2018 (6) TMI 968 - HC - Income Tax

Accrual of income - Unspent amount of donations - assessment year selection - Assessee showing part of the donations under the head current liabilities - Whether donations received by the Assessee, Akshaya Patra Foundation in the mid of the Financial Year with the stipulation from the donors that part of the said money may be utilized for the specified charitable purpose in the next financial year can be treated as the income for year of receipt of the donation or not? - Held that - Tribunal in his order supported CIT(A) view regarding the issue where it is said that when the assessee is complying with the specific condition of utilizing the amount of donation for a particular purpose and for a particular period of time, then it cannot be given a different treatment which is contrary to the conditions of donation. The treatment of the assessee only a portion of the donation which has to be spent and used for a particular period and for a specified purpose as income of the year under consideration is proper and as per the conservative accounting policy. The donation which pertains and to be used and spent during the next F.Y. cannot be treated as the income of the year under consideration when there is a specific condition as desired by the donor. No substantial question of law arises in these present appeals filed by the Revenue and the findings and reasons assigned by the two Appellate Authorities below in this regard are justified and in accordance with the consistent accounting practice followed by the assessee - thus appeal is dismissed.

Summary

Issues:
1. Whether donations received with a stipulation for future use can be treated as income in the year of receipt?
2. Whether unspent donations designated for a specific charitable purpose in the next financial year can be considered as current liabilities?

Analysis:
1. The main issue in this case was whether donations received by the respondent-Assessee, with the condition that part of the money would be utilized for a specified charitable purpose in the next financial year, should be treated as income in the year of receipt. The Tribunal considered the fact that the donations were received with a stipulation for their use over a period of time extending into the succeeding year. The Tribunal held that only the portion of the donation pertaining to the year under consideration should be treated as income for that year, while the balance should be allocated to the next financial year. The Tribunal emphasized that when donations are received with specific conditions for utilization over a period of time, the income should be divided proportionately based on the stipulated use, following a conservative accounting policy. The Tribunal concluded that the treatment of the donations by the assessee was proper and consistent with the conditions of the donations, upholding the decision of the CIT (Appeals) and dismissing the appeals of the Revenue.

2. The second issue revolved around whether the unspent donations, earmarked for a specific charitable purpose in the next financial year, could be classified as current liabilities. The Appellate Authorities agreed that the unspent amount of donations, intended for utilization in the subsequent financial year, was correctly categorized as "current liabilities" in the books of accounts at the end of the financial year. Consequently, the unspent donations could not be considered as income of the charitable trust for the year under consideration. The High Court concurred with the findings of the Appellate Authorities, stating that there was no substantial question of law in the appeals filed by the Revenue. The Court upheld the decisions of the lower authorities, noting that the treatment of the donations as current liabilities was in line with the consistent accounting practice followed by the assessee.

In conclusion, the High Court dismissed the appeals filed by the Revenue, affirming the decisions of the lower authorities regarding the treatment of donations received with stipulations for future use and the classification of unspent donations as current liabilities.