Corpus donations received with specific directions remain capital receipts and cannot be taxed merely because exemption was claimed under Section 10(23C)(vi) instead of Section 11.

ORDER

1. The aforesaid appeal has been filed by the assessee against the impugned order dated 06.10.2023 passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, arising out of the assessment order passed under section 143(3) of the Income-tax Act, 1961 for the assessment year 2017-18. Though various grounds have been raised in the memorandum of appeal, the only issue which survives for our adjudication is the denial of exemption in respect of corpus contribution of Rs. 26,50,000, which has been sustained by the learned CIT(A).

2. The material facts giving rise to the present appeal are that the assessee, Mewar University, Chittorgarh, is an educational institution constituted under the Mewar University Act, 2009, enacted by the Rajasthan State Legislature. The assessee was registered under section 12AA and was also having approval under section 10(23C)(vi) of the Act. For the year under consideration, the assessee had filed its return of income on 31.10.2017 declaring nil income. The assessment was completed under section 143(3) vide order dated 30.12.2019 determining total income at Rs. 15,61,58,900 after making various additions and disallowances. In the first appellate proceedings, the learned CIT(A) granted relief to the assessee on the other substantive issues; however, insofar as the corpus contribution of Rs. 26,50,000 was concerned, the claim of exemption was rejected and the addition was sustained. It is against this limited surviving addition that the assessee is in appeal before us.

3. The aforesaid corpus contribution of Rs. 26,50,000 comprises two donations, namely, Rs. 1,50,000 received from Shri Ramesh Chandra Baser and Rs. 25,00,000 received from Mundra International. As per the material placed on record, the first contribution was received through NEFT and the second through cheque and confirmations of the donors were also furnished specifying that the contributions were towards the corpus of the assessee institution. The Assessing Officer, however, held that since the assessee had claimed exemption under section 10(23C)(vi) and not under section 11, there was no question of allowing the corpus donation as exempt under section 11(1)(d). Consequently, the amount of Rs. 26,50,000 was included in the total receipts of the assessee as voluntary contribution.

4. The learned CIT(A) has affirmed the aforesaid action of the Assessing Officer. The reasoning given by the learned CIT(A) is essentially that the assessee had specifically stated during the assessment proceedings that its claim of exemption was under section 10(23C)(vi) and not under section 11. According to the learned CIT(A), voluntary contributions received with a specific direction towards corpus were specifically exempt under the provisions of sections 11 and 12, whereas no corresponding provision existed under section 10(23C)(vi) for the year under consideration. He, therefore, held that the assessee ought to have applied the amount of Rs. 26,50,000 towards its objects and, having not done so, the corpus contribution could not be excluded while computing its income under section 10(23C)(vi). On this reasoning, the addition was confirmed.

5. At the time of hearing before us, none appeared on behalf of the assessee. However, detailed written submissions filed on behalf of the assessee are available on record. Considering the nature of the issue involved and the material already placed before us, we have proceeded to dispose of the appeal after considering the written submissions and hearing the learned DR. In the written submissions, the assessee has contended that the corpus contribution of Rs. 26,50,000 has been denied exemption merely on a technical ground, notwithstanding the fact that the assessee was duly registered under section 12AA and was also approved under section 10(23C)(vi). It has further been pointed out that the contributions were received from identified donors through banking channels with specific directions that the amounts should form part of the corpus and the relevant confirmations were furnished. The assessee has also contended that corpus contributions are essentially capital receipts and their intrinsic character cannot be converted into ordinary revenue receipts merely because the exemption for the relevant year was claimed under section 10(23C)(vi). The learned DR, on the other hand, relied upon the orders of the authorities below and submitted that the specific exclusion contemplated under section 11(1)(d) could not be imported into section 10(23C)(vi).

6. We have heard the learned DR, carefully considered the written submissions filed on behalf of the assessee and perused the material available on record. The issue which falls for our consideration is quite specific, namely, whether corpus contributions aggregating to Rs. 26,50,000, received with a specific direction that they shall form part of the corpus of the assessee institution, can be treated as ordinary income merely because the assessee had claimed exemption under section 10(23C)(vi) instead of section 11. Significantly, neither the Assessing Officer nor the learned CIT(A) has disputed the identity of the donors, the receipt of the amounts through banking channels or the specific character of the donations as corpus contributions. There is also no finding that these amounts represented fees, consideration for any services rendered by the University, or any other revenue receipt merely given the nomenclature of corpus donation. Thus, the character of the receipts as contributions specifically towards corpus remains undisturbed, and the dispute essentially turns upon the legal consequence of the assessee having claimed exemption under section 10(23C)(vi).

7. It is true that section 11(1)(d), as applicable to the year under consideration, specifically excluded from the total income voluntary contributions received with a specific direction that they shall form part of the corpus of the trust or institution. It is also true that, during the relevant assessment year, section 10(23C)(vi) did not contain a corresponding express provision couched in identical terms. However, the absence of an identical statutory expression, by itself, would not necessarily alter the inherent character of a receipt which is otherwise established to be a corpus contribution. A receipt specifically impressed with an obligation that it shall form part of the corpus stands on a footing materially different from an ordinary voluntary contribution available for application towards the day-to-day objects and activities of the institution. The nature of a receipt has to be determined from its real character and the purpose for which it has been given, and not merely from the particular exemption provision under which the assessee has chosen to compute its income.

8. We further find that the subsequent legislative development also lends support to this distinction. The Finance Act, 2020 inserted an Explanation in the relevant proviso to section 10(23C) clarifying the treatment of voluntary contributions received with a specific direction that they shall form part of the corpus of the fund, trust, institution, university or other educational institution. The statutory formulation was introduced in the nature of a clarification “for the removal of doubts”. Thus, the legislative scheme itself recognises the distinctive character of a contribution specifically directed towards corpus, as distinguished from ordinary income or voluntary contributions available for application towards the objects of the institution.

9. In the present case, the entire addition has been sustained not because the genuineness of the corpus donations was doubted or because the specific directions of the donors were found to be absent, but solely because the assessee had claimed exemption under section 10(23C)(vi). In our opinion, once the receipts are found to have been made with a specific direction that they shall constitute part of the corpus and there is no material brought on record to demonstrate that such character is a mere facade for an ordinary revenue receipt, their intrinsic character cannot be effaced merely by reason of the particular statutory provision under which the assessee has claimed exemption. The approach adopted by the authorities below, in effect, converts an undisputed corpus contribution into an ordinary voluntary contribution solely on account of the manner in which the exemption was claimed, without any corresponding change in the factual or juridical character of the receipt.

10. It is also pertinent that the assessee was admittedly an institution registered under section 12AA and simultaneously having approval under section 10(23C)(vi). The learned CIT(A) has otherwise granted substantial relief in respect of the exemption claimed by the assessee and the only amount surviving for consideration is the corpus contribution of Rs. 26,50,000. Once the character of these two receipts as corpus contributions is not in dispute and the contributions were accompanied by specific directions of the respective donors, bringing the same to tax merely because the assessee had opted to claim exemption under section 10(23C)(vi) would amount to allowing the form of the claim to eclipse the substance and character of the receipt. The taxability of a receipt has to follow its true legal character and cannot rest merely upon the nomenclature of the exemption provision invoked in the return.

11. Accordingly, having regard to the facts and circumstances of the case, particularly the undisputed specific direction accompanying the donations, the identity of the donors, receipt of the contributions through banking channels and absence of any material suggesting that the amounts constituted ordinary revenue receipts of the assessee, we are unable to sustain the finding of the learned CIT(A). The corpus contribution of Rs. 26,50,000 cannot be brought to tax merely on the ground that the assessee had claimed exemption under section 10(23C)(vi) and not under section 11. We, therefore, set aside the finding of the learned CIT(A) on this issue and direct the Assessing Officer to delete the addition of Rs. 26,50,000.

12. In the result, the appeal of the assessee is allowed.