ITO v. Bhavitha Foundation

Case snapshot

Sections / provisions: 11(1)(d); 11(5); 13(1)(d)

Questions before the Court / Tribunal

• Dividend and interest derived from corpus-donated shares: The reported Tribunal order accepts that dividend and related interest arising from shares donated with a corpus direction can retain corpus character on the facts and be eligible for section 11 treatment.

Material facts and background

Briefly stated, facts of the case are that the assessee is a

registered charitable institution and filed its return of income on 04.01.2022 declaring total income at Rs. Nil. The return of income filed by the assessee was selected for scrutiny assessment for

verification of the large corpus donation received by the assessee. The statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) were issued and complied with. In the assessment completed u/s 143(3) of the Act dated 28.12.2022, the Assessing Officer disallowed the benefit of dividend income for exemption u/s 11 of

the Act and made addition of Rs.48,70,00,000/- to the returned income of the assessee. 3.

On further appeal, the Ld. CIT(A) deleted the addition.

Aggrieved, the Revenue is in appeal before the Tribunal by way of

Before us, the Ld. counsel for the assessee has filed a Paper

Appellant / assessee submissions

processing, the TDS AO had examined the computation of income for FY 2020-21 to FY 2022-23 wherein the appellant claimed dividend of Rs.48,70,00,000/-during FY 2020-21 and also shown interests on deposits as corpus and claimed exemption u/s 11(1)(d) of the Act and the same was accepted by the TDS AO. 7.5 It is observed, during the course of assessment proceedings, that the AO contended that the appellant had not invested the income from corpus in the specified modes of investment as prescribed in the provisions of section 11(5) of the Act in accordance with the provisions of section 11(1)(d) of the Act. The AO further contended that the corpus donation had not been derived through any mode as laid down u/s 11(5)(i) to 11(5)(xii) of the Act neither through any 'other' mode as per the provisions of section 11(5)(xii) of the Act read with Rule 17C of the Income-tax Rules, 1962. In this regard, the appellant submitted that the appellant had received net dividend of Rs.45,04,75,000/- (Rs.48,70,00,000/- net of TDS) in the bank account on 30.12.2020. The appellant had invested Rs.40,00,00,000/- in fixed deposits with HDFC Ltd. in two tranches, i.e., Rs.20,00,00,000/- on 01.03.2021 and...

contention of the Assessing Officer observing as under: “In view of the foregoing discussion, it is observed that the provisions of section 11(1) of the Act permits registered charitable entity to accept donations in any form subject to compliance with the provisions of section 13 of the Act. The donation received by a charitable trust or religious institution can be either in money or in kind such as immovable property, movable property or shares etc. Thus, the provisions of section 11(5) of the Act prescribe the modes of investment for trust or institution instead of modes of acceptance of donations. In the case on hand, the appellant had received equity shares during the FY 2020-21 as corpus donation and the appellant had time limit till 31.03.2022 to comply with the provisions of section 11(5) of the Act read with section 13(1)(d) of the Act. Accordingly the appellant disinvested the equity shares in Majesco Limited on 23.06.2021, i.e., during the FY 2021-22 and thus, duly invested as per modes specified u/s 11(5) of the Act and the appellant complied with the provisions of section 13(1)(d) of the Act with respect to acceptance, holding and disposal of the aforesaid shares...

Revenue / respondent submissions

The judgment copy does not separately set out this component in a distinct section; refer to the full order and the reasoning section below.

Court / Tribunal analysis and reasoning

according to the Assessing Officer, once the asset is donated and transferred, generation of future income from asset will be governed as per the provisions of the Act only, and not under any conditions set by the donor. According to the Assessing Officer, the entire interpretation of section 11(1)(d) of the Act was done wrongly by the assessee and claimed the dividend as exempt under the corpus fund and therefore, he assessed income from dividend under the head ‘income from other sources’. Before the Ld. CIT(A) the assessee

the Ld. CIT(A) has duly clarified the issue that the shares of Majesco Ltd. was received by way of donation and it was not an investment by the assessee in the specific mode and therefore, the provisions of section 11(5) of the Act are not applicable as far as the shares of Majesco Ltd. received as corpus donation. Further, it has been

raised by the Revenue that dividend received from such shares could not qualify to be an investment as same is not specified as any mode of investment u/s 11(5) of the Act. We find that Hon’ble Kerala High Court in the case of Mata Amrithanandamayi Math (supra) held that when a corpus donation in the form of fixed deposit has been given to the assessee with the specific direction that said asset along with any interest earned thereon shall also to be added to the corpus of the trust, then said interest partake character of the income in the form of voluntary contribution mode

in the form of fixed deposits and saving account in the HDFC Bank and therefore, same qualifies for the purpose of section 11(5) of the

donation and therefore, the dividend income earned thereon under the direction of the donor to treat is same as part of corpus donation has been correctly held by the Ld. CIT(A) as part of the corpus donation. In our opinion, the Ld. CIT(A) has validly followed the decision of the Hon’ble Kerala High Court which has been

Operative decision and relief

any infirmity in the order of the Ld. CIT(A) on the issue in dispute. The grounds raised by the Revenue are accordingly dismissed.

In the result, the appeal of the Revenue is dismissed. Order pronounced in the open Court on 30/05/2024. Sd/-

Authorities and precedents appearing in the judgment

• Commissioner of Income-tax (Exemption) v. Mata

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on Dividend and interest derived from corpus-donated shares. The operative result is classified as Operative order controls. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Dividend and interest derived from corpus-donated shares. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Keep registration, audit-report, Form 10/10B/10BB and filing timestamps together; many exemption disputes are procedural and depend on when the form existed versus when it was uploaded.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

Read / download the clean local judgment copy

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