Journalist's Covid relief donations through Ketto platform ruled taxable under section 56(2)(x) for mixing with personal funds

ITAT Mumbai dismissed appeals where journalist collected Covid relief donations through Ketto platform. Court held donations taxable under section 56(2)(x) as funds were transferred to personal accounts of assessee and family members without maintaining separate accounts. Assessee mixed donations with personal funds, used them for personal purposes and investments, and failed to prove charitable end-use. Section 175 provisions applied as assessee diverted funds from stated purpose. Appeals dismissed confirming lower authorities' orders.

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The core legal questions considered by the Tribunal in this matter were:

1. Whether the invocation of Section 175 of the Income Tax Act, 1961 (the Act) by the Assessing Officer (AO) was valid and justified in the facts of the case.

2. Whether the donations received by the assessee through the Ketto platform for Covid relief and other purposes are taxable as income under Section 56(2)(x) of the Act.

3. The applicability and interpretation of the provisions of Section 56(2)(x) concerning receipt of sums of money without consideration in the context of charitable donations.

Issue 1: Validity of invocation of Section 175 of the Act

The legal framework revolves around Section 175 of the Act, which permits the AO to assess the total income of a person for a period starting from the expiry of the previous year to the date of commencement of proceedings under this section, if it appears that the person is likely to dispose of assets to avoid tax liability. Section 175 is linked to the provisions of Section 174(2) to (6), which govern assessments of persons leaving India.

The assessee challenged the AO's invocation of Section 175 on the ground that the AO charged income from 01/04/2020 to 31/03/2021, which was impermissible; the AO should have limited the charge to the period from 31/03/2021 to 29/07/2021 (date of commencement of proceedings). Further, the AO ought to have been satisfied that the assessee was likely to dispose of assets to avoid tax liability before invoking Section 175.

The Tribunal examined the facts and found that the assessee had not maintained separate accounts for donation funds and personal funds, with all donations, including foreign currency contributions, being transferred to personal accounts of the assessee and her family members. The assessee's own actions, including making a representation to the CBDT only after summons were issued, indicated awareness of taxability. The mixing of funds negated the assessee's claim of not being a beneficiary.

Given these facts, the Tribunal held that the AO was justified in invoking Section 175 read with Section 174(2) to (6). The Tribunal found no error in charging income from the entire period as done by the AO. The additional ground challenging the validity of Section 175 invocation was dismissed.

Issue 2: Taxability of donations under Section 56(2)(x) of the Act

Section 56(2)(x) provides that any sum of money received without consideration exceeding Rs. 50,000 in aggregate in a previous year shall be chargeable to tax under the head "Income from other sources," subject to certain exceptions such as receipt from relatives, on marriage, under wills, or by certain specified institutions.

The assessee contended that the donations received for Covid relief were not taxable under Section 56(2)(x), relying on Supreme Court decisions in CIT vs. Bijli Cotton Mills (P) Ltd. and CIT vs. Tollygunge Club Ltd., as well as ITAT decisions in Six Continent Hotels Inc. vs. DCIT and Chandrakant H. Shah vs. ITO. The argument was that the donations were for charitable purposes and hence not income.

The Tribunal analyzed the facts and found that:

• The assessee raised donations via three campaigns on the Ketto platform totaling approximately Rs. 2.69 crores, including Rs. 80.49 lakhs in foreign currency.
• Withdrawals were made in accounts of the assessee, her father, and sister, with substantial transfers between these accounts.
• No separate accounts were maintained to segregate donations from personal funds.
• The assessee admitted spending only about Rs. 28 lakhs on relief work, while a significant portion was diverted to fixed deposits and personal expenses.
• A large amount remained unutilized despite the passage of considerable time.
• The claim that funds were reserved for hospital construction was not disclosed during fundraising and remained unsubstantiated.
• The receipt of foreign donations violated the Foreign Contribution (Regulation) Act, 2010, as journalists are prohibited from accepting foreign contributions.

Given these facts, the Tribunal held that the donations were received without consideration and were deposited in personal accounts, making them taxable under Section 56(2)(x). The Tribunal rejected the assessee's contention that the donations were not income, emphasizing that the absence of separate accounts and the mixing of funds negated any claim of charitable receipt.

The Tribunal distinguished the relied-upon precedents on the basis that in Bijli Cotton Mills, the donations were credited to a separate "dharmada" account, and in Tollygunge Club Ltd., the surcharge was held to be a trust amount not forming part of income. Similarly, the ITAT decisions cited were found to be factually distinguishable.

Issue 3: Applicability of Foreign Contribution (Regulation) Act, 2010

Section 3(1)(h) of the Foreign Contribution (Regulation) Act, 2010 prohibits journalists from accepting foreign contributions. The assessee, being a journalist, was therefore not permitted to receive foreign donations directly. The Tribunal noted that the assessee circumvented this by withdrawing funds into the accounts of her father and sister and then transferring them to her own account.

This fact further supported the AO's view that the donations were not bona fide charitable receipts but were diverted for personal use and investment. It also reinforced the validity of invoking Section 175 of the Act.

Conclusions and Significant Holdings

The Tribunal concluded that:

• The invocation of Section 175 of the Act by the AO was valid and justified given the likelihood of the assessee disposing of assets to avoid tax liability, and the provisions of Section 174(2) to (6) apply accordingly.
• The donations received by the assessee through the Ketto platform, being sums of money without consideration exceeding Rs. 50,000, are taxable as income under Section 56(2)(x) of the Act. The mixing of funds with personal accounts and lack of separate accounting negated the assessee's claim of non-taxability.
• The exceptions to Section 56(2)(x) do not apply, as the donations were not received from specified exempted entities or relatives, and the foreign contributions violated the Foreign Contribution (Regulation) Act, 2010.
• The judicial precedents cited by the assessee were found to be distinguishable on facts and not applicable to the present case.

The Tribunal stated verbatim that "Considering the facts in totality, we are of the considered view that the donations collected were not just for Covid relief but also for other so-called purposes like funds for slum dwellers and farmers as also for relief work in different states for different purposes. But all the donations collected were parked in the savings bank account of the assessee and family members and no separate accounts were maintained. The funds were also used for personal purposes and also for investment in FDR and substantial amount of donation received remained un-utilized in spite of long time gap. The claim that the end use of these funds was initiated for charitable activities remains unproved."

Further, the Tribunal emphasized that "The stand of the assessee that, in case of Ketto, the beneficiary is clearly identified by Ketto to whom the funds are to be transferred, is also not acceptable as the funds have been transferred in the personal account of the assessee, her father and her sister."

Accordingly, the appeals filed by the assessee were dismissed and the orders of the authorities below were upheld.

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