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IT : In view of failure of assessee-society to maintain proper records indicating names and address of donors, voluntary contributions received by it were rightly brought to tax as anonymous donations within meaning of section 115BC
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[2012] 27 taxmann.com 89 (Agra - Trib.)
IN THE ITAT AGRA BENCH
Shri Girraj Educational and Welfare Society
v.
Income-tax Officer 3(4), Mathura*
BHAVNESH SAINI, JUDICIAL MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
IT APPEAL NO. 365 (AGR.) OF 2011
[ASSESSMENT YEAR 2007-08]
SEPTEMBER 28, 2012
Section 115BBC of the Income-tax Act, 1961 - Anonymous donations to be taxed in certain cases - Maintenance of records - Assessment year 2007-08 - Assessee charitable society received voluntary contributions from various donors - Since assessee failed to submit complete list containing names and addresses of donors, Assessing Officer brought to tax voluntary contributions so received under section 115BC - Commissioner (Appeals) on basis of sample examination concluded that 46 per cent of donation was to be treated as anonymous donation - Whether in view of failure of assessee to maintain proper records indicating names and addresses of donors and, further, in absence of other alternative calculation or determination of amount of anonymous donation, impugned addition made by Commissioner (Appeals) was to be confirmed - Held, yes [Para 13] [In favour of revenue]
FACTS
• The assessee was a society registered with the Registrar of Societies. It was granted registration under section 12AA. The objects of the society were charitable in nature i.e. running school/institution for imparting of education, help the poor and orphans, protection of environment etc.
• In the return of income, the assessee had shown voluntary contributions received from 2,700 donors amounting to Rs. 68.99 lakhs. It was claimed before the Assessing Officer that the said donation was received as corpus fund for the purpose of construction of the society building. However, no confirmation of such corpus donation had been filed.
• The Assessing Officer, thus, treated the amount of donation as income of the assessee from undisclosed sources and taxed the same in the status of A.O.P.
• The Commissioner (Appeals) on the basis of sample examination concluded that 46 per cent of donation was to be treated as anonymous donation under section 115BC because the assessee had failed to provide complete list of donors along with their address.
• On second appeal:
HELD
Provisions of sections 11 and 12
• Income of wholly charitable or religious trusts or institutions as well as partly charitable or religious trusts or institutions is exempt from income-tax under sections 11 and 12, subject to the fulfilment, inter alia, of certain conditions, of application of income and investment in specified modes. Similarly, income of any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (via) or any hospital or other medical institution referred to in sub-clause (iiiae) or sub-clause (via) or any fund or institution referred to in sub-clause (iv) or any trust or institution referred to in sub-clause (v) of clause (23C) of section 10, is exempt from income tax subject to the fulfilment of conditions specified in the said clause. [Para 10]
Anonymous donations not to be taxed in case of wholly religious trusts
• With a view to prevent channelisation of unaccounted money to these institutions by way of anonymous donations, a new section 115BBC has been inserted to provide that any income of a wholly charitable trust or institution by way of any anonymous donation shall be included in its total income and taxed at the rate of 30 per cent. Anonymous donation made to wholly charitable and religious trusts or institutions, or mixed purpose trusts or institutions shall be taxed only if it is for any university or other educational institution or any hospital or other medical institution run by them. Anonymous donation to wholly religious trusts or institutions will not be taxed. [Para 10.1]
Meaning of anonymous donation
• Anonymous donation has been defined in the new section to mean any voluntary contribution referred to in section 2(24)(iia), 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. Consequential amendments have been made in section 10(23C) and section 13 to provide that any income by way of any anonymous donation which is taxable under section 115BBC shall be included in the total income of the assessee. Section 115BBC is applicable from assessment year 2007-08 onwards. [Para 10.2]
Mere filing of list of donors does not satisfy requirement of section 115BC(3)
• In the lilght of the above background and provisions of section 115BBC, if one considers the facts of the case under consideration, it is noticed that the assessee did not maintain records of the identity indicating the names and addresses of the donors. Merely filing of list of donors containing names and addresses/incomplete addresses does not satisfy the conditions laid down in section 115BBC(3). The sub-section (3) of section 115BBC has explained the meaning of anonymous donation clearly that such institution is required to maintain records of identity indicting the names and addresses of the persons making the donations or contributions.
• On a perusal of records, it is found that the assessee had not maintained such records of identity indicting names and addresses of the donors. After sample examination carried out by the revenue authorities, it was found that in some cases the assessee has proved identity indicating the names and addresses of the donors. Therefore, to that extent, it can be said that there was no anonymous donation. The burden is on the assessee to explain that it had maintained records of identity indicting names and addresses of the person of making contribution or donation. Since the assessee had failed to maintain such records, it was clearly a case covered by anonymous donation.
• On account of failure of the assessee and in the absence of other alternative calculation or determination of amount of anonymous donation, one has to agree with the Commissioner (Appeals) estimating such anonymous donation on the basis of sample examination. Such exercise is not unjust because in spite of the fact that the assessee did not maintain the records as required under sub-section (3) of section 115BBC, the benefit has been allowed by the Commissioner (Appeals) on the basis of sample examination of the total donation. As regards the contention of the assessee that the donation was with a specific direction, therefore, section 115BBC is not applicable, in this regard, in view of sub-clause (2) of that section 115BBC, it is relevant to note that the assessee has failed to produce any evidence based on which it can be said that the donation was for a specific direction particularly when the donation was found as anonymous donation. [Para 13]
• In the result, appeal filed by the assessee is dismissed. [Para 15]
CASES REFERRED TO
Asstt. CIT v. Muslim Educational Society [2010] 1 ITR (Trib.) 527 (Cochin) (para 7) and Hans Raj Samarak Society v. Asstt. DIT (Exemptions) [2011] 133 ITD 530/16 taxmann.com 103 (Delhi) (para 8).
S.K. Chaturvedi and S.N. Bansal for the Appellant. Waseem Arshad for the Respondent.
ORDER
A.L. Gehlot, Accountant Member - This is an appeal filed by the assessee against the order dated 31.03.2011 passed by the ld. CIT(A)-I, Agra for the A.Y. 2007-08.
2. The effective ground raised in the appeal is in respect of addition of Rs. 27,96,200/- sustained by the CIT(A) out of the addition of Rs. 68,99,943/- made by the Assessing Officer (A.O.) on account of anonymous donation/undisclosed income.
3. The brief facts of the case are that the assessee is a society registered with the Registrar of Societies U.P. on 01.06.2006. The society was granted registration under section 12AA of the Income Tax Act, 1961 ('the Act' hereinafter). The objects of the society is charitable purpose by running school/institution for imparting of education, help the poor and orphans, protection of environment etc. During the assessment proceedings the A.O. noticed that the assessee has shown voluntary contribution received from 2700 donors amounting to Rs. 68,99,943/-. In order to verify the genuineness of the donors, the A.O. issued summons under section 131 of the Act and letters calling information under section 133(6) of the Act. The reply of donors and relevant observation has been noted by the A.O. in paragraph no. 9 f his order. Some of the donors have refused to give the donation. During the assessment proceedings, statement of Smt. Laxmi Sharma, W/o. Shri Nand Kishore Sharma, Secretary of the society was recorded under section 131 of the Act. It was said in the statement that the donation was collected by arranging camps in nearby village. On the basis of examination, the A.O. noticed that the society is mainly controlled by Shri Nand Kishore Sharma and his family members i.e. father and wife, and relatives and the donation alleged to have received from 2700 donors within a period of 9 months were not genuine. Some of the donors admitted to have given donation. Some of the donors are not traceable on the address given by the assessee. The A.O. observed that in a small span of ten months practically it is not possible to collect huge amount of donation of Rs. 68,99,943/- in cash from a large number of donors. The A.O. noted that not a single amount of donation was received by cheque. It has also been noted by the A.O. after examination of the books of account that all receipts of donation were prepared in a single sitting as it was evident that no signature of Authorized Representative/Cashier was available on these receipts. The signatures put were illegible. The donors filed affidavits before the A.O. but the assessee could not produce any of them for examination. The A.O. observed that the affidavit filed were of cyclostyled in nature and appeared to be made on the insistence of the society or its representatives. It was claimed before the A.O. that the said donation was received as corpus fund for the purpose of construction of the society building but during the course of assessment proceedings, no confirmation of such corpus donation have been filed. The A.O. treated this amount of Rs. 68,99,943/- as income of the assessee from undisclosed sources and the same has been taxed in the status of A.O.P.
4. The CIT(A) noticed that the A.O. has made the addition on the basis of small sample verification which is not sufficient for making a decision of treating the whole amount of donation as unexplained. The CIT(A) directed the A.O. to verify all the donors who were shown to have given donations more than Rs. 4,000/- and in case of other donors shown to have given donations less than Rs. 4,000/-, the CIT(A) further suggested to the A.O. that a sample survey may be made by sending letters to them on the address given in the list provided by the assessee. In compliance to the direction of CIT(A), the A.O. submitted his report vide letter dated 23.02.2011 which has been reproduced by the CIT(A) at page nos. 11 & 12 of CIT(A)'s order. The report submitted by the A.O. was in Hindi. On the basis of the A.O.'s repot, the CIT(A) noted that the sample survey done in cases of 667 persons, the A.O. concluded that about 53% donors were found to have either refused to give the donation or they could not be traced out to verify whether they have given donation or not. The CIT(A) sent the A.O.'s report to the assessee for its comments. The assessee disputed number of donors in the category of donation more than Rs.4,000/- stating that they are 502 in number and not 530 as noted by the A.O. in the remand report. Before the CIT(A), the assessee filed confirmation from 102 more donors who have given donation more than Rs. 4,000/-stating that the A.O. refused to accept these confirmation letters. It was also stated that remaining donors could have also been produced if the A.O. had given time. Regarding those letters which were returned back unserved due to incomplete address, it was stated by the assessee that if this information would have been given to the assessee earlier, complete address of those donors could have been furnished. However, it was admitted before the CIT(A) that at the worst donation pertaining to 120 donors below Rs. 4,000/- could have been disallowed in case explanation furnished by the assessee is not accepted. The assessee also raised objection before the CIT(A) that the assessee was not given opportunity to give the full address of the donors. He also opposed estimation of 53% as unexplained donation as rough method having no proper basis and authentic details and hence this method of computation was not accepted by the assessee. The CIT(A), considering the principle of natural justice, time was allowed to the assessee to file the reply on 22.03.2011. The assessee filed reply dated 28.03.2011 which has been reproduced by the CIT(A) at page nos. 13 & 14 of his order. The assessee reiterated the submissions which are discussed as above. However, the assessee again raised objection before the CIT(A) that the assessee was not provided reasonable opportunity of hearing. In order to give opportunity to the assessee as well as to the A.O. to explain their stand before the CIT(A), a joint hearing was fixed on 29.03.2011 which was attended by the Authorized Representative as well as by the A.O. The rejoinder filed by the Authorized Representative was examined by the A.O. and agreed before the CIT(A) that wherever proof of identity is given, those confirmations can be accepted. The CIT(A) has gone through the confirmations produced by the assessee and found that in all these confirmations the assessee has attached the proof of identity in the form of identity card issued by Election Commission. The CIT(A) accepted the confirmations of 102 donors who have given donation more than Rs. 4.000/-. The CIT(A) did not accept the assessee's contention for further opportunity observing that this matter of receipt of donation is under examination since July 2007, when proceeding for providing registration to the assessee society under section 12AA was initiated and thereafter ample opportunities were given to the assessee to give full details of the donors along with their complete address. However, despite giving various opportunities, even after completion of the assessment order, the list which the assessee filed before the CIT(A) along with the written submission dated 16.03.2010, the CIT(A) found that in most of the cases, full addresses are not given. Before the CIT(A), it was also submitted by the assessee that the people of this country belie in secret donation (Gupt Dan), therefore, it not possible to give correct name and address of all the donors. The CIT(A) observed that such Gupt Dan are prevalent at least in case of religious trusts where people give donation as per their faith but the concept of Gupt Dan cannot be accepted in case of educational trust specially when it is being claimed by the assessee that these donations are received as corpus donation with specific purpose for making the building of educational institution. The CIT(A) further observed that generally in the name of Gupt Dan unaccounted money are being channelized to such institutes and, therefore, with a view to prevent channelization of unaccounted money to these institutes by way of anonymous donations, a new section 115BBC has been inserted in the Income Tax Act, 1961 by the Finance Act w.e.f. 01.04.2007.
5. The CIT(A) on the basis of verification carried out by the A.O. and after considering the assessee's submissions bifurcated donations in two parts, donations given more than Rs. 4,000/- and donations given less than Rs. 4,000/-. In respect of donors who have given donation more than Rs. 4,000/- (amounting to Rs. 21,58,700/-), the total number of donors were 502. A sample verification carried out for 359 persons (257 verified by the A.O. + 102 confirmations filed by the assessee before the CIT(A)). The CIT(A) found that the necessary verification made in case of 71.5% such donation (359/502x100) and hence about 28.5% such donors were remained unverified. The CIT(A) accordingly calculated 28.5% of Rs. 21,58,700/- of which calculation comes to Rs. 6,15,229/-. The CIT(A) found that to that extent Rs. 6,15,229/- remained unverified.
6. As regards the donation less than Rs. 4,000/- the CIT(A) noted that total amount involved was Rs. 47,41,243/- having 2197 donations. The CIT(A) was of the view that on the basis of examination it will be quite reasonable to estimate 46% of the donation shown by the assessee as being unaccounted or unexplained money because the assessee has failed to get all its donations shown to have taken from 2700 persons verified because the list of donors being with incomplete or wrong addresses and hence not fully verifiable. The CIT(A) accordingly calculated amount of disallowance out of donation less than Rs. 4,000/- of which calculation comes to Rs. 21,80,971/-. The CIT(A) accordingly held that the total amount of Rs. 27,96,200/- is liable to be taxed under section 115BBC of the Act. In this regard the relevant detailed finding of CIT(A) is reproduced as below :-
(Paragraph nos.7.1 to 7.4, page nos.17, 18 & 19)
"7.1 After considering the submission of the Ld. AR, remand report of the AO and rejoinder of the appellant filed against the remand report of the AO and all the materials available on the assessment record, it is quite clear that entire amount of donation amounting to Rs. 68,99,943/- are not verifiable. It has also been found that the list of 2700 donors so far produced by the appellant does not have complete and correct addresses of all the donors and therefore, it is not possible to make verification of the entire amount shown by the appellant as donation. It has also been found that receipt books for donation produced by the appellant during the assessment proceeding did not appear to have been made on day to day basis looking to the writing on the slip book which prima-facie was found by the AO to have been written in a single sitting. Though it was claimed that these donations were collected by arranging camps in nearby villages but details of dates and places where these camps were organized could not be furnished by the appellant. While organizing such camps, certain expenditure are required to be incurred on the persons who are sent to manage such camps and for creation of necessary logistic for organizing such camps but no such expenses are shown to have been Incurred by the appellant. On the basic of verification so far carried out by the AO in case of the persons who are claimed to have given donation more than Rs. 4000/, numbering 502, it has been found that out of 502 donors listed out by the appellant, verification could be made only from 359 persons (257 verified by the AO + 102 confirmations filed before me) and thus the appellant was able to get the necessary verification made in case of 71.5% such donation (359/502X100) and hence about 28.5% such donors remained unverified. As per the categorized list of all the donation furnished by the Ld. AR in rejoinder, which is reproduced in para 6.2, it may be seen that such donors are shown to have contributed Rs. 21,58,700/-. Therefore, I find that in case of those donations which are shown more than 4,000/- an amount of Rs. 6,15,229/- remained unverified being 28.5% of Rs. 21,58,700/-
7.2 For other donations shown less than Rs.4000/- as per the list submitted by the Ld. AR and reproduced in para 6.2, the total amount involved is Rs. 47,41,243/- having 2,197 donors. Out of these 2,197 donors, necessary verification were made from time to time, first by the Ld. CIT-I Agra, then by the AO during the assessment proceeding and also during remand proceeding and the result of such enquiries are given are as under:-
| Letter issued for verification | Refused for giving donation or address is found wrong | Accepted giving donation | Not replied | |
| 548 enquired by CIT-I | 7 | 239 | 302 | |
| 63 enquired by the AO during assessment | 23 (refused) + 8 (wrong address) | 30 | - | |
| 137 enquired by the AO during remand | 11 (refused) + 69 (wrong address) | 17 | 40 | |
| Total = 748 | 118 | 286 | 342 |
7.3 On the basis of above chart, it can be seen that out of total verification in the case of 748 persons, in case of 118 persons, either they have refused for giving donation or address given are not correct. In case of 342 persons, no reply was received and only 286 persons confirmed giving the donation. On the basis of these statistics, I find that over all sample survey done in 748 cases is about 34% of the total donors. Out of sample survey of 34%, it has been found that 118 persons out of 748 persons refused to have given donation or address was found to be wrong which comes to about 16%. Therefore, out of sample survey of 34% sample about 16% refused for giving donation. If this %age of sample survey is extrapolated to total number of donors, %age of the persons who can possibly refuse for giving the donation or whose address are not complete or wrong would come to about 47% (16/34X100). Therefore, considering the fact that the list of donors furnished by the appellant does not have complete and correct address of all donors, and donation receipt slips are found not to have been prepared in proper manner and also about 41 persons clearly refused to have given donation during sample survey, it would be quite reasonable to estimate 46% of the donation shown by the appellant as being unaccounted/unexplained money because the appellant has failed to get all its donations shown to have been taken from 2700 persons verified because the list of donors being with incomplete or wrong addresses and hence not fully verifiable. 46% of total amount of donation below Rs. 4000 of Rs. 47,41,243/- comes to Rs. 21,80,971/-.
Therefore, out of the donations of Rs. 47,41,243/-, shown to have been taken from donors who are claimed to have' given donation below Rs. 4000/-, amount of Rs. 21,80,971/- is found to be unaccounted money on estimate basis on the basis of sample survey done by the AO and considering the circumstances that the appellant failed to get all the donations shown by it verified.
7.4 In view of my findings about the donations above Rs. 4,000/- and below Rs. 4,000/- in para 7.1 & 7.3, total amount of donations found to be in form of unaccounted/unexplained money which could not be verified due to persons refusing to have given donation or their address were not complete or wrong or they could not be produced for verification by the appellant comes as under:-
| Donation above Rs. 4,000 | 6,15,229 | |
| Donation below Rs. 4,000 | 21,80,971 | |
| Total amount of donation in form of unaccounted/unexplained money | Rs. 27,96,200 |
In view of the above findings, the total amount of Rs. 27,96,200/- is found to be unexplained donation out of total amount of Rs. 68,99,943/- claimed by the appellant to have been received as 'corpus donation'. Such unexplained donation can be treated as anonymous donation being in form of unaccounted money and is liable to be taxed u/s 115BBC."
7. The CIT(A) has decided the issue raised by the assessee that donations are received from named persons and not from anonymous persons. Therefore, section 115BBC of the Act is not applicable to the case of the assessee. The CIT(A) distinguished the judgement in the case of Hon'ble Supreme Court in the case of Smt. P.K. Norjahan relied upon by the assessee. The CIT(A) has also rejected the assessee's contention that the assessee society is registered under section 12AA of the Act, therefore, exemption will apply both to the disclosed and undisclosed income. The assessee in support of its contention relied upon a decision of Cochin Bench in the case of Asstt. CIT v. Muslim Educational Society [2010] 1 ITR (Trib) 527 (Cochin). The CIT(A) distinguished the decision of I.T.A.T. in the case of Muslim Educational Society on the ground the in that case the issue was pertaining to section 10(23C) of the Act whereas in the case under consideration , it relates to section 11 and 12AA of the Act. As per section 11, entire income of members of societies which are registered under section 12AA are not exempted from tax and exemption are provided only for those income which are mentioned in section 11(1) after fulfilling certain conditions. The CIT(A) has also examined the provisions of section 115BBC and held that donations can be said to be from known persons only when the identity of the donors shown in the donor list is established. The CIT(A) noted that in the case under consideration, after a detailed examination including sample survey, it was found that the identity of the donors with respect to donation of Rs. 27,96,200/- could not be established by the assessee. Therefore, such amount of donation can be very well treated as anonymous donation and such donation would be liable for taxation as per the provisions of section 115BBC of the Act. The CIT(A) directed the A.O. to treat donation amount of Rs. 27,96,200/- as anonymous donation out of total amount of Rs. 68,99,643/- shown by the assessee and tax this amount of anonymous donation as per the provisions of section 115BBC of the Act.
8. The ld. Authorised Representative reiterated the submissions made before the CIT(A) and submitted that section 115BBC is applicable to anonymous donation only. Ld. Authorised Representative submitted that the assessee received donations from named persons and not from anonymous persons. Ld. Authorised Representative referred a list of donors of which copy has been placed at page nos. 6 to 53 of assessee's Paper Book. Ld. Authorised Representative referred the order of I.T.A.T., Agra Bench in assessee's case in ITA Nos. 399 & 400/Agr/2007, order dated 06.02.2009 and submitted that the I.T.A.T while giving direction to CIT to grant registration under section 12AA and 80G(5) observed that though majority of the donors confirmed having given the donations, merely because seven persons have denied having given the donations of 2700 donor, the genuineness of trust is not lost. Ld. Authorised Representative submitted that the assessee has furnished complete details of donors, therefore, it cannot be held that donation received by the assessee was anonymous. Ld. Authorised Representative in support of his contrition relied upon order of I.T.A.T. Delhi Bench in the case of Hans Raj Samarak Society v. Asstt. DIT Exemptions [2011] 133 ITD 530/16 taxmann.com 103.
9. The ld. Departmental Representative, on the other hand, relied upon the orders of the Revenue Authorities and submitted that the assessee has failed to maintain complete details regarding donors. Therefore, the case of the assessee is squarely covered by section 115BBC of the Act.
10. We have heard the ld. Representatives of the parties and records perused. The admitted facts of the case are that the assessee society has been granted registration under section 12AA of the Act. Before coming to the issue under consideration, we would like to refer and discuss the scheme of the Act. Income of wholly charitable or religious trusts or institutions as well as partly charitable or religious trusts or institutions is exempt from income tax under sections 11 & 12, subject to the fulfillment, inter alia, of certain conditions, of application of income and investment in specified modes. Similarly, income of any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (via) or any hospital or other medical institution referred to in sub-clause (iiiae) or sub-clause (via) or any fund or institution referred to in sub-clause (iv) or any trust or institution referred to in sub-clause (v) of clause (23C) of section 10, is exempt from income tax subject to the fulfillment of conditions specified in the said clause.
10.1 With a view to prevent channelisation, of unaccounted money to these institutions by way of anonymous donations, a new section 115BBC has been inserted to provide that any income of a wholly charitable trust or institution by way of any anonymous donation shall be included in its total income and taxed at the rate of 30%. Anonymous donation made to wholly charitable and religious trusts or institutions, i.e. mixed purpose trusts or institutions shall be taxed only if it is for any university or other educational institution or any hospital or other medical institution run by them. Anonymous donation to wholly religious trusts or institutions will not be taxed.
10.2 Anonymous donation has been defined in the new section to mean any voluntary contribution referred to in section 2(24) (iia) of the Act, 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. Consequential amendments have been made in section 10(23C) and section 13 to provide that any income by way of any anonymous donation which is taxable under section 115 BBC shall be included in the total income of the assessee. Section 115BBC is applicable from assessment year 2007-08 onwards.
11. To appreciate the issue we would like to reproduce section 115BBC as under:-
"115BBC. (1) Where the total income of an assessee, being a person in receipt of income on behalf of any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via) or any fund or institution referred to in sub-clause (iv) or any trust or institution referred to in sub-clause (v) of clause (23C) of section 10 or any trust or institution referred to in section 11, includes any income by way of any anonymous donation, the income-tax payable shall be the aggregate of—
[(i) the amount of income-tax calculated at the rate of thirty per cent on the aggregate of anonymous donations received in excess of the higher of the following, namely:—
(A) five per cent of the total donations received by the assessee; or
(B) one lakh rupees, and
(ii) 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.]
(2) The provisions of sub-section (1) shall not apply to any anonymous donation received by—
(a) any trust or institution created or established wholly for religious purposes;
(b) 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.
(3) For the purposes of this section, "anonymous donation" means 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.]"
12. On a plain reading of section 115BBC, the salient features of section noticed are as under :-
(1) Total income of an assessee, being a person in receipt of income on behalf of:-
(i) any university or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed; or
(ii) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purpose and not for purposes of profit, if the aggregate annual receipts of such hospital or institution do not exceed the amount of annual receipts as may be prescribed; or
(iii) any other fund or institution established for charitable purposes [which may be approved by the prescribed authority], having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States; or
(iv) any trust (including any other legal obligation) or institution wholly for public religious purposes or wholly for public religious and charitable purposes [which may be approved by the prescribed authority], having regard to the manner in which the affairs of the trust or institution are administered and supervised for ensuring that the income accruing thereto is properly applied for the objects thereof;
(v) any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approve by the prescribed authority; or
(vi) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiac) or sub-clause (iiiae) and which may be approved by the prescribed authority]
(vii) Trust or institutions referred to in section 11.
(2) Includes any income by way of any anonymous donation.
(3) Income tax payable shall be the aggregate of the amount of income tax calculation on the income by way of any anonymous donation @ 30%.
(4) Amount of income tax with which the assessee would have been chargeable had his total income been reduced by the amount of income charged to tax @ 30%.
(5) Anonymous Donation - for the purpose of anonymous donation, following conditions must be satisfied:-
(i) Anonymous donation means 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]].
(ii) Where a person receiving such contribution does not maintain record of the identity indicating the name and address of person making such contribution and such other particulars as may be prescribed.
(6) This provision of anonymous donation shall not apply to following :-
(i) any trust or institution created or established wholly for religious purpose;
(ii) any trust or institution created or established wholly for religious purpose and charitable purpose 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.
13. In the light of the above background of discussions of relevant scheme of the Act and provisions of section 115BBC, if we consider the facts of the case under consideration, we notice that the assessee did not maintain records of the identity indicating the names and addresses of the donors. Merely filing list of donors containing names and addresses/incomplete addresses does not satisfy the conditions laid down in section 115BBC(3) of the Act. The sub-section (3) of section 115BBC has explained the meaning of anonymous donation clearly that such institution is required to maintain records of identity indicting the names and addresses of the persons making the donations or contributions. On a perusal of records, we do not find that the assessee has maintained such records of identity indicting names and addresses of the donors. After sample examination carried out by the Revenue Authorities, it was found that in some cases the assessee has proved identity indicating the names and addresses of the donors. Therefore, to that extent, it can be said that the there was no anonymous donation. The burden is on the assessee to explain that the assessee has maintained records of identity indicting names and addresses of the persons of such contribution or donation. Since the assessee has failed to maintain such records, under the circumstances, it is clearly a case covered by anonymous donation. On account of failure of the assessee and in the absence of other alternative calculation or determination of amount of anonymous donation, we agree with the CIT(A) estimating such anonymous donation on the basis of sample examination. Such exercise is not unjust because inspite of the fact that the assessee did not maintain the records as required under clause (3) of section 115BBC, the benefit has been allowed by the CIT(A) on the basis of sample examination of the total donation. As regards the contention of the assessee that the donation was with a specific direction, therefore, section 115BBC is not applicable, in this regard, in view of sub-clause (2) of that section 115BBC of the Act, it is relevant to note that the assessee has failed to produce any evidence based on which it can be said that the donation was for a specific direction particularly when the donation was found as anonymous donation.
14. In the light of the above discussion, we do not find any infirmity in the order of CIT(A). Order of the CIT(A) is confirmed.
15. In the result, appeal filed by the assessee is dismissed.
IT : Rental income of bank by letting out property is not eligible for deduction under section 80P(2)(a)(i)
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[2012] 27 taxmann.com 96 (Cochin - Trib.)
IN THE ITAT COCHIN BENCH
Income Tax Officer, Ward 1(1), Trivandrum
v.
Kerala State Co-op. Bank Ltd.*
N.R.S. Ganesan, Judicial Member
And B.R. Baskaran, Accountant Member
IT Appeal No. 546 (Coch.) of 2010
[Assessment year 2006-07]
October 12, 2012
Section 80P of the Income-tax Act, 1961 - Deductions - Income from co-operative societies - Banking activities - Assessment year 2006-07 - Whether rental income of bank by letting out property, even if commercial premises/assets, has to be assessed as 'Income from house property' as it cannot be construed as 'income from banking activity' - Held, yes - Whether a co-operative bank is not eligible for deduction under section 80P(2)(a)(i) in respect of such rental income - Held, yes [Para 13] [In favour of revenue]
Words and Phrases : Word 'Banking' as defined in section 5(b) of the Banking Regulation Act, 1949
FACTS
Facts
• The issue arises for consideration was deduction under section 80P(2)(a)(i) in respect of rental income received by the assessee-state co-operative Bank.
Arguments of assessee
• The commercial premises/ assets was let out. Therefore, the rental income received on letting out of the commercial asset had to be treated as business income attributable to the business of the taxpayer and it would be, eligible for deduction under section 80P(2)(a)(i).
Arguments of revenue
• Letting out of property was not the business of the taxpayer. Moreover, letting out of the property was could not in any way attributable to banking business. Therefore, rental income received by the taxpayer could not be treated as business income for the purpose of granting deduction under section 80P(2)(a)(i).
Issue involved
• Whether letting out of the property was attributable to the business of banking or not?
HELD
Banking business - Extent of activity
• For the purpose of considering whether an activity is banking activity or not, it is necessary that the activity of a bank falls under anyone of the activities mentioned in section 6 of the Banking Regulation Act or it should have some nexus with the activities which are mentioned in section 6 of the Banking Regulations Act. [Para 5]
• A bare reading of the section 6 of the Banking Regulations Act clearly shows that the letting out of the property in no way connects with the banking business or providing credit facility. Letting out the premises is an independent and separate activity for the purpose of exploiting the landed properties. The Commissioner (Appeals) by following the judgment of the Madras High Court in CIT v. Madurai Distt. Co-operative Bank Ltd. [1999] 239 ITR 700 and the Karnataka High Court in the CIT v. Grain Merchants' Co-operative Bank Ltd. [2004] 267 ITR 742/134 Taxman 249 allowed the claim of the taxpayer. [Para 7]
Rental income was income from house property and not from banking business
• In the case on hand the taxpayer has let out the building. It is nobody's case that the commercial asset was exploited in the course of its banking activity or providing credit facility to its members. Therefore, letting out of the property is other than one specified in section and under section 80P(2)(a)(i) and 80P(2)(c). Therefore, the rental income received by the taxpayer has to be assessed as 'Income from house property' and it is not eligible for deduction under section 80P(2)(a)(i) as held by the Kerala High Court in Kottayam Co-operative Land Mortgage Bank Ltd. v. CIT [1988] 172 ITR 43/40 Taxman 259 (Ker.). [Para 11]
• In the case of Totgar's Co-operative Sales Society Ltd. v. CIT [2010] 322 ITR 283/188 Taxman 282 (SC), the Apex Court found that the source of income is relevant for deciding the applicability of section 80P. The Apex Court further found that 'the whole of the amount of profit and gain of business' emphasizes that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society. Therefore, for the purpose of claiming deduction under section 80P(2)(a)(i), the income should be from operational activity, viz., banking activity. Unless and until the letting out of property falls within the definition of banking activity, the rental income received by the taxpayer cannot be construed as operational income. Therefore, as held by the Apex Court, the rental income received by the taxpayer on letting out of the property has to be assessed as 'Income from house property' and it cannot be construed as 'Income from banking activity'. At no stretch of imagination it could be said that rental income is attributable to banking business. [Para 12]
• The taxpayer is not eligible for deduction under section 80P(2)(a)(i) in respect of rental income. [Para 13]
CASE REVIEW
Kottayam Co-operative Land Mortgage Bank Ltd. v. CIT [1988] 172 ITR 443/140 Taxman 259 (Ker.) (para 11) and Totgar's Co-operative Sales Society Ltd. v. CIT [2010] 322 ITR 283/188 Taxman 282 (SC) (para 12) followed.
CASES REFERRED TO
Kottayam Co-operative Land Mortgage Bank Ltd. v. CIT [1988] 172 ITR 443/40 Taxman 259 (Ker.) (para 3), Totgar's Co-operative Sales Society Ltd. v. CIT [2010] 322 ITR 283/188 Taxman 282 (SC) (para 3), CIT v. Madurai Distt. Co-operative Bank Ltd. [1999] 239 ITR 700 (Mad.) (para 4), CIT v. Grain Merchants' Co-operative Bank Ltd. [2004] 267 ITR 742/134 Taxman 249 (Kar) (para 4), Indian Overseas Bank Ltd v. CIT [2000] 246 ITR 206/[2002] 121 Taxman 16 (Mad.) (para 13), CIT v. National Newsprint & Paper Mills Ltd [1978] 114 ITR 388 (MP.) (para 13) and Kottayam District Co-operative Bank Ltd v. CIT [1991] 188 ITR 568/57 Taxman 175 (Ker.) (para 13).
Ms. Veni Raj for the Appellant. Devarajan for the Respondent.
ORDER
N.R.S. Ganesan, Judicial Member - This appeal of the revenuer is directed against the order of the Commissioner of Income-tax(A)-I, Trivandrum dated 14-07-2010 for the assessment year 2006-07.
2. The only issue arises for consideration is deduction u/s 80P(2)(a)(i) of the Act in respect of rental income received by the taxpayer.
3. Ms. Veni Raj, the ld. DR submitted that the taxpayer has received rental income of Rs.27,12,152 and claimed the same as deduction u/s 80P(2)(a)(i). Referring to the provisions of section u/s 80P(2)(a)(i) the ld. DR pointed out that the income of the taxpayer from banking activity or such other activity which is attributable to the banking activity alone is eligible for deduction u/s 80P(2)(a)(i) of the Act. Letting out of property, according to the ld. DR, is not the business of the taxpayer. Moreover, letting out of the property is not in any way attributable to banking business. Therefore, rental income received by the taxpayer cannot be treated as business income for the purpose of granting deduction u/s 80P(2)(a)(i). The ld. DR placed her reliance on the judgment of the jurisdictional High Court in the case of Kottayam Co-operative Land Mortgage Bank Ltd. v. CIT [1988] 172 ITR 443/140 Taxman 259 (Ker.) and also the judgment of the Apex Court in the case of Totgar's Co-operative Sale Society Ltd. v. CIT [2010] 322 ITR 283/188 Taxman 282 (SC).
4. On the contrary, Shri V Devarajan, the ld. representative for the taxpayer submitted that the taxpayer has let out the commercial premises / asset. Therefore, the rental income received on letting out of the commercial asset has to be treated as business income attributable to the business of the taxpayer, therefore, eligible for deduction u/s 80P(2)(a)(i) of the Act. The ld. representative has placed his reliance on the judgment of the Madras High Court in CIT v. Madurai Dist. Co-operative Bank Ltd. [1999] 239 ITR 700 and the Karnataka High Court in CIT v. Grain Merchants' Co-operative Bank Ltd. [2004] 267 ITR 742/134 Taxman 249.
5. We have considered the rival submissions and also perused the material available on record. We have carefully gone through the provisions of section 80P(1) and 80P(2) of the Act which read as follows:
"80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.
(2) The sums referred in sub-section (1) shall be the following:-
(a) In the case of a co-operative society engaged in -
(i) Carrying on the business of banking or providing credit facilities to its members, or
(ii) A cottage industry, or
(iii) The marketing of agricultural produce grown by its members, or
(iv) The purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or'
(v) The processing, without the aid of power, of the agricultural produce of its members, or
(vi) The collective disposal of the labour of its members, or
(vii) Fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members,
The whole of the amount of profits and gains of business attributable to any one or more of such activities:"
From the above provisions of sections 80P(1) and 80P(2) it is obvious that the income of the taxpayer from the business of banking or providing credit facility to its members and any activity which are attributable to business of banking are eligible for deduction u/s 80P(2)(a)(i). The question arises for consideration is whether letting out the property is attributable to the business of banking or not?
6. The business of banking is not defined in the Income-tax Act. Therefore, we have to necessarily go to the definition provided in Banking Regulation Act which defines "banking" as follows:
"5(b) "banking" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise."
Further to that, we find that for the purpose of considering whether an activity is banking activity or not, it is necessary that the activity of a bank falls under anyone of the activities mentioned in section 6 of the Banking Regulation Act or it should have some nexus with the activities which are mentioned in section 6 of the Banking Regulations Act. This section 6 of the Banking Regulation Act reads as follows:
6. Forms of business in which banking companies may engage - (1) In addition to the business of banking, a banking company may engaged in any one or more of the following forms of business, namely:-
(a) The borrowing, raising or taking up of money, the lending or advancing of money either upon or without security; drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hoondees, promissory notes, coupons, draft, bills of lading, railway receipts, warrants, debentures, certificates, scrips and other instructions, and securities whether transferable or negotiable or not; the granting and issuing of letters of credit, traveller's cheques and circular notes; the buying selling and dealing in bullion and specie; the buying and selling of foreign exchange including foreign bank notes; the acquiring, holding, issuing on commission, underwriting and dealing in stock, funds, shares, debentures, debenture stock, bonds, obligations, securities and investments of all kinds; the purchasing and selling of bonds, scrips or other forms of securities on behalf of constituents or others, the negotiating of loans and advances; the receiving of all kinds of bonds, scrips or valuables on deposit or for safe custody or otherwise; the providing of safe deposit vaults; the collecting and transmitting of money and securities;
(b) Acting as agents of any Government or local authority or any other person or persons; the carrying on of agency business of any description including the clearing and forwarding of goods, giving of receipts and discharges and otherwise acting as an attorney on behalf of customers, but excluding the business of a [Managing Agent or Secretary and Treasurer] of a company;
(c) Contracting for public and private loans and negotiating and issuing the same;
(d) The effecting, insuring, guaranteeing, underwriting, participating in managing and carrying out of any issue, public or private, of State, municipal or other loans or of shares, stock, debentures or debenture stock of any company, corporation or association and the lending of money for the purpose of any such issue;
(e) Carrying on and transacting every kind of guarantee and indemnity business;
(f) Managing, selling and realizing any property which may come into the possession of the company in satisfaction or part satisfaction of any of its claims;
(g) Acquiring and holding and generally dealing with any property or any right, title or interest in any such property which may form the security or part of the security for any loans or advances or which may be connected with any such security;
(h) Undertaking and executing trusts;
(i) Undertaking the administration of estate as executor, trustee or otherwise;
(j) Establishing and supporting or aiding in the establishment support of associations, institutions, funds, trusts, and conveniences calculated to benefit employees or ex-employees of the company or the dependents or connections of such persons; granting pensions and allowances and making payments towards insurance; subscribing to or guaranteeing moneys for charitable or benevolent objects or for any exhibition or for any public general or useful object;
(k) The acquisition, construction, maintenance and alteration of any building or work necessary or convenient for the purposes of the company;
(l) Selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing of or turning into account or otherwise dealing with all or any part of the property and rights of the company;
(m) Acquiring and undertaking the whole or any part of the business of any person or company, when such business is of a nature enumerated or described in this sub-section;
(n) Doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company;
(o) Any other form of business which the Central Government may, by notification in the Official Gazette, specify as a form of business in which it is lawful for a banking company to engage.
(2) No banking company shall engage in any form of business other than those referred to in sub-section (1)."
7. A bare reading of the section 6 of the Banking Regulations Act clearly shows that the letting out of the property in no way connects with the banking business or providing credit facility. Letting out the premises is an independent and separate activity for the purpose of exploiting the landed properties. The Commissioner of Income-tax(A) by following the judgment of the Madras High Court in Madurai Dist. Co-operative Bank Ltd (supra) and the Karnataka High Court in The Grain Merchants Co-operative Bank Ltd (supra) allowed the claim of the taxpayer.
8. We have carefully gone through the judgment of the Madras High Court in the case of Madurai Dist. Co-operative Bank Ltd (supra). In the case before the Madras High Court, the taxpayer, a co-operative bank let out the meeting hall of and the rental income was claimed as "Income from business". The Madras High Court, after considering the judgment of the Kerala High Court in Kottayam Co-operative Land Mortgage Bank Ltd (supra) found that the revenue has challenged the treatment of income as business income and once the letting out of the property was assessed under the head "Income from business" it can only be said that letting out of a commercial asset is a business activity and entitled for deduction u/s 80P(2)(a)(i) of the Act. The Madras High Court has distinguished the judgment of the Kerala High Court.
9. We have also carefully gone through the judgment of the Karnataka High Court in the case of The Grain Merchants Co-operative Bank Ltd. (supra). The Karnataka High Court found that rental income received by a co-operative bank is income received in the course of business of banking and as such entitled for deduction u/s 80P(2)(a)(i) of the Act.
10. We have also carefully gone through the judgment of the Kerala High Court in Kottayan Co-operative Land Mortgage Bank Ltd. (supra). In the case before the High Court, the taxpayer co-operative society was engaged in the business of banking by providing credit facilities to its members. The taxpayer constructed a building to house the bank and the administrative office. The surplus space in that building was let out and the taxpayer claimed the rental income as deduction u/s 80P(2)(c) of the Act. The Kerala High Court, after considering the provisions of section 80P(2)(c) found that the business of banking or providing credit facility to its members falls under clause (c) of section 80P(2). The claim of exemption under clause (c) is in addition to exemption provided under clause (a). The provisions of clauses (a) and (c) are cumulative and mutually supplementing. The Kerala High Court further found that the limit specified in clause (c) are in relation to profit and gain attributable to activity other than one specified in clause (a). The Kerala High Court further found that if the rental income received by the society is attributable to an activity of the society then clause (c) would be attracted. The Kerala High Court further found that deduction u/s 80P(2) is available in respect of income of the co-operative society which are attributable to the activity in which the co-operative society is engaged. The Kerala High Court further found that letting out of the property is not an activity which falls under clause (c). Letting out of the property is not a commercial asset and the profit or gain received by the taxpayer is not from exploitation of commercial asset. Accordingly, the Kerala High Court held that the rental income received by the taxpayer on letting out of the surplus space is not eligible for deduction u/s 80P(2).
11. In the case on our hand also the taxpayer has let out the building. It is nobody's case that the commercial asset was exploited in the course of its banking activity or providing credit facility to its members. Therefore, letting out of the property is other than one specified in section and u/s 80P(2)(a)(i) and 80P(2)(c). Therefore, the rental income received by the taxpayer has to be assessed as "Income from house property" and it is not eligible for deduction u/s 80P(2)(a)(i) of the Act as held by the Kerala High Court in Kottayam Co-operative Land Mortgage Bank Ltd (supra). This judgment of the Kerala High Court is binding on all authorities and this Tribunal. It is unfortunate that the Commissioner of Income-tax(A) has chosen to place reliance on the judgment of the Madras High Court rather than that of the jurisdictional High Court. The law Laid down by the jurisdictional High Court is binding on all authorities. Therefore, all authorities in the State of Kerala has to prefer to follow the judgment of Kerala High Court rather than other High Courts. This Tribunal is of the considered opinion that the judgment of the Kerala High Court in the case of Kottayam Co-operative Land Mortgage Bank Ltd is squarely applicable to the facts of the case.
12. We have also carefully gone through the judgment of the Apex Court in the case of Totgar's Co-operative Sales Society Ltd (supra). The Apex Court, after considering the provisions of section 80P found that the source of income is relevant for deciding the applicability of section 80P of the Act. The Apex Court further found that weightage should be given to the words "the whole of the amount of profit and gain of business" attributable to one of the activities specified in section 80P(2)(a) of the Act. The Apex Court further found that "the whole of the amount of profit and gain of business" emphasizes that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society. Therefore, for the purpose of claiming deduction u/s 80P(2)(a)(i), the income should be from operational activity, viz. banking activity. Unless and until the letting out of property falls within the definition of banking activity, the rental income received by the taxpayer cannot be construed as operational income. Therefore, as held by the apex court, the rental income received by the taxpayer on letting out of the property has to be assessed as "Income from house property" and it cannot be construed as "Income from banking activity". At no stretch of imagination it could be said that rental income is attributable to banking business.
13. A similar view was taken by the Madras High Court in the case of Indian Overseas Bank Ltd v. CIT [2000] 246 ITR 206/[2002] 121 Taxman 16. The Madras High Court, after distinguishing the judgment of the Madhya Pradesh High Court in CIT v. National Newsprint & Paper Mills Ltd [1978] 114 ITR 388 found that the business of the taxpayer is banking and the business connection between the tenant and taxpayer has nothing to do with banking operation carried on by the taxpayer. Further, the Kerala High Court in Kottayam District Co-operative Bank Ltd. v. CIT [1991] 188 ITR 568/57 Taxman 175 (Ker.) has also taken a similar view. Therefore, this Tribunal is of the considered opinion that the taxpayer is not eligible for deduction u/s 80P(2)(a)(i) in respect of rental income. By respectfully following the judgment of the Apex Court in the case of Totgar's Co-operative Sales Society Ltd. (supra) and the Kerala High Court in the case of Kottayam Co-operative Land Mortgage Ltd. (supra) we set aside the order of the Commissioner of Income-tax(A) and restore that of the assessing officer.
14. In the result, the appeal of the revenue stands allowed.
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