Accumulated income donations cannot be treated as application of income; revision under section 263 was upheld.

Donations made from accumulated funds under section 11(2) were held not to constitute application of income under section 11; on the facts, the Tribunal found no meaningful distinction between the labels "contribution" and "donation" and no evidence of how the recipient organisations treated the sums. Because such accumulated amounts, when so utilised, are treated as income under section 11(3), the assessment order allowing them as application of income was considered legally erroneous and prejudicial to the Revenue. The Commissioner's revisionary jurisdiction under section 263 was therefore upheld.

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Issues: Whether the Commissioner was justified in exercising revisionary jurisdiction under section 263 of the Income-tax Act, 1961 on the ground that the assessment order wrongly treated donations out of accumulated funds as application of income under section 11.

Analysis: The assessee had admittedly made payments out of accumulated corpus funds to other organisations and sought to characterise them as collaborative contributions. The Tribunal held that there was no meaningful distinction between the terms contribution and donation in the facts of the case. It further found no evidence to show how the recipients accounted for the amounts. Referring to section 11(2), the Tribunal held that amounts accumulated and later donated do not qualify as application of income, and under section 11(3) such utilisation is to be treated as income of the assessee. On that basis, the assessment order was held to suffer from legal error and to cause revenue prejudice.

Conclusion: The assumption of jurisdiction under section 263 was upheld and the assessee's challenge failed.

Ratio Decidendi: Donations made out of accumulated income under section 11(2) cannot be treated as application of income, and an assessment order allowing such treatment is erroneous and prejudicial to the interests of the Revenue, justifying revision under section 263.

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