Corpus Donations Can’t Be Treated as Rent Just Because Trust Declared Additional Service Income Under Amnesty Scheme

Case Details: Thamizhvel PT Rajan Commemoration Trust v. ITO (Exemptions) - [2024] 165 taxmann.com 49 (Chennai-Trib.)

Judiciary and Counsel Details

• Mahavir Singh, Vice President & Manoj Kumar Aggarwal, Accountant Member
• N.V. Balaji, Adv.-Ld. AR for the Appellant.
• D. Hema Bhupal, JCIT-Ld. DR the Respondent.

Facts of the Case

The assessee was a trust registered under section 12A. The trust’s main object was to establish educational and medical institutions and provide scholarships to needy people. The assessee also ran Kalyana Mandapam.

During the assessment proceedings, the Assessing Officer (AO) contended that the corpus donations received by the assessee were nothing but rental receipts since the same was received from only those persons who had hired halls on various occasions. The allegation was primarily based on the fact that the assessee had declared additional service income under the amnesty scheme of the Service Tax Department and paid additional service tax on the donations. Accordingly, the AO denied the assessee’s claim of exemption under section 11.

The matter reached the Chennai Tribunal.

ITAT Held

The Tribunal held that the allegation that the corpus donations were nothing but rental receipts was primarily based on the fact that the assessee has declared additional service income under the amnesty scheme of the Service Tax department and paid additional service tax on the donations. The taxability of service under service tax is based on different principles and the computation of income under the Income Tax Act is based on different principles.

To illustrate, the assessee may have collected amenities charges on an actual basis from hirers. In that event, the assessee would incur equivalent expenditure to procure those services, and finally, the resultant income out of these receipts would ultimately be nil. In other words, though these charges would still be subjected to service tax, under the Income Tax Act, the same would not result in income for the assessee. The collection of such charges, connected with renting the hall, would still be chargeable to service tax, although the same would ultimately have no income element. Thus, the concept of service income under the Service Tax Act and income under the Income Tax Act are quite different, and the two cannot be equated.

Further, there was no allegation or finding by the AO that the corpus donations received by the assessee were non-voluntary or forced donations. Even though the hirer of the hall and contributor of donations were the same persons, the donor thereof understood the donations to be corpus donations and voluntary contributions only and agreed to such donations with a complete understanding of the nature thereof.

Therefore, equating the same with rental receipts would not be a correct proposition unless it was shown that the rental charges were bifurcated into hall rental charges and donations. The assessee has made the rental collection under various heads, viz. hall rent, refundable deposit, charges for amenities, extra rooms, fuel, gas, electricity, etc., under full knowledge of the hirer of Kalyan Mandapams who have agreed to pay the amounts under those heads with full knowledge and understanding. Similarly, corpus donations have separately been contributed by those persons with a full understanding of the nature thereof.

Therefore, the assessee’s donations were voluntary and could not be attributed to rental charges.

List of Cases Referred to

• CIT v. Halai Nemon Association [2000] 111 Taxman 326/243 ITR 439 (Madras) (para 3.9)
• DIT (Exemptions) v. Willington Charitable Trust [2010] 195 Taxman 232/[2011] 330 ITR 24 (Madras) (para 3.9)
• Asstt. CIT (Exemptions) v. Ahmedabad Urban Development Authority [2022] 143 taxmann.com 278/[2023] 291 Taxman 11/[2022] 449 ITR 1 (SC) (para 3.9).