Corpus donation by trust

The taxability of "corpus donations" (voluntary contributions made with a specific direction that they form part of the corpus) received by a trust not registered under Section 12AA/12AB is a subject of ongoing legal debate with conflicting judicial views.

The Conflict

There are two primary schools of thought regarding this:

• The "Capital Receipt" View (Favorable to the Trust):

  Many Tribunals (such as those in Delhi, Agra, Mumbai, and Hyderabad) have held that a corpus donation is inherently a capital receipt. Under this view, since it is a capital receipt and not "income" in the general commercial sense, it should not be taxable, regardless of whether the trust is registered under Section 12AA/12AB. These benches often argue that Section 11(1)(d), which specifically exempts corpus donations, is merely "clarificatory," and such donations would be outside the purview of the Income Tax Act even in the absence of that section.

• The "Taxable Income" View (Unfavorable to the Trust):

  Conversely, some benches (including recent decisions from the Chennai ITAT) have taken the view that for a trust to claim any exemption on its receipts, registration under Section 12AA/12AB is a mandatory prerequisite. From this perspective, in the absence of such registration, the "voluntary contribution" falls under the definition of income in Section 2(24)(iia) and is therefore includible in the total income of the trust and subject to tax.

Practical Implications

• Assessment Status: If a trust is not registered under Section 12AA/12AB, it is typically treated as an Association of Persons (AOP) for tax purposes.

• Litigation Risk: Because of the conflicting judicial rulings, there is a high risk of litigation if an unregistered trust receives large corpus donations and does not offer them for tax. The Assessing Officer (AO) is likely to treat them as taxable income, forcing the trust to appeal to higher judicial forums (ITAT/High Court) based on the favorable rulings mentioned above.

• Need for Documentation: Regardless of the tax treatment, the trust must maintain rigorous documentation (written evidence from donors specifying the "corpus" direction) to support its claim that the receipt is a capital contribution rather than an anonymous or voluntary revenue donation.

Summary: Whether corpus donations are taxable for an unregistered trust is a highly litigious issue. While many court rulings favor the position that such donations are capital receipts and therefore not taxable, other rulings support the view that without 12AA/12AB registration, all such receipts are taxable as income. You should consult with a professional tax advisor to evaluate the specific facts and the current jurisdictional stance of the courts in your area before filing.