2005 (2) TMI 84 - HC - Income Tax

Donations received by trust - Assessing Officer treating the donations received as income under section 68 - assessee s submission is that once a donation is received, it will be deemed to be received for a charitable purpose unless the donation was received towards the corpus of the trust held that assessee had not only disclosed its donations, but had also submitted a list of donors. The fact that the complete list of donors was not filed or that the donors were not produced, does not necessarily lead to the inference that the assessee was trying to introduce unaccounted money by way of donation receipts There was, therefore, full disclosure of income by the assessee and also application of the donations for charitable purposes. It is not in dispute that the objects and activities of the assessee were charitable in nature - Held that Section 68 has no application

Summary

Issues:
1. Treatment of donations received by a charitable trust under section 68 of the Income-tax Act, 1961.
2. Application of donations for charitable purposes to claim exemption under section 11 of the Act.
3. Disclosure of donors and voluntary nature of donations to avail exemption under section 11.
4. Interpretation of provisions related to charitable trusts and their income under the Act.

Analysis:
1. The primary issue in this case was the treatment of donations received by a charitable trust under section 68 of the Income-tax Act, 1961. The Assessing Officer had treated the donations as cash credit, denying the benefit of section 11 of the Act to the assessee. However, the Commissioner of Income-tax (Appeals) held that the donations were not to be treated as income under section 68, as the assessee had disclosed the donations and spent a significant portion for charitable purposes.

2. The second issue involved the application of donations for charitable purposes to claim exemption under section 11 of the Act. The Income-tax Appellate Tribunal noted that more than 75% of the donations received were spent on charitable activities. This led to the conclusion that the addition of the donation amount as income was not correct, as the trust had applied a substantial portion of the donations for charitable purposes.

3. Another crucial aspect was the disclosure of donors and the voluntary nature of donations to avail exemption under section 11. The court emphasized that the assessee had disclosed the donations and submitted a list of donors, even though the complete list was not filed. The court held that the failure to provide a complete list of donors did not imply an attempt to introduce unaccounted money, especially when a significant portion of the donations was used for charitable activities.

4. Lastly, the interpretation of provisions related to charitable trusts and their income under the Act was discussed. The court highlighted that section 68 of the Act did not apply in this case, as the donations were disclosed as income by the assessee. Moreover, since the trust was registered under section 12A of the Act and engaged in charitable activities, there was full disclosure of income and application of donations for charitable purposes, leading to the dismissal of the appeal.

In conclusion, the court found no merit in the appeal, stating that no substantial question of law arose, and therefore, the appeal was dismissed.