluntarily by donors cannot be disallowed merely because the charitable trust solicited them, so long as the donors have specifically earmarked the contributions towards the corpus.

The appellant, Rohilkhand Educational Charitable Trust, Bareilly, a charitable trust registered under Section 12A of the Income Tax Act, 1961, runs educational institutions and hospitals. Following the Principal Commissioner of Income Tax (PCIT), Lucknow cancelling the trust’s registration under Section 12AA(3), the Assessing Officer (AO) denied exemptions under Sections 11 and 12 and assessed the trust’s receipts as taxable income.

The AO treated the corpus donations received by the trust, amounting to ₹7,68,95,000, as taxable, holding that they were not voluntary and lacked sufficient evidence from donors. In addition, for the Assessment Year 2018-19, the AO disallowed donations made by the trust to other charitable organisations on the ground that they were related parties under Section 13(3) and that such transactions violated the conditions for exemption under Section 11.

The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed both disallowances, stating that the trust had failed to establish the genuineness of corpus donations and that the inter-trust transfers were in contravention of the law.

Appearing for the appellant, Rakesh Garg, argued that the corpus donations were voluntary contributions made by independent donors who had clearly indicated in their letters that the donations were towards the trust’s corpus fund. It was contended that the mere fact that the trust requested such contributions did not change their voluntary nature.

It was also contended that all the donations were duly accounted for, supported by confirmations and receipts, and utilised for the trust’s medical and educational activities in accordance with Section 11(1)(d) of the Income Tax Act, 1961.

Regarding the donations made to other charitable organisations, it was submitted that these were made to entities carrying out similar charitable objectives and duly registered under Section 12A. Furthermore, the mere presence of common trustees did not amount to a violation of Section 13(3), and there was no evidence to show that the funds were misused or diverted for non-charitable purposes.

Representing the Revenue, S.H. Usmani, contended that the assessee failed to produce confirmations from five donors amounting to ₹.1,95,40,000, and therefore, the claim that all donations were voluntary and towards the corpus could not be accepted. It was argued that the solicitation of donations indicated that they were not purely voluntary, and the AO was correct in treating them as income.

With respect to related party donations, it was contended that such contributions were hit by Section 13(1)(c) read with Section 13(3), as they involved trusts with common trustees and management. Furthermore, the assessee had failed to justify the charitable application of such funds.

The Bench comprising of Sudhanshu Srivastava, Judicial Member and Nikhil Choudhary, Accountant Member held that corpus donations made by donors, even if solicited, remain voluntary contributions when the donor specifically designates them towards the corpus fund of the trust. The Tribunal observed that the AO’s conclusion that solicitation negates voluntariness was misconceived, as the key test under Section 11(1)(d) is the direction of the donor, not the manner in which the donation was sought.

The Tribunal noted that the assessee had produced donor confirmation letters for most of the contributions, substantiating their corpus nature. Therefore, deleted the addition of ₹7,68,95,000 made by the AO. However, in respect of five donors who did not respond to verification, the Bench remanded the matter to the AO for verification of the rest.

Regarding related party donations, the Tribunal held that merely having common trustees between charitable institutions does not constitute a violation of Section 13(3). It clarified that exemption under Section 11 can be denied only if the donations result in personal benefit or diversion of income to a person specified under Section 13(3).

Since the Revenue had not produced any evidence showing misuse or non-charitable application of the funds, the Tribunal directed the AO to re-examine the issue and allow exemption if the donations were found to have been utilised for charitable purposes.

Accordingly, held that solicited donations earmarked for corpus purposes are voluntary in nature and eligible for exemption under Section 11(1)(d) of the Income Tax Act, 1961.

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