1979 (1) TMI 79 - HC - Income Tax

Summary

Issues:
- Interpretation of Section 88 of the Income-tax Act, 1961 regarding donations in kind.
- Allowance of donations in the shape of medicines to the National Defence Fund as deductions under Section 88.
- Application of circular F.No. 69/8/63-IT dated 21st January, 1963 by the AAC.
- Withdrawal of the circular by the Central Board of Revenue for the assessment year 1964-65.
- Disagreement between the revenue and the assessee on the interpretation of Section 88.
- Reference to previous judgments by the Bombay, Madras, and Andhra Pradesh High Courts.
- Application of the principle of substance over form in determining the nature of donations.
- Upholding the allowance of donations as deductions by the Tribunal based on previous court decisions.

Analysis:
The High Court of Bombay considered a reference under Section 256(1) of the Income-tax Act, 1961, regarding the allowance of donations in the form of medicines to the National Defence Fund as deductions under Section 88. The assessee, a private limited company engaged in pharmaceutical goods manufacturing, claimed a rebate for the donated medicines' value. The Income Tax Officer (ITO) initially disallowed the claim without mentioning it in the order. However, the Appellate Assistant Commissioner (AAC) referred to a circular allowing donations in kind to be treated as cash donations under certain conditions.

The revenue, dissatisfied with the AAC's decision, appealed to the Income-tax Appellate Tribunal, arguing that the circular had been withdrawn for the relevant assessment year and that Section 88 strictly exempted only cash donations. The Tribunal, following previous court decisions, including a Bombay High Court case, upheld the allowance of the donations as deductions. The court emphasized the importance of looking at the substance of the transaction rather than the form, as highlighted in various judgments from different High Courts.

The court referenced judgments from the Madras and Andhra Pradesh High Courts, reinforcing the principle of substance over form in determining the nature of donations for tax purposes. It also noted that previous decisions by the Bombay High Court had been followed by other High Courts, indicating a consistent approach in interpreting Section 88. Ultimately, the court answered the reference question in favor of the assessee, affirming the allowance of the donations as deductions. The parties were directed to bear their own costs for the reference.