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IN THE INCOMETAX APPELLATE TRIBUNAL
JAIPUR BENCH: JAIPUR
(BEFORE SHRI R.P. TOLANI AND SHRI T.R. MEENA)
I.T.A. No. 298/JP/2014
Asstt. Year- 2009-10

M/s Nash Fashions (India) Ltd. (Appellant)   vs  The C.I.T., Jaipur-I (Respondent)
Date of pronouncement :  05/11/2014

ORDER

PER: T.R. MEENA, A.M.
This is an appeal filed by the assessee against the order dated 21/02/2014 of the learned C.I.T.-I, Jaipur for the A.Y. 2009-10. The sole ground of appeal is against that the Assessing Officer has wrongly allowed the deduction of Rs. 86,41,387/- U/s 80G of the IT Act.

2. In this case, the assessee company is engaged in the business of trading and export of readymade garments. The assessee filed returned income for A.Y. 2009-10 on 30/09/2009 declared total income of Rs. 68,77,320/-. The Assessing Officer scrutinized the case U/s 143(3) of the Income Tax Act, 1961 (in short the Act). The Assessing Officer examined books and allowed 80G deduction claimed by the assessee in computation of income. The learned CIT held that the deduction U/s 80G of the Act at Rs. 86,41,387/- made in form of various equipments/items to M/s Rajasthan Medical Relief Society, S.M.S. Hospital, Jaipur. In view of Explanation-5 of Section 80G, no deduction U/s 80G is allowable in respect of any donation unless such donation is a sum of money. Since the assessee made donation in the form of equipments and not as a sum of money. He further held that the learned Assessing Officer allowed 80G deduction without verifying the facts and without considering the provisions of Income Tax law. He found assessment of the Assessing Officer erroneous and prejudice to the interest of the revenue, therefore, he issued notice U/s 263 of the Act, which was replied by the assessee on various dates. It was submitted by the assessee before him that the assessee made donation of money through cheque of Rs. 86,41,387/-. 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, it was not a donation in kind. In support of his claim, the company submitted certificate issued by Medical Superintendent of SMS Hospital, Jaipur by 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. It was further claimed by the assessee 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). He, therefore, requested to drop the proceedings initiated U/s 263 of the Act.

3. After considering the assessee's reply, it has been held by the CIT-I that it is evident from the records that the assessment order was passed by the Assessing Officer without considering the facts of the issue and relevant provisions of Section 80G of the Act. Whatever evidence filed by the assessee for claiming deduction has not been verified by the Assessing Officer. Neither any query was raised by her nor any explanation sought from the assessee during the assessment proceedings on this issue. This is non-application of mind and non-application of correct provisions of law. Therefore, the Assessing Officer's order is erroneous and prejudicial to the interest of the revenue. The learned CIT referred Explanation-5 of Section 80G on page 3 of his order and also quoted the Hon'ble Apex Court decision in the case of H.H. Shri Rama Verma Vs. CIT 187 ITR 308 and Hon'ble Gujarat High Court decision in the case of CIT Vs. Miss Yeraben R. Amin 115 CTR 120. He further relied upon the decision of Hon'ble ITAT Jaipur Bench decision in the case of ITO Vs. Shri Komal Kumar Bader (ITA No. 1253/JP/2008). He observed that the supplier issued bills in name of appellant not in the name of M/s Rajasthan Medical Relief Society, S.M.S. Hospital, Jaipur, but it should be issued in the name of the society. The sum of money should have been accounted for in his cash books by the society. No evidence was brought on record by the assessee to substantiate its claim that payments were made to the suppliers of the equipments on behalf of the donee. He had not also accepted the alternative contention of the assessee of business expenditure U/s 37 of the Act. The expenses incurred on purchase of equipments were not wholly and exclusively for the purpose of business. He further cited number of cases for not allowing donation as business expenditure. Finally he directed to the Assessing Officer to withdraw the deduction allowed by her and recomputed the total income and taxed thereon.

4. Now the assessee is in appeal before us.

5. 5. The learned A.R. for the assessee has submitted that there is no dispute as to the fact that deduction for donation u/s 80G is available only when donation is of a sum of money. But to consider whether the donation is of a sum of money or not, one has to look to the substance of the transaction and if the substance of the transaction reveals that what is donated is the sum of money the rebate must be granted to the assessee. The Gujarat High Court in case of CIT Vs. Smt. Dhirja Ben R. Amin 141 ITR 875 where the donation was of shares held that since donation is in kind deduction under section 80G is not available. However, in this decision Hon'ble Gujarat High Court after referring to the decision of Bombay High Court in case of CIT Vs. Associated Cement Co. Ltd. 68 ITR 478, Mysore High Court in case of CIT Vs. Bangalore Woollen, Cotton & Silk Mills Co. 91 ITR 166, Andhra Pradesh High Court in case of CIT Vs. Amonbolu Rajiah 102 ITR 403, Bombay High Court in case of CIT Vs Khandelwal Laboratory Pvt. Ltd 118 ITR 531 and Gujarat High Court in case of Saurashtra Cement and Chemical Industries Ltd. Vs. CIT 123 ITR 669 held in para 17 as under:-

"From the resume of the case law discussed above it becomes crystal clear that the provisions of 80G of the Act would be attracted only if the donation is in cash and not in kind. However, in order to decide whether a donation is in cash or in kind, the Court must look to the substance of the donation and not merely to the form in which it is 6 ITA 298/JP/2014 M/s Nash Fashions Vs. CIT-I made. If on the facts, having regard to the substance of the transaction, the Court is satisfied that it is essentially a donation in cash, the rebate under s. 80G would be admissible to the assessee. If it is a donation in kind, pure and simple, it would clearly fall outside the purview of s. 80G of the Act. None of the decisions cited above took the view that a transaction of donation in kind would qualify for rebate under s. 80G if the Act. If such was the view of the Bombay High Court in Associated Cement Company's case (1968) 68 ITR 478, there was no need for the Court to examine the substance of the transaction for the purpose of deciding whether it was a transaction in cash. It was only after the Court came to the conclusion that in substance it was a transaction in cash that it had upheld the assessee's claim for rebate under s. 15B of the Indian IT Act, 1922. The Mysore High Court as well as the Andhra Pradesh High Court have followed the view expressed by the Bombay High Courts in the aforesaid case. They too have taken the view that if it is found that in substance the transaction is a money transaction, the provisions of s. 88 (now s. 80G) of the IT Act, 1961, would be attracted. However, it does appear from para. 61 of the memorandum explaining the provisions of the Finance Bill, 1976, that an impression was created that the judicial pronouncements went to the length of saying that even donations in kind would fall within the purview of s. 80G of the Act. According to the observations of the Andhra Pradesh High Court we are of the opinion that none of the judicial pronouncements, referred to earlier, have laid down in categorical terms that donations in kind fall within the purview of s. 80G of the Act. All that the decisions have stated is that the Courts must examine the substance of the donations and if on an examination 7 ITA 298/JP/2014 M/s Nash Fashions Vs. CIT-I of the relevant evidence it finds that the donation is of a sum of money, it may grant rebate sought by the assessee. The insertion of Expln. 5 by the Finance Act, 1976, w.e.f. 1st April, 1976, was merely to clarify this doubt which had arisen on account of an erroneous reading of the judicial pronouncements on the point. Assuming for the sake of argument that Expln. 5 is retrospective in effect, as contended by the learned counsel for the Revenue, it does not alter the position inasmuch as even before the insertion of the Explanation the view was that only donations in cash would qualify for rebate under s. 80G of the Act. We therefore, do not consider it necessary to examine in detail the contention of the learned counsel for the Revenue that Expln. 5 inserted by the Finance Act, 1976, has retrospective application. Even without the insertion of Expln. 5, as pointed out earlier, Courts have taken the view that s. 80G is attracted only if the donation is in cash and not in kind. The only rider the Courts placed was that before concluding whether the donation in question was in cash or in kind, the substance of the donation should be looked into and if it is found that in substance it is a donation in cash, the benefit of section 80G should be extended to the assessee".

From reading of the entire judgement it can be seen that if the substance of a transaction is a money transaction, deduction u/s 80G is allowable. However, since in the case before the High Court, the donation was of shares and there was no finding of fact that the transaction of donation was in substance in cash, deduction was not allowed to the assessee.

In case of 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 (supra). Thus, the law is that if in substance the transaction is a money transaction deduction u/s 80G is allowable. 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. In this case University of Bombay wrote to the Chairman of the assessee co. a letter saying that it is carrying out important laboratory experiments for which it require 'rottery experimental kiln'. Since the company was fabricating the kiln, its Board of Director passed a resolution sanctioning Rs.6,600/- being the cost of the 'Pilot Kiln' manufactured for the assessee and supplied the kiln. In these facts it was held that having regard to the nature of transaction, in substance it was a transaction where a sum of Rs.6,600/ - was paid by the assessee company as donation to the University, entitled for deduction u/s 15B of the Income Tax Act, 1922. Similarly, in CIT Vs. Bangalore Woollen, Cotton & Silk Mills Co. 91 ITR 166 where cloths manufactured by it were donated to different institution of the value of Rs.6,834/- the Mysore High 9 ITA 298/JP/2014 M/s Nash Fashions Vs. CIT-I Court held that the substance of the transaction reveals that what is donated is a sum of money and therefore the rebate must be granted to the assessee. Again in case of CIT Vs. Amonbolu Rajiah 102 ITR 403 (AP) where the assessee agreed to donate necessary funds for construction of school building for Zila Parishad and advanced various amounts from time to time to the contractor for the purpose of construction of school building on a site belonging to Zila Parishad it was held that arrangement itself indicates that the intention was to donate the money earmarked for the purpose of constructing a school building and therefore the Tribunal is right in reaching the conclusion that it was a donation of money and not in kind and once it is found that it was a donation of a sum of money the case would squarely fall u/s 88 of the Income Tax Act (now section 80G). In case of Saurashtra Cement and Chemical Industries Ltd. Vs. CIT 123 ITR 669 assessee donated cement bags manufactured by it and it was held that transaction in substance was a money transaction and the donation was virtually a donation in cash.

In the above backdrop, if the facts of the assessee's case are analysed it can be noted that the assessee made payment by cheque to the various supplier of the equipment and thereafter the suppliers supplied the equipment directly to the Medical Superintendent, SMS Hospital. At the time of placing of the order by the SMS Hospital to the supplier, 10% 10 ITA 298/JP/2014 M/s Nash Fashions Vs. CIT-I payment is made in advance and the remaining 90% payment was made after installation of the equipment to the satisfaction of the Medical Superintendent, SMS Hospital. This is evident from the various documents placed at paper book Therefore, only because invoices are raised by the supplier in the name of the assessee would not make any difference particularly when all other correspondences by the supplier is with Medical Superintendent, SMS Hospital. All these facts show that the transaction in substance is a money transaction and the donation is virtually a donation in cash. Therefore, considering the various decisions stated supra assessee is entitled to deduction u/s 80G.

ITAT-Since substance of the transaction was money, deduction for donation of equipments u/s 80G can not be disallowed as being in Kind