1990 (9) TMI 4 - SC - Income Tax

Donations in Kind to Charitable Institution - benefit of section 80G of the Income-tax Act 1961 in respect of the donations - After the insertion of the Explanation 5 there cannot be any doubt that for purposes of claiming deduction only cash amounts which may have been donated would be taken into account. No doubt this provision is not retrospective in nature; none the less it indicates the legislative intent behind section 80G(2)(a) even prior to its amendment.

Summary

Issues: Interpretation of section 80G of the Income-tax Act regarding the eligibility of donations made in kind for deduction under the Act.

The judgment in this case revolves around the interpretation of section 80G of the Income-tax Act, specifically focusing on whether donations made in kind, such as shares, are eligible for deduction under the Act. The appellant donated equity shares to charitable trusts and claimed exemption under section 80G for the donations made. The Income-tax Officer rejected the claim, leading to subsequent appeals and a reference to the High Court, which upheld the Tribunal's decision that donations made in kind do not qualify for deduction under section 80G.

The key contention in this case is the interpretation of the language used in section 80G(2)(a) of the Income-tax Act. The court analyzed the term "sums" in the context of donations and emphasized that the expression "sums paid" refers to the payment of an amount of money, excluding donations made in kind. The court highlighted that the legislative intent behind section 80G is clear that deductions are only applicable to cash amounts donated, not donations in kind. The court rejected the argument that donations in kind, although convertible to money, fall within the scope of section 80G(2)(a) for claiming deductions.

The judgment also addressed the conflicting opinions among various High Courts regarding the interpretation of section 80G(2)(a). The court referred to previous cases where different views were taken on whether donations in kind are eligible for deduction under the Act. After a thorough analysis, the court aligned with the interpretation that section 80G(2)(a) only encompasses cash donations, as held by the High Courts of Andhra Pradesh, Allahabad, and Gujarat, rather than donations made in kind.

Furthermore, the court highlighted the legislative intervention through Explanation 5 added to section 80G by the Finance Act, 1976. Explanation 5 explicitly states that deductions under section 80G are not allowed for donations unless they are in the form of a sum of money. The court emphasized that this provision clarifies the legislative intent that only cash donations are eligible for deduction under section 80G, even before its formal amendment. Consequently, the court affirmed the decision of the Kerala High Court, dismissing the appeal and emphasizing that only cash donations qualify for deduction under section 80G of the Income-tax Act.