Cess Received By Trust From Milk Societies, Against Sales Made , Not Voluntary; Can't Be " Corpus Donation": ITAT

The Bench of Siddhartha Nautiyal (Judicial Member) and Annapurna Gupta (Accountant Member) observed that the assessee trust- Dudhsagar Research & Development Association, passed a suo moto resolution to collect donations in the form of Cess from the milk societies, which depended on the quantity of milk fat supplied by them. Holding that the donors had no discretion in computing the quantum of Cess, the Tribunal ruled that merely producing a receipt which states that a certain amount was paid towards the corpus fund of the trust, cannot qualify the contribution as a "Corpus Donation".

The assessee trust- Dudhsagar Research & Development Association, received corpus donation from milk supplying societies, which was claimed by the assessee as a deduction under Section 11(1)(d) of the Income Tax Act, 1961.

Section 11(1)(d) of the Income Tax Act provides that income in the form of voluntary contributions, made with a specific direction that they form part of the corpus of the trust or institution, shall not be included in the total income of the assessee trust.

The Assessing Officer observed that as per the rules and regulations of the assessee trust, the assessee could collect Cess from its members/ milk supplying societies. The AO noted that the milk supplying societies sold milk to the District Cooperative Milk Producers Union (Union) and paid a certain amount in the nature of a Cess, which was in turn paid by the Union to the assessee Trust. Further, the amount of Cess was determined from the quantity of milk fat supplied by the milk supplying societies to the Union. Hence, the AO ruled that since the amount of Cess paid by the milk supplying societies was linked to the quantity of milk fat supplied by them, they had no choice or option to alter the amount of Cess they were required to pay.

Thus, the AO opined that the contributions made to the assessee trust was not a voluntary contribution but was compulsorily collected from the milk supplying societies and therefore, it could not be treated as corpus donation. Ruling that there was no voluntary and conscious expression of intention by the milk supplying societies that such payments could be treated as corpus donation, the AO disallowed assessee's claim for exemption under Section 11(1)(d).

Against this, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) (CIT(A)). The CIT(A) held that the corpus income received by the assessee was in the nature of "fees" collected from the milk supplying societies, on the basis of which the appellant provided services to the said societies. Hence, ruling that the said 'donation' was made by the milk societies in lieu of certain services provided by the assessee trust, the CIT(A) held that the contribution made by the milk societies could not be said to be voluntary. Hence, the CIT(A) confirmed the additions made by the AO.

The assessee filed an appeal before the ITAT against the order of the CIT(A).

The ITAT perused the resolution passed by the assessee trust, resolving to collect funds from the Milk Producer Societies at the specified rate. The ITAT ruled that the contributions made by the milk societies was not voluntary in nature and that the assessee had suo moto passed a resolution to collect donations from the milk producers.

"Apparently, the Milk producers do not any choice or say in the matter whatsoever. Merely producing a receipt which states that the amount has been paid towards the corpus fund of the appellant cannot lead us to accept that the contribution qualifies as a "Corpus donation" when notably these receipts do not even state the specific purpose that they are being given for. Moreover, as noted above, the donations are clearly not "voluntary" ", the ITAT said.

The Tribunal referred to the decision of the Madhya Pradesh High Court in CIT versus Madhya Pradesh Anaj Tilhan Vyapari (1987), where the High Court had ruled that for a contribution to be considered voluntary in nature, it must be made willingly and without compulsion, and that it should be given gratuitously without consideration.

Holding that the assessee was not eligible for deduction under Section 11(1)(d) of the Income Tax Act, the ITAT upheld the additions made by the AO and dismissed the appeal.

Case Title: Dudhsagar Research & Development Association versus ACIT(Exemption)

Dated: 11.10.2022 (ITAT Ahmedabad)

Representative for the Assessee/Appellant: Bandish Soparkar, A.R. and Parin Shah, A.R.

Representative for the Revenue Department/ Respondent: James Kurian, CIT DR

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