ANALYSIS AND STUDY OF SECTION

115BBC OF INCOME TAX ACT

 TABLE OF CONTENTS

Declaration 1

Acknowledgements 2

Objectives 4

Research Methodology 4

1) Introduction 5

2) Scope of Section 115 BBC 6

3) Purpose Behind Insertion of Section 115BBC 6

4) Taxability of Anonymous Donation 8

5) Organisations Affected by Section 115BBC 8

6) Various Aspects of Section 115BBC 9

7) Conclusion 12

8) References 13
 OBJECTIVES
To study the scope of Section 115BBC of Income Tax Act.
To study how tax calculation of Anonymous donations.
To enlist the various organisations affected by the Section 115BBC.
To understand the various aspects of Section 115BBC with the help of case laws.

RESEARCH METHODOLOGY
This project work is analytical and descriptive in nature. It is done by taking the help of
secondary sources (Electronic sources and books). The points as discussed in this project
include the study of different sources on the topic as well as the points guided by the faculty.
Footnotes have also been provided for acknowledging the source.
 1. INTRODUCTION
Section 12(1) was inserted with effect from 1 April, 1973 on the basis of the recommendation
of the Wanchoo Committee. One of the observation of the Wanchoo Committee was that
anonymous donation should not be allowed exemption to curtail the menace of Black Money.
The Wanchoo Committee recommended that all anonymous donations to charitable trust
should be taxed at the rate of 65%. However, the Select Committee of the Parliament did not
accept these recommendations of the Wanchoo Committee. It opined that no objection should
be made to anonymous donation if it is spent for charitable or religious purposes. It was further
observed that, in India, owing to the spiritual traditions many donors do not like to disclose
their identity. Further, donations collected through charity boxes would also come under
trouble as it is difficult to establish the identity. The recommendations of the Wanchoo
Committee saw some light in the Finance Act, 2006, as a new section 115BBC has been
inserted which proposes to tax anonymous donations at a rate of 30%.

The Budget 2009 has proposed some relief to the taxation of anonymous donations. The
Finance Act, 2006 had brought in radical changes with regard to anonymous donations received
by charitable organisations. A new section 115BBC was inserted w.e.f. 1 April, 2007 whereby
anonymous donations are taxable at the rate of 30% without any deduction or set off under any
head. This amendment caused harassment to many voluntary organisations who received
anonymous donations through donation boxes and various other sources. There is some relief
to such organisations as, at least, anonymous donation to the extent of 5% of the total income
has been exempted.
 2. PURPOSE BEHIND INSERTION OF SECTION 115BBC
The purpose behind the insertion of section 115BBC is to be found in Circular No.14 of 2006,
dt.28.12.2006, wherein Explanatory Notes on the provisions of the Finance Act, 2006, have
been provided.
Section 115BBC was inserted in the Act to prevent channelization of unaccounted money to
certain educational or medical institutions, by way of anonymous donations and accordingly,
it was provided that any income of a wholly charitable trust or institution, by way of anonymous
donation shall be included in its total income and taxed at the rate of thirty per cent (30%).
Besides, consequential amendments were made in section 10(23C) and section 13, to provide
that any income by way of anonymous donation, which is taxable under section 115BBC, shall
be included in the total income of the assessee. Also, it has been explained in the circular that
in the case of wholly charitable institutions, anonymous donations shall be taxable only to the
extent such donations exceed five per cent (5%) of the total donations received by such trust
or institution or a sum of Rs.1 lakh, whichever is more. It may, thus, be seen that vide the
aforesaid amendment, a concession was provided regarding the tax-treatment of anonymous
donations.1

3. SCOPE OF SECTION 115BBC

The Finance Act, 2006 has brought radical changes with regard to Anonymous donations
received by charitable organisations. A new section 115BBC has been inserted w.e.f. 1-4-2007
whereby anonymous donation is taxable at the rate of 30% without any deduction or set off
under any other head. Further the section was amended by the Finance Act, 2009. The text of
the newly inserted section 115BBC is as under:
(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,

1
http://sktyagidt.com/upload/article/Article%20dt.12.11.2013-
Anonymous%20donations%20u.s.115BBC%20will%20not%20entail%20levy%20of%20inte
rest%20u.s.234B% 20and%20penalty%20u.s.pdf (Last retrieved on 14-8-2016)

Page | 6
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.] 2
(2) The provisions of sub-section (1) shall not apply to any anonymous donation received by
(a) any trust or institution created or established wholly for religious purposes;
(b) any trust or institution created or established wholly for religious and charitable purposes
other than any anonymous donation made with a specific direction that such donation is for
any university or other educational institution or any hospital or other medical institution run
by such trust or institution.
(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.

However, religious organisations have been kept outside the purview of this provision. In other
words, any anonymous donations received by a trust or institution created for religious
purposes shall not be covered by the new section. In case of partially religious and partially
charitable organisations, the anonymous donations received shall be subjected to tax if it
has been received with specific direction that such donation is for a university,
educational institution or hospital or medical institution run by such trusts or institutions.
It is not known how a specific direction can come anonymously and how it can be
substantiated.
 4. TAXABILITY OF ANONYMOUS INCOME
Step 1: Compute the total amount of anonymous donation received by the
charitable/religious institution
Step 2: Compute 5% of the total donations (corpus donations + anonymous donations + other
donations not forming part of corpus)
Step 3: Select the higher of the following two:
a) Amount computed in step 2 or
b) Rs. 1,00,000
The amount computed in step 3 shall be exempt and the remaining amounts of anonymous
donations are taxable in the hands of such charitable/religious institution at the rate of flat 30%
(Section 115BBC)

For example: if the total donations received are Rs. 50,00,000 out of which
anonymous donations are Rs. 500,000 then tax payable u/s 115BBC
= 30% [500,000 - (5% of 50,00,000 or 100,000 whichever is higher)]
= 30% [500,000 - (250,000 or 100,000 whichever is higher)]
= 30% [500,000 - 250,000]
= 30% [250,000]
= Rs. 75,000

5. ORGANISATIONS AFFECTED BY SECTION 115BBC

The taxability of anonymous donation by virtue of section 115BBC will affect the following
organisations:
i. Organisations covered under section 11.
ii. Any university or other educational institution referred to in section 10(23C)(iiiad) and
(vi).
iii. Any hospital or other institution referred to in section 10(23C)(iiiae) and (via).
iv. Any trust or institution referred to in section 10(23C)(iv).
v. Any trust or institution referred to in section 10(23C)(v)
vi. Any trust or institution which is partially religious and partially charitable in nature if
it has received anonymous donations with specific direction that such donation is for
university, educational institution or hospital or medical institution run by such trusts
or institutions.
The anonymous donation shall become taxable only if it exceeds 5% of the total income.
Further for smaller NGOs anonymous donations shall be exempted to the extent of Rs. 1 Lakh
even if it exceeds 5%. The tax liability of the Trust or NGO shall be computed at the rate of
30% of the excess anonymous donations received and at the normal rates for the balance
income, if any, after taking into account the exemption under section 11.

6. VARIOUS ASPECTS OF SECTION 115BBC

Assessing Officer cannot declare a donation as anonymous by merely examining few
donors cross examination also necessary
In the case of CIT v. Geetanjali Education Society1, it was held that the Assessing Officer
cannot declare the donations as anonymous or bogus, as some of them were not examined nor
those who were examined had been allowed to be cross-examined. Therefore, any donation
given in favour of the society could not have been held to be bogus without examining the
donors and subjecting them to cross examination.

Whether anonymous donations will be taxed again if section 13 is violated?

A plain reading of section 13(1) along with section 13(7) implies that anonymous donations
have at the outset been excluded from the purview of sections 11 and 12. Any violation under
section 13 results in a forfeiture of the exemptions available under section 11 and 12. Under
such circumstances, double taxation of anonymous donations does not look tenable as it does
not enjoy any exemptions under section 11 or 12.
It has also been held in the Supreme Court on several occasions that income cannot be taxed
twice. Double taxation is possible only if legislature has distinctly enacted it. In the case of
Laxmipat Singhania v. CIT2, the Supreme Court observed that it is a fundamental rule that
income cannot be taxed twice unless otherwise expressly provided.
In another case of Jain Bros. v. Union of India3, the Supreme Court observed that as such
there are no constitutional bar on double taxation, but for that the legislature should expressly
enact provision for such double taxation.

Whether provisions of Sections 68, 69, 69A to 69C can be invoked?

Under sections 68 to 69D, unexplained cash credits, money, investments, expenditure, etc., are
subjected to income tax. The provisions of sections 68 and 69A can be invoked only when the
assessee does not treat a particular donation are shown as a part of the income of the trust, it
would not be possible on the part of the Assessing Officer to invoke section 68, 69, 69A or
69C. In a case, the Delhi High Court in DIT (Exemption) v. Keshav Social and Charitable

1
[2008] 174 Taxman 440 (Raj.)
2
[1969] 72 ITR 291
3
[1970] 77 ITR 107
Foundation4, held that anonymity of the donors cannot lead to the inference that unaccounted
money has been introduced. Section 68 had no application to the facts of the case because the
assessee had disclosed the donation as a part of its income. Therefore, there was full disclosure
of income and its application by the assessee.
In the light of the above case law and the legal interpretation made therein the possibility of
invoking sections 68, 69, 69A to 69C does not seem feasible. Here it is worthwhile to note that
the Select Committee of Parliament had rejected the recommendation of Wanchoo Committee
in 1973 which wanted to tax anonymous donations at the rate of 65%. The Select Committee
was of the opinion that as long as the money was spent for charitable or religious purposes it
did not matter whether the source was anonymous or determined.

Addition of legitimate donation under section 68

In the case of Keshav Social and Charitable Foundation v. DTE(E)7, the Delhi High Court has
held that Section 68 would have no application in case of donations whether in the nature of
corpus or other voluntary contributions.
Hence, it is clear that even if the donors are not produced or the list of donors is not filed, the
Assessment Officer cannot infer that the assessee was trying to introduce unaccounted money
In case of DIT (Exemption) v. Moti Bagh Mutual Aid Education8, an assessee received Gupt
Daan, i.e., secret donation which was reflected in the books as unsecured loan. It was held that
(i) minor discrepancy in account would not change the nature of the organisation (ii)when that
the amount was a receipt and not an outflow from the corpus of the assessee and (iii) it was not
necessary to produce donors, only a certificate from donors was enough.

Capacity of Donor
In the case of CIT v. Daulat Ram Mull9, the fact that lender has not been able to give
satisfactory explanation regarding the source of the fund lent by him, would not be decisive,
even of the matter, as to whether the lender was the owner of that sum, even though the
explanation furnished by him regarding that source of money is found to be not correct.
Also, in a case, the Rajasthan High Court held in Labh Chand Bohra v. Income Tax Officer10
that establishing the capacity of the lender was not the responsibility of the Assessee as that
would amount to calling upon him to establish the source of the source.

Anonymous donation is different from Unaccounted donation

Anonymous donation is different from unaccounted donation. In case of anonymous

4
[2005] 278 ITR 152
donation, the donations are on record but the trace of donors is not available. However,
unaccounted donations may attract the provisions of section13(1)(c).
In the case of Vidyavardhini v. Asst. CIT, Central Circle-2, Thane11, it was held that since
trust is an artificial judicial person and has to act through trustees or anybody authorized by
trustees, acts of trustees or person so authorised have to be considered as acts on behalf of
trust. Therefore, considering material on record and entire surrounding circumstances, it was
to be held that unaccounted donations collected by Secretary were on instructions of trustees
on behalf of the trust and had been given rightly assessed as income of assessee trust. It was
further held that having regard to fact that donations were not accounted in books of assessee
trust and had been used by trustees and secretary who were persons specified in section
13(3), provisions of section 13(1)(c) were applicable and exemption under section 11 would
not be available.
 7. CONCLUSION
The Finance Act, 2006 had brought radical change with regard to anonymous donations
received by charitable organisations. A new section 115BBC was inserted w.e.f. 1-4-2007
whereby anonymous donation is taxable at the rate of 30% without any deduction or set off
under any other head. The Budget 2009 provides some relief by exempting anonymous
donations to the extent of 5% of total income or Rs. 1 lakh whichever is higher. Religious
organisations have been kept outside the purview of this provision. Exemptions available under
section 11 are not available to anonymous donations and they are to be taxed as per the
provisions of section 115BBC. Also, anonymous donations once taxed under section 11 would
not be subject to double taxation even in case of violation under section 13. The anonymous
donations shall become taxable only if it exceeds 5% total income. Further for smaller NGOs
anonymous donations shall be exempted to the extent of Rs. 1 lakh even if it exceeds 5%.
Although many may seem this as a burden on the trusts and NGOs who receive anonymous
donations but this new section has brought relief to such organisations as, at least, anonymous
donation to the extent of 5% of total income has been exempted.
Also, it is true that this section has some ambiguities which need to be amended like sub section
2(b) of section 115BBC provides that anonymous donation received by religious as well as
charitable trust would be taxable if it is received with a specific direction that such donation is
for any University, educational institution or medical institutions. It is not clear how a specific
direction can come from anonymity. If such directions are valid without knowing the identity
of the donor, then a trust may also contend the anonymous donations are restricted donations
and therefore not a part of its income as they could not be treated as voluntary contribution
under section 12(1) or section 2(24)(iia). However, specific direction from an anonymous
donor may not be a legally tenable position either way. Amidst confusion and lack of clarity it
seems that anonymous donation irrespective of the nature would be hit by section 115BBC.
 8. REFERENCES
Books:
1. Dr. Manoj Fogla, Taxation of Trusts and NGOs, Taxmann Publication Pvt. Ltd.

Websites:
1. http://www.incometaxindia.gov.in
2. http://taxguru.in
3. http://www.topcafirms.com
4. http://sktyagidt.com
5. http://www.lawzonline.com/