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2025 (5) TMI 510 - AT - Income TaxAssessment u/s 175 - Donations received for Covid relief were taxable as the income of the assessee u/s 56(2)(x) - assessee is a journalist and a columnist for the Washington Post newspaper. The AO was in the know of a complaint against the assessee with regard to the donation fund she raised in three separate campaigns in Ketto platform. HELD THAT - The assessee made a representation before the CBDT in connection with the taxability of funds received as donation for Covid relief but facts on record show that this action of the assessee was taken only after the Revenue sent her a summon u/s 131 of the Act for enquiry in this matter. The representation was made on 01/07/2021 whereas the first summon was issued on 15/06/2021. Moreover this act of the assessee goes on to show that she was aware that as on date such funds received are taxable in her hands. Throughout the proceedings the assessee took a stand that she is not a beneficiary of those funds but the same cannot be exhibited because the funds have been mixed up with her personal funds as no separate account was maintained. 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. When the assessee was cornered by the Tax Department she offered the entire donations raised from Ketto platform as income from other sources . Considering the facts of the case in totality keeping in mind the transfer of funds we have no hesitation to hold that provisions of Section 175 r.w. provisions of sub-sections (2) (3) (4) (5) and (6) of section 174 of the Act squarely apply in case of the assessee and there is no error or infirmity in invoking the same by the AO and as confirmed by the CIT(A). The additional ground raised by the assessee is accordingly dismissed. Applicability of section 56(2)(x) - Since the assessee is herself a journalist it is clear that the as per the Foreign Contribution (Regulation) Act 2010 she could not have received foreign contribution directly in her account. Therefore she withdrew the amounts from Ketto platform in the accounts of her father and sister from where she had transferred it to her account. The assessee has not spent the money received for the purpose for which such funds were received but diverted the same for other purposes. 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. The manner in which the funds were collected is also not understandable as the donations were collected and parked in the bank accounts of the relatives of the assessee. On the given facts the donations collected by the assessee are taxable u/s 56(2)(x) of the Act and orders of the authorities below on this count cannot be faulted with. Appeals filed by the assessee are dismissed.
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:
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 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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