If a contribution is not voluntary, it cannot be taxed as income u/s 11 r.w.s. 12(1) – ITAT
In a recent judgment, ITAT Hyderabad has held that under section 12(1), any contribution which is voluntary, can only be treated as income in the hands of the assessee. if a contribution is not voluntary, then it cannot be treated as income in the hands of the assessee u/s 12(1) of the Income Tax Act, 1961.
ABCAUS Case Law Citation:
4536 (2025) (04) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) in sustaining the addition towards the donations received which were treated by the assessee as corpus fund.
The assessee was a trust formed under statutory enactment of State Government. The purpose of the trust was to constitute and administer a welfare fund for temple priests and other employees.
As per the statutory mandate, every religious charitable institution whose annual income exceeds Rs.20 lakhs were liable to contribute annually 3% of their income to the said Trust. However, specified institutions was to contribute such sum as the government may specify from time to time.
Consequently, the assessee received contributions from various religious institutions during the year under consideration. The assessee was not permitted to utilise the contributions towards it’s object. The assessee had to deposit such receipts in a separate account and was permitted to utilise the interest earned from such deposits towards the objects of the trust. Accordingly, the trust treated the entire contributions as corpus fund.
During the assessment proceedings, the AO contended that any receipt to be treated as corpus fund, it must be voluntary and should be accompanied by a specific direction from the donor. Since the contributions were made compulsory under statutory mandate, the AO held that the same needed not be treated as corpus donation and consequently, added the entire contributions of to the total income of the assessee.
During the first appellate proceedings, the CIT(A) also upheld the view of the AO.
Before the Tribunal, the contention of the assessee was that, the trust has been incorporated under the statutory enactment of Government of Andhra Pradesh and as per the mandate, the assessee was not eligible to utilise any amount out of the contributions received from the religious institutions.
It was submitted that the assessee was only eligible to utilise the interest income earned on the deposit of such contributions. As the assessee had no power / liberty to utilise the amount of contributions towards it’s objectives, the same was in the nature of capital receipt and was not in the nature of income.
The Tribunal opined that corpus donations need not arise from voluntary contributions in a narrow sense, particularly where the receipt was tied to a specific purpose, hence, the donor’s intention was clear that the contribution will form part of the capital of the trust.
The Tribunal observed that In the instant case, the statute itself created a compulsory frame work of corpus accumulation, with express stipulation that only the interest income can be spent for welfare purposes. Therefore, the statute itself characterising the fund to be accumulated and not spent (except interest), clearly showed that it was of capital nature. The contributions received by the trust were earmarked for the corpus by the force of law itself and the absence of individual voluntary intent of donor is over-riden by the statutory character and objective of the fund. Therefore, the condition of a specific direction was deemed to be fulfilled under the statutory mandate.
The Tribunal opined that even otherwise, assuming for the sake of argument that the contributions received were not voluntary, as contended by the AO, such contributions would fall outside the scope of section 12(1) of the Act.
The Tribunal further observed that as per combined reading of section 11(1)(a) and section 12(1) of the Act, the income which is derived from the property held under trust or any voluntary contribution received by trust is liable to be considered as income in the hands of the assessee. The contributions, which the assessee has received from various religious institutions are not in the nature of income from property held under trust. However, the same are in the nature of contributions received by the trust, which in the opinion of the revenue was not voluntary.
The Tribunal opined that as per the mandate of section 12(1), any contribution which is voluntary, can only be treated as income in the hands of the assessee. As the AO contended that the contribution received by the assessee is not voluntary, then it cannot be treated as income in the hands of the assessee u/s.12(1) of the Act also.
The Tribunal opined that in view of the abovethe Tribunal opined that if a contribution is not voluntary, it cannot be taxed as income u/s.11 r.w.s. 12(1) of the Act. Therefore, the contribution received by the assessee cannot be treated as income in the hands of the assessee.
The Tribunal held that the contribution received by the assessee constituted corpus within the meaning of the statutory frame work and cannot be treated as income. Even if the receipts were held to be non-voluntary, the same would fall outside the ambit of section 12(1) of the Act and therefore, cannot be treated as income u/s.11 of the Act.
Accordingly, the addition made by the AO was directed to be deleted.
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