The Income Tax Appellate Tribunal, Vishakhapatnam bench in its recent order allowed exemption on donation received by trust for specific purpose of acquiring the capital assets treating them as tied up grants which are not taxable as income under Section 2(24)(ii)(a) of Income Tax Act.
The assessee is a Trust registered with District Registrar of Societies, Kakinada engaged in ecclesiastical activities such as training to pastors, bible lessons, preaching, conduction of prayers etc., and social development activities.
The assessee had filed an application to Commissioner of Income Tax, Rajahmundry seeking grant of registration u/s 12AA of the Income Tax Act and the same was rejected. Assessee went on appeal before ITAT Visakhapatnam, the CIT (Exemptions), Hyderabad granted the registration.
The assessing officer (AO) noted that there was no registration to the assessee society, thus, the assessee is not eligible or exemption under Section 11 of the Income Tax Act. Accordingly, AO treated the status of the assessee as “Association of Persons (AOP) and taxed the entire receipts. AO noted that during the previous year assesse had received donation and contribution and he spent the entire amount of the donations received for the purpose of corpus by purchase of fixed assets.
Aggrieved by the order of the AO, the assessee went on appeal before the CIT (A) and the CIT (A) held that assessee would be ineligible to claim exemption from taxation of its income by way of corpus donation.
Before the Tribunal, the counsel for assessee argued that the contribution received from Touching Heart Ministries to the tune of Rs.92, 81,500/- with specific purpose of acquiring the fixed assets and submitted the documents evidencing the aforesaid matters.
On contrary, the representative of revenue argued that in the absence of the exemptions available to the assessee, the AO rightly treated the status as AOP and relied on the orders of the lower authorities.
The Tribunal observed the fact that the assessee got the registration only after filing of application to the commissioner of income tax. The Tribunal relied upon the decision of Delhi High Court in the case of Basanti Devi & Sri Chakhan Lal Garg Education Trust and ruled that the donations were received for specific purpose for acquiring the fixed assets and evidencing documents are produced before the bench already.
The bench comprising of Judicial MemberV Durga Rao and Accountant Member D.S Sunder Singh also added that the entire amount received for acquiring the fixed assets was utilized by the assessee and there are no surplus funds available to the assessee.
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