Sum Paid to Educational Trust by Bank Following Govt.’s Directions isn’t Donation: ITAT

Case Details: Union Bank of India (Erstwhile Corporation Bank) v. DCIT - [2023] 151 taxmann.com 19 (Bangalore-Trib.)

Judiciary and Counsel Details

• • N.V. Vasudevan, Vice President & Laxmi Prasad Sahu, Accountant Member
  • S. Ananthan, CA for the Appellant.
  • Gudimella V.P. Pavan Kumar, JCIT (DR) for the Respondent.

Facts of the Case

Assessee is a public sector bank governed by the Banking Regulation Act 1949 provisions. It paid a certain sum to a trust having objects to set up training centres for educating and training people to create awareness, developing local leadership among the community etc. While furnishing the return of income, the assessee claimed a deduction of the amount paid to the trust under section 37(1).

During assessment proceedings, the Assessing Officer (AO) held that those payments were not wholly and exclusively for the purpose of business and were in the nature of the donation. Thus eligible for deduction under section 80G.

On appeal, the CIT(A) upheld the order of AO. Aggrieved-assessee filed the instant appeal before Bangalore Tribunal.

ITAT Held

The Tribunal held that the trust came into existence by virtue of a deed of declaration of trust with the object of taking up developmental activities, particularly for the upliftment of the economically weaker sections of the society. Trust also played a catalyst role in the process of social economic development.

The Government of India, Ministry of Rural Development, instructed public sector banks to be lead institutions in managing and running such institutes. It was in that context that the assessee contributed such sum to trust.

The provisions of sections 37(1) and 80G are not mutually exclusive. If the contribution by the assessee is in the form of a donation, it must be of the category specified in section 80G. If it could be termed as an expenditure under section 37(1), then the right of the assessee to claim the whole of it as allowance under section 37(1) cannot be denied. However, such money must be laid out wholly or exclusively for the purpose of business.

Where the Government of India framed guidelines on corporate social responsibility for central public sector enterprises, such public sector is bound to formulate a policy in terms of the said guidelines and if an obligation springs from complying with the said guidelines, it has to be regarded as expenditure incurred on the grounds of commercial expediency.

Therefore, the expenditure satisfied the requirements of section 37(1), and thus, the deduction claimed by the assessee was to be allowed in full.

List of Cases Reviewed

• • CIT v. Infosys Technologies Ltd. [2014] 43 taxmann.com 251/223 Taxman 469/360 ITR 714 (Kar.)
  • Pr. CIT v. Eastern Coalfields Ltd. [2023] 146 taxmann.com 251/450 ITR 184 (Cal.) (para 11) followed.

List of Cases Referred to

• • Union Bank of India, (Erstwhile Corporation Bank) v. Dy. CIT [IT Appeal No. 1109 (Bang.) of 2019, dated 15-3-2022] (para 3)
  • CIT v. Infosys Technologies Ltd. [2014] 43 taxmann.com 251/223 Taxman 469/360 ITR 714 (Kar.) (para 8)
  • Sassoon J. David and Co. (P.) Ltd. v. CIT [1979] 1 Taxman 485/118 ITR 261 (SC) (para 8)
  • Pr. CIT v. Eastern Coalfields Ltd. [2023] 146 taxmann.com 251/450 ITR 184 (Cal.) (para 9)
  • Andhra Bank v. Dy. CIT [IT Appeal No. 42 (Hyd.) of 2015, dated 24-4-2015] (para 9)
  • Asstt. CIT v. Jindal Power Ltd. [2016] 70 taxmann.com 389 (Raipur – Trib.) (para 9).