Corpus Donations and Subsequent Section 12AA Registration: ITAT Ahmedabad’s Ruling in Favour of Charitable Trusts

Background of the Dispute

The matter before the ITAT Ahmedabad in Shree Aanta Kadva Patidar Samaj Vs ITO (Exemption) revolved around the taxability of corpus donations received by a public charitable trust and the impact of subsequent registration under Section 12AA of the Income Tax Act 1961.

The assessee, a charitable trust, had received corpus donations amounting to ₹22,28,500 during the assessment year 2016-17 and claimed exemption under Section 11(1)(d). However, complications arose because the formal registration under Section 12AA was granted on 08-02-2018, whereas processing of the return under Section 143(1) and later rectification proceedings took place thereafter.

Despite the registration being in force by the time the return was processed, the benefit of Section 11 was denied at multiple stages, prompting the assessee to carry the matter in appeal up to the Tribunal.

Chronology of Events

Filing and Processing of Return

  1. The assessee-trust filed its original return of income for A.Y. 2016-17 on 08-10-2016 declaring income of ₹93,205.
  2. That return was treated as defective and was not processed.
  3. A revised/rectified return was filed on 23-03-2018 declaring total income of ₹1,31,830.
  4. In this rectified return, the assessee claimed exemption of corpus donations of ₹22,28,500 under Section 11(1)(d).
  5. The Centralized Processing Centre (CPC), Bengaluru processed the return under Section 143(1) on 31-03-2019 and made adjustments, effectively treating the corpus donations as taxable and computing tax at the maximum marginal rate of 30%.

Registration Under Section 12AA

  • The assessee had applied for registration under Section 12A.
  • The competent authority granted registration under Section 12AA by order dated 08-02-2018.
  • Thus, as on the date of processing of the return under Section 143(1) on 31-03-2019, the assessee was already a registered charitable trust under Section 12AA.

Rectification Proceedings Under Section 154

  • Aggrieved by the intimation under Section 143(1), the assessee filed an application for rectification under Section 154.
  • The ADIT, CPC, vide order dated 06-01-2020, rejected the rectification request and declined to modify the earlier adjustments made in the intimation under Section 143(1).
  • The assessee’s request to allow exemption under Section 11 and to correct tax computation from maximum marginal rate to applicable slab rate was turned down.

First Appeal Before CIT(A)

The assessee approached the CIT(A) challenging:

  • Denial of exemption of ₹22,28,500 claimed as corpus donation under Section 11(1)(d), despite registration being granted under Section 12AA before processing of the return;
  • Computation of tax at maximum marginal rate of 30% instead of applicable slab rate for a charitable trust;
  • Non-acceptance of the contention that corpus donation is a capital receipt not forming part of income liable to tax;
  • Failure to rectify incorrect tax computation and consequential interest of ₹50,867 (tax of ₹40,735 plus interest of ₹10,132).