2025 (5) TMI 23 - AT - Income Tax

Assessee gets Section 80G deduction for financing equipment purchase as cash donation not donation in kind

Assistant Commissioner of Income-tax. Jaipur. Versus Nash Fashion (India) Limited And Nash Fashion (India) Limited Versus The DCIT, Cercile-1, Jaipur.

Assistant Commissioner of Income-tax. Jaipur. Versus Nash Fashion (India) Limited And Nash Fashion (India) Limited Versus The DCIT, Cercile-1, Jaipur. - ... Issues Presented and ConsideredThe core legal questions considered in the judgment are:1. Whether the assessee is entitled to claim deduction under section 80G of the Income Tax Act for donations made by way of payment to suppliers of medical equipment directly supplied and installed at the donee institutions, or whether such donations constitute 'donation in kind' and are therefore ineligible for deduction.2. The distinction between cash donations and donations in kind under section 80G, particularly in scenarios where the donor funds the acquisition of assets directly supplied to the donee institution by third-party suppliers.3. Whether the assessee's claim of deduction under section 80G complies with the statutory limits, including the 10% cap on deduction under section 80G(4) of the Act.4. The validity of penalty imposed under section 271(1)(c) of the Income Tax Act on the assessee for furnishing inaccurate particulars of income in relation to the disallowance of deduction claimed under section 80G.5. Whether the penalty imposed by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] was justified, and whether the reduction of penalty from 300% to 100% by CIT(A) was appropriate.Issue-wise Detailed Analysis1. Eligibility of Deduction under Section 80G for Donations Made by Payment to Suppliers (Cash vs. Kind Donation)Relevant Legal Framework and Precedents: Section 80G of the Income Tax Act provides deduction for donations made to certain funds and charitable institutions. Explanation 5 to section 80G, inserted by the Finance Act, 1976, clarifies that deduction is allowed only for donations made in the form of money, not in kind. The Supreme Court judgment in H.H. Sri Rama Verma v. Commissioner of Income-tax (1991) held that the term 'sum' in section 80G contemplates payment of money and does not include donation in kind (such as shares or goods). The judgment emphasized that deduction is not available for donation in kind.Court's Interpretation and Reasoning: The Court examined various factual scenarios to distinguish between donation in kind and donation in cash. The judgment of the coordinate ITAT Bench dated 01.10.2018 was relied upon, which outlined four scenarios:Direct payment of money by donor to donee - eligible for deduction.Donation of existing assets/property by donor - donation in kind, not eligible.Donor purchases assets and then donates the asset - donation in kind, not eligible.Donee institution places order directly with supplier; donor funds the purchase by paying supplier on behalf of donee; supplier delivers and installs equipment directly at donee's premises - donation in cash, eligible for deduction.The Court noted that the facts of the present case fit the fourth scenario, where the donee institution ordered the equipment directly, and the donor merely funded the purchase by paying the supplier. The equipment was delivered and installed directly at the hospitals, and the donor did not take possession or ownership of the equipment at any time.Key Evidence and Findings: The assessee submitted account payee cheques issued to suppliers, invoices raised in the name of the assessee but delivery and installation at the donee hospitals, certificates from hospital authorities confirming receipt and installation, audited financial statements reflecting donation payments, bank statements evidencing payments, and affidavits explaining the modus operandi of donation.The AO had noted that stock registers of the donee society showed receipt from an individual associated with the assessee rather than the company, and no official receipts under section 80G were issued by the donee. However, the assessee explained this as a matter of administrative convenience and personal association of the managing director with the hospitals.Application of Law to Facts: The Court applied the principle from the ITAT and Supreme Court decisions that donation must be a sum of money paid by the assessee. Since the payment was made by the assessee to suppliers on behalf of the donee institutions, and the equipment was delivered and installed directly at the donee's premises, the transaction was in substance a donation of money, not kind.The Court also considered the statutory limitation under section 80G(4) regarding the maximum allowable deduction as a percentage of gross total income. The assessee claimed 100% deduction based on certificates from the donee institutions, which were eligible for such deduction.Treatment of Competing Arguments: The Revenue argued that the donation was in kind, as the equipment was not delivered to the assessee but directly to the donee, and that invoices were raised in the name of the assessee, indicating purchase by the assessee and subsequent donation of equipment. The Revenue relied on the Supreme Court ruling and Explanation 5 to section 80G to assert that donations in kind are not deductible.The assessee countered that the payment was made by cheque to suppliers on the instructions of the donee institutions, which ordered the equipment directly, and that the donor's role was limited to funding. The assessee also relied on earlier ITAT orders and a Rajasthan High Court judgment in its own case where similar donations were allowed deduction under section 80G.The Court noted that earlier High Court decisions were distinguishable as they were rendered in the context of revision proceedings under section 263 and did not consider the Supreme Court ruling in H.H. Sri Rama Verma. The Court emphasized that the factual matrix for each assessment year must be examined independently.Conclusions: The Court held that the donations made by the assessee were in the form of money, as the donee institutions placed orders directly with suppliers, and the suppliers delivered and installed the equipment at the donee's premises. The donor's role was limited to funding the purchase by paying the suppliers. Therefore, the donation qualified as a sum of money under section 80G and was eligible for deduction. The disallowance of deduction by the AO and CIT(A) was set aside, and the claim of deduction under section 80G was allowed.2. Validity and Quantum of Penalty under Section 271(1)(c)Relevant Legal Framework: Section 271(1)(c) empowers the AO to levy penalty if a person conceals particulars of income or furnishes inaccurate particulars. The penalty amount can range from 100% to 300% of the tax sought to be evaded. The penalty proceedings are independent of the assessment proceedings and require recording of independent satisfaction.Court's Interpretation and Reasoning: The AO imposed penalty at 300% for furnishing inaccurate particulars of income by claiming inadmissible deduction under section 80G. CIT(A) reduced the penalty to 100%. The assessee challenged the penalty on the ground that the donation was genuinely made in monetary terms and that the disallowance did not amount to concealment or furnishing inaccurate particulars.The Court observed that since the quantum appeal allowing the deduction under section 80G was decided in favour of the assessee, the penalty issue became academic. The Court noted that the AO had initiated penalty proceedings after issuing notices and show cause notices, but the assessee did not respond adequately. However, since the deduction claim was allowed, the basis for penalty fell away.Treatment of Competing Arguments: The Revenue contended that the penalty was justified as the assessee failed to furnish evidence that the donation was made in monetary terms and that the deduction claimed was not proper. The assessee argued that the donation was genuine and in cash, and penalty was wrongly imposed without independent satisfaction.Conclusions: The Court disposed of the penalty appeals as academic in view of the allowance of deduction under section 80G. The cross appeals relating to penalty were treated as dismissed.Significant Holdings'The question for consideration is therefore the determination of the finer distinction between the cash donation and donation in kind. In both the cases, there is outflow of money from the assessee's hand. However, there could be various scenarios in particular facts and circumstances of each case. In one scenario, the money is going directly from the assessee to the donee which doesn't create any confusion and it will be clearly eligible for deduction. ... Another scenario is where there is a necessity/requirement of certain asset/property/equipment by the donee institution and it reaches out to the donor to fund such acquisition/purchase of asset/property/equipment. In this case, the donee institution places the order directly on the supplier of the asset/property/equipment, thereafter, the supplier supplies the equipment directly to the donee and they install the same at the premises of the donee institution. The limited role of the donor in such a scenario is to fund such acquisition/purchase and make the payment to the supplier on behalf of the donee institution.''The language used in section 80G(2)(a) is clear and unambiguous. The use of the expression any sums paid contemplates payment of an amount of money. One of the dictionary meanings of the expression 'sum' means any indefinite amount of money. The context in which the expression 'sums paid by the assessee' has been used makes the legislative intent clear that it refers to the amount of money paid by the assessee as donation. Therefore, for purposes of claiming deduction from income-tax under section 80G(2)(a), the donation must be a sum of money paid by the assessee.''Considering the facts of the case and respectfully following the judgement of Apex court(supra), I am inclined to agree with the assessing officer that appellant's claim of deduction of Rs. 1,27,67,676/- u/s 80G is not allowable.' (This was the AO and CIT(A) view, which was reversed by the Tribunal on fresh evidence.)'In the present case... the facts of the present scenario thus needs to be analysed in detail to determine which of the above scenarios it fits in and bases the same, whether the assessee is eligible for deduction under section 80G of the Act.''After viewing the totality of facts your honour will please find that the transaction in substance is a money transaction and the donation is in fact a donation in cash and it is prayed that assessee's claim of deduction u/s. 80G should be allowed.''The act of donation whether cash or in kind being a factual matter needs to be examined for each of the years under consideration.''Since the evidence advanced before us clearly shows that the donation was money and therefore the decision cited of having paid the donation in kind are not applicable and therefore, the appeal of the assessee is allowed.'Core Principles Established:Deduction under section 80G is available only for donations made in cash or cheque (sum of money), not for donations in kind.The factual matrix and modus operandi of the donation must be examined to determine whether the donation is in cash or kind, especially in cases where the donor pays suppliers directly for equipment delivered and installed at the donee's premises.Invoices raised in the name of the donor do not necessarily imply donation in kind if delivery and installation are directly to the donee and the donor's role is limited to funding the purchase.Earlier judicial decisions and High Court judgments must be considered in light of binding Supreme Court precedents and the specific facts of each assessment year.Penalty under section 271(1)(c) is contingent on concealment or furnishing inaccurate particulars and is independent of assessment proceedings, but if the deduction is ultimately allowed, penalty becomes academic.Final Determinations on Each Issue:1. The donation of Rs. 1,27,67,676/- made by the assessee by way of payment to suppliers for medical equipment directly supplied and installed at the donee hospitals qualifies as donation in cash and is eligible for deduction under section 80G.2. The disallowance of deduction under section 80G by the AO and CIT(A) is set aside, and the deduction is allowed.3. The penalty imposed under section 271(1)(c) for furnishing inaccurate particulars of income is rendered academic in view of the allowance of deduction and is accordingly disposed of.4. The cross appeals relating to penalty by both assessee and revenue are dismissed as academic.