Analysis of Donation To Trusts And Charities under Section 80G of Income Tax Act, 1961
ABSTRACT
India is a religious and pious nation. India has a long history of using charity donations as a method of achieving spiritual fulfilment for good acts. Individuals throughout India have donated monetary and in-kind donations to different trusts, NGOs, charitable organisations, temples, etc., sometimes out of benevolence and sometimes out of religious conviction.
Due to the loss of public money necessitated by the tax exemptions granted to these organisations, it became necessary to guarantee that tax advantages are not exploited and are only enjoyed by those charitable and religious institutions that merit them.
The author has made an attempt to give an overview of the contemporary scenario of section 80 G of Income Tax Act and its importance after the pandemic and the landmark judgement of the ‘Ayodhya Dispute’. Furthermore, the paper outlines the salient features of the section and its relevance comprehensively.
Additionally, the author has tried to interrelate the CSR funds provision with donations to charitable institutions.
In order to make this paper analytical the author has critically analysed several judicial precedents throughout the paper and based on the same has given certain recommendations.
CHAPTER I: INTRODUCTION
The desire to help others and think of them positively is at the core of human nature, and this is what humans mean by charity. The presence of charitable and religious trusts in our nation has historical roots and its origins lie in the fundamental cultural features that make Indians distinctive.
In 1860, when the income tax was first implemented in India, revenue from property used exclusively for religious or charitable purposes was excluded from taxation. Since then, even though the Income-tax Act has been revised many times, income received from property kept for charity or religious purposes has always been free from taxation.
The financial sector of the economy has been preparing for a post-COVID-19 future despite the ongoing coronavirus pandemic. Given the government’s recent implementation of significant tax changes, such as the decrease of corporate tax rates, the revelation that assessed will be able to deduct the whole amount of their contributions to “Shri Ram Janmabhoomi Teerth Kshetra”[1] came as something of a surprise. The Central Board of Direct Taxes announced that the institution will be eligible for exemption under Section 80G of the Income Tax Act, 1961 (ITA)[2].
In November 2019, the important case of M Siddiq (D) Thr Lrs v. Mahant Suresh Das & Ors[3], popularly known as the ‘Ayodhya Dispute,’ was settled, and Shri Ram Janbhoomi Teerth Kshetra was established and given the responsibility of constructing the Ram Mandir under the Supreme Court’s order.
CHAPTER II : OVERVIEW OF S. 80 G OF INCOME TAX ACT OF 1961
Section 80G of the Income Tax Act of 1961 is primarily intended to promote donations to trusts and charities. Section 80G of the ITA is a provision that permits taxpayers to claim deductions for different payments made as donations. Contributions to the designated relief funds and charity organisations are eligible for a tax benefit under the law. Not all charity contributions qualify for a Section 80G deduction.
Only donations to the designated funds can qualify for a tax deduction. The Indian government adopted Section 80G to motivate the citizens to donate to the society. By offering income tax relief, the government hopes to encourage more charitable contributions.
However, it is important to note that the maximum limit is of 10 % of total income that can be accounted for deductions calculated under section 80G. The donations that are made to attract the purview of this section also has to be made in the form of cash or cheque or a draft, and that the amount of cash limit cannot exceed 2000 rupees for exemption under the same.
In the case of CIT v Ahmadabad Rana Caste Association[4], It was decided that a contribution must be done for altruistic reasons, with the common good in mind rather than for the donor’s own gain. If this condition is met, and only then, will the contribution amount be free from taxation.
The Central Board of Direct Taxes (CBDT) stated that the trust was established as “a location of historic significance and a place of public worship of renown” under clause 2 (b) of Section 80G of the IT Act and allowed a 50% deduction to donors of the Trust.
CHAPTER III : KEY PROVISIONS OF SECTION 80G
Under section 80G, a person or an individual, a partnership, or a corporation may claim the tax deduction advantage.
A. Mode of payment
This section allows payment to be made by check, drafts, or cash. However, the cash amount is capped to Rs. 2,000 starting of the 2017-18 fiscal year. To qualify for tax deductions under this statute, any contribution in excess of the maximum must be provided by check or drafts.
B. Donations eligible for a 50% deduction with no minimum amount
Donation made to the following organisations are only given exemption :
1. “Jawaharlal Nehru Memorial Fund”
2. “Rajiv Gandhi Foundation”
3. “Prime Minister’s Drought Relief Fund”
4. “Indira Gandhi Memorial Trust”
C. Whole of 100 % tax deduction is possible for the following contributions
The deduction is free in its entirety for certain institutions, including those named in clause 2(a) of section 80G. These include the “Swachh Bharat Kosh”, the “Clean Ganga Fund”, the “National Defense Fund” established by the Central Government Prime Minister’s National Relief Fund, and others.
D. Method of claiming deduction
In order to be eligible for a deduction in accordance with the aforementioned Act, the respective individual is required to provide information in his income tax returns that specifies the name, pan number, address, and amount of contribution.
E. Either 100% or 50% of adjusted gross total income deductible donations
In substitution of the preceding provision, the act provides an exhaustive list under the notified institutions are subject to a 10 % qualifying limit on total gross revenue.
Any donations sent to the government authority, institution, or any recognised organisation for the purpose of encouraging family planning are exempt in their entirety, whereas donations to the government or any local authority for any other charitable purpose are exempt in half.
CHAPTER IV : CORPORATE SOCIAL RESPONSIBILITY V. SECTION 80G
The amendment prohibited Corporate Social Responsibilty (CSR) expenditures under Section 37(1) of the ITA and challenged Section 80G deductions for otherwise qualifying donation. The tax authorities objected, arguing that the statute was never meant to enable deductions for CSR costs, as this would amount to a one-third subsidy.
Taxpayers have argued, with reference to Section 80G of the ITA, that deductions are not permitted if made in furtherance of CSR as required by Companies Act, 2013[5] (CA), and that this includes donations to the “Swachh Bharat Kosh” and the “Clean Ganga Fund”.
In JMS Mining Pvt. Ltd, Kolkata v. PCIT[6] the tribunal applied the Latin maxim “expressio unius est exclusio alterius”,which means “express mention of one thing excludes all others”,and upheld the aforementioned principle, ruling that it is reasonable to infer that when the legislature has provided for only two specific exceptions for claiming deduction under Section 80G, the legislature is implicitly permitting the other CSR contributions as a deduction under the other sub-clauses of Section 80G.
The concept of literal interpretation dictates that a legislation must be interpreted solely on its plain language; hence, there is no place for intent in a taxation statute. Reading section 80G of the ITA in conjunction with the rules of interpretation makes it clear that only contributions made to “Swachh Bharat Kosh” and “Clean Ganga Fund” would not qualify for a deduction under section 80G of the ITA, provided they are in furtherance of CSR as required by the CA, 2013.
CHAPTER V : JUDICIAL PRECEDENTS
The infamous Sonu Sood case[7]
The department (CBDT) conducted a search and seizure operation at multiple Sonu Sood locations in Mumbai as well as a real estate group situated in Lucknow. In addition to Foreign Contribution Regulation Act (FCRA) offences, Sood and his associates have been implicated in tax evasion totalling 20 crores.
From April 1, 2021 to September 16, 2021, the foundation received donations totalling 18.94 crores, according to the Central Board of Direct Taxes (CBDT). Out of this amount, approximately 1.9 crores was spent on various relief efforts, while the remaining 17 crore was found to be sitting unused in the foundation’s bank account. In contravention of (Foreign Contribution Regulation Act) FCRA norms, it was also determined that funds totalling 2.1 crore were raised on a crowdfunding platform by the charity foundation from overseas donors,” the CBDT statement added.
N.N. Desai Charitable Trust v. Commissioner of Income Tax[8]
The Gujarat High Court has ruled that throughout the process of an application for clearance under section 80G, the commissioner is not expected to function as an assessor; rather, his inquiry should be limited to determining whether the trust fulfils the specified requirements.
Additional Commissioner of Income Tax v. Abhai Maligai[9]
There have been several disagreements on the precise meaning of the term “sums.” In the preceding instance, the court stated that when reading section 2(a), the nature of the transaction must be considered, and so the contribution may also be in kind. This interpretation of the stated clause leads to a multitude of scenarios in which the ambiguity of the term is raised as a concern.
Commissioner of Income Tax v. Smt Dhirajben R. Amin[10]
The lack of a ruling on whether the word “sums” might be interpreted as cash or in-kind transactions led the court in the aforementioned case to conclude that section 80-G(2)(a) simply specified that the term related to all monetary payments, and so contributions cannot be made in kind.
This dispute cleared the door for more judicial examination, and parliament intervened by adding Explanation 5 to Section 80-G by the Finance Act of 1976[11]. The explanation stated: For the avoidance of dispute, it is thus announced that no deduction shall be permitted under this section for any contribution unless the contribution is an amount of money.
CHAPTER VI: CRITICAL ANALYSIS
Currently, the government has attempted to establish a tax system that is simple and uncomplicated. Documentation requirements have long been frowned upon in our nation since the procedure may be burdensome and time-consuming. The recent financial rules addressing the implementation of section 80G have resulted in a significant departure from former practice.
In addition, the government notified that registration certificates for charitable organisations, which had previously been evaluated just once, will now be evaluated every five years. In other words, charity organisations must renew their licences every five years. In addition to the foregoing, the donor will not be eligible for a Section 80 G deduction unless the trust has filed a statement of all gifts received that includes the donation. Therefore, a cross-check will be conducted. If the donor trust fails to comply, the donor forfeits the deduction.
Surprisingly, at a time when the world is dealing with the problem of the coronavirus outbreak, the government added the “PM Cares fund” to section 80G and made the deduction for it 100%. This was done to encourage people to donate money to fight the deadly virus.
This action by the government facilitates a procedure that relieves the taxpayer of duty and transfers it to the recipient institution. This will further build a responsible and transparent atmosphere by including all detail at every step of the process, whether filling or registering.
CHAPTER VII : CONCLUSION
Donation to charities is an act of great virtue that cannot be overlooked. The government, not only oversees managerial and administrative policies but also makes concerted efforts to demolish a tax system that allows for deductions in the event of charitable giving.
This action by the government reinforces the notion that it provides complete support for reasons such as donations/charity. It is not only honourable to give, but it also facilitates positive change for those in dire need of assistance. It ensures that you obtain a tax benefit for each and every gift you make, no matter how small. The notion of granting 50% or 100% tax discounts would not only encourage fresh gifts but will also result in tremendous national development.
CHAPTER VIII : RECOMMENDATION
- Each state must have its own charity commission, and the centre must guarantee the commission’s operations are transparent. The acquired funds must be used for the welfare of the country. Fraudulent actions must be avoided at all costs and penalised severely.
- The Income Tax department must have enough information and input about the state commissions’ operations.
- The feedback and reporting must be detailed, exhaustive, and useful. Continuous effort is necessary for the efficient operation of the system.
- Existing statutes must be amended to incorporate provisions for anti-money laundering and other offences of a similar kind.
[1] Notification S.O. 1434 (E) [NO. 24/2020/F. NO. 176/8/2017/ITA-I], Dated 8-5-2020, Income Tax Act, 1961,https://www.incometaxindia.gov.in/_layouts/15/1033/Utilities/Notifications/DirectTaxLaws/HTMLFiles/104510000000114889.htm
[2] The Income Tax Act, 1961, Act No. 43, Acts of Parliament 1961 (India).
[3] Supreme Court of India, Civil Appeal No. 10866-67/10.
[4] 1972 SCR (1) 744
[5] The Companies Act, 2013, No. 18, Acts of Parliament (India).
[6] I.T.A. No. 146/Kol/2021.
[7] PTI, Income Tax department alleges Sonu Sood, associates evaded Rs 20 crore tax, The Economic Times, September 19, 2021, https://economictimes.indiatimes.com/news/india/it-dept-alleges-sonu-sood-associates-evaded-rs-20-cr-tax-violated-fcra/articleshow/86315598.cms
[8] 2000 246 ITR 452 Guj.
[9] (1978) 007 CTR 0158.
[10] 1968 70 ITR 194 Guj.
[11] The Finance Act, 1976, No. 66, Acts of Parliament 1976 (India).
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Excellent Article