2015 (8) TMI 881 - AT - Income Tax

Tribunal rules on anonymous donations for charitable purposes, dismissing appeals

The Tribunal dismissed both the revenue's and the assessee's appeals. The revenue's appeal was rejected as the CIT(A) correctly included the anonymous ... Application of Section 11 exemption for charitable trusts - Anonymous donations and Section 68 unexplained cash credits - Mandatory 85% application of income for charitable purposes - Registration under Section 12A and entitlement to exemption - Inapplicability of Section 115BBC prior to 1.4.2007Anonymous donations and Section 68 unexplained cash credits - Application of Section 11 exemption for charitable trusts - Mandatory 85% application of income for charitable purposes - Whether donations of Rs. 75 lakh, though added to income under Section 68, could be treated as part of total income for the purpose of computing application of income under Section 11 so as to claim exemption where application exceeded 85%. - HELD THAT: - The Tribunal recorded that the Assessing Officer had added the donations under Section 68 and the CIT(A) upheld that addition on the ground that genuineness and creditworthiness of donors could not be established (para 7). However, on the alternative ground the CIT(A) directed that the added amount be treated as part of total income for computing the mandatory application under Section 11 because the assessee, a trust registered under Section 12A, had applied more than 85% of its income (including the impugned amount) to charitable purposes (para 8). The Tribunal followed the judgment of the Delhi High Court in DIT(Exemption) v. Keshav Social and Charitable Foundation, holding that disclosure of donations and application of funds for charitable purposes can disentitle invoking Sections 68-69C to deny Section 11 benefit; anonymity of donors does not automatically lead to inference of unaccounted money where there is registration under Section 12A and substantial application to charitable objects (paras 9-11). Applying that ratio, and noting that Section 115BBC was not in force for the year in question, the Tribunal found no reason to interfere with CIT(A)'s direction to consider the donations as part of total income for computation of application under Section 11. [Paras 7, 8, 11]Donations added under Section 68 were nonetheless to be treated as part of total income for the purpose of computing application under Section 11 where the trust, registered under Section 12A, had applied more than 85% of its income to charitable purposes; revenue's challenge dismissed.Inapplicability of Section 115BBC prior to 1.4.2007 - Whether Section 115BBC (as amended) applied to the assessment year under consideration. - HELD THAT: - The CIT(A) and the Tribunal noted that the statutory provision now embodied in Section 115BBC came into effect from 1.4.2007 and therefore has no application to AY 2003-04 (para 8.5 (7.5) as recorded by CIT(A) and affirmed by the Tribunal). Consequently, the altered treatment introduced by Section 115BBC could not be invoked by the revenue in respect of the year under appeal. [Paras 8]Section 115BBC is not applicable to AY 2003-04; the revenue's contention based on that provision fails.Final Conclusion: The Tribunal dismissed the revenue's appeal and, as a consequence, the assessee's appeal was rendered academic and also dismissed; the impugned donations, though added under Section 68, were to be included in total income for computing application under Section 11 where the trust (registered under Section 12A) had applied more than 85% of its income, and Section 115BBC did not apply to AY 2003-04. Issues Involved:1. Application of Section 68 of the Income Tax Act to anonymous donations.2. Consideration of corpus donations as part of total income for application towards charitable objects.3. Applicability of Section 115BBC to the assessment year in question.4. Reopening of assessment and its legal objections.Detailed Analysis:1. Application of Section 68 of the Income Tax Act to Anonymous Donations:The primary issue revolves around whether the provisions of Section 68 of the Income Tax Act can be applied to anonymous donations amounting to Rs. 75 lakhs received by the assessee. The Assessing Officer (AO) added this amount to the income of the assessee, citing that the creditworthiness of the donors could not be established due to the absence of profit and loss accounts, balance sheets, and income tax return acknowledgments of the donors. The CIT(A) upheld this addition, stating that the assessee failed to produce the donors or their directors, thus failing to establish the genuineness of the donations. The Tribunal noted that the assessee had disclosed the donations and provided names, confirmations, PAN numbers, and addresses of the donors, but the AO and CIT(A) still concluded that the creditworthiness was not established.2. Consideration of Corpus Donations as Part of Total Income for Application Towards Charitable Objects:The CIT(A) directed that the impugned addition of Rs. 75 lakhs should be considered as part of the total income for application towards charitable objects, as required under Section 11 of the Act. The Tribunal observed that the assessee applied more than 85% of its income, including the impugned donations, towards charitable purposes, thus justifying the application of the income. The Tribunal upheld the CIT(A)'s decision, referencing the Delhi High Court's rulings in cases such as DIT(Exemption) vs Keshav Social and Charitable Foundation, which stated that anonymous donations disclosed as part of income should not lead to the inference of unaccounted money.3. Applicability of Section 115BBC to the Assessment Year in Question:The Tribunal acknowledged that Section 115BBC, which deals with the taxation of anonymous donations, is applicable from 1.4.2007 and does not apply to the assessment year 2003-04 under consideration. This was accepted by both the Departmental Representative (DR) and the assessee's counsel.4. Reopening of Assessment and Its Legal Objections:The assessee's counsel submitted that if the departmental appeal is decided in favor of the assessee, the legal objections towards the reopening of the assessment would become academic. Since the Tribunal dismissed the departmental appeal, the issues raised by the assessee regarding the reopening of the assessment were considered academic and were dismissed without further deliberation.Conclusion:The Tribunal dismissed both the revenue's appeal and the assessee's appeal. The revenue's grounds were dismissed on the basis that the CIT(A) correctly applied the law and judicial precedents in considering the donations as part of the total income for charitable purposes. The assessee's appeal was dismissed as academic following the dismissal of the revenue's appeal. The order was pronounced in the open court on 14.8.2015.