Income Tax | Verification By Dept Is Mandatory Before Treating Charitable Donations As Involuntary: ITAT

George George K (Vice President) stated that the First Appellate Authority (FAA) treated the donations as not voluntary donation and sustained the addition made by the AO. The FAA has not carried out any independent enquiry or verification to ascertain whether donations are voluntary or not. The findings of the FAA appear to rest on presumptions, surmises, and conjectures, rather than on any concrete material or evidence.

Section 11 of Income Tax Act, 1961, governs tax exemption for income earned by charitable and religious trusts and institutions.

Section 115BBC of Income Tax Act, 1961, deals with the taxability of income in relation to anonymous donations received by charitable or religious institutions, trusts and specified educational or medical institutions.

In this case, the assessee is a public charitable trust registered under Section 12AA of the Income Tax Act. It is running an educational institution.

In the return filed for the assessment year 2018-19, assessee had shown a sum of Rs.49,03,218/- as surplus over expenses and claimed the same as exempt under Section 11 of the Act.

The Assessing Officer (AO) found that the assessee trust had received donation of Rs.31,60,400/- in cash. The AO directed the assessee to submit the details of donations.

Since no such details were furnished before completion of assessment, the AO in the assessment order passed under Section 143(3) r.w.s.143(3A) & 143(3B) of the Act, treated the donation of Rs.31,60,400/- as anonymous donation and taxed the same under Section 115BBC of the Act.

Aggrieved by the assessment order completed, assessee filed appeal before the First Appellate Authority (FAA).

The FAA accepted the fact that it is not anonymous donations however, treated the same as not voluntary donation since it was part of the procedure for admission in schools and confirmed the disallowance of exemption under Section 11 of the Act of Rs.31,60,400/-.

As per the assessee the adverse judgment of CIT vs. MAC Public Charitable Trust, reported in 450 ITR 368 (Madras HC) cannot be relied upon as it was stayed by the Apex court in the case of MAC Public Charitable Trust vide its order dated 04.12.2023.

The assessee submitted that the ratio held by ITAT, Chennai Bench, in Joseph's Institute of Science & Technology Trust & Anr. vs. PCIT in ITA Nos.1618 to 1620/CHNY/2020, that by the virtue of Supreme Court judgment the operation of the judgment of Jurisdictional High Court in the case of MAC Public Charitable Trust is not operative and is not binding.

No material evidence has been brought on record by the Revenue to show that the donations were compulsory or collected as capitation fees, stated the Tribunal.

The bench found that the donations were received from student who were studying for many years in the school run by assessee trust, thereby inference could be made donations were not linked to grant of admission but voluntary contribution for building fund.

The Tribunal noted that the FAA has failed to discharge the burden of proof in establishing that the donations were not voluntary. The findings are general in nature and lack factual or evidentiary support.

Considering the material placed on record by the assessee, the donations are found to be voluntary in nature, and hence, cannot be treated as income chargeable to tax, added the bench.

In view of the above, the Tribunal allowed the appeal.

Case Title: M/s. Lakshmiammal Progressive Educational Trust v. The Income Tax Officer

Case Number: ITA No.: 2193/CHNY/2025

Counsel for Appellant/ Assessee: Shri S.R. Srikrishna, CA

Counsel for Respondent/ Department: Ms. V. Supraja, Addl. CIT

Click Here To Read/Download The Order