The Income Tax Appellate Tribunal, Mumbai Bench, in Ms. Rana Ayyub Shaikh v. Deputy Commissioner of Income-tax (ITA Nos. 2281, 2282 & 2283/Mum/2023), examined the taxability of amounts received through crowdfunding platforms and the validity of assessment proceedings initiated under Section 175 of the Income-tax Act, 1961.

The assessee, a journalist, had raised funds through three crowdfunding campaigns on an online platform for stated purposes including COVID-19 relief. The Assessing Officer, based on an investigation report, found that substantial sums were received in the personal bank accounts of the assessee and her family members, including amounts in foreign currency, without maintenance of separate accounts or identifiable trust obligations. A portion of the funds was diverted to fixed deposits and personal expenditure, while a significant amount remained unutilised long after the campaigns concluded.

Invoking Section 175 read with Section 174, the Assessing Officer assessed the income for the relevant period on the ground that the assessee was likely to part with assets to avoid tax liability. On merits, the Assessing Officer treated the donations as taxable income under Section 56(2)(x), being sums of money received without consideration exceeding the statutory threshold. The CIT(A) upheld both the invocation of Section 175 and the addition under Section 56(2)(x).

Before the Tribunal, the assessee challenged the validity of proceedings under Section 175 and contended that donations received for charitable purposes could not be taxed as income. Reliance was placed on decisions including CIT v. Bijli Cotton Mills (P) Ltd. (116 ITR 60) and CIT v. Tollygunge Club Ltd. (107 ITR 776), to argue that such receipts were impressed with a trust obligation.

The Tribunal rejected the additional ground challenging Section 175, holding that the statutory conditions were satisfied in view of the manner in which funds were received, transferred, and utilised, and that the assessment was confined to the permissible period. On merits, the Tribunal held that where donations are received in personal accounts, mixed with personal funds, and not maintained in separate trust accounts with demonstrable obligation, they lose the character of capital or trust receipts and become taxable as income from other sources under Section 56(2)(x).

The Tribunal distinguished the Supreme Court decisions relied upon by the assessee on the ground that, in those cases, the receipts were maintained in separate accounts and were impressed with an overriding obligation of trust prior to accrual. In contrast, the assessee had utilised and parked the funds in personal accounts, made personal investments, and failed to substantiate exclusive charitable application. The Tribunal also noted the implications of the Foreign Contribution (Regulation) Act, 2010, in respect of foreign donations received by a journalist.

Accordingly, the Tribunal upheld the orders of the lower authorities, confirmed the taxability of the donations under Section 56(2)(x), sustained the invocation of Section 175, and dismissed the appeals.

Source- https://itat.gov.in/public/files/upload/1746182221-Qqt3cE-1-TO.pdf

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