Assessment set aside to verify Corpus Fund status of Government Grant

By | December 1, 2025
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Assessment set aside to verify Corpus Fund status of Government Grant

Issue

Whether the grant-in-aid received by the assessee from the Government of Haryana constitutes a “Corpus Fund” exempt under Section 11(1)(d) of the Income Tax Act, and if the lower authorities erred in taxing it as surplus income without verifying its specific nature.

Facts

  • Return Filed: The assessee, Haryana Saraswati Heritage Development Board, filed its return for AY 2017-18 declaring Nil income.

  • Assessment Proceedings: The case was selected for scrutiny. Despite multiple notices under Sections 143(2) and 142(1), the assessee failed to respond or provide a Section 12A registration certificate during the assessment stage.

  • AO’s Order: In the absence of 12A registration, the Assessing Officer (AO) denied exemption under Sections 11 & 12. The surplus of Rs. 9,42,35,873 (Gross Receipts minus Expenditure) was treated as taxable income.

  • CIT(A)’s Ruling: The CIT(A) noted that while the assessee obtained retrospective registration under Section 12AA later, they failed to apply 85% of income towards charitable purposes or file Form 10. Consequently, the addition was confirmed.

  • Assessee’s Defense: Before the Tribunal, the assessee argued that the receipt was a Corpus Fund/Grant-in-Aid from the Government under Section 11(1)(d).

    The assessee contended that Corpus contributions are excluded from total income irrespective of the 85% application rule, provided they are invested in specific modes.

Decision

  • Failure to Verify: The Tribunal noted that while the assessee appeared before the CIT(A), the appellate order was passed without specifically considering the submission regarding the “Corpus Fund” nature of the grant.

  • Remand: The ITAT held that the nature of the receipt is crucial. If it is indeed a Corpus Fund under Section 11(1)(d), it functions differently from regular income derived from property.

  • Direction: The matter was remanded back to the Jurisdictional AO. The AO is directed to verify the claim of the assessee regarding the Corpus Fund/Grant-in-Aid status and pass a fresh order after giving due opportunity to the assessee.

Key Takeaways

Corpus vs. Income: Voluntary contributions made with a specific direction to form part of the Corpus (Section 11(1)(d)) are generally exempt from inclusion in total income and are not subject to the mandatory 85% application requirement, provided they are invested in Section 11(5) modes.

Duty of Appellate Authority: The CIT(A) is obligated to address specific legal grounds raised by the assessee (such as the nature of a fund) rather than dismissing appeals solely on general compliance failures (like the 85% rule) applicable to general income.

THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH
Haryana Saraswati Heritage
Development Board
Vs
The DCIT/ACIT
Circle-2, Chandigarh

Source :- 1764566182-W6TcfN-1-TO