Section 2(24) r.w. section 12AA – Corpus specific voluntary contributions being in nature of ‘capital receipt’, are outside scope of income u/s. 2(24)(iia) and, thus, same cannot be brought to tax even in case of trust not registered u/s.12A/12AA

TO(E) vs. Serum Institute of India Research
Foundation ITA No. 
621/Pune/2016 A.Y.: 
2005-06.       Dated: 29^th January, 2018.

Section 2(24) r.w. section 12AA – Corpus
specific voluntary contributions being in nature of ‘capital receipt’, are
outside scope of income u/s. 2(24)(iia) and, thus, same cannot be brought to
tax even in case of trust not registered u/s.12A/12AA

FACTS

The assessee was registered trust under the
Bombay Public Trust Act, 1950, however, it was unapproved by the CBDT as
required u/s. 35(1)(ii) of the Act. Further, it was also not registered u/s.
12A/12AA. This is the second round of the proceedings before Tribunal. During
the relevant year, the AO brought to tax the corpus donation of Rs. 3 crore on
the ground that approval u/s.35(1)(ii) had not been granted to the assessee and
the assessee had also not been registered u/s. 12A. During the first round of
the proceedings, the assessee submitted before Tribunal that even if approval
u/s. 35(1)(ii) was not granted then also the amount could not be brought to tax
since it was in nature of a gift and said aspect had not been considered by the
lower authorities. The Tribunal restored the issue to the file of the AO with a
direction to examine the contention of the assessee that the amount of Rs.3
crore received as corpus donation was in the nature of gift and, therefore, same
was not taxable.

In remand
proceedings, the AO held that “corpus donation” did not tantamount to
exempt income as laid down u/s. 2(24)(iia) of the Act. The AO referred the  provisions of section 12A/11(1)(d) and
reasoned that the voluntary contribution to the corpus of the trust were
taxable as the income of the trust but for the provisions of clause (d) of
section 11(1) of the Act. In the absence of any such specific exclusions
provided in the provisions of section 10(21), the said donation became taxable
in the hands of the assessee.

Aggrieved by
the assessment order, the assessee preferred an appeal to the CIT(A). The
CIT(A) held that section 2(24)(iia) was required to be read in the context of
introduction of the section 12 considering the simultaneous amendments to both
the provisions with effect from 01-04-1973 and that the said amount of corpus
donation was not taxable under the Act being in the nature of capital receipt.

 HELD

The Tribunal held that it was necessary to
examine the non-taxability of the corpus donations in assessee’s case despite
inapplicability of the provisions of section 12(1)/11(1)(d)/section 35/10(21).
On the face of it, the provisions of section 2(24)(iia) applied to the case of
the assessee. It had been held in various cases decided earlier that the corpus
donation received by the trust, which was not registered u/s. 12A/12AA, was not
taxable as it assumed the nature of ‘capital receipt’ the moment the donation
was given to the “Corpus of the Trust”. The provisions of sections
2(24)(iia)/12(1)/11(1)(d)/35/56(2) were relevant for deciding the current
issue. It was a settled legal proposition that in case of a registered trust,
the corpus specific voluntary contributions were outside the scope of income as
defined in section 2(24)(iia) due to their “capital nature”. But
assessee was an un-registered trust. Despite the detailed deliberations made by
revenue, the principles relating to judicial discipline assume significance and
the priority. It was also well settled that there was need for upholding the
favourable view if there existed divergent views on the issue. As mentioned
above, there were multiple decisions in favour of the assessee. Accordingly,
the corpus-specific-voluntary contributions were outside the taxations in case
of an unregistered trust u/s. 12/12A/12AAA too.