The condition to invest corpus donations in specified modes is not retrospective.

Issue

Can the tax exemption for a corpus donation under Section 11(1)(d) of the Income-tax Act, 1961, for the Assessment Year 2017-18 be denied on the ground that the donation was not invested in the specific modes prescribed under Section 11(5) of the Act?

Facts

An assessee, a charitable trust, received corpus donations during the financial year relevant to the Assessment Year 2017-18. These were voluntary contributions that came with a specific direction from the donors that they should form part of the trust’s permanent corpus fund.
The trust claimed this amount as fully exempt from tax under Section 11(1)(d).
The Assessing Officer (AO) and the Commissioner (Appeals) both disallowed this exemption. The sole reason given by the Commissioner (Appeals) for confirming the addition was that the assessee had failed to prove that it had invested or deposited the corpus donation in the forms or modes that are specified in Section 11(5) of the Act.

Decision

The court ruled decisively in favour of the assessee.

It held that the requirement for a trust to invest its corpus donations in the modes specified under Section 11(5) was a new condition that was introduced into the law by amendments made by the Finance Act, 2021, and the Finance Act, 2022.
The court noted that these amendments were explicitly made effective from April 1, 2022, and are therefore prospective in nature; they do not apply to past years.
Since the assessment year in question was 2017-18, these new conditions were simply not applicable. The law as it stood in AY 2017-18 did not contain this requirement for corpus donations.
Therefore, the Commissioner (Appeals)’s entire basis for confirming the addition was legally incorrect. The addition was unjustified and was directed to be set aside.

Key Takeways

You Must Apply the Law of the Correct Year: A taxpayer’s tax liability for any assessment year must always be determined based on the specific provisions of the law as they existed in that particular year. You cannot apply a future law to a past year.
Amendments are Generally Prospective: New conditions or liabilities that are introduced into the tax law through an amendment are almost always presumed to be prospective (applying to future periods only), unless the legislature has explicitly and clearly stated that they should be applied retrospectively.
The Law for Corpus Donations Before the Amendment: For assessment years prior to the 2021/2022 amendments, a corpus donation was exempt from tax under Section 11(1)(d) as long as it was a voluntary contribution and came with a specific direction from the donor to be treated as corpus. There was no further condition regarding how it had to be invested.
Authorities Must Apply the Correct Law: An adjudicating or appellate authority has a duty to apply the law that was in force for the relevant assessment year. Applying a future law to a past year is a fundamental legal error that will be overturned by a higher court.

IN THE ITAT HYDERABAD BENCH ‘DB-A’

SEW Foundation

Income-tax Officer (Exemptions)

VIJAY PAL RAO, Vice President and Manjunatha G. , Accountant Member

ITA No. 499 (Hyd.) OF 2025
[Assessment year 2017-18]

AUGUST 13, 2025

V. Siva Kumar, Adv. for the Appellant. Vinodh Kannan, Sr. AR for the Respondent.

ORDER

Vijay Pal Rao, Vice President. – This appeal by the assessee is directed against the order dated 27/01/2025 of the learned CIT (A)/ADDL/JCIT(A)-1 Coimbatore, for the A.Y.2017-18.

2. The assessee has raised the following grounds of appeal:

“1. The order of the learned CIT (A)/Addl/JCIT(A)-5 Coimbatore, 27-01-2025 is erroneous, contrary to law and facts of the case.

2. The learned CIT (A) is not justified in sustaining the addition of Rs.28,73,338 /- made by the Assessing Officer in respect of corpus donations.

3. The learned CIT (A) ought to have seen that details of registration of the organization u/s 12A and approval u/s 80G were available in return of income. The learned CIT (A) further ought to have seen that Appellant’s accounts were audited by C.A whose details are furnished in the return of income. Hence, denying exemption u/s 11 to the Appellant and restricting corpus donations of Rs.28,73,338/- by the Assessing Officer is not justified on the ground that appellant failed to furnish the required information.

4. For all of the above and such other grounds as may be urged at the time of hearing, it is prayed that the appeal be allowed, and suitable directions be issued to the Assessing Officer to grant exemption u/s 11 and complete the assessment on the basis of return in the interest of justice”.

3. The learned Counsel for the assessee submitted that the assessee has received corpus donation during the financial year 2016-17 relevant to the A.Y under consideration. He has referred to the donation receipts placed at page Nos. 4 to 18 of the paper book and submitted that all these donations are duly reflected in the bank account of the assessee, details of which are also given in statement of corpus donation at page No.1 & 2 of the paper book. The Assessing Officer has made an addition of the said amount of corpus donation of Rs.28,74,878/- for want of documentary evidence to prove the corpus donation. He has submitted that the Assessing Officer has passed the ex-parte order u/s 144 of the Act. The learned Counsel for the assessee has submitted that before the learned CIT (A) the assessee has produced all the documentary evidence in support of the corpus donation which is received by the assessee. However, the learned CIT (A) has confirmed the disallowance made by the Assessing Officer of the corpus donation only on the ground that the assessee has failed to prove that corpus donation is utilized or invested in the modes stated in section 11(5) of the I.T. Act. The learned Counsel for the assessee has submitted that the learned CIT (A) has not disputed the genuineness of the corpus donation fund as the assessee produced the relevant documentary evidence comprising of the donation receipts as well as the details of the donation as received through banking channel and duly recorded in the books of account. He has contended that for the year under consideration, there was no such condition of investment to the corpus donation and in the mode prescribed u/s 11(5) of the Act. He has referred to section 11(d) of the I.T. Act and submitted that prior to the amendment by Finance Act, 2021, w.e.f. 01/04/2022 , there was no such condition of investment of corpus fund in the mode provided u/s 11(5) of the Act. The learned Counsel for the assessee has submitted that the Explanation 3A and 3B to section 11(1) are inserted by Finance Act, 2021, w.e.f. 01/04/2021 and therefore, the same are not applicable for the year under consideration and therefore, the addition made by the Assessing Officer and confirmed by the learned CIT (A) is not justified and liable to be deleted.

4. On the other hand, the learned DR has submitted that before the Assessing Officer, the assessee has not produced any details or supporting evidence of the claim of corpus donation and consequently, the Assessing Officer has framed the assessment u/s 144 of the Act. He has further submitted that the learned CIT (A) has also considered this issue and confirmed the addition made by the Assessing Officer when the assessee has failed to show that the corpus donation received by the assessee was either applied for charitable purpose or investment in terms of section 11(5) of the Act. He has relied upon the orders of the authorities below.

5. We have considered the rival contentions as well as the relevant material available on record. The assessee has filed its return of income for the year under consideration on 03/11/2017 declaring total income at Nil after claiming exemption u/s 11 of the Act. The Assessing Officer noted that during the year, the assessee has declared corpus donation of Rs.28,73,388/- and admitted gross receipts other than corpus donation receipts at Rs. 1540/-. The case was selected for complete scrutiny under CASS. However, there was no compliance on behalf of the assessee to the notices issued by the Assessing Officer u/s 143(2) and 142(1) of the Act. Consequently, the Assessing Officer proposed to frame the assessment u/s 144 of the Act and issued a show cause notice dated 25/11/2019. Again, there was no response on behalf of the assessee to the show cause notice for completion of assessment u/s 144 of the Act and accordingly the Assessing Officer has framed the assessment u/s 144 of the Act whereby an addition of Rs.28,74,878/- on account of corpus donation is made by denying exemption u/s 11 of the Act as the said income was neither applied for charitable purpose nor set apart for future application in terms of section 11(1)(a) of the Act. The assessee challenged the action of the Assessing Officer before the learned CIT (A) and produced the relevant details as well as the donation receipts in support of the claim of the corpus donation to the tune of Rs.28,74,878/-. The learned CIT (A) has observed that as per the balance sheet/statement of affairs filed by the assessee along with the audit report, the assessee has not shown any investment in the mode prescribed u/s 11(5) of the Act. The learned CIT (A) without questioning the genuineness of the claim of corpus donation has confirmed the additions to the extent of Rs.28,73,338/- in para 5.5 to 5.7 as under:

“5.5 Now the question is whether Corpus donations are exempt. This is exempt u/s 11(d) 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. But the Corpus donations not utilized must be invested in the modes stated in 11(5).

(5) The forms and modes of investing or depositing the money referred to in clause (b) of sub-section (2) shall be the following, namely: —

(i) investment in savings certificates as defined in clause (c) of section 2 of the Government Savings Certificates Act, 1959 (46 of 1959), and any other securities or or certificates issued by the Central Government under the Small Savings Schemes of that Government;

(ii) deposit in any account with the Post Office Savings Bank;

(iii) deposit in any account with a scheduled bank or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank). Explanation.—In this clause, “scheduled bank ” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934);

(iv) investment in units of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963);

(v) investment in any security for money created and issued by the Central Government or a State Government;

(vi) investment in debentures issued by, or on behalf of, any company or corporation both the principal whereof and the interest whereon are fully and unconditionally guaranteed by the Central Government or by a State Government;

(vii) investment or deposit in any public sector company : Provided that where an investment or deposit in any public sector company has been made and such public sector company ceases to be a public sector company, ?

(A) such investment made in the shares of such company shall be deemed to be an investment made under this clause for a period of three years from the date on which such public sector company ceases to be a public sector company;

(B) such other investment or deposit shall be deemed to be an investment or deposit made under this clause for the period up to the date on which such investment or deposit becomes repayable by such company;

(viii) deposits with or investment in any bonds issued by a financial corporation which is engaged in providing long-term finance for industrial development in India and which is eligible for deduction under clause (viii) of sub-section (1) of section 36;

(ix) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and which is eligible for deduction under clause (viii) of sub-section (1) of section 36;

(ixa) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for urban infrastructure in India.

Explanation.—For the purposes of this clause, — (a) “long-term finance” means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years;

(b) “public company” shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956); (c) “urban infrastructure” means a project for providing potable water supply, sanitation and sewerage, drainage, solid waste management, roads, bridges and flyovers or urban transport; (x) investment in immovable property. Explanation.—”Immovable property ” does not include any machinery or plant (other than machinery or plant installed in a building for the convenient occupation of the building) even though attached to, or permanently fastened to, anything attached to the earth; (xi) deposits with the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964); (xii) any other form or mode of investment or deposit as may be prescribed. 5.6 The balance sheet/statement of affairs filed along with the audit report does not have any investment in the modes prescribed u/ s 11(5).

5.7 The AO has added the Corpus donation only as income and has allowed section 11 exemption on the revenue received during the year in the Income and expenditure account. The appellant has not filed any evidence to prove that the Corpus donations were used/invested as per the directions/bye law and the finding of the AO that assessee failed to provide documentary evidences in respect of the corpus donations of Rs.28,73,338/- and also why the exemption claimed u/s.11 of the Act cannot be denied is correct to the extent of corpus donations. The additions made by the AO has to be limited to Rs.28,73,338 /- and the grounds are partly allowed”.

6. Thus, the learned CIT (A) has confirmed the addition solely on the ground that the assessee has failed to prove that the corpus donation was used/investment as per section 11(5) of the Act. It is pertinent to note that prior to the amendment to section 11(1)(d) vide Finance Act, 2021 w.e.f. 01/04/2022, the income from voluntary contributions made with a specific direction that they shall form part of corpus fund of the Trust or Institution shall not be included in the total income of the previous year of the Trust/Institution. For ready reference, clause (d) of section 11(1) as existed at the relevant point of time is reproduced as under:

“11 (1) Subject to the provisions of section 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income:

(a)…………………

(b)…………………

(c)…………………

(d) 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”.

7. Therefore, the amendment brought in clause (d) of section 11(1) vide Finance Act, 2021 w.e.f. 01/04/2022 and insertion of Explanation 3A and 3B vide Finance Act, 2022 w.e.f. 01/04/201 are not applicable for the year under consideration and consequently, the conditions as prescribed in the amended provisions of section 11(1)(d) r.w. Explanation 3A and 3B that such voluntary contributions are invested or deposited in the forms or modes specified u/s 11(5) of the Act are not applicable for the year under consideration for allowing the benefit of section 11(1)(d) of the Act. Accordingly, in the facts and circumstances as discussed above, the addition confirmed by the learned CIT (A) is not sustainable and liable to be set aside. Hence, we allow the claim of the assessee u/s 11(1)(d) of the I.T. Act in respect of corpus donation in question.

8. In the result, appeal filed by the assessee is allowed.