The Chennai Bench of Income Tax Appellate Tribunal (ITAT) has allowed deduction under Section 80G of the income tax act 1961 observing that the donation to trust by conversion of loans would be treated as ‘donation paid in cash’.
The assessee company Ranganathar – Industries Pvt. Ltd is in the business of manufacturing steel castings in machined and un-machined condition, filed its return of income, for the AY 2014-15, 2015-16 , 2017-18 declaring a total income and the assessment had been re-opened.
During the financial year relevant to the AYs 2014-15, 2015-16 & 2017-18, the assessee company has claimed deduction under Section 80G of the Income Tax Act, in respect of donations paid to Ranganathar Trust, which was also registered under Section 12AA of the Income Tax Act, and also enjoying the benefit of registration u/s.80G of the Income Tax Act. The assessee had paid donation partly through bank for the relevant assessment year and partly converted loans given to Trust in earlier financial year as donations for the impugned assessment years and the assessee had claimed deduction under Section 80G of the Income Tax Act for the said 3 years in respect of donations.
Section 80G deals with the deduction in respect of donations made to certain funds or charities.
The AO disallowed deduction holding that as per the provisions of Sec.80G of the Income Tax Act, only donations paid in cash during the relevant previous year could only be allowed as deduction, but not donations paid in kind. The AO further observed that conversion of loan into donation amounts to donation given in kind and thus, the assessee was not entitled to claim deduction under Section 80G of the Income Tax Act and disallowed deduction claimed on amount which was converted out of loans.
S. Sathyanarayanan, referring to the case of M/s.General Capital and Holding Co. Pvt. Ltd. v. ITO, submitted that substance over form should be considered while deciding the issue and there was no dispute with regard to the fact that the assessee had given donation to a Trust which was enjoying the benefit of provisions of Section 80G of the Income Tax Act. He also submitted that the assessee company had given loan to Trust through proper banking channel and the same had been subsequently converted into donations for which the Trust had issued proper receipts with registration certificates under Section 12AA & under Section 80G of the Act.
D. Hema Bhupal, on behalf of the revenue submitted that only donations paid in cash during the relevant previous year was eligible for deduction under Section 80G of the Income Tax Act relying upon the decision of the Hon’ble Gujarat High Court in the case of Miss. Yeraben R. Amin
The Chennai Bench of Mahavir Singh (Vice President) and G. Manjunatha (Accountant Member) allowed the appeal observing that, assessee company had paid part donations through proper banking channels during the relevant previous year. The remaining part of donations had been converted out of loans given to Trust in earlier financial years. The AO treated donations converted out of loans given in earlier financial years as donations in kind and denied deduction claimed under Section 80G of the Income Tax Act.
The bench held that the AO and the Commissioner of Income Tax had misunderstood the ratio laid down by the Hon’ble Supreme Court to decide the issue against the assessee referring to decision of Hon’ble Gujarat High Court in the case of Miss. Yeraben R. Amin,
“no doubt about ratio laid down by the Hon’ble Courts on the issue of deduction u/s.80G of the Income Tax Act, that deduction should be allowed to donations which are in the form of cash and not otherwise and further, the donations should be made during the relevant financial year”
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