High Court Of Karnataka
DIT, Bangalore Vs. Sri Ramakrishna Seva Ashrama
Section : 11
Kumar And Ravi Malimath, Jj.
IT Appeal No. 248 Of 2010
October 17, 2011
N. Kumar, J. – The revenue has preferred this appeal challenging the order dated 16.02.2010 passed by the Tribunal in ITA No.937/Bang./2009 setting aside the order of the Director of Income-tax (Exemptions), who had rejected the application of the assessee for approval under section 80-G of the Income Tax Act (for short I.T. Act.) and directed him to pass an order giving recognition to the assessee for the purpose of Section 80-G of the Act.
2. The assessee Sri Ramkrishna Seva Ashrama, Pavagada, came into existence by way of trust deed dated 08.10.1990. It was granted registration under Section 12(A) of the I.T. Act on 24.05.1991. The assessee was also given the benefit of Section 80-G of the I.T. Act, 1961. The assessee has been making an application for its renewal regularly and it was renewed from time to time. On 02.02.2009 the assessee filed an application in Form No.10-G seeking for renewal of the recognition under Section 80-G of the I.T. Act for the relevant assessment years. The authority on receipt of the said applications noticed certain deficiencies and by letter dated 06.03.2009 called upon them to furnish particulars mentioned in the said letter. On receipt of the same, the assessee furnished the details called for on 23.09.2009. Further clarification sought for was also furnished by the assessee. In the statement of accounts for the past three years, i.e., 31.03.2006, 31.03,2007 and 31.03.2008, the assessee computed the income under Section 11(1). The capitalised receipts of Rs. 13.86.199/-, Rs. 1.11.37,611/- and Rs. 19,33,268/- for the financial year 2005-06, 2006-07 and 2007-08 respective as Rural Project fund. The assess was asked to explain the nature and purpose of the said fund and also as to why the said amount is not considered for computation of 85% application under Section 11(1) of the I.T. Act for the respective years. The assessee replied by a letter dated 22.07.2009 contending that the area of operation of the assessee-trust is in a remote place of the border of Karnataka-Andhra Pradesh rural area. Several organisations have been giving specific donations for Rural Project Fund. This being a specific donation, the same is credited to Rural Project Fund pending till utilisation of the above funds and therefore, the assessee contended that the question of applying 85% of the income so derived to charitable or religious purposes and eligibility for claiming exemption would not arise. The Commissioner for Director of Income Tax Department did not accept the said contention. He was of the view that the donations to so-called rural project fund are not corpus donations, as such, the same is not credited to corpus account. No details of the donors are furnished, in spite of the specific directions. All donations except, corpus donations referred to in Section 11(1)(d) would constitute income irrespective of use of the same for different purposes. There is no distinction between the specific and non-specific fund in law. The assessee has not clarified the project for which the fund is intended to be used, except calling it as specific fund and no specific purpose is mentioned. The assessee has accumulated Rs. 1,47,64,078/- for a period of more than four years. During these years, no expenditure was incurred for so-called rural project. The assessee has not applied 85% of this income for charitable purposes, as intended to be under Section 11(2) of the Act. Unless the authority is satisfied, registration or renewal is not permissible. Therefore, he refused to grant approval under Section 80-G(5) of the Act. Aggrieved by the said order, the assessee preferred an appeal to the Tribunal.
3. The Tribunal held, the Director of Income Tax made a mistake in computing quantum of 85% of the income of the assessee. The assessee collected the amounts by way of donations directly towards funds, known as Rural Project Fund. It is a capital fund formulated by the assessee and earmarked for specific rural projects. Therefore, all donations collected under that head were in the nature of corpus donations and such corpus donations do not form part of the income of a charitable trust. Therefore, non-spending of 85% of such capital fund cannot be said to be non-spending of 85% of the income of the trust. In other words, the funds collected under the capital account cannot be equated to the income of the assessee-trust. But, the Director of Income Tax Department has treated such corpus donations as expendable income of the trust. He was wrong in that regard by excluding the same from the expandable income of the assessee. He erred in not treating donations of the rural project fund as corpus donations only, for the reason that the capital fund has been designated as special fund in the name of Rural Project Fund. It does not cease to be the capital fund. After examining the details of the activities carried on by the trust, they were satisfied that the assessee is carrying on expandable charitable works in rural areas especially in the field of medical care, namely eradication of leprosy. By virtue of the charitable activities carried on, it is entitled for the benefit of Section 11(1) as well. Therefore, they set aside the order of the Director of Income Tax (Exemptions) and directed him to pass an order making recognition to the assessee for the purpose of Section 80-G of the Act. Aggrieved by the said order, the revenue is in appeal.
4. Learned counsel for the revenue assailing the impugned order contended that, for the said amount to constitute corpus fund, the required law is that the said contribution has to be made with specific direction that it shall form part of the corpus of the trust. In the instant case, except in the case of two donations, in spite of request from the department, the assessee has not furnished the name of other donors. Therefore, there is nothing on record to show that the other donors made the contribution with specific direction. Then only it shall form part of the corpus fund. Secondly, he contended that, it was not collected as corpus fund, but it was collected under the head of Rural Project Fund and in the statement of accounts filed, the assessee reflected it under the aforesaid head. Therefore, it does not constitute a part of the corpus fund. Thirdly, he contended that to be eligible to claim exemption under Section 11(2)(a) of the I.T. Act, 85% of the aforesaid income has to be utilised for charitable purposes. If for any reason, that amount is not used for the said purpose, then it is the requirement of law that they should file an application under Section 11(2) in Form No. 10 furnishing the particulars mentioned therein, Admittedly, if 85% of the amount collected as rural fund is not spent, then no such declaration in Form No. 10 is filed and therefore, in either event the assessee is not entitled to the benefit of exemption and therefore, he submits that the assessee is not entitled to the said benefit.
5. Per contra, the learned counsel appearing for the assessee has supported the impugned order.
6. in the light of the above facts and submissions, the following substantial question of law arises for our consideration:
“If the assesses receives contributions for charitable purposes and do not show in the statement of account as the ‘corpus fund’, but, shows the said amount under a different specific head, does it cease to be a corpus fund to be eligible for the benefit under Section 11(1)(d) of the Act.”
7. Section 2(24) of the Income Tax Act defines ‘income’.
(24) “income includes—
(i) profits and gains;
(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub clause (iiiae) or sub-clause (via) of clause (23C) of Section 10
Explanation – For the purposes of this sub-clause, trust” includes any other legal obligation:
(iii) the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3)
of Section 17;
(iiia) any special allowance or benefit, other than perquisite included under sub-clause
(iii), specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit;
(iiib) any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living;
(iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid;
(iva) the value of any benefit or perquisite. whether convertible into money or not, obtained by any representative assessee mentioned in clause (iii) or clause (iv) of sub-section (1) of Section 160 or by any person on whose behalf or for whose benefit any income is receivable by the representative assessee (such person being hereafter in this sub-clause referred to as the “beneficiary”) and any sum paid by the representative assessee in respect of any obligation which, but for such payment, would have been payable by the beneficiary;
(v) any sum chargeable to income-tax under clause (ii) and (iii) of Section 28 or Section 41 or Section 59;
(va) any sum chargeable to income-tax under clause (iiia) of Section 28;
(vb) any sum chargeable to income-tax under clause (iiib) of Section 28;
(vc) any sum chargeable to income-tax under clause (iiic) of Section 28;
(vd) the value of any benefit or perquisite taxable under clause (iv) of Section 28;
(ve) any sum chargeable to income-tax under clause (v) of Section 28;
(vi) any capital gains chargeable under Section 45;
(vii) the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with Section 44 or any surplus taken to be such profits and gains by virtue of provisions contained in the first Schedule:
8. From the aforesaid definition clauses it is clear that the voluntary contribution received by a trust and credited wholly or partly for charitable or religious purposes or by the institution established wholly or partly for the said purposes would constitute income within the aforesaid definition.
9. Section 11 deals with income from property held for charitable or religious purposes. It declares that subject to the provisions of sections 60 to 63, the income tax mentioned in the aforesaid provision shall not be included in the total income of the previous year of the person, in respect of the income. In other words, if such income do not fall in one of those categories mentioned in the said section, the recipient of the said income (assessee) is liable to pay tax under the Act.
10. Section 11(1)(d) reads as under:
“Income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.”
11. The word ‘corpus’ is not defined under the Act. We do not find any judgment explaining the meaning of ‘corpus’. In the Chambers 21st Century Dictionary, the meaning of the word ‘corpus’ has been given as under:
(i) body of writings, eg: by a particular author, on a particular topic, etc.;
(ii) a body of written and/or spoken material for language research;
(iii) anatomy any distinct mass of body tissue that may be distinguished from its surroundings.
Latin: meaning- ‘body’.
12. In the Law Lexicon of P. Ramanatha Aiyar, 2nd Edition reprint-208 the meaning of the word ‘Corpus’ is given as under:
“A Body; human body; an artificial body created by law; as a corporation; a body or collection of laws; a material substance; something visible and tangible; as the subject of a right; something having legal position as distinguished from an incorporeal physical substance as distinguished from intellectual conception; the body of estate; or a capital of on estate”.
13. The word ‘Corpus’ is used in the context of Income Tax Act. We have to understand the same in the context of a capital, opposed to an expenditure. It is a capital of an assessee; a capital of an estate; capital of a trust; a capital of an institution. Therefore, if any voluntary contribution is made with a specific direction, then it shall be treated as the capital of the trust for carrying on its charitable or religious activities. Then such an income falls under Section 11(d) of the I.T. Act and is not liable to tax. Therefore, it is not necessary that a voluntary contribution should be made with a specific direction to treat it as ‘corpus’, If the intention of the donor is to give that money to a trust which they will keep it in trust account in deposit and the income from the same is utilised for carrying on a particular activity, it satisfies the definition part, of the corpus. The assessee would be entitled to the benefit of exemptions from payment of tax levied.
14. In fact the Bombay High Court in the case of Trustees of Kilachand Devchand Foundation v. CIT  172 ITR 382 / 32 Taxman 393 dealing with the said voluntary contribution made for a charitable purpose, held that for being eligible for exemption, the donations must be voluntary and of a capital nature. That cannot be applied to charitable or religious purposes if the income thereof they must be so applied. The contribution made expressly to the capital or corpus of trust fall within the purview of sub-section (2) of Section 12. Therefore, such contributions cannot be be deemed to be the income derived from the property for the purpose of Section 11 of the said Act and provisions of Section 11 will not apply.
15. The Rajasthan High Court in the ease of Sukhdeo Charity Estate v. ITO  192 ITR 615 (Raj.) dealing with such contributions held that, the principles enunciated in various cases when applied to the present case, leave no room for debate that the intention of the donor-trust as well as donee-trust was to treat the money as capital to be spent for Ladnu Water Supply Scheme. It is of no consequence whether the amount had since been paid to the State Government or kept in the account of the above-referred scheme by the assessee-trust. From whatever angle it may be seen, the deposited amount cannot be said to be income in the hands of the recipient-trust. Therefore, what ultimately reveals that,-(i) the intention of the donor and (ii) how the recipient-assessee treat the said income. If the intention of the donor is that the amount/donation given is to be treated as capital and the income from that capital has to be utilised for the charitable purposes, then the said voluntary contribution is towards the part of the corpus of the trust. Similarly, the assessee after receiving the amount, keeps the amount in deposit and only utilise the income from the deposit to carry out the charitable activities, then also the said amount would be a contribution to the corpus of the trust and the nomenclature in which the amount is kept in deposit is of no relevance as long as the contribution received are kept in deposit as capital and only the income from the said capital which is to be utilised for carrying on charitable and religions activities of the institute/corpus of the trust, for which Section 11(i)(d) of the Act is attracted and the said income is not liable for tax tinder the Act.
16. In this background, we look at the facts of the case. It is not in dispute that the assessee is registered by the income tax authorities as a person carrying on charitable and religious activities under Section 12-A of the Act. While receiving these donations, the assessee has complied with all the requirements mentioned in law and imposed by the authorities at the time of granting exemptions. They have also been granted the benefit of registration under Section 80-G of the Act only after looking into the balance sheet that the amounts collected by them for a period of three years was under the head of Rural Project Fund. When 85% of the said amount has not been utilised for the charitable purposes, they have declined to grant registration on the ground that they have not complied with the conditions under Section 11(2)(a) of the Act. They have denied the benefit under Section 11(1)(d) of the Act on the assumption that the amount so collected is not towards the corpus of the trust. It is not in dispute that they have collected the amount for three years by way of voluntary contributions. The assessee is a charitable and religious trust. The documents furnished by them to the department, particularly, a report regarding Swamy Vivekananda Integrated Rural Health Center and Shree Sharadadevi Eye Hospital and Research Center (Units of Sri Ramakrishna Sevashrama), it is clear that the said center was started in the year 1992 with due registration and it has been working since then for the welfare of the needy people and the first project of it is Leprosy Eradication Project. Likewise, they have set out 14 projects, which are started in the rural areas and in particular in the border districts of Karnataka -Andhra Pradesh. The further particulars given in the report shows that the main unit of the hospital at Pavagada is having T.B. and Leprosy Hospital consisting of 30 beds for inpatients, a fully equipped operation theatre, X-Ray Unit, ECG, Physiotherapy, Laboratory and there is also Ambulance facility and the patients who approaches for treatment and if admitted as in-patients, are also provided food through Annapoorna Nilaya situate at the main unit. The above center also consists Integrated Counselling and Testing Center (ICTC), Disability Prevention and Medical Rehabilitation (DPMR), Arogya Raksha Yojana, Eye Hospital, Primary Health Centres. Therefore, one of the activities of the trust is to treat T.B. and leprosy patients and for that purpose, they have a project called Leprosy Eradication Project and the said project is confined to the rural areas in Pavagada, the border districts of Karnataka-Andhra Pradesh. They received voluntary contributions from philanthropers and they have accumulated the said amount under the head of Rural Health Project. All the contributions received are kept in fixed deposit. In other words, no portion of the contribution received is utilised for this project. It shows the intention of the assessee is to treat these contributions as corpus and the income derived from the corpus is used for carrying on the said activities.
17. Insofar as the argument that the persons who made these contributions does not specifically direct that they shall form part of the corpus of the trust is concerned, it has no substance. In view of the language employed in Clause (b) of sub-section (a) of Section 11, the requirement is that the voluntary contributions have to be made with a specific direction. The law does not require that the said direction should be in writing. In the absence of the direction in writing, the only way that one can find out whether there was a specific direction and to find out how the money so paid it is utilized. if the money so received by way of voluntary contributions, it is meant to use for the Leprosy patients and is credited to a particular account and from the income from the said capital, the said activity is carried on the requirement of Clause (b) of sub-section (1) of Section 11 is complied with. In the instant case, on record, we see that those people who have paid amounts by way of donation that includes the cheque with a letter with a specific direction, which is in compliance with Section (1) (b) of the Act. But, in case if the contributions are made without cheques i.e., by cash, and oral direction has been issued to the trust to utilise the said fund for the purpose of treating the leprosy patients and if such amounts arc credited to the account meant for it, even then the requirement of clause (b) of sub-section (1) of Section 11 is complied with. Therefore, we do not see any substance in the said contention.
18. In fact, the assessee has filed returns. In the returns, he has specifically mentioned that these contributions are received for the aforesaid purpose and claimed exemptions. Assessing Authority being satisfied with the requirements of Section 11(1)(b) is being fully complied with, has accepted the same and granted exemption under the aforesaid provision. It is too late in the day for the Commissioner for Directorate of Income Tax (exemptions) to ignore all these undisputed facts which are available in the record and to refuse to renew the registration, if is unfortunate that the higher authority has not applied its mind in proper perspective to these provisions. The parliament intended to pass on the benefit of exemption of payment of income tax to the charitable and religious institutions. We are really surprised at the attitudes of these authorities who are over-technical in denying the benefit to the deserving institutions, which are rendering laudable services to the rural masses. By not granting tax exemptions, which they deserve, the authorities have hampered the said social activities of the trust and they are made to waste their precious time, energy and money in fighting this litigation. We do not appreciate this attitude on the part of the authorities in denying the benefit which the parliament has given to such persons. Therefore, the Tribunal was fully justified in interfering with such an illegal order and granted the relief to the assessee for which it is entitled to. Unfortunately, the persons who took a decision to file an appeal, before this Court are wasting the precious time of the trust which could have been used in the social service. Public money and the time of this Court is also wasted. This attitude on the part of the department cannot be countenanced. Therefore, we feel it appropriate to impose cost incurred by the assessee for fighting litigation so that the department would be more careful in future in taking decision to file appeal in such frivolous cases by ignoring the policy of the Government, viz., National Litigation Policy, 2011. Hence, we pass the following order:
The appeal is dismissed with cost of Rs. 1,00,000/- (Rupees one lakh) to be deposited by the department within one month from today in favour of the Rural Project Fund of the assessee-trust.
[Citation : 357 ITR 731]