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In a recent judgment, Rajasthan High Court Jodhpur Bench has upheld the order of ITAT allowing deduction u/s 80G for donation of equipments holding that if substance of a transaction is a money transaction, deduction u/s 80G is allowable and can not be said to be in kind not allowable.

Case Details:
Income Tax Appeal No.54/2015
CIT (Appellant) vs M/s Nash Fashions India Ltd. (Respondent)
Date of Order: 11-08-2015

Facts of the Case:
In the instant case, controversy arose to the deduction claimed by the assessee u/s 80G of the Income Tax Act, 1961. The assessee was a limited company engaged in the business of trading & export of readymade garments. During the assessment year 2009-10, the assessee claimed deduction u/s 80G of the Income Tax Act, 1961 for the donation made in the form of various equipments/items to M/s. Rajasthan Medical Relief Society, SMS Hospital, Jaipur.

The Assessing Officer scrutinised the case u/s 143 and allowed the deduction claimed. However, CIT held that in view of Explanation-5 of Sec.80G no deduction could be allowed in respect of any donation unless such donation is a sum of money and since the assessee made donation in the form of equipments and not as a sum of money, such deduction was not permissible in law. He further held that the Assessing Officer allowed 80G deduction without verifying the facts and without considering the provisions of Income Tax law. He found assessment erroneous and prejudice to the interest of the revenue, therefore, he issued notice U/s 263 of the Act.

The assessee contended that the donation was of money through cheque and on the request of M/s Rajasthan Medical Relief Society, S.M.S. Hospital, Jaipur, the cheques were issued in favour of supplier of medical equipments, who directly supplied and installed the equipments at ICU of SMS hospital and therefore it was not a donation in kind.  The assessee company also submitted a certificate issued by Medical Superintendent of SMS Hospital, Jaipur stating that M/s Nash Fashions (India) Ltd. had donated Rs. 86,41,387/- to S.M.S. Hospital for setting up new I.C.U. Unit which was utilized for purchase of equipments. Assessee claimed that Explanation-5 of   Section 80G   do not mandate that the payment should be made directly to the donee. The assessee had made payments by cheques to the suppliers of equipments on behalf of donee which tantamount to donations made as a sum of money.  The assessee argued before him that the substance should be seen not form of donation. It alternatively claimed that this expenditure wholly and exclusively incurred for business purposes U/s 37(1) of the Act. Since the expenditure was incurred for the welfare of general public, which included the employees, suppliers and buyers of the assessee.. The donation was made under the company's policy on corporate social responsibility (CSR)

However CIT being not convinced from the assessee’s replies, directed the Assessing Officer to withdraw the deduction allowed and recomputed the total income and taxed thereon. The order of the CIT was contested by the assessee before the Income Tax Appellate Tribunal (ITAT).

The ITAT observed that the decision of Supreme Court in 187 ITR 308 and Gujarat High Court in 115 CTR 120 relied by CIT, the donation was of shares and therefore it was held that deduction u/s 80G is not available. However, the Supreme Court in its decision approved the decision of Gujarat High Court in CIT Vs. Smt. Dhiraj Ben R. Amin 141 ITR 875 . The ITAT observed that the law was that if in substance the transaction is a money transaction deduction u/s 80G is allowable and to examine whether a donation in substance is a money transaction or not, reference can be made to the decision of Bombay High Court in CIT Vs. Associated Cement Co. Ltd. 68 ITR 478.