A P E A AND O E W FUND TRUST,HYDERABAD V. DCIT., EXEMPTION CIRCLE-1(1), HYDERABAD

ITA 41/HYD/2025

AI Insights

The case involves M/s. APEA & OEW Fund Trust, a trust established under the Andhra Pradesh Religious Institutions and Charitable Endowment Act, 1987, which received contributions from various religious institutions. The trust argued that these contributions, amounting to Rs.14,34,99,307/-, should be treated as a corpus fund and not as income, as they were mandated by statute and not voluntary. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) upheld the view that these contributions should be treated as income. However, the Tribunal reversed this decision, emphasizing the statutory nature of the contributions and the specific restrictions on their use.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 125965 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: 2018-2019
• Laws Referred To: Andhra Pradesh Religious Institutions and Charitable Endowment Act, 1987, Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P. MURALI MOHAN RAO
• Keywords: Capital receipt; Rectification of order; Charitable institution
• Section: 143(3); 11; 13

Judgement Text

" आआआआ आआआआआआ आआआआआआ, आआआआआआआआ आआआ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘A’ Bench, Hyderabad BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER आ.अपी.सं /ITA No.41/Hyd/2025 (निर्धारण वर्ा/Assessment Year:2018-19) M/s. APEA & OEW Fund Trust, Hyderabad. PAN:AABTA6286F Vs. Dy. Commissioner of Income Tax, (Exemption), Circle-1(1), Hyderabad. (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri P. MuraliMohan Rao, C.A. रधजस् व द्वधरध/Revenue by:: Shri B. Bala Krishna, CIT-DR सुिवधई की तधरीख/Date of hearing: 26/03/2025 घोर्णध की तधरीख/Pronouncement: 22/04/2025 आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M.: This appeal is filed by M/s. APEA & OEW Fund Trust (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”), dated 13.11.2024 for the A.Y. 2018-19. 2. The assessee has raised the following grounds : ITA No.41/Hyd/2025 2 ITA No.41/Hyd/2025 3 3. The brief facts of the case as culled out from the record are that, the assessee is a trust formed under statutory enactment of Government of Andhra Pradesh under Section 161 of the Andhra Pradesh Religious Institutions and Charitable Endowment Act, 1987. The purpose of the trust is to constitute and administer a welfare fund for Archakas and other employees. As per the statutory mandate, every religious charitable institutions other than Tirumala Tirupathi Devasthanam (“TTD”) whose annual income exceeds Rs.20 lakhs are liable to contribute annually 3% of their income to the said Trust. However, TTD is to contribute such sum as the government may specify from time to time. Consequently, the assessee received Rs.14,34,99,307/- (“contributions”) from various religious institutions during the year under consideration. The assessee is not permitted to utilise ITA No.41/Hyd/2025 4 the contributions towards it’s object. The assessee had to deposit such receipts in a separate account and is permitted to utilise the interest earned from such deposits towards the objects of the trust. Accordingly, the trust treated the entire contributions of Rs.14,34,99,307/- as corpus fund. During the assessment proceedings, the Ld. AO contended that any receipt to be treated as corpus fund, it must be voluntary and should be accompanied by a specific direction from the donor. Since the contributions were made compulsory under statutory mandate, the Ld. AO held that the same need not be treated as corpus donation and consequently, added the entire contributions of Rs.14,34,99,307/- to the total income of the assessee. During the first appellate proceedings, the Ld. CIT(A) also upheld the view of the Ld. AO. 4. Aggrieved with the order of Ld. CIT(A), the assessee is in appeal before us. The only contention of the assessee before us was that, the assessee trust has been incorporated under the statutory enactment of Government of Andhra Pradesh and as per the mandate, the assessee is not eligible to utilise any amount out of the contributions received from the religious institutions. The assessee is only eligible to utilise the interest income earned on the deposit of such contributions. As the assessee has no power / liberty to utilise the amount of contributions towards it’s objectives, the same is in the nature ITA No.41/Hyd/2025 5 of capital receipt and is not in the nature of income. The Ld. AR also submitted that the Ld. AO for A.Y. 2016-17 in the rectification order passed u/s.154 r.w.s. 143(3) of the Act dated 30.01.2019 and for A.Y. 2023-24 in the order passed u/s.143(3) r.w.s. 144B of the Act on 06.03.2025 has accepted the contributions received by the assessee as corpus fund. Accordingly, the Ld. AR submitted that, the Ld. AO for A.Y. 2018-19 cannot be allowed to take a different view what he has adopted for A.Y. 2016-17 and 2023-24. In alternate submission, the Ld. AR submitted that, the main reason for not treating the contributions as corpus fund by the Ld. AO is that the contributions are not voluntary and accordingly, the Ld. AO treated the same as income of the assessee. In this regard, the Ld. AR invited our attention to section 11(1)(a) of the Act and section 12(1) of the Act and submitted that, the income which is derived from the property held under trust or any voluntary contribution received by trust is liable to be considered as income in the hands of the assessee. The contributions received by the assessee from various religious institutions are not in the nature of income from property held under trust. However, the same are in the nature of contribution received by the trust, which in the opinion of the revenue authority is not voluntary. As per the mandate of section 12(1), any contribution which is voluntary, can only be treated as income in the hands of the assessee. As the Ld. AO contended that ITA No.41/Hyd/2025 6 the contributions received by the assessee is not voluntary, then it cannot be treated as income in the hands of the assessee u/s.12(1) of the Act also. Finally, the Ld. AR submitted that, the contributions received by the assessee is not taxable in the hands of the assessee. 5. Per contra, the Learned Department Representative (“Ld. DR”) relied on the order of revenue authorities. 6. We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. There is no dispute about the fact that the assessee is formed under the statutory enactment of the Government of Andhra Pradesh for the welfare of Archakas and other employees. As per the statutory mandate, all the religious charitable institutions, other than TTD whose annual income exceeds Rs.20 lakhs are liable to contribute annually 3% of their income to the assessee. However, TTD is to contribute such sum as the government may specify from time to time. As per the statutory mandate the assessee is not eligible to utilise such contributions towards it’s object and the assessee had to deposit such receipts in a separate account. The assessee is only eligible to utilise the interest earned from such deposits towards the objects of the trust. Accordingly, the assessee treated the entire contributions of Rs.14,34,99,307/- as corpus fund. In our considered view, corpus donations need not arise from voluntary ITA No.41/Hyd/2025 7 contributions in a narrow sense, particularly where the receipt is tied to a specific purpose, hence, the donor’s intention is clear that the contribution will form part of the capital of the trust. In the case before us, it is crucial to note that the statute itself create a compulsory frame work of corpus accumulation, with express stipulation that only the interest income can be spent for welfare purposes. Therefore, in our view the fact that the statute itself characterised the fund to be accumulated and not spent (except interest), clearly shows that it is of capital nature. The contributions received by the trust are earmarked for the corpus by the force of law itself and the absence of individual voluntary intent of donor is over-riden by the statutory character and objective of the fund. Therefore, the condition of a specific direction is deemed to be fulfilled under the statutory mandate. 6.1 Even otherwise, assuming for the sake of argument that the contributions received are not voluntary, as contended by the Ld. AO, such contributions in our opinion would fall outside the scope of section 12(1) of the Act. It is crucial to reproduce provisions of section 11(1)(a) and section 12(1) of the Act, which is to the following effect : “Income from property held for charitable or religious purposes. 11. (1) Subject to the provisions of sections 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— ITA No.41/Hyd/2025 8 (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property; Income of trusts or institutions from contributions. 12. (1) Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly.” 6.2 On perusal of above, we found that as per combined reading of section 11(1)(a) and section 12(1) of the Act, the income which is derived from the property held under trust or any voluntary contribution received by trust is liable to be considered as income in the hands of the assessee. The contributions, which the assessee has received from various religious institutions are not in the nature of income from property held under trust. However, the same are in the nature of contributions received by the trust, which in the opinion of the revenue authority is not voluntary. As per the mandate of section 12(1), any contribution which is voluntary, can only be treated as income in the hands of the assessee. As the Ld. AO contended that the contribution received by the assessee is not voluntary, then it cannot be treated as income in the hands of the assessee u/s.12(1) of the Act also. ITA No.41/Hyd/2025 9 Hence the contributions received by the assessee is not taxable in the hands of the assessee. Therefore, in our considered opinion, if a contribution is not voluntary, it cannot be taxed as income u/s.11 r.w.s. 12(1) of the Act. Therefore, on this count also, the contribution of Rs.14,34,99,307/- received by the assessee cannot be treated as income in the hands of the assessee. 6.3 In view of the above findings, we hold that, the contribution of Rs.14,34,99,307/- received by the assessee constitutes corpus within the meaning of the statutory frame work and cannot be treated as income. Even if the receipts are held to be non-voluntary, the same would fall outside the ambit of section 12(1) of the Act and therefore, cannot be treated as income u/s.11 of the Act. Accordingly, the addition made by the Ld. AO is directed to be deleted. 7. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 22nd April, 2025. Sd/- Sd/- (RAVISH SOOD) (MADHUSUDAN SAWDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad. Dated: 22.04.2025. * Reddy gp ITA No.41/Hyd/2025 10 Copy of the Order forwarded to : 1. M/s. APEA and OEW Fund Trust, C/o P. Murali & Co., C.As, 6-3-655/2/3, Somajiguda, Hyderabad- 500082 2. DCIT, (Exemptions), Circle 1(1), Hyderabad.. 3. Pr.CIT, Hyderabad. 4. DR, ITAT, Hyderabad. 5. Guard file. BY ORDER, "