S. 11: Law on taxability of voluntary donations as “anonymous donations” u/s 115BBC or as “cash credit” u/s 68 in hands of charitable trust explained

The assessee, a charitable institution, received donations of Rs. 3.55 crore. It maintained a record indicating the name and address of the donor. It claimed that the said donations had been applied for charitable purposes as per s. 11 and nothing was assessable. The AO conducted a test check by sending letters to the donors. To the extent of donations aggregating Rs. 1.96 crore, the letters came back undelivered or were not replied to. The AO held that as the confirmations were not received, the said donations were “anonymous donations” and assessable to tax u/s 115BBC. He held that alternatively, the said sum was assessable as a “cash credit” u/s 68 as the identity, genuineness and credit worthiness of the alleged donors was not proved. On appeal, the CIT(A) held that the said donations could not be treated as “anonymous” u/s 115BBC though he upheld the AO’s stand that the said sum was assessable as a “cash credit” u/s 68. On further appeal by the assessee to the Tribunal HELD allowing the appeal:

(i) S. 115BBC which assesses “anonymous donations” does not apply because the assessee has maintained a record of the identity indicating the name and address of the person making the contribution;

(ii) S. 68 seeks to assess cash credits as income. However, when the non-corpus voluntary donations are already disclosed as income and applied for charitable purposes, s. 68 has no application. The fact that the complete list of donors was not filed and the donors were not produced does not mean that the assessee was seeking to introduce unaccounted money into the trust;

(iii) U/s 12(1) voluntary donations received without a direction that they shall form part of the corpus are deemed to be income derived from property held for charitable purposes and have to be applied towards the objects of the trust to the extent of 85%. If that is done, the donations are not assessable as income (Keshav Social & Charitable Foundation 278 ITR 152 (Del) followed)