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Section 68 in The Income- Tax Act, 1995
Section 11 in The Income- Tax Act, 1995
The Income- Tax Act, 1995
Section 12A in The Income- Tax Act, 1995
D.C.M. Ltd. vs Cit on 29 November, 2004

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Delhi High Court
Director Of Income Tax ... vs Keshav Social & Charitable ... on 3 February, 2005
Equivalent citations: 2005 278 ITR 152 Delhi
Author: M B Lokur


Madan B. Lokur, J.

The Appellant is aggrieved by an order dated 10-1-2002 passed by the Income Tax Appellate Tribunal, Delhi Bench-A, New Delhi (herein after referred to as the ITAT) in ITA No. 2827/Delhi/96 for the assessment year 1991-92.


The assessed is a charitable trust and its main activity is to provide medical advise to the poor and needy in various parts of Uttar Pradesh. It has mobile vans and its doctors visit remote villages in these mobile vans.


During the relevant previous year, the assessed received donations amounting to Rs. 18,24,200. The assessed was asked to furnish details of these donations, that is, the names and addresses of the donors and the mode of receipt of donations. It is noted in the assessment order dated 29-3-1994 that the assessed was unable to satisfactorily explain the donations and the donors were perhaps fictitious persons. The assessing officer was of the opinion that the assessed had tried to introduce unaccounted money into its books by way of donations and, therefore, the amount of Rs. 18,24,200 was treated as cash credit under section 68 of the Income Tax Act, 1961 (herein after referred to as the Act). On this basis, the benefit of section I I of the Act was denied to the assessed.


The assessed filed an appeal which was allowed by the CIT(A) by an order dated 23-2-1996. The CIT(A) was of the view that the assessing officer was not justified in treating the donations received as income under section 68 of the Act. The assessed had disclosed the donations as its income and had spent 75 per cent of the amount for charitable purposes. It was, therefore, held that the assessed had not committed any default. The CIT(A), consequently, directed the assessing officer to allow exemption to the assessed under section 11 of the Act and it was held that treating the donations of Rs. 18,24,200 as the income under section 68 of the Act was not correct.


The revenue filed an appeal which came to be disposed of by the order under challenge.


The ITAT was of the view that since more than 75 per cent of the donations received by the assessed were spent in charitable purposes, the addition of Rs. 18,24,200 was not correct. The ITAT appears to have accepted the submission of learned counsel for the assessed that once a donation is received, it will be deemed to be received for a charitable purpose unless the donation was received towards the corpus of the trust.


Learned counsel for the revenue submitted before us that essentially what the assessed was trying to do was to launder its black money or unaccounted income by converting it into donations and it should not be permitted to do so. On this basis, it was contended that a substantial question of law has arisen whether the order of the ITAT was correct in law.


We are afraid that it is not possible for us to agree with the submission of learned counsel for the revenue and we are of the view that no substantial question of law arises for our consideration.


In S. Rm. M. Ct. M. Tiruppani Trust v. CIT (1998) 230 ITR 636 (SC), it has been held that under section 11(1) of the Act, every charitable or religious trust is entitled to deduction of certain income from its total income of the previous year. The income so exempt is the income which is applied by the charitable or religious trust to its charitable or religious purposes in India. This is, of course, subject to accumulation up to a specified maximum which, in the present case, was 25 per cent. In the appeal that we are concerned with, it has been found as a matter of fact that the assessed had applied more than 75 per cent of the donations for charitable purposes as per its objects.


To obtain the benefit of the exemption under section 11 of the Act, the assessed is required to show that the donations were voluntary. In the present case, the assessed had not only disclosed its donations, but had also submitted a list of donors. The fact that the complete list of donors was not filed or that the donors were not produced, does not necessarily lead to the inference that the assessed was trying to introduce unaccounted money by way of donation receipts. This is more particularly so in the facts of the case where admittedly more than 75 per cent of the donations were applied for charitable purposes.


Section 68 of the Act has no application to the facts of the case because the assessed had in fact disclosed the donations of Rs. 18,24,200 as its income and it cannot be disputed that all receipts, other than corpus donations, would be income in the hands of the assessed. There was, therefore, full disclosure of income by the assessed and also application of the donations for charitable purposes. It is not in dispute that the objects and activities of the assessed were charitable in nature, since it was duly registered under the provisions of section 12A of the Act.


For these reasons, we do not find any merit in the appeal. No substantial question of law arises. Dismissed.