[Opinion] Controversies Regarding “Anonymous Donations” To Charitable Organisations

CA Dindayal Dhandaria & CA Naveen Kumar Dhandaria – [2023] 156 taxmann.com 261 (Article)

Introduction

Section 115BBC of the Income Tax Act, 1961 (“the Act“) was inserted by Finance Act, 2006 w.e.f. 1-4-2007. Finance (no.2) Act, 2009, w.e.f. 1-4-2010 provided some relief by exempting anonymous donations to the extent of 5% of total income or Rs. 1 lakh whichever is higher.

Generally, trusts or institutions can be classified in three categories, viz. 1. Wholly Religious, 2. Wholly Charitable; and 3. Partly religious and partly charitable (i.e., mixed ones). The provisions relating to anonymous donations apply differently to these three categories and there are few controversies, which are discussed in this article.

Definition

“Anonymous Donation” is defined in sub-section (3) of Section 115BBC of Income Tax Act, 1961 (“the Act”) as follows:

“(3) For the purposes of this section, “anonymous donation” means any voluntary contribution referred to in sub-clause (iia) of clause (24) of section 2, where a person receiving such contribution does not maintain a record of the identity indicating the name and address of the person making such contribution and such other particulars as may be prescribed.”

Note: From the emphasized words, it is clear that the Act does not require the person to keep a record of PAN/Aadhaar of the donor.

Charging Section

Sub-section (1) of the above section provides for taxation of the anonymous donations at the specified rate of 30% without any deduction or set off under any other head, as follows:

“Anonymous donations to be taxed in certain cases.

115BBC. (1) Where the total income of an assessee, being a person in receipt of income on behalf of any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via) or any fund or institution referred to in sub-clause (iv) or any trust or institution referred to in sub-clause (v) of clause (23C) of section 10 or any trust or institution referred to in section 11, includes any income by way of any anonymous donation, the income-tax payable shall be the aggregate of—

(i) the amount of income-tax calculated at the rate of thirty per cent on the aggregate of anonymous donations received in excess of the higher of the following, namely: —

(A) five per cent of the total donations received by the assessee; or

(B) one lakh rupees, and

(ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the aggregate of anonymous donations received in excess of the amount referred to in sub-clause (A) or sub-clause (B) of clause (i), as the case may be.”

Note: From a reading of the above provisions, it is clear that the above provisions apply to institutions highlighted hereinabove and do not apply to any university or other educational institution or any hospital or other medical institution wholly or substantially financed by Government and covered by section 10(23C)(iiiab) and (iiiac), respectively.

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