Exemption u/s 11 and 12 of the Income Tax - Whether receipt of conditional donation would disentitle the charitable firm to avail exemption

In the present case as dicisided by the High Court of Delhi (reported in 2008 -TMI - 3599 - HIGH COURT OF DELHI), Assessee had received donations from 61 consulting doctors who had opted to give donations of Rs.10,000/- each under the terms and conditions. According to the terms and conditions, the Assessee was entitled to deduct 20% of the consulting charges and the balance amount to be paid to the consulting doctors. It further provided that if the consulting doctors paid donations of Rs. 10,000/- then they would be entitled to 85% of the consulting charges instead of 80%.

The Assessing Officer was of the view that donations received were not as per provisions of Sections 11 and 12 of the Act and are forced contribution as per agreement executed between doctors and the Hospital authorities.  Therefore, he treated the impugned donations of Rs.6,10,000/- as Income from Other Sources , applying the provisions of Section 56 to 59 of the Act. High Court after detailed discussions and study of the facts found that,

:It is clear that it was optional for the consulting doctors to contribute donations which are also apparent from the fact that only 61 doctors opted for such arrangement out of 141 doctors working for the Assessee. The above mentioned clause neither binds nor forces the doctors. It only gives the option to give or arrange donations in case he wants less deduction from the professional fee payable to him. Considering this condition it can be said that the donations by the doctors have been given of its own volition and without any force."

" In this view, the action of the Assessing Officer in holding that donations received were forced donations was not justified."

Honorable HC further held that,

"The Assessee had received voluntarily contribution towards corpus of the fund and consequently the sum of Rs.6,10,000/- could not be treated as income of the Assessee." 

(For full text of judgment - visit 2008 -TMI - 3599 - HIGH COURT OF DELHI)