Voluntary Contribution with a specific direction that they shall form part of the Corpus of the Trust or Institution:
Such voluntary contributions received by the trust are fully exempt under section 11(1)(d) and the condition that at least 85% of the income should be applied during the previous year in which it is earned is not applicable in this case.
Restriction on exemption in case of corpus donation by exempt entities to other exempt entities registered under section 12AA [Explanation 2 to section 11 inserted] [W.e.f. A.Y. 2018-19]
As per the existing provisions of the Act, donations made by a trust to any other trust or institution registered under section 12AA, except those made out of accumulated income, is considered as application of income for the purposes of its objects.
However, donation given by these exempt entitles to another exempt entity registered under section 12AA, with specific direction that it shall form part of corpus, is though considered application of income in the hands of donor trust but is not considered as income of the recipient trust as per section 11(1)(d). Trusts, thus, engage in giving corpus donations without actual applications.
Therefore, the Act has inserted the following Explanation 2 under section 11:
“Explanation 2.—Any amount credited or paid, out of income referred to in clause (1) or clause (2) read with Explanation 1, to any other trust or institution registered under section 12AA, being contribution with a specific direction that they shall form part of the corpus of the trust or institution, shall not be treated as application of income for charitable or religious purposes.”
Voluntary Contributions not being contributions made with a specific direction that they shall form part of the Corpus of the Trust / Institution:
Such contributions are covered under section 12 and shall be deemed to be income derived from property held under trust wholly for charitable or religious purposes. Exemption of such contribution shall be allowed in the same manner as is allowed for income derived from property held under trust in section 11 and all the conditions including 85% of income to be applied in the same previous year as given above are applicable in this case.
Whether tied up Grants are income in case of Trust :
The grants which are received for specific purposes did not belong to the assessee society; such grants did not form corpus of the assessee or its income. Those grants were not donations to the assessee so as to bring them under the purview of section 12.
Voluntary contribution covered by section 12 are those contribution which are freely available to the assessee without any stipulation, which the assessee can utilise towards its objectives according to its own discretion and judgement. Tied up grants for specified purpose would only mean that the assessee which was a voluntary organisation had agreed to act as a trustee of a special fund granted by the donor with the result that it need not be pooled or integrated with the assessee normal income or corpus. Hence, even when the assessee had been assessed as AOP and deprived of section 11 benefits, the Assessing Officer could assess only net income of the assessee and not gross receipts. The assessee should have actually credited the grant in the personal account of the donor and any asset spent against the grant should have been debited to that separate account of the donor. That incoming and outgoing need not be reflected in the income and expenditure account of the assessee. At the end of the project, the balance, if any, available to the credit of the donor, could be treated as income of the assessee, if the donor did not insist for the repayment of the balance amount.
