BANGALORE, MAY 20, 2014: THE issues before the Bench are - Whether when the assessee-Trust fails to produce any of the donors contributing to building fund, such sums are to be treated as unexplained credit u/s 68; Whether the exemption u/s.11(1)(a) is allowable only on income derived from property held under Trust wholly for charitable or religious purposes and Whether in case the amounts received from the third party has been accounted and utilized for charitable purposes by the assessee trust, but the assessee has failed to disclose the names and addresses of the donors as well as the mode of payment, it is entitled for deduction u/s 11. And the verdict favours the assessee.
Facts of the case
The assessee is a Charitable Trust duly registered u/s 12A. The income of the Trust was exempted u/s 11. For the AY 2001-02, the assessee had received donations towards building fund amounting to Rs.54,38,999/- and for the AY 2002-03, it had received a sum of Rs.12,74,672/-. The return filed u/s 139 for those assessment years was accepted by AO. However, notice u/s 148 was issued to the assessee for reopening the assessment. Notices u/s 143(2) and 142(1) were served on assessee. In response to the said notices, an AR of the assessee appeared before the AO and produced all the details. The assessee also objected for reopening of the assessment u/s 148. In the balance sheet filed along with the returns, the assessee had made known the donations received towards the building fund and had also furnished the details of the donors. The bank accounts were also made available and it was contended that major payment was received by way of cheques. There was no cause of action to treat the said receipts as unexplained credit u/s 68. The AO over-ruling the objections raised by the assessee, assessed the donations received towards the building fund as unexplained credit u/s 68 and held that the assessee had failed to produce the donors before AO. Further, the letters issued to 60 – 70 donors were returned unserved with a note that "incomplete address". Hence, the donations received was assessed for income and interest and penalty was imposed by reassessment order. On appeal before CIT(A), it was contended that reopening of the assessment was contrary to law and no reason had been assigned for reopening of the assessment which was already concluded and it was barred by limitation. The major portion of donations towards building fund had been received through cheques. The bank accounts had been made available to AO and the AO got verified those matters through the Bankers. Apart from that, the amount received was utilized for the construction of the building and other charitable purposes of the Trust. Hence, the order passed by the AO treating the said amount as undisclosed income was contrary to law. CIT(A) found that major portion of the donations were received through cheques and that the amount received was utilized for construction of the building and other charitable purposes. Hence, the said amount was entitled for exemption u/s 11. However, the issue of reopening of the assessment was held against the assessee. Accordingly, CIT(A) allowed the appeal and set aside the order passed by the AO in respect of the building donation received. On further appeal, Tribunal found that the amount received as donations had been utilized for construction of the building and other charitable purposes of the Trust. Hence, the assessee was entitled for exemption u/s 11.
On appeal before the HC, the Revenue's counsel contended that the order passed by the Tribunal confirming the order passed by the CIT(A) was contrary to law. The assessee received the donation towards building fund for the AYs 2001-02 and 2002-03. The assessee had not disclosed the sources of the said income and failed to furnish the correct names and addresses of the donors. In order to verify with regard to the donations, letters were addressed to the donors; however, none of them appeared. The Trustee of the assessee was also not able to bring any of the donors before the AO. In the absence of proof of donation and identity of the donors, these donations towards building fund was taxed as income from other sources being unexplained credit u/s 68. Hence the order passed by the Tribunal was contrary to law. On the other hand, assessee's counsel had supported the order passed by the Tribunal and CIT(A) and contended that the major portion of donations were received through cheques. It had also submitted that the bank statements along with the account numbers to the AO for verification. Some of the donors did not want to disclose their names. The amounts received were utilized for the purpose of construction of the building and other charitable purposes. Hence, there was no violation of Sections 11 and 12.
Held that,
++ the records clearly disclose that the assessee is a Charitable Trust duly registered under Section 12A of the Act. For the assessment years referred to above, the assessee had filed return of income showing receipt of donations towards the building fund. Originally, the return filed was accepted under Section 143(1) of the Act, subsequently, the Assessing Authority issued notice under Section 148 for reopening of the said assessment. In pursuance of the notices issued under Section 143(2) and 142(1) of the Act, the authorized representative of the assessee appeared before the Assessing Authority and produced all the documents including Bank accounts. The specific case of the assessee is that the assessee received donations towards construction of the building and for other charitable purposes of the Trust. The major portion of the donation was received through Cheques. Some of the amounts were received in cash, since some of the donors were not willing to furnish their names. The amount received by way of donations was disclosed in the returns filed and also claimed exemption under Section 11 of the Act. The Assessing Authority however, treated the donations received as unexplained credit under Section 68 of the Act and assessed for tax, on the ground that the assessee-Trust has failed to produce the donors before the Assessing Authority. Further, 60 to 70 letters addressed to the donors were returned unserved with a shara "insufficient address". In view of that, the amount received towards donations was treated as unexplained credit and assessed for tax. On an appeal filed by the assessee, the Appellate Authority set aside the order passed by the Assessing Authority and held that the assessee is entitled for exemption under Section 11 of the Act with regard to the donations received towards building fund. The revenue being aggrieved by the order passed by the Appellate Authority preferred an appeal before the Tribunal, the Tribunal once again examined the matter in detail and held that even though the assessee failed to disclose the names of the donors, the amount which was received as building fund was utilized for charitable purpose. Hence, the assessee is entitled for exemption under Section 11 of the Act and dismissed the appeal;
++ the Division Bench of this Court in a judgment reported (2011) 336 ITR 694 (Karn) held that "since the amounts received from the third party has been accounted and utilized for charitable purposes even though the assessee failed to disclose the names and addresses of the donors as well as the mode of payment, entitled for deduction under Section 11 of the Act." A similar view has been taken by the Delhi High Court in a judgment reported in (2005) 276 ITR 152). Further, a similar view was taken by the Bombay High Court in a judgment reported in (1982) 138 ITR 564. During the pendency of the appeal, an opportunity was given to the Revenue to substantiate their contentions and asked to verify the Bank Accounts furnished by the assessee. However, the Revenue informed to us that the details of the donations received through Cheques is in accordance with law. Admittedly, the respondent-assessee is the charitable trust. Some of the donors do not want to disclose their names and some of the donations were received through cheques. The donations received for the assessment years 2001-02 and 2002-03 were disclosed in the accounts and while filing the returns those amounts were shown as income. Any voluntary contribution received by a Trust created wholly for charitable or religious purpose shall be deemed to be income derived from property held under the Trust wholly for charitable and religious purpose. However, the said amounts were used for charitable purposes even though the assessee failed to disclose the names and addresses of the donors. Since the amount was utilized by the Trust wholly for the charitable or religious purposes, the assessee has fulfilled the condition imposed u/s 11. Section 11 of the contemplates that any income derived from property held under Trust wholly for charitable or religious purposes, to the extent to which, such income is applied to such purposes is exempted under Section 11(1)(a). Hence, the assessee is a charitable Trust and its income is to be exempted under Section 11. We find no infirmity or irregularity in the order passed by the Tribunal as well as the Appellate Authority. Both the authorities concurrently held that there is no violation of any of the conditions of Sections 11 and 12 of the Act. Hence, the appellant has not made out a case to interfere with the same. Accordingly, the substantial questions of law is held against the Revenue. Accordingly, the appeals are dismissed.
Regards
Prarthana Jalan
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