Amount Received from Settler for Infrastructure Fund Not Taxable, Even Without 12A Registration
                     Amount Received from Settler for Infrastructure Fund Not Taxable, Even Without 
12A Registration
ITO (Exemptions) Vs Basanti Devi (ITAT Delhi) In a ruling from the Income Tax Appellate Tribunal 
(ITAT) Delhi bench, a dispute between the Income Tax Department and the Basanti Devi trust 
regarding the taxability of funds received by the trust in Assessment Year 2002-03 has been 
settled in favor of the assessee. The case, bearing the reference ITO (Exemptions) Vs Basanti 
Devi, centered on whether a sum of INR 1,06,55,343 received by the trust as an 
‘infrastructure fund’ could be taxed as income, particularly given that the trust lacked 
registration under Sections 12A or 12AA of the Income Tax Act, 1961 for that specific year. 
The Income Tax Officer (Exemptions) had made an addition of this amount to the trust’s 
taxable income, arguing that voluntary contributions, irrespective of whether they are 
designated as corpus or general donations, fall within the definition of ‘income’ as per 
Section 2(24)(iia) of the Act. The Department contended that the exemption available for 
corpus donations under Section 11(1)(d) is conditional upon the trust being duly registered 
under Section 12A or 12AA. Since the Basanti Devi trust was not registered under these 
sections for AY 2002-03, the Department asserted that the receipt was taxable.
The matter first went before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) 
reviewed the case and, in a decision that went against the Department’s stance, deleted the tax 
addition. The CIT(A)’s reasoning was significantly influenced by a previous ruling of the ITAT 
itself concerning the very same assessee trust, but for a subsequent assessment year, 2003-04. 
In that earlier decision, the ITAT had held that an amount received by the trust from its settler 
towards an infrastructure fund was not taxable in the hands of the trust, even though the trust 
was not registered under Section 12A in that particular year either. Aggrieved by the CIT(A)’s 
decision for AY 2002-03, the Income Tax Department lodged an appeal with the ITAT Delhi. The 
Department’s grounds of appeal reiterated their position on the taxability of voluntary 
contributions under Section 2(24)(iia) and the necessity of 12A/12AA registration for corpus 
donation exemption under Section 11(1)(d). A key point of contention for the Department was 
the CIT(A)’s reliance on the ITAT’s decision for AY 2003-04, which the Department highlighted 
was under challenge before the Hon’ble Supreme Court. The Department also faulted the 
CIT(A) for allegedly holding that the receipt of money in the status of an Association of Persons 
(AOP) should be viewed under normal provisions of the Act, without appreciating the relevance 
of Section 164, which deals with the taxation of trusts.
Adding another layer to the proceedings, the assessee trust had filed cross-objections to the 
Department’s appeal. These cross-objections primarily challenged the very initiation of the 
reassessment proceedings for AY 2002-03 under Section 147/148 of the Income Tax Act, 
arguing that the reopening was bad in law and not based on any failure by the assessee to 
disclose material facts during the original assessment. However, during the hearing before the 
ITAT, the learned counsel representing the assessee trust indicated the intention to withdraw 
these cross-objections. The Department’s representative raised no objection to this, and 
consequently, the assessee’s cross-objections were formally dismissed as withdrawn by the 
Tribunal. The focus of the ITAT’s deliberation then narrowed down to the Department’s appeal 
concerning the taxability of the INR 1,06,55,343 received by the trust. The learned counsel for 
the assessee brought a crucial judicial precedent to the attention of the Tribunal. It was 
submitted that the aforementioned ITAT order for Assessment Year 2003-04, which had 
formed the basis of the CIT(A)’s decision in the current year, had not only been passed by the 
Tribunal but had also been subsequently challenged by the Department before the Hon’ble 
Delhi High Court and upheld by the High Court. A copy of the Delhi High Court’s order, dated 
September 23, 2009, in ITA No. 927/09, was presented to the Tribunal.
 The focus of the ITAT’s deliberation then narrowed down to the Department’s appeal concerning the taxability of 
the INR 1,06,55,343 received by the trust. The learned counsel for the assessee brought a crucial judicial 
precedent to the attention of the Tribunal. It was submitted that the aforementioned ITAT order for Assessment 
Year 2003-04, which had formed the basis of the CIT(A)’s decision in the current year, had not only been passed 
by the Tribunal but had also been subsequently challenged by the Department before the Hon’ble Delhi High 
Court and upheld by the High Court. A copy of the Delhi High Court’s order, dated September 23, 2009, in ITA 
No. 927/09, was presented to the Tribunal. The ITAT’s order for AY 2002-03 explicitly refers to and reproduces 
the relevant observation from the Delhi High Court’s order. The High Court, in dismissing the Department’s 
appeal for AY 2003-04, had categorically stated: “The respondent/assessee is admittedly a Charitable 
Organization which is a trust registered under the Indian Trust Act which has also been granted registration 
under the Income Tax Act w.e.f. 1.4.2003. The assessee received certain donations towards its corpus which had 
been deposited in the bank and the money was admittedly spent for acquiring land for construction of a college. 
In these circumstances, we are of the opinion that the CIT(A) as well as ITAT rightly concluded that the donations 
received towards corpus of the trust would be capital receipt and not revenue receipt chargeable to tax. No 
question of law arises. Dismissed.”
This clear pronouncement from the Delhi High Court, classifying donations received towards the 
corpus of the trust as ‘capital receipts’ rather than ‘revenue receipts chargeable to tax’, 
became the decisive factor before the ITAT for the Assessment Year 2002-03. While the 
Department’s representative informed the ITAT that the Delhi High Court’s order for AY 2003-
04 was under further challenge before the Hon’ble Supreme Court through a Special Leave 
Petition (SLP), the Tribunal noted that this fact alone was not a sufficient premise to overturn 
the CIT(A)’s decision. The ITAT emphasized that the High Court’s order had not been shown to 
have been stayed by the Supreme Court. In the absence of a stay, the ITAT was bound to 
respectfully follow the decision of the jurisdictional High Court on the matter.
Therefore, the ITAT, guided by the binding precedent set by the Delhi High Court in the assessee’s 
own case for the immediately succeeding assessment year on a factually similar issue (receipt 
of funds towards infrastructure/corpus), rejected the grievance raised by the Income Tax 
Department. The Tribunal concluded that no adjustment on account of the receipt of INR 
1,06,55,343 was warranted. In its final order, pronounced on January 19, 2011, the ITAT 
dismissed the appeal filed by the Department. Concurrently, the cross-objections filed by the 
assessee were dismissed as withdrawn, formalizing the assessee’s decision not to pursue the 
challenge against the reassessment proceedings themselves. The ruling underscores the 
principle that contributions received towards the corpus of a charitable trust are to be 
treated as capital receipts, a position affirmed by the Delhi High Court, which the ITAT was 
obligated to follow.
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