2013 (9) TMI 965 - HC - Income Tax

Additions u/s 68 of the Income Tax Act Exemptions u/s 11 of the Income Tax Act Held that - Reliance has been placed upon the judgment in the case of Director of Income-Tax (Exemption) v. Keshav Social and Charitable Foundation 2005 (2) TMI 84 - DELHI High Court , wherein it was held that under Section 11 (1) every charitable or religious trust is entitled to deduction of certain income from its total income of the previous year. The income so exempt is the income which is applied by the charitable or religious trust to its charitable or religious purposes in India. This is, subject to accumulation up to a specified maximum which was 25 per cent. In the present case that the assessee had applied more than 75% of the donations for charitable purposes as per its objects - The Delhi High Court in the abovementioned case, further held that Section 68 of the Act has no application in such case where the assessee had disclosed donations as its income - If there is full disclosure of the donation for whatever purpose and that the registration under Section 12-A is continuing and valid, exemptions cannot be denied Decided against the Revenue.

Summary

Issues:
1. Disallowance of exemptions for donations received.
2. Compliance with provisions of Section 11 and 13 of the Income Tax Act.
3. Dismissal of appeal on interest and caution money disallowed by the AO.

Analysis:

1. The main issue in this case revolves around the disallowance of exemptions for donations received by the assessee. The AO disallowed exemptions for donations totaling Rs.96,50,000 received from various individuals. Some donors denied making donations, leading to doubts about the genuineness of the contributions. This raised concerns about the applicability of Sections 11 and 12 regarding tax exemptions for charitable donations.

2. Another crucial issue was whether the assessee society complied with the provisions of Section 11 and Section 13 of the Income Tax Act. The CIT (A) allowed exemptions under Sections 11 and 12 based on the continuation of registration under Section 12-A. Despite doubts about the genuineness of donations, the CIT (A) emphasized that as long as the trust's activities aligned with its objectives and the registration remained valid, exemptions should not be denied.

3. The appeal also questioned the dismissal of the revenue's appeal concerning interest and caution money disallowed by the AO without providing detailed findings. The Tribunal upheld the order, emphasizing that over 75% of the donations were used for charitable purposes. It was established that the assessee had fully disclosed its income, including donations, and that the objects and activities were indeed charitable in nature.

In conclusion, the High Court dismissed the Income Tax Appeal, citing precedents from the Supreme Court and Delhi High Court that supported the assessee's position regarding the utilization of donations for charitable purposes and the importance of full disclosure. The judgment highlighted the significance of maintaining valid registration under Section 12-A and complying with the objectives of the trust to secure tax exemptions under the Income Tax Act.