1973 (3) TMI 46 - HC - Income Tax

Interpretation of Income-tax Act: Cash Donations Qualify for Rebate

The High Court of Andhra Pradesh interpreted Section 88 of the Income-tax Act, 1961, regarding eligibility for rebate based on donations. The Court ruled ... Charitable Purpose, The Contract, Total Income Issues:Interpretation of Section 88 of the Income-tax Act, 1961 regarding eligibility for rebate based on donations made in cash or kind.Analysis:The judgment of the High Court of Andhra Pradesh involved a case where the assessee had donated funds for constructing a school building to the Zilla Parishad. The assessee claimed exemption from tax under section 88 of the Income-tax Act, 1961, for the donated amount. The Income-tax Officer and the Appellate Assistant Commissioner rejected the claim, stating that the donation was not made in cash as required by section 88.Upon appeal to the Tribunal, it was held that the donation was indeed made in cash and that donations in kind were not precluded for rebate under section 88. The Tribunal granted the rebate to the assessee. However, the Commissioner challenged this decision, leading to the High Court's interpretation of the relevant provisions.The High Court analyzed the language of section 88, emphasizing that the term 'sums paid' referred specifically to payments made in cash. The Court cited a Bombay High Court decision to highlight that donations in kind did not qualify for rebate under section 88. The Court disagreed with the Tribunal's interpretation that donations in kind were permissible for rebate.Further referencing the Bombay High Court case, the High Court clarified that the essence of the transaction determines whether a donation qualifies for rebate. If the donation is ultimately a sum of money, it is eligible for rebate, even if it takes the form of movable property. The High Court rejected the Tribunal's view that donations in kind could earn rebate under section 88.The High Court also addressed the contractor's role in the construction process, determining that the donation was indeed of money, even if the contractor was appointed by the assessee. The Court concluded that the donation was intended for the construction of the school building, making it eligible for rebate under section 88.In conclusion, the High Court ruled in favor of the assessee, stating that the donation of money for the school building construction qualified for rebate under section 88. The department was directed to pay the costs, and the judgment highlighted the distinction between donations in cash and in kind for tax rebate purposes.