[Opinion] Corpus Donation – What is Meant by Specific Direction?

CA Naresh Kumar Kabra & Anshit Agarwal – [2023] 157 taxmann.com 510 (Article)

“Empower Tomorrow, Donate Today; Your Corpus, Your Legacy, Our Shared Future”

Let us first understand what the DONATION is? Is it any other Nation or something else?

In general parlance, a donation is something that is given in cash or kind to someone, for charitable purpose in order to achieve the true sense of social responsibility.

Here, we can see that it heavily relies on the word “Charitable Purpose”. Section 2(15) of the Income Tax Act, 1961 defines ‘Charitable Purpose’ which includes:

a. relief of poor,
b. education,
c. medical relief,
d. preservation of environment (including water sheds, forests and wild life),
e. preservation of monuments or places or objects of artistic or historic interests and
f. advancement of general public utility.

I. Defining Corpus Donation

Section 11(1)(d) of the Act prescribes the treatment of corpus, although it has not been defined under Income Tax Act, 1961. The word Corpus, is often used from the point of the donor expressing his intention to use the money in manner as per his wishes.

“Corpus Donation refers to the donation made with a SPECIFIC DIRECTION from donor to the donee with regard to object for which funds should be utilized”.

Author’s View

The written document with specific direction is necessary from the donor. It is an important factor to constitute ‘corpus donation’ and its exemption under the Income Tax Act, 1961.

A simple letter can suffice as a specific direction if it contains a clear and unambiguous statement.

For example, if ABC School receives a donation with a specific direction to purchase a bus, the said donation will be exempt under section 11(1)(d) of Income Tax Act, 1961.

Important Fact

The recipient organization has no right to treat a donation as corpus donation.

Can corpus donation be treated as a part of income under section 2(24)(iia)?

Under the prevailing provisions, corpus is treated as income under section 2(24)(iia) and subsequently exemptions are allowed under section 11(1)(d) of the Act. Section 11(1)(d) of the Act, provides for exemption of “corpus” donation received by a registered charitable institution. The said section has been amended by the Finance Act, 2021 with effect from 01st April 2022.

Treatment of corpus donations received by a Trust/Institution registered under section 12AA/12AB or 10(23C) (before amendment by Finance Act, 2021 i.e., upto A.Y. 2021-22):-

As per Section 11(1)(d), any voluntary contributions received by a Trust/Institution created wholly for charitable or religious purposes with a specified direction that they shall form part of the corpus of the Trust/Institution will be part of taxable income but enjoys exemption by virtue of section 11(1)(d).

Treatment of corpus donations received by a Trust/Institution registered under section 12AA/12AB or 10(23C) (after amendment by Finance Act, 2021 i.e., upto A.Y. 2022-23):-

After the introduction of amendment under section 11(1)(d) as well as third proviso to section 10(23C), corpus donation shall be exempt only if the amount is invested or deposited in the specified modes as per Section 11(5) of the Income Tax Act, 1961.

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