ANONYMOUS DONATION

[Mr. M. GOVINDARAJAN]

Anonymous donation

The expression ‘anonymous donation’ is defined under Section 115BBC (3) of the Income Tax Act, 1961 (‘Act’ for short) as any voluntary contribution referred to in sub-clause (iia) of clause (24) of section 2, where a person receiving such contribution does not maintain a record of the identity indicating the name and address of the person making such contribution and such other particulars as may be prescribed.

Section 2 (24)(ii)(a) of the Act, 1961 provides that voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via)] of clause (23C) of section 10 or by an electoral trust.

Taxation of anonymous donation

Section 115BBC of the Act provides that any income by way of any anonymous donation, the income-tax payable shall be the aggregate of-

• the amount of income-tax calculated at the rate of 30% on the aggregate of anonymous donation received in excess of the higher of the following, namely:-

• 5% of the total donations received by the assessee, or
• Rs.1 lakh; and

• the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the aggregate of anonymous donations received in excess of the above amount.

Non applicability

The above said provision will not be applicable to the following-

• any trust or institution created or established wholly for religious purposes;
• any trust or institution created or established wholly for religious and charitable purposes other than any anonymous donation made with a specific direction that such donation is for any university or other educational institution or any hospital or other medical institution run by such trust or institution.

Case law

In INCOME TAX OFFICER, WARD-1, EXEMPTION VERSUS AISHWARYA FOUNDATION, PATNA - 2023 (5) TMI 273 - ITAT PATNA, the assessee trust is a charitable organization registered under section 12AA of Act.  It filed its return of income for the year under consideration on 24/06/2015 declaring total income at ‘Nil’.   The assessee return was selected for scrutiny.  A notice was issued to the assessee under section 142(1) and 143(2) of the Act.  The Assessing Officer noted that the assessee had shown income of Rs.2,61,72,000/- as donation.  The assessee also shown expenditure Rs.2,22,47,910/-.  The assessee was directed by the Assessing Officer to submit the details to prove the genuineness of the donation.  The assessee submitted the list of donors and their addressed to the Assessing Officer.  The list contains 1371 donors to the trust. 

The Assessing Officer observed that the donation of each person does not exceed Rs.20,000/-.  As a sample the Assessing Officer issued notices to 109 persons among the 1371 donors to confirm of the donation made by them to the assessee.  Nobody replies to the notice.  Therefore the Assessing Officer held the claim of the assessee of having received the amount of Rs.2,61,72,000/- as donation, as baseless and bogus and treated the same as anonymous donation under section 115BBC of the Act and assessed the income of the assessee at Rs.2,87,88,843/- as detailed below-

Income over expenditure (Rs.2,61,72,000 - Rs.2,22,47,910) = Rs.   39,25,443

ADD anonymous donation  = Rs.2,61,72,000

LESS Rebate allowed - 5% of donation  = Rs.   13,08,600

Taxable income    = Rs.2,87,88,843

The assessee filed an appeal against the above said order before the Commissioner of Income Tax (Exemption).  The Commissioner (Appeals) allowed the appeal filed by the assessee.  He deleted the addition made by the Assessing Officer.  The Commissioner of Income Tax (Exemption) observed that during the relevant previous year, the appellant received donations amounting to Rs.2,61,72,000/-. These receipts were taken to the income of the appellant and applied for charitable purposes. The appellant 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 30.12.2016 that the appellant was unable to satisfactorily explain the donations and the donors were perhaps fictitious persons. The assessing officer was of the opinion that the appellant had tried to introduce unaccounted money into its books by way of donations and, therefore, the amount of Rs.2,61,72,000/- was treated as anonymous donation under section 115BBC of the Income Tax Act, 1961.

The appellant contended before Commissioner (Appeals) that the Assessing Officer did not wait for the replies from the persons to whom notices were issued. In most of the notices compliance was made subsequent to the completion of assessment proceedings and the same are on assessment record.   The appellant also provided a copy of a few of these confirmations. The Appellate Authority, to verify the contents of the assessee called for the records of the case.  The Appellate Authority verified the records and found that the contentions of the assessee are correct.  Page No. 329 to 444 forming part of the assessment folder comprised of such verification / compliances to notice u/s 133(6) received and placed on assessment record subsequent to the completion of the assessment proceedings which are concluded at page 328.

The Commissioner (Appeals) was inclined to agree with the contentions of the appellant that the A.O. has drawn an erroneous conclusion by holding that the donations from 1371 persons are in the nature of anonymous donation and liable to be added u/s 115BBC of the Act.   So far as applicability of provisions of section 68 of the Act is concerned, it has been held by various Tribunals and High Courts that once donation received was taken as income of the appellant which was applied for charitable purposes, provisions of section 68 of the Act cannot be invoked.

Being aggrieved by the order of Commissioner (Appeals) the Revenue filed appeal before ITAT.  The Revenue submitted the following before the ITAT-

• The donations received by the assessee to the tune of Rs.2,61,72,000/-, were from anonymous donors as the identity of the donors was not proved before the Assessing Officer in response to the summons issued to 110 persons out of the list of 1371 donors provided by the assessee
• The Assessing Officer under section 115BBC of the Act rightly added the amount Rs.2,61,72,000/- to the income of the assessee.

The assessee submitted the following before ITAT-

• The assessee is a trust registered u/s 12AA of the Act engaged in charitable activities.
• During the course of assessment proceedings on 09/12/2016 the assessee was asked to furnish names of persons from whom donation has been received.
• The assessee had furnished names and complete address of 1371 persons from whom donation totaling to Rs. 2,61,72,000/- has been received during the year under consideration. 
• The Assessing officer sent letters only to 109 persons seeking confirmation of donation to the assessee and most of them have confirmed the same either personally or by registered post. 
• As per Section 115BBC of the Act, the receiver of donation has to maintain identity of the donors to the extent of name and address only and that no addition can be made for anonymous donation on the ground that confirmations from donors had not been filed.

The ITAT considered the submissions made by both the parties.  The ITAT analyzed the provisions of Section 115BBC and the records of the case and the findings of the Commissioner (Appeals).  The ITAT held that the Commissioner (Appeals) has passed a reasoned order after considering all the elements and ingredients involved in the present case and hence ITAT did not find any reason to interfere with the observation and findings of the Commissioner (Appeals) and uphold the same.  The ITAT dismissed the appeal filed by the Revenue.