2023 (2) TMI 192 - AT - Income Tax

Deduction u/s 80G - Trust, is registered u/s.12AA of the Act u/s.80G - assessee has paid donation partly through bank for the relevant assessment year and partly converted loans given to Trust in earlier financial year as donations for the impugned assessment years - AO treated donations converted out of loans given in earlier financial years as donations in kind and denied deduction - HELD THAT - We ourselves do not subscribe to the reasons given by the AO to treat donations given out of conversion of loan given in earlier financial years as donations in kind to deny the benefit of deduction u/s.80G of the Act, for simple reason that donations paid in cash and donations paid in kind are entirely different. Donations paid in kind is something which is paid in the form of some goods and articles, whereas, donations paid in cash means any payment by cash or by cheque or by any electronic mode of transfer of funds. In this case, there is no dispute with regard to the fact that the assessee had given loans to Trust in earlier financial years through proper banking channel and further, said loans have been converted into donations during the impugned assessment years. Therefore,donations paid by the assessee by conversion of loans into donations comes under the nature of donations paid in cash and thus, the assessee is entitled for deduction u/s.80G of the Act. This view is fortified by the decision of the ITAT Allahabad Bench in the case of M/s.General Capital and Holding Co. Pvt. Ltd 2018 (2) TMI 1091 - ITAT AHMEDABAD where the Tribunal after considering relevant facts held that conversion of loans given in earlier financial years into donations are eligible for the benefit of deduction u/s.80G. In this view of the matter and considering the facts and circumstances of the cases, we are of the considered view that the assessee is entitled for deduction u/s.80G of the Act, towards donations paid to Trust, including amount paid during the previous year and also amount paid out of loans given in earlier financial years. Therefore, we direct the AO to allow deduction u/s.80G of the Act, as claimed by the assessee for all assessment years.

Summary

Issues:
- Disallowance of deduction u/s.80G of the Act for donations considered out of loans given in earlier financial years.
- Interpretation of Sec.80G of the Act regarding eligibility of donations paid in kind for deduction.
- Application of substance over form principle in determining eligibility for deduction u/s.80G of the Act.

Issue 1: Disallowance of deduction u/s.80G of the Act for donations considered out of loans given in earlier financial years:
- The assessee, a steel castings manufacturer, claimed deduction u/s.80G for donations paid to M/s. Sri Ranganathar Trust, partly through bank and partly from converted loans in AYs 2014-15, 2015-16 & 2017-18.
- AO disallowed the deduction on the converted loan amount, treating it as donation in kind, not eligible u/s.80G.
- Ld.CIT(A) upheld the disallowance citing the Gujarat High Court's decision that donations in kind are not eligible for deduction u/s.80G.
- Assessee argued substance over form principle, citing ITAT Allahabad decision, emphasizing the proper banking channel use and Trust's registration.
- Tribunal held that donations converted from loans are akin to cash donations, eligible for u/s.80G deduction, disagreeing with AO and Ld.CIT(A).
- Tribunal emphasized that the nature of donations paid in cash and in kind differ, supporting the assessee's claim for deduction.

Issue 2: Interpretation of Sec.80G of the Act regarding eligibility of donations paid in kind for deduction:
- AO and Ld.CIT(A) relied on the Gujarat High Court's ruling that donations in kind are not deductible u/s.80G.
- Assessee argued that the Trust's registration, proper banking channel use, and conversion of loans into donations support eligibility for deduction.
- Tribunal distinguished between donations in cash and in kind, asserting that converted loans qualify as cash donations, aligning with Sec.80G provisions.
- Tribunal referenced ITAT Allahabad's decision, emphasizing the importance of actual payment in the relevant previous year for deduction eligibility.

Issue 3: Application of substance over form principle in determining eligibility for deduction u/s.80G of the Act:
- Assessee contended that substance over form should be considered in determining eligibility for deduction, emphasizing the Trust's registration and proper banking channel use.
- Tribunal agreed with the assessee, asserting that converted loans into donations should be treated as cash donations, supporting deduction u/s.80G.
- Tribunal criticized AO and Ld.CIT(A) for misinterpreting the Hon'ble Courts' rulings, holding that the assessee's donations qualify for deduction as per Sec.80G provisions.
- Tribunal directed the AO to allow the deduction claimed by the assessee for all assessment years, ruling in favor of the assessee based on the nature of the donations and compliance with statutory requirements.