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.
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,
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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;
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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.
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