Mr. Dindayal Dhandaria (Chartered Accountant) in this article, analyses the proposed amendment for taxability of contributions received as corpus donations and challenges in execution of the same. The author explains that Section 11(1)(d) of the Act provides that a voluntary contribution would be treated as a corpus donation if there is a specific direction to this effect from the donor. The author observes that it may be difficult to execute due to various factors such as unspecific instructions or no-instructions, anonymity of the donors and in the absence of evidence, the intention of the donor loses its importance and such corpus donations are treated as non-corpus donations by the Revenue, resulting in inability of the trust or an institution to claim the exemption available under section 11(1)(d) in respect of corpus donations. The author points to the example of Ram Mandir and states that, "Shri Ram Janmbhoomi Teerth Kshetra is receiving voluntary contributions from all over the country and abroad in such large sums that cannot be applied in the year of receipt.  There is no doubt that such donations are meant for construction of a temple which is bound to take a few years for completion.  But, the Trust cannot prove such contributions as corpus donations as it cannot obtain confirmations to this effect in writing."  The author states that in order to tackle the technical and practical difficulty, the Finance Bill, 2022 proposes to grant an option to the trusts or institutions referred to in section 10(23C)(v) and 11 to treat the voluntary contributions as corpus donations subject to the prescribed conditions. The author highlights that the proposed amendments are meant to do away with the necessity of having a specific direction from the donor for the purpose of proving a voluntary contribution as a corpus donation and this relaxation is only for notified places of worship and other trusts or institutions will have to produce evidence in the form of specific direction from a donor in respect of voluntary contributions which they claim as corpus. 

“Option to Treat Voluntary Contributions as Corpus Donations Sans Specific Direction From The Donors”

BACKGROUND 

Though the expression “corpus donation” has not been expressly defined anywhere in the Income Tax Act, 1961 (“the Act”), clause (d) of sub-section (1) of section 11 provides that income in the form of voluntary contribution made with a specific direction that they shall form part of the corpus of the trust or institution, shall not be included in the total income of the previous year of person in receipt of the income. [For the sake of convenience, such voluntary contributions are described as “Corpus Donation(s)”, in this article.]  

A Trust or an Institution registered under section 12A/12AA/12AB of the Act is required to apply 85% of the voluntary contributions received by it (without any direction as stated above and hereinafter referred to as “non-corpus donations”), for the purposes of the Trust or to accumulate the same by complying with the prescribed conditions. At present, there is neither any requirement to apply the corpus donations nor any restrictions on applying the same. Moreover, prior to 1-4-2021, there was no requirement to invest the corpus donations separately.  However, the Finance Act, 2021 amended the provisions of section 11(1)(d) by inserting the following words at its end:

“subject to the condition that such voluntary contributions are invested or deposited in one or more of the forms or modes specified in sub-section (5) maintained specifically for such corpus”.

By virtue of the above amendment, corpus donations received on or after 1-4-2021 would have to be invested or deposited in one or more of the specified forms or modes and that too separately from non-corpus donations.

Clause (ii) of sub-section (1) of Section 80G of the Act provides for grant of deduction from the total income of an assessee equal to fifty percent of the aggregate of the sums specified in sub-section (2). Clause (b) of the sub-section (2) specifies “any sums paid by the assessee in the previous year as donations for the renovation or repair of any such temple, mosque, gurdwara, church or other place as is notified by the Central Government in the Official Gazette to be of historic, archaeological or artistic importance or to be a place of public worship of renown throughout any State or States.”  [Hereinafter referred to as “Notified places of worship”]

As per sub-clause (v) of clause (23C) of section 10 of the Act, a prescribed authority can approve any trust (including any other legal obligation) or institution wholly for public religious purposes or wholly for public religious and charitable purposes, having regard to the manner in which the affairs of the trust or institutions are administered and supervised for ensuring  that the income accruing thereto is properly applied for the objects thereof.  A Notified place of worship may be administered and supervised by such an approved trust or institution.

Moreover, income derived from property covered by section 11 of the Act may also be from a Notified place of worship.

THE PROBLEM

It is clear from the provisions of section 11(1)(d) of the Act that a voluntary contribution would be treated as a corpus donation if there is a specific direction to this effect from the donor.  This condition is not so simple as it appears. The Notified places of worship receive voluntary contributions in abundance from many devotees i.e. donors whose intention behind making such voluntary contribution is to provide capital/permanent funds to the trust or institution for building the Notified places of worship.  But many donors do not give any specific direction in writing that donations made by them be treated as corpus of the trust. Besides, many donors are anonymous, and their identity is not known.  Sometimes, the Approved/Notified Trusts or institutions receive such voluntary contributions pursuant to their appeal for utilising the funds for a specific project.  But in the absence of evidence, the intention of the donor loses its importance and such corpus donations are treated as non-corpus donations by the Revenue.

Thus, for a technical and practical difficulty, a trust or an institution cannot avail the exemption available under section 11(1)(d) in respect of corpus donations.  The problem can be best illustrated by taking the example of RAM MANDIR which is being constructed at Ayodhya.  Shri Ram Janmbhoomi Teerth Kshetra is receiving voluntary contributions from all over the country and abroad in such large sums that cannot be applied in the year of receipt.  There is no doubt that such donations are meant for construction of a temple which is bound to take a few years for completion.  But, the Trust cannot prove such contributions as corpus donations as it cannot obtain confirmations to this effect in writing.  

GIST OF AMENDMENTS PROPOSED BY FINANCE BILL, 2022 RELATING TO NOTIFIED PLACES OF WORSHIP

With a view to tackling the problem stated hereinabove, the Finance Bill 2022 proposes to grant an option to the trusts or institutions referred to in section 10(23C)(v) and 11 to treat the voluntary contributions as corpus donations subject to the prescribed conditions.  The Bill further provides for consequences if the conditions are violated.

Briefly stated, the Finance Bill, 2022 proposes the following amendments:

1. It proposes to insert Explanation 3A in sub-section 11 of the Act to provide that any sum received by a trust or institution as a voluntary contribution for the purpose of renovation or repair of any notified place of worship, may, at its option, be treated by such trust or institution as corpus donation subject to the following conditions that the trust or institution:

(a) applies such corpus only for the purpose for which the voluntary contribution was made;

(b) does not apply such corpus for making contribution or donation to any person;

(c) maintains such corpus as separately identifiable;

(d) invests or deposits such corpus in the forms and modes specified under sub-section (5) of section 11.

2. It also proposes to insert Explanation 3B in sub-section (1) of section 11 of the Act to provide that for the purposes of Explanation 3A, where any trust or institution has treated any sum received by it as corpus donation and subsequently any of the conditions specified in clause (a) to (d) above are violated, such sum shall be deemed to be the income of such trust or institution of the previous year during which the violation takes place.

3. It also proposes to insert Explanation 1A in the third proviso to clause (23C) of section 10 of the Act to provide that where the property held under a trust or institution referred to in sub-clause (v), includes any temple, mosque, gurdwara, church or other place notified under clause (b) of sub-section (2) of section 80G of the Act, any sum received by such trust or institution as a voluntary contribution for the purpose of renovation or repair of such temple, mosque, gurdwara, church or other place, may be treated by such trust or institution, at its option, as forming part of corpus of the trust or institution, subject to the condition that the trust or institution,

(a) applies such corpus only for the specific purpose for which the voluntary donation was made;

(b) does not apply such corpus for making contribution or donation to any person;

(c) maintains such corpus as separately identifiable; and

(d) invests or deposits such corpus in the forms and modes specified under sub- section (5) of section 11.

4. It is also proposed to insert Explanation 1B in the third proviso to clause (23C) of section 10 of the Act providing that for the purposes of Explanation 1A, where any trust or institution referred to in sub-clause (v) has treated any sum received by it as forming part of the corpus and subsequently any of the conditions specified in clause (a), (b), (c) or clause (d) thereof are violated, such sum shall be deemed to be the income of such trust or institution of the previous year during which the violation takes place.

These amendments will take effect retrospectively from 1-4-2021 and will accordingly apply in relation to the assessment year 2021-22 and subsequent years.

AUTHOR’S COMMENTS

It should be noted that the proposed amendments are meant to do away with the necessity of having a specific direction from the donor for the purpose of proving a voluntary contribution as a corpus donation and this relaxation is only for Notified places of worship.  Other trusts or institutions will have to produce evidence in the form of specific direction from a donor in respect of voluntary contributions which they claim as corpus. 

It should further be noted that the above relaxation is subject to certain prescribed conditions.  Trusts or Institutions are allowed to accumulate their unspent sums and corpus donations, on fulfilment of prescribed conditions.  Such conditions are not uniform in all cases.  For example, a Notified place of worship may have two types of corpus donations: (1) in respect of which it has in its possession specific direction from the donor to this effect; and (2) in respect of which it has exercised the option granted by the proposed amendment.   The conditions contained in clauses (a) to (d) stated hereinabove will not apply to the first category of corpus donations which is simply required to be invested separately in the forms and modes, as specified. It may result into an anomalous situation.