2001 (6) TMI 195 - AT - Income Tax

Deduction u/s 80G - donation receipts - whether the donation paid by cheques dated 31-3-1992, even though realised on 11-4-1992 can still be treated as donation made during the accounting year ending 31-3-1992 relevant to the assessment year 1992-93 or the same would fall in the accounting year 1992-93 relevant to the assessment year 1993-94? - HELD THAT - Apex Court in Ogale Glass Works Ltd.'s case 1954 (4) TMI 3 - SUPREME COURT has held that when the cheque is not dishonoured but is encashed, the payment relates back to the date of the receipt of the cheque and in law the date of payment would be the date of the delivery of the cheque. We are unable to subscribe to the view of the learned departmental representative that the decision of the Gujarat High Court 1998 (11) TMI 90 - GUJARAT HIGH COURT deals with the payment of tax and cannot be applied for payment of donation. The assessee's contentions are also supported by the CBDT Circular No. 261 dated 8-8-1979. Thus we are inclined to hold that the cheques issued on 31-3-1992 are to be treated as donation made during the accounting year ending on 31-3-1992, relevant to the assessment year 1992-93, by applying the decisions of the Gujarat High Court, the Apex Court and the CBDT Circular. Whether for claiming deduction u/s 80G payment of donation should be out of thegross total income of the relevant accounting year only? - On a comparison of the provisions of section 80G with those of the then sections 80C, 80D, 80E and 80F, it emerges out that the donations eligible for deduction under section 80G, have not been riddled with the condition that the same must come out of the income chargeable to tax and that too of the previous year concerned. Even if the donations are made out of exempted income of the relevant previous year or out of chargeable income of earlier years or out of capital, the same may be eligible for deduction under section 80G on fulfilment of all the other conditions laid down in that regard. It may be that wider considerations of public benefit might have induced the Legislature to free the donations from such shackles. In this case on hand it has been shown by the assessee's learned counsel by adverting to the profit and loss account that the assessee has debited the donations paid by these cheques in the profit and loss account of the accounting year relevant to the assessment year 1992-93, which would mean that the donations have been made out of the current year's income only, even though it is not a pre-condition according to section 80G as observed above. Assessee appeal allowed.

Summary

Issues Involved:
1. Whether the donation paid by cheques dated 31-3-1992, realized on 11-4-1992, can be treated as a donation made during the accounting year ending 31-3-1992.
2. Whether for claiming deduction under section 80G, the payment of donation should be out of the gross total income of the relevant accounting year only.

Detailed Analysis:

Issue 1: Treatment of Donation by Cheques
The assessee issued cheques totaling Rs. 12 lakhs to trusts on 31-3-1992, which were realized on 11-4-1992. The Assessing Officer disallowed the deduction under section 80G due to the lack of verification of the mode of payment and realization date. The Commissioner (Appeals) upheld this decision, noting insufficient funds in the bank account on 31-3-1992 to clear the cheques.

The Tribunal considered the relevant legal provisions and precedents:
- Section 43(2) defines 'paid' as actually paid or incurred according to the method of accounting.
- Proviso to section 43B allows deductions if payments are realized within fifteen days from the due date.
- The Finance Bill, 1976, and CBDT Circular No. 261 dated 8-8-1979, which states that payment by cheque is deemed made on the date of delivery if the cheque is honored.

The Tribunal relied on the Gujarat High Court decision in Kangold (India) Ltd. v. CIT, which followed the Supreme Court ruling in CIT v. Ogale Glass Works, stating that payment by cheque is deemed made on the date of delivery, not encashment. Therefore, the Tribunal held that the cheques issued on 31-3-1992 should be treated as donations made during the accounting year ending 31-3-1992.

Issue 2: Gross Total Income Requirement
The Tribunal examined whether the payment of donations must come from the gross total income of the relevant accounting year for deduction under section 80G. It noted that section 80G does not explicitly state that donations must come from income chargeable to tax for the relevant year, unlike sections 80C, 80D, 80E, and 80F, which specify this condition.

The Tribunal referred to a CBDT circular (F.No. 45/313/66 ITJ(61) dated 2-12-1966) clarifying that donations need not come from taxable income to qualify for deduction under section 80G. The Tribunal emphasized that the circulars issued by the CBDT are binding on executive authorities, as held by the Supreme Court in CWT v. Vasudeo V. Dempo.

The Tribunal also noted that the assessee had debited the donations in the profit and loss account for the accounting year relevant to the assessment year 1992-93, indicating that the donations were made out of the current year's income.

Conclusion:
The Tribunal decided both issues in favor of the assessee. It directed the Assessing Officer to allow the claim of the assessee for the donations of Rs. 12 lakhs in the assessment year 1992-93. The appeal filed by the assessee was allowed.