Commissioner of Income Tax vs Sohan Lal Singhania

At the instance of the Commissioner of Income Tax (Central) Kanpur, the Income Tax Appellate Tribunal, Allahabad Bench, Allahabad, u/s 256(1) of the Income Tax Act, 1961 (for short "the Act"), has referred the following question of law for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee would be entitled to claim deduction u/s 80G of the Income Tax Act, 1961, in respect of the shares donated to Murlidhar Sohan Lal Foundation Society, Kanpur ?"

We have heard learned counsel for the parties. The dispute pertains to the assessment year 1974-75. At the relevant time, the assessee held 6,000 equity shares of the face value of rupees 10 of J. K. Synthetics Ltd., Kanpur, as stock-in-trade. Those shares were donated by the assessee to Murlidhar Sohan Lal Foundation Society, Kanpur, a charitable trust. In his assessment, the assessee claimed a deduction of Rs. 23,584 u/s 80G of the Act in respect of the said shares transferred to the charitable trust. However, the Income Tax Officer negatived the claim on the ground that the income of the said trust (society) was not exempt under Sections 11 and 12 of the Act and thus one of the pre-requisites for allowance of deduction u/s 80G of the Act was not there. In appeal, the Commissioner of Income Tax (Appeals) sustained the disallowance On a different ground. It was held that although the income of the society was exempt under Sections 11 and 12 of the Act but still the assessee was not entitled to the exemption because the donation was made in kind and not in cash. The assessee carried the matter further in second appeal before the Income Tax Appellate Tribunal. The Tribunal did not agree with the view taken by the Commissioner of Income Tax (Appeals). It held that the assessee cannot be denied the benefit of Section 80G of the Act merely because donation was in kind and not in cash. In taking that view, the Tribunal placed reliance on certain decisions of the Bombay High Court including the decision in Commissioner of Income Tax, Bombay City I Vs. Associated Cement Co. Ltd., and on the decision of the Madras High Court in Addl. CIT v. Abhai Maligai [1978] 113 ITR 737 and preferred not to follow the decision of the Commissioner of Income Tax Vs. Amonbolu Rajiah, on which reliance was placed on behalf of the Revenue.

The question that falls for consideration is whether the benefit u/s 80G was permissible to the assessee who made the donation in kind, i.e., shares to a charitable institution and the donation was not made in cash.

In Commissioner of Income Tax Vs. Gopal Krishna Singhania, , a Division Bench of this court took the view that donations of movable and immovable properties are not within the purview of Section 80G, only donations in cash attract the Section. Therefore, where an assessee made a donation of some shares to a school trust, it would not be entitled to the special deduction u/s 80G.

The above decision of this court has been approved by the Supreme Court in H.H. Sri Rama Verma Vs. Commissioner of Income Tax, Ernakulam, , and the decisions which were relied upon by the Tribunal, have been specifically disapproved. The Supreme Court held that the context in which the expression "sums paid by the assessee" has been used u/s 80G(2)(a) makes the legislative intent clear that it refers to the amount of money paid by the assessee as donation. The Act provides for assessment of tax on the income derived by an assessee during the assessment year, and the income relates to the amount of money earned or received by the assessee. Therefore, for purposes of claiming deduction u/s 80G(2)(a), the donation must be a sum of money paid by the assessee. The plain meaning of the words used in the Section does not contemplate donations in kind. The donation of shares of a company does not amount to payment of any amount though the shares, on their sale, may be converted into money, and the donation so made does not fall within the ambit of Section 80G(2)(a). The same view has been reiterated by the Supreme Court in its subsequent decision in Vijaipat Singhania Vs. Commissioner of Income Tax, Kanpur, .

In view of the decisions of the Supreme Court and of this court, referred to hereinabove, the view taken by the Income Tax Appellate Tribunal cannot be sustained. It must be held that the Tribunal was not justified in taking the view that the assessee would be entitled to claim deduction u/s 80G of the Act in respect of the shares donated to Murlidhar Sohan Lal Foundation Society, Kanpur. The question is accordingly answered in the negative, i.e., in favour of the Revenue and against the assessee.