The ITAT held that Corpus specific voluntary contributions is in nature of ‘capital receipt’ and therefore outside scope of meaning of income u/s. 2(24)(iia). Thus, same cannot be brought to tax even in case of trust not registered u/s.12A/12AA
The assessee was registered trust under the Bombay Public Trust Act, 1950. However, it was unapproved by the CBDT u/s. 35(1)(ii) of the Act. Further, it was also not registered u/s. 12A/12AA.
During the relevant year, the AO brought to tax the corpus donation of Rs. 3 crore on the ground that approval u/s.35(1)(ii) had not been granted to the assessee and the assessee had also not been registered u/s. 12A. The AO held that “corpus donation” did not tantamount to exempt income as laid down u/s. 2(24)(iia) of the Act. The AO referred the provisions of section 12A/11(1)(d) and reasoned that the voluntary contribution to the corpus of the trust were taxable as the income of the trust but for the provisions of clause (d) of section 11(1) of the Act. In the absence of any such specific exclusions provided in the provisions of section 10(21), the said donation became taxable in the hands of the assessee.
The assessee preferred an appeal to the CIT(A). The CIT(A) held that section 2(24)(iia) was required to be read in the context of introduction of the section 12 considering the simultaneous amendments to both the provisions with effect from 01-04-1973 and that the said amount of corpus donation was not taxable under the Act being in the nature of capital receipt.
The ITAT observed that it had been held in various cases decided earlier that the corpus donation received by the trust, which was not registered u/s. 12A/12AA, was not taxable as it assumed the nature of ‘capital receipt’ the moment the donation was given to the “Corpus of the Trust”. It was a settled legal proposition that in case of a registered trust, the corpus specific voluntary contributions were outside the scope of income as defined in section 2(24)(iia) due to their “capital nature”.