1979 (4) TMI 45 - AT - Income Tax

Summary

Issues:
1. Whether the donation received from a charitable trust is assessable income or a capital receipt.
2. Whether a loan given to a connected party without adequate security violates the provisions of s. 13(2)(a) of the IT Act.

Analysis:

Issue 1:
The first ground of appeal concerns the treatment of a donation of Rs. 25,000 received from a charitable trust. The AAC held that the donation was not assessable income but a capital receipt, as it was specifically meant for the corpus of the trust and not for day-to-day expenses. The Departmental representative argued that the provisions before the amendment did not exclude such contributions from income. However, the assessee contended that even before the amendment, such donations were not considered income, citing the decision of the Allahabad High Court. The Tribunal, after considering the facts and the legal position, upheld the AAC's decision based on the Allahabad High Court's ruling, which was further supported by the Supreme Court's rejection of an application for Special Leave.

Issue 2:
The second ground of appeal pertains to a loan of Rs. 25,000 given to a connected party without adequate security, potentially violating s. 13(2)(a) of the IT Act. The ITO found that the loan was given without sufficient security, leading to a violation of the provisions. However, the AAC determined that there was adequate security for the loan, including a guarantee from a director of the borrowing company and a mortgage of jewelry. The Department contested the admission of additional evidence by the AAC and argued that the provisions of s. 13(2)(a) were not applicable as the loan was given before the relevant date. The Tribunal agreed with the AAC, holding that the amended provisions of s. 13 were not applicable to a loan given in July 1970, thus upholding the AAC's decision on different grounds and dismissing the appeal.

In conclusion, the Tribunal upheld the AAC's decision in both issues, ruling in favor of the assessee regarding the treatment of the donation as a capital receipt and finding that the loan to a connected party did not violate the provisions of s. 13(2)(a) due to the presence of adequate security.