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, ChandigarhSource :- 1764566182-W6TcfN-1-TO