Substance-over-form donation treatment under section 15B extends to construction costs for charitable institutions despite limited employee bed reservations.

Section 15B was construed on a substance-over-form basis: expenditure incurred by an assessee to construct school and hospital buildings for a charitable institution, later handed over to that institution or the State, could qualify as a donation in substance even though no cash was paid directly. The same approach applied where the institution came into existence only on completion of the buildings, because the expenditure was earmarked for charitable use and benefited the public. A limited reservation of beds for employees did not alter the dominant charitable character or make the arrangement commercial.

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Issues: Whether expenditure incurred by the assessee on constructing school and hospital buildings, instead of making cash payments, qualified as "sums paid" by way of donation under section 15B of the Indian Income-tax Act, 1922; and whether the existence of reservations of a few beds for employees took the donations outside the scope of the charitable exemption.

Analysis: The exemption under section 15B depends on the substance of the transaction and not merely its form. Where the assessee, with governmental supervision and for a charitable institution, incurs the cost of construction of a school or hospital building and the completed building is handed over to the institution or State, the amount spent is, in substance, a donation of money for charitable purposes. The same principle applies even if the institution comes into existence upon completion of the building, because the donation is earmarked for a charitable institution and the benefit accrues to the public at large. A limited reservation of beds for employees does not convert the transaction into a commercial or quid pro quo payment when the dominant object remains charitable.

Conclusion: The assessee's expenditure on the school and hospital buildings constituted eligible donations within section 15B, and the reservation of a few beds did not defeat the exemption.

Final Conclusion: The reference was answered by holding that the assessee was entitled to rebate on all the disputed donations, and the interpretation of section 15B was applied in a liberal, substance-based manner in favour of charitable relief.

Ratio Decidendi: For purposes of section 15B, a donation is not confined to cash paid directly to the donee; expenditure incurred in substance as a monetary contribution for a charitable institution qualifies, even if the donor arranges construction or supplies goods, provided the dominant character of the payment remains charitable.

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