Commissioner of Income Tax vs Lukwah Tea Co. Ltd.

Bhagabati Prasad Banerjee, J.—The following question of law has been referred to this Court by the Tribunal u/s 256(1) of the income tax Act, 1961 (''the Act''): Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in allowing deduction u/s 80G of the income tax Act, 1961, on Rs. 1,90,687 in place of Rs. 1,16,382?

The assessment year involved in this reference is the assessment year 1978-79 for which the relevant period of account is the year ending on 31-12-1977.

In this case the assessee''s gross total income before deduction u/s 80G of the Act, for the said assessment year amounted to Rs. 23,27,649 and the assessee-company made a donations during the said period aggregating to Rs. 3,82,258. The assessee claimed that 50 per cent of the donation, amounting to Rs. 1,66,129 should be deducted from the aforesaid gross total income. The ITO did not agree with the contention of the assessee. According to him, the relief admissible u/s 80G of the Act was limited to 50 per cent of 10 per cent of the gross total income of the assessee. On appeal, the Commissioner (Appeals) reversed the order of the ITO. Then the department brought the matter before the Tribunal. The Tribunal after examining the scheme of section 80G, came to the following conclusion:

... the ceiling up to which deduction u/s 80G is admissible is 10 per cent of the gross total income or two hundred thousand rupees whichever is less. Ten per cent of the gross total income would, therefore, come into reckoning while finding out the maximum amount of deduction permissible under sub-section (1). It cannot be the starting point for computing the deduction under sub-section (1). Deduction under sub-section (1) is to be computed independent of the gross total income. As we have noticed above, it is 50 per cent of the various sums referred to in sub-section (2) of section 80G. The measure of 10 per cent of gross total income does not apply to ascertain the various sums paid and referred to in sub-clauses (i), (ii) and (iii) of clause (a) of sub-section (2). The sums paid under the said clauses, whatever be their amount are allowable as deduction u/s 80G(1) to the extent of 50 per cent thereof. The sums paid in terms of clauses (iv) and (v) above are subjected to the ceiling, which is equal to 10 per cent of the gross total income or two hundred thousand rupees, whichever is less. The income tax Officer had, therefore, patently erred in computing the deduction u/s 80G(1) with reference to 10 per cent of the total income. The reference to 10 per cent is to be made only after ascertaining the sums referred to in clauses (iv) and (v) under sub-section (2) of section 80G as a measure to determine whether the deduction so computed is more or less than the said ten per cent of the gross total income. The above view has been brought out succinctly in the judgment of their Lordships of the Andhra Pradesh High Court cited above. The Commissioner (Appeals) was, therefore, right in taking the view he did. The grievance of the department is, in our view, misplaced and hence rejected.

The Andhra Pradesh High Court in the case of Hyderabad Race Club Vs. Addl. Commissioner of Income Tax, , held that u/s 80G(1) an assessee other than a company was entitled to deduction of 55 per cent of the donations specified in sub-section (2). Further limitation was imposed by section 80G(4) in the case of donations given to the cases specified in clauses (iv) and (v) of section 80G(2)(a) and section 80G(2)(b) limiting such deduction to a sum equivalent to 10 per cent of the gross total income or two hundred thousand rupees, whichever was less. The limitation imposed in section 80G(4) was only the ceiling for the deductions allowable u/s 80G(1). It was held in that case that the assessee was entitled to the deduction of 55 per cent of the donations as restricted by the ceiling limit of 10 per cent of the total income, viz., Rs. 40,308.

Our attention was also drawn to a decision of the Karnataka High Court in the case of Commissioner of Income Tax Vs. Canara Bank, , where a contrary view was taken. In that case it was observed that under sub-section (1) of section 80G, an assessee was entitled to have deduction up to 50 per cent of the total donations made while computing his total income. However, sub-section (4) of section 80G which placed an embargo on the maximum deduction permissible provide that an assessee would not be entitled to deduction on that part of the amount of donations which exceeded two hundred thousand rupees.

We respectfully differ with the view expressed by the Karnataka High Court inasmuch as, in our view, this is contrary to the plain meaning of the section itself we agree into the view expressed by the Andhra Pradesh High Court.

On plain reading of sub-section (1) of section 80G it appears that in computing the total income of an assessee that there shall be deducted in accordance with and subject to the provisions of this section, an amount equal to 50 per cent of the aggregate of the sums specified in sub-section (2) thereof. It is categorical grant of relief, that is 50 per cent of the aggregate sums. Sub-section (2) specifies the list of charitable institutions to which donations can be made. Sub-section (4) of section 80G limits the extent of donations only. Sub-clauses (iv) and (v) provide that if any sum is donated to any other fund or any institution to which this section applies or the Government or any local authority to be utilized for any charitable purpose. These are the two embargoes imposed by sub-clauses (iv) and (v) of sub-section (2) of section 80G.

In this particular case the relief given is within the limitation imposed under sub-clauses (iv) and (v) of sub-section (2) of section 80G.

Accordingly, the question of law referred to is answered in the affirmative and in favour of the assessee. There will be no order as to costs.

Suhas Chandra Sen, J.

I agree.