2018 (7) TMI 2336 - AT - Income Tax

Exemption u/s 11 - assessment of trust - whether the donations were anonymous or not in terms of section 115BBC? - HELD THAT - The provision of section 115 BBC provides that any income by way of anonymous donation shall be taxed in the manner provided in clause (i) and (ii) of sub section (I). Sub section (3) mainly provides the meaning of anonymous donation which has been defined as voluntary contribution, where the person receiving such contribution does not maintain any record of the identity indicating the name and address of the person making such contribution and such other particulars as maybe prescribed. Ostensibly in the present case the assessee has given the identity by giving the name and address of the corporate of the companies who have given the donations and not only that, their copy of the audited balance sheets, profit and loss account, income tax return, bank statement, etc., has been provided of all the 9 corporate entities and their return before the Registrar of the Companies. Hence the conditions which have been laid down in sub section 3 and onus which is cast upon the person receiving the donation has been fully discharged. The entire case of the AO is that the donation received by the assessee trust by these companies were in fact were operated by accommodation entry providers and they do not have much income and the bank statement revealed that the amounts even come in their bank account from various bank accounts which has been inferred by the AO that assessee must have routed its unaccounted money through various donors in order to get donation. Such observation perhaps would have been relevant if the same would have been scrutinised u/s 68. Here the provision clearly states only the anonymous donation should be taxed and if the donations have been come from known sources, then it cannot be treated as anonymous donations, therefore, the Ld. CIT(A) has rightly held that the donation received by the assessee cannot be taxed u/s 115BBC(I) . The other observation of the Ld. CIT (A) was that AO is justified for making such addition u/s 68, however still the assessee will get exemption u/s 11, because the same have been applied for charitable purpose. This finding has become purely academic which does not require any adjudication. Decided against revenue.

Summary

Issues:
1. Interpretation of provisions of section 115BBC regarding anonymous donations.
2. Assessment of donations received by the assessee trust from corporate entities.
3. Determination of tax liability under section 115BBC.
4. Consideration of exemption under section 11(1) for charitable purposes.

Issue 1: Interpretation of provisions of section 115BBC regarding anonymous donations

The appeal involved a dispute over the classification of donations received by the assessee trust as anonymous under section 115BBC of the Income Tax Act, 1961. The Assessing Officer (AO) contended that the donations were anonymous, while the assessee argued that all relevant details and documents of the donors were provided, thus not falling under the purview of anonymous donations. The Commissioner of Income Tax (Appeals) (CIT(A)) analyzed the provisions and held that the donations could not be considered anonymous as the assessee had furnished necessary information about the donors, including their identities, PAN numbers, financial statements, and other documents. The CIT(A) further opined that if the donations were applied for charitable purposes, the assessee could not be taxed under section 115BBC(1).

Issue 2: Assessment of donations received by the assessee trust from corporate entities

The AO conducted inquiries to verify the donations received by the assessee trust from various corporate entities. Despite the assessee submitting confirmations and financial documents, the AO could not locate the directors of these companies for verification. The AO alleged that the companies were front entities for accommodation entry operators and that the donations were routed through these companies. The AO concluded that the donations were anonymous and subject to taxation under section 115BBC. However, the CIT(A) disagreed, stating that the assessee had fulfilled its obligations by providing all necessary details, and the donations could not be deemed anonymous.

Issue 3: Determination of tax liability under section 115BBC

The AO applied section 115BBC to tax the alleged anonymous donations received by the assessee trust. The AO calculated the tax liability on the excess amount of donations over the prescribed limit, citing non-maintenance of necessary records by the assessee. In contrast, the CIT(A) overturned the AO's decision, emphasizing that the donations did not meet the criteria for anonymous donations as per the statutory definition. The CIT(A) allowed the exemption under section 11(1) for charitable purposes, thereby reducing the tax liability of the assessee.

Issue 4: Consideration of exemption under section 11(1) for charitable purposes

The CIT(A) acknowledged that while the AO was justified in invoking section 68 for unconfirmed donations, the assessee remained eligible for exemption under section 11(1) due to the application of the funds for charitable activities. The CIT(A) partially allowed the appeal, confirming the addition under section 68 but granting exemption under section 11(1). The Tribunal concurred with the CIT(A)'s decision, dismissing the revenue's appeal and upholding the exemption for charitable purposes.

In conclusion, the judgment addressed the interpretation of section 115BBC, the assessment of donations, determination of tax liability, and the consideration of exemption under section 11(1) for charitable purposes. The Tribunal upheld the CIT(A)'s decision, emphasizing that the donations were not anonymous as the assessee had provided necessary details, thereby dismissing the revenue's appeal and affirming the exemption for charitable activities.