2011 (2) TMI 53 - AT - Income Tax

Donations represent the income of the assessee - assessee has earned loss only and not received any donation - payment or donation to other charitable institutions cannot result in the same becoming income of the assessee - assessee was a trust duly registered under section 12AA and duly recognized under section 80G(5)(vi) - assessee s submissions that revenue authorities have totally erred in holding the donations given by the assessee Order set aside and decided issue in favor of assessee

Summary

Issues:
Interpretation of provisions of section 11(2) of the Income-tax Act regarding treatment of donations made by the assessee to charitable institutions as the assessee's income.

Analysis:
The appeal before the Appellate Tribunal ITAT Delhi involved a dispute regarding the treatment of donations made by the assessee to charitable institutions as the assessee's income for the assessment year 2007-08. The Assessing Officer contended that the donations of Rs. 1,36,000 were paid out of the assessee's accumulated income, not the current income, and thus should be considered as application of income for purposes other than charitable activities under section 11(2) of the IT Act. The assessee argued that the donations were fully for charitable purposes and not out of accumulated income, but the Assessing Officer disagreed, citing section 11(2) which mentions that payments out of accumulated funds would not be considered as application of income for charitable purposes.

The Ld. Commissioner of Income-tax (Appeals) upheld the Assessing Officer's decision, stating that the donations were indeed paid out of accumulated income and not the current year's income, as per the provisions of section 11(2). The assessee's contention that the Explanation to section 11(2 applied only to 85% and not 15% was rejected, as the Explanation does not differentiate between the percentages but focuses on amounts accumulated or set apart. Consequently, the appeal filed by the assessee was dismissed.

Upon considering the provisions of section 11(1)(a) and 11(2) of the Income-tax Act, the Appellate Tribunal found merit in the assessee's arguments. It noted that the assessee had earned a loss during the assessment year and had paid donations from its earlier accumulated income to charitable institutions permissible under the law. Referring to relevant case law, the Tribunal emphasized that donations made by a trust for charitable purposes should not be treated as income of the trust, especially when the donations were made out of accumulated income and not surplus reserves. The Tribunal set aside the decisions of the lower authorities and ruled in favor of the assessee, allowing the appeal.

In conclusion, the Appellate Tribunal ITAT Delhi, following the precedent set by the jurisdictional High Court, held that the revenue authorities erred in treating the donations made by the assessee as income. The Tribunal found that the donations were made in accordance with the provisions of the Income-tax Act and did not represent the income of the assessee. Therefore, the appeal filed by the assessee was allowed, overturning the decisions of the lower authorities.