Issue for
Consideration
Voluntary contributions received by a
charitable or religious trust are taxable as its income, by virtue of the
specific provisions of section 2(24)(iia) of the Income-tax Act, 1961, subject
to exemption under sections 11 and 12. Section 12(1) provides that any
voluntary contribution received by a trust created wholly for charitable or religious
purposes (not being contributions made with a specific direction that they
shall form part of the corpus of the trust), shall be deemed to be income
derived from property held under trust wholly for charitable or religious
purposes for the purposes of section 11. Section 11(1)(d) provides for a
specific exemption for income in the form of voluntary contributions made with
a specific direction that they shall form part of the corpus of the trust.
Therefore, on a comprehensive reading of sections 2(24), 11 and 12, it can be inferred that corpus donations are
entitled to the benefit of exemption, irrespective of whether the trust has
applied 85% of the corpus donations for charitable or religious purposes, or not.
Many charitable or religious trusts keep
donation boxes on their premises for donors to donate funds to such trusts.
Such donation boxes can be seen in various temples, hospitals, etc. At
times, some of the donation boxes have an inscription or a sign nearby stating
that the donation made in that particular box would be for a particular capital
purpose, or that it is for the corpus of the trust. The question has arisen
before the various benches of the Tribunal as to whether such amounts received
through the donation boxes having such inscription or sign would either not be
regarded as income, being receipts in the nature of contributions to corpus, or
even otherwise be eligible for exemption as corpus donations u/s. 11(1)(d), or
whether such amounts of box collection would be voluntary contributions in the
nature of regular income of the trust.
While the Chandigarh bench of the Tribunal
has taken the view that such box collections are corpus donations, and
therefore not income of the trust, the Mumbai and Calcutta benches of the
Tribunal have taken the view that such box collections could not be regarded as
corpus donations.
Prabodhan Prakashan’s case
The issue first came up before the Bombay
bench of the Tribunal in the case of Prabodhan Prakashan vs. ADIT 50 ITD
135.
In that case, the main object of the
assessee was promotion and propagation of ideologies, opinions and ideas for
furtherance of national interest, and for this purpose, publishing of books,
magazines, weeklies, dailies and other periodicals, as also establishing and
running printing presses for this purpose. Contributions were invited by the
assessee from the public towards the corpus fund of the trust through an appeal
as under:
“Establishing a firm financial foundation
for Dainik Saamana and Prabodhan Prakashan is in your hands. For this strong
foundation, we are establishing a Corpus Fund. Offeratory boxes for the corpus
will be placed in today’s meeting and meetings to be held in future. In order
to assist our activities, which will always have a nationalistic fervour and social
relevance, it is our earnest request that you contribute to the Corpus Fund
Offeratory boxes to the best of your ability”.
The words “donations towards corpus” were
written on the offeratory boxes. The boxes were opened in the presence of
Trustees, and the amount of Rs. 13,77,465 found in these boxes was credited to
the account “Donations Towards Corpus”.
Before the assessing officer, it was claimed
that the donations were made to the corpus of the trust, and were therefore
exempt u/s. 11(1)(d). The assessee was asked to furnish specific letters from
the donors confirming that they had given directions that the donations were to
be utilised towards the corpus of the trust. Such letters could be furnished
only for donations of Rs. 3,90,277, but not for the balance of Rs. 9,86,188.
For such balance amount, it was submitted that the Income-tax Act did not
specify that the directions of the donors should be in writing. It was claimed
that in view of the appeal issued for donations, and the words “donations
towards corpus” on the offeratory boxes, it should be held that specific
directions were indeed given by the donors. The assessing officer did not
accept this contention, and treated donations of Rs. 9,86,188 as ordinary
contributions, which were taxable.
The Commissioner(Appeals) referred to the
provisions of section 11(1)(d), according to which, income in the form of
voluntary contributions made with the specific direction that they shall form
part of the corpus of the trust, would not be included in the total income of
the person in receipt of the income. According to him, a specific direction of
the donor was necessary, and the circumstances relevant to prove such direction
included the need to establish the identity of the donor, which was not established
in this case. According to the Commissioner(Appeals), merely writing “donations
towards corpus” on the offeratory boxes was not sufficient, since many of the
donors might not even know as to what was the corpus of the trust. The
Commissioner(Appeals) was of the view that the burden lay upon the assessee to
prove that the donations were received towards the corpus of the trust, and
that burden had not been discharged. He therefore, upheld the action of the
assessing officer in treating the donations of Rs. 9,86,188 as voluntary
contributions in the nature of income.
Before the Tribunal, on behalf of the
assessee, it was argued that the appeal had been issued for donations towards
the corpus, and the offeratory boxes had the inscription that the donations
were towards the corpus. The trust records of collection showed that the
donations were credited to the corpus account. It was argued that there was no
provision in the Act that the specific directions from the donor should be in
writing, and that the directions were to be inferred from the facts and
circumstances.
Considering the provisions of section
11(1)(d), the Tribunal noted that it was true that there was no stipulation in
that section that the specific directions should be in writing. It agreed that
it should be possible to come to a conclusion from the facts and circumstances
of the case, whether a specific direction was there or not, even where there
were no written directions accompanying the donation. However, according to the
Tribunal, at the same time, it needed to be kept in mind that the specific
direction was to be that of the donor, and not that of the donee. It was not
sufficient for the donee alone to declare that the voluntary contributions were
being allocated to the corpus, and there should be evidence to show that the
direction came from the donor.
In the opinion of the Tribunal, when there
was no accompanying letter to the effect that the donation was towards corpus,
at least such subsequent confirmation from the donor was a necessity. In the
case before it, such subsequent confirmation was also absent, and all that was
there, according to the Tribunal, was the intention of the donee and the actual
carrying out of that intention.
The Tribunal therefore held that the facts
did not fulfil the requirement of section 11(1)(d), and that it could not be
said that there was a specific direction from the donor to use the contribution
towards the corpus of the trust. It accordingly held that the amount was not
exempt u/s. 11(1)(d).
A similar view was taken by the Calcutta
bench of the Tribunal in the case of Shri Digambar Jain Naya Mandir vs. ADIT
70 ITD 121, which was the case of a religious trust running a temple, which
had kept two boxes in the premises of the temple, one marked “Corpus Donations”
and the other marked as “Donations”. In that case, the Tribunal held that the
assessee had not made out that the donors were able to give the direction
before/at the time of donation, and that for an ordinary devotee, it was not
possible to distinguish the corpus and non-corpus funds.
Shree Mahadevi Tirath Sharda Ma Seva Sangh’s
case
The issue again came up before the
Chandigarh bench of the tribunal in the case of Shree Mahadevi Tirath Sharda
Ma Seva Sangh vs. ADIT 133 TTJ 57(Chd.) (UO).
In the case, the assessee was a society
registered under the Societies Registration Act, 1860 and u/s. 12AA of the
Income-tax Act, 1961, running a temple, Vaishno Mata Temple, at Kullu. A
resolution had been passed whereby the different boxes were decided to be kept
in the temple premises for enabling the devotees to make donations according to
their discretion. It included keeping of a box for collection of donations,
which were to be used for undertaking construction of building. Any
devotee/donor desirous of making a donation towards construction of buildings
would put the money in this box. In the temple premises, donation boxes were
kept with different objectives. One donation box was kept for “Construction of
Building”, and other boxes for donations meant for langar and general purposes.
At specified intervals, the boxes were opened and the amounts collected were
put into respective accounts. The donations were duly entered in either the
building fund donation register or the normal donation account, and thereafter
entered in the books of account accordingly.
The return of income was filed, claiming
exemption for donations received in the box kept for donations for construction
of building. The donations were reflected in the balance sheet under the head
“Donation for Building Construction with Specific Directions from Individuals”.
The assessing officer however, treated such
donations of Rs. 40,55,480 as donations, and not as receipts towards corpus,
and included the donations in the total income liable to tax. It was done on
the reason that the assessee did not possess any evidence to show that the
donation credited under the Building Fund had been donated by donors with the
specific direction to utilise the same for building construction only.
The Commissioner(Appeals) rejected the
appeal of the assessee, on the ground that the assessee failed to provide the
requisite details or any documentary evidence to prove that the donations were
made with specific directions for construction of building.
Before the Tribunal, it was pointed out that
the assessee had collected donations earmarked for being spent on construction
of building in the same manner as in the past years. It was pointed out that
the amount was credited to the Building Fund in the balance sheet, which also
included the opening balance, and, on the assets side, the assessee had shown
the expenditure on construction of the building. The amount had been spent
exclusively towards construction of the building, on which there was no
dispute. The fact that the donation boxes were kept with different objectives
in the temple premises was demonstrated with the help of photographs and
certificates from the local gram panchayat, Councillor, etc. It was
claimed that the certificates testified the system evolved by the assessee
since earlier years for collection of donations towards construction of
building.
It was further argued that in view of the
nature of collection undertaken by the assessee, which was supported by past
history, the assessing officer was not justified in insisting on production of
specific names of donors.
On behalf of the revenue, it was pointed out
that the assessee could not furnish the complete names and addresses of the
donors who had made the donations with specific directions for building
construction, though such details were asked for during the course of
assessment proceedings. It was only because such information was not available
that the amounts had been treated as voluntary/general donations, and not as
corpus donations.
The Tribunal considered the various facts
placed before it, supported by photographs, testimony of the local gram
panchayat, resolution, the fact that different boxes were kept for separate
purposes, the utilisation of the Building Fund, etc. It noted the fact that the
assessee had received general donations of Rs. 19,53,094 and other incomes,
which were credited to the income and expenditure account.
Analysing the provisions of section 12(1),
the Tribunal noted that any voluntary contributions made with a specific
direction that they shall form part of the corpus of the trust were not to be
treated as income for the purposes of section 11. It observed that the moot
question was whether or not the manner in which the assessee had collected the
donations could be said to signify a direction from the donor that the funds
were to be utilised for the construction of building. It noted that the manner
in which the specific direction was to be made had not been laid down in the
Act or the Rules; there was no method or mode prescribed by law of giving such
directions. Therefore, according to the Tribunal, it was in the fitness of
things to deduce that the same was to be gathered from the facts and
circumstances of each case.
The Tribunal noted that the resolution of
the Society clearly showed that a donation box had been kept in the temple
premises with the appeal that the amount collected would be spent for building
construction. The devotees visiting the temple or other donors were depositing
money in the donation box, which was to be utilised for construction of
building only. The assessing officer had not disputed the manner in which such
donations had been collected by the assessee. The only dispute was that the
assessee could not provide the names and addresses of individual donors who had
contributed towards Building Fund. According to the Tribunal, since the
donations were being collected from the devotees at large, the insistence of
the assessing officer of production of individual names and addresses was not
justified. Further, the bona fides of such practice being carried out by the
assessee, either in the past or during the year under consideration, was not doubted.
Therefore, in the opinion of the Tribunal,
having regard to the facts and circumstances of the case, the donations of Rs.
40,55,480 collected by the assessee were to be considered as carrying specific
directions for being used for construction of the building. Ostensibly, the
devotees putting money in the donation box did so in response to the appeal by
the society that the amounts collected would be used for construction of
building. Under such circumstances, the Tribunal was of the view that the assessee’s
plea, that these amount should be taken as donations towards corpus, was
reasonable.
The Tribunal accordingly held that such
amounts received in the box for construction of building would form part of the
corpus of the Society, and would not constitute income for the purposes of
section 11.
Observations
When one analyses both these decisions
(Prabodhan Prakashan & Shree Mahadevi Tirath Sharda Ma Seva Sangh), one
realises that the common thread running through both these decisions is that
both confirm that the direction of the donors, that the amount of donation is
towards corpus need not be in writing, and that it is sufficient if the
surrounding circumstances indicate that the donors intended to give the funds
put in the boxes for corpus/capital purposes, for such amounts to be treated as
corpus donations. In Prabodhan Prakashan’s case, the Tribunal went further and
held that there should be evidence to show that the direction came from the
donor, while in Shri Digambar Jain Naya Mandir’s case, the Tribunal observed
that the assessee had not made out that the donors were able to give the
direction before or at the time of donation to the corpus funds. Both the
Bombay and Calcutta decisions, therefore, placed the onus on the assessee to
show the existence of the directions from the donors.
A view similar to the Chandigarh bench’s
view has been taken by the Karnataka High Court in the case of DIT vs. Sri
Ramakrishna Seva Ashrama 357 ITR 731, where the High Court held that it was
not necessary that a voluntary contribution should be made with a specific
direction to treat it as corpus. If the intention of the donor was to give that
money to a trust, which would be kept in a deposit, and the income from the
same was to be utilised for carrying on a particular activity, it satisfied the
definition part of the corpus. It further held that whether a donation was in
the nature of corpus or not was to be gauged from the intention of the donor
and how the recipient treated the receipt. In that case, the assessee had
received various donations for Rural Health Project, which were kept in fixed
deposits. The income derived from those deposits was utilised for carrying on
its various rural activities.
Similarly, in
the case of Shri Vasu Pujiya Jain Derasar Pedhi vs. ITO 39 TTJ (Jp) 337,
the receipts by the trust were issued under the head “Mandir Nirman”, and the
dispute was whether the donations could be said to be received with specific
directions that they shall form part of the corpus of the trust. It was held by
the Jaipur bench of the Tribunal that the donations were to be treated as
corpus donations.
In the case of Agnel Charities (Agnel
Sewa Sang) vs. ITO 31 TTJ (Del) 160, the assessee had staged a drama for
raising funds for construction of a school building. The circular issued
relating to the drama mentioned that the assessee was inviting subscriptions
and donations for school building. The Delhi bench of the Tribunal held that
such donations received were corpus donations, entitled to exemption.
In the case of N. A. Ramachandra Raja
Charity Trust vs. ITO 14 ITD 230 (Mad), the receipts given to the donors
had a rubber stamp “towards corpus only” on each of the receipts. In addition,
certificates were obtained from some of the donors confirming the fact that the
donations were towards corpus. In that case, the Madras bench of the tribunal
held that it was clear from the inception that the amounts received by the
assessee and held by it were under an obligation to appropriate the same
towards the corpus of the trust alone. While so holding, the tribunal relied
upon the decision of the Supreme Court in the case of CIT v. Bijli Cotton
Mills 116 ITR 60, whereof the Supreme Court confirmed that certain amounts
received by the assessee and shown in the bills issued to the customers in a
separate column headed “Dharmada” was not income of the assessee, since right
from inception, these amounts were received and held by the assessee under an
obligation to spend the same for charitable purposes only, being earmarked by
the customers for Dharmada.
In Prabodhan Prakashan’s case, the
Tribunal, perhaps, was not justified in inferring that the specific direction in that case was
that of the donee, and not that of the donor. Perhaps, in that case, the
tribunal was not convinced by the evidence placed before it that the donor was
aware of the fact that the donation was being given for a capital purpose.
The observation of the Tribunal in Shri
Digambar Naya Mandir’s case that, for an ordinary devotee, it was not
possible to distinguish the corpus and non-corpus funds did not seem to be
justified. While a devotee may not know what is the meaning of corpus, a
devotee would certainly be aware of the purpose for which his donation into a
particular box would be used, particularly when there are clear indications in
the form of inscription or signs on the box or near the box stating the
purpose. This would be all the more relevant when there are boxes for more than
one purpose placed in the same premises, some for corpus purposes and others
for non-corpus purposes. By putting his donation in a particular box, the
devotee should be regarded as having exercised his option as to how his
donation is to be used.
Therefore, where a trust receives certain
box collections for capital purposes, the surrounding circumstances clearly
indicate that the donor intended the amounts deposited in the box to be
utilised for such capital purposes, and such receipts are bona fide for
such capital purposes (as perhaps indicated by fairly large collection for
non-corpus purposes as well), such collections should certainly be
regarded as corpus
donations eligible for
exemption u/s. 11(1)(d).
All the above decisions were rendered in the
context of the law prior to the insertion of section 56(2)(x), and therefore
the Tribunals did not have the opportunity to consider taxation of such box
collections under that section. Section 56(2)(x) provides that where any person
receives any sum of money aggregating more than Rs. 50,000 in a year from any
persons, such amount is chargeable to income-tax as Income from Other Sources.
There is no exemption for amounts received by a charitable or religious trust.
After the insertion of section 56(2)(x), would such box collection be taxable
under that section?
If one looks at section 2(24)(iia) and
section 12(1), these operate specifically to tax voluntary contributions
received by a charitable or religious trust as its income. Being specific
sections, these would prevail over the general provisions of section 56(2)(x),
which apply to all assessees. Therefore, in our view, section 56(2)(x) would
not apply to a charitable or religious trust, the specific exclusions u/s.12(1)
cannot be taxed by roping in the general provisions of section 56(2)(x).
One more section which needs to be kept in
mind, in the context of box collections, is section 115BBC. This section, which
does not apply to wholly religious trusts, provides that, where the total
income of an assessee referred to in section 11, includes any anonymous
donations, such anonymous donations in excess of the specified limit, shall be
chargeable to tax at the rate of 30%. Box collection of wholly religious trusts
would not be taxable under this section, whereas only donations made for the
purposes of a medical institution or educational institution would be taxable
in case of partly charitable and partly religious trusts. While this section
would apply to normal box collections of charitable trusts, the issue is
whether it would apply to box collections for a capital purpose of such
charitable trusts, which would otherwise be regarded as corpus donations?
Given the specific exclusion in section
12(1) for corpus donations, a view is possible that such corpus donations (box
collections) are capital receipts, which do not fall within the domain of
income of a charitable trust at all, and that therefore, the provisions of
section 115BBC do not apply to such box collections for capital purposes. In
fact, in DCIT vs. All India Pingalwara Charitable Society 67 taxmann.com
338, the Amritsar bench of the Tribunal took a view that section 115BBC
does not apply at all to box collections of genuine charitable trusts.
According to the Tribunal, the object of the section was to catch the
‘unaccounted money’ which was brought in as tax free income in the hands of
charitable trusts, and this section was never meant for taxing the petty
charities. The Legislature intended to tax the unaccounted money or black money
which was brought in the books of charitable trusts in bulk, and not to tax the
small and general charities collected by genuine charitable trusts.
In Gurudev Siddha Peeth vs. ITO 59
taxmann.com 400, the Mumbai bench of the Tribunal also held that amount of
offerings put by various devotees in donation boxes of the assessee-trust, a
sidh peeth/deity, could not be treated as anonymous donations taxable u/s.
115BBC merely on ground that assessee had not maintained any records of such
offerings. According to the Tribunal, it is clear that the provisions of
section 115BBC(1) will not apply to donations received by the assessee in
donation boxes from numerous devotees who have offered the offerings on account
of respect, esteem, regard, reference and their prayer for the deity/siddha
peeth. Such type of offerings are made/put into the donation box by numerous
visitors and it is generally not possible for any such type of institutions to
make and keep record of each of the donors, with his name, address etc.
This section is meant to curb the flow of unaccounted money into the system,
with a modus operandi to introduce such black money into accounts of
institutions such as university, medical institutions, where there is a problem
relating to the receipt of capitation fees, etc.
Therefore, a view is possible that section
115BBC does not apply at all to box collections of genuine charitable trusts.
