Section 115BBC(3)

The expression “anonymous donation” has been defined as follows:

1. It is a voluntary contribution referred to in Section 2(24)(iia);

2. The person receiving such contribution does not maintain a record of:

   1. the identity indicating the name and address of the person making such
      contribution, and

   2. such other records as may be prescribed.

3. Special Rate of Tax in case of Anonymous Donations received by a Trust
   [Section 115BBC(1)]

   “Anonymous Donation” would be taxed at the rate of 30%.
   However, from assessment year 2010-11, anonymous donations are taxable only to
   the extent such donation exceeds ₹ 100,000/- or 5% of total donations received
   by the trust, whichever is higher.

Institutions liable to pay tax on Anonymous Donations

(Section 115 BBC(1))

Any income received by way of anonymous donations by the following entities
shall be included in the total income and taxed at the rate of 30%.

1. Any trust or institution referred to in Section 11;

2. Any university or other educational institution referred to in Section
   10(23C)(iiiad) and (vi), that is, its annual receipt is less than or more
   than `1 crore;

3. Any hospital or other institution referred to in Section 10(23C)(iiiae) and
   (via), i.e. its annual receipts is less than or more than `1 crore;

4. Any fund or institution referred to in Section 10(23C)||(iv), and

5. Any Trust or institution referred to in Section 10(23C)(v)

   1. any trust or institution created or established wholly for religious
      purposes;

   2. any trust or institution crated or established wholly for religious and
      charitable purposes other than any anonymous donation made with 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.

CBDT Explanatory Circular No. 5 / 2010 dated 3rd June, 2019

CBDT has issued an explanatory Circular No. 5/2010 dated 3rd June, 2010 on
Section 115BBC.

“Tax relief on anonymous donations in certain cases – under the provisions of
Section 115BBC, wholly religious entities are outside the purview of taxation of
anonymous donations. Partly religious and partly charitable entities had also
been exempted from the taxation of anonymous donations, except where the
anonymous donation is made to an educational or medical institution run by such
entity in which case such donations were taxed at the rate of 30%. In the case
of wholly charitable entities, all anonymous donations are taxed at the rate of
30%.

It was observed that in the case of some such institutions, there are
practical difficulties to maintain complete records of donation received. In
order to mitigate the compliance burden, the above section was amended and some
relief was provided to such organizations by exempting a part of the anonymous
donations from being taxed. The amendment has resulted in the following scheme.
Anonymous donations received by wholly religious institutions shall remain
exempt from tax.

In the case of partly religious and partly charitable institutions, anonymous
donations directed towards a medical or educational institution run by such
entities shall be taxable only to the extent such donations exceed 5% of total
donations received by such trust or institution or a sum of ₹ 1 lakh whichever
is more. Other donations to partly religious and partly charitable institutions
shall remain exempt from taxation.

In the case of wholly charitable institutions, anonymous donations shall be
taxable only to the extent such donations exceed 5% of total donations received
by such trust or institution or a sum of ₹ 1 lakh, whichever is more.

It has been clarified in the above Circular, that donations to partly
religious and partly charitable institutions shall remain exempt from taxation
except anonymous donations directed towards a medical or educational institution
run by such entities.

Meaning of Anonymous Donation

Section 115BBC(3) provides that for the purposes of this section “anonymous
donation” means any voluntary contribution referred to in Section 2(24)(iiia)
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.

Hans Raj Samarak Society v. Asst. DIT [2011] 16 Taxmann.com
103/133 ITD 530 (Delhi Tribunal)

In this case, it was held that the assessee was not required to maintain
anything more than the name and address of the donor as prescribed in Section
11BBC(3). It clarifies the limitation of the power of AO to call for information
or additional evidence in case of anonymous donation. Section 115 BBC(3)
provides that the Receiver has an obligation to maintain the identity indicating
the name and address of the Donor and such other particulars as may be
prescribed. It is to be noted that no other particulars has been prescribed
under this provision or elsewhere in the Act or rules.

Shri Girraj Educational and Welfare Society v. ITO [2013] 56 SOT
428 (Agra Tribunal) [2012] 27 Taxmann.com 89 – It was held that in
view of failure of assessee society to maintain proper records indicating name
and address of donors, voluntary contributions received were brought to tax as
anonymous donations within meaning of Section 115BBC.

M/s. Ramadesh Memorial Charitable Trust, Jaipur ITA No.
1023/JP/2016 dated 7th February, 2000

It was held that where proper name and address were not available and
donation were of identical amount of ₹ 5,000/-, the Assessing Officer was
justified in taxing it as anonymous donation.

Taxability of exempted portion of Anonymous Donation

There is an amendment in the Finance (No. 2) Act, 2014 with regard to the
computation of tax liability in case of Anonymous Donations. It was proposed
that while computing the tax liability of the total income, instead of excluding
entire amount of anonymous donation only the amount in excess of 5% of the total
income or ₹ 1 lakh whichever are higher should be deducted. This removes the
anomaly, as the anonymous donation upto ₹ 1 lakh or 5% whichever is higher is
not subjected to tax. The exempted portion shall form part of income subject to
application under Section 11 of the Income-tax Act, 1961.

Whether anonymous donations (taxable portion) are subject to
conditions as to application and accumulation

A new sub-section (7) has been added to Section 13 which provides that
nothing contained in Section 11 or 12 shall operate to exclude anonymous
donations from total income. In short, exemptions available under Section 11 are
not available to taxable portion of anonymous donations and they are to be taxed
as per the provisions of Section 115BBC. Therefore, taxable anonymous donations
shall not be subject to 85% application for charitable purposes. However,
exempted portion of anonymous donations shall be subject to 85% application for
charitable purposes.

Whether anonymous donations would be taxed again in violation under
Section 13

A plain reading of Section 13(1) implies that anonymous donations have 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 of
the Income Tax Act. Thus, double taxation of anonymous is out of question since
it does not enjoy any exemption under Section 11 or 12. Hon’ble Supreme Court
has on several occasions that income cannot be taxed twice. Refer: Laxmipat
Singhania v. CIT 72 ITR 291 (SC), Jain Brothes v. Vol 77 ITR 107 (SC).

Unexplained payments out of unaccounted donations

Where the assessee explained that it made certain unexplained payments out of
unaccounted donations, such an explanation could be accepted in penalty
proceedings and, thus, penalty order proposed under Section 271(1)(c) was set
aside. In this case, the Assessing Officer made addition in respect of
unaccounted donations received and unexplained payments made to different
parties. Assessing Officer initiated penalty proceedings under Section
271(1)(c), Assessee’s explanation was that unexplained payments were made out of
amount received as donations not recorded in the books of account. Assessing
Officer rejected the assessee’s explanation and passed a penalty order. It was
held that in view of the fact that undisclosed donations were utilized either
for giving advances to builders or used for personal use of trustees or their
relatives, there was no such infirmity in an explanation of assessee being
accepted at the stage of penalty proceedings whether may have been the stand of
revenue authorities at the stage of penalty proceedings whatever may have been
the stand of revenue authorities at the stage of assessment.

Refer ITO exemptions, ward 11(1), Mumbai v. Lawrence Education
Society [2012] 51 SOT 68 (Mumbai Tribunal)

Capacity of the Donor

The Assessing Officer suspects the capacity of the creditor or donor. It is
therefore pertinent to refer principles laid down by the Hon’ble Supreme Court
in case of CIT v. Daulat Ram Rawat Mull 87 ITR 349 (SC) that the
assessee is not required to prove the source of source. The fact that the lender
was 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 that the explanation furnished by
him regarding the source of money is found to be not correct. The fact that the
explanation regarding the source of money furnished by the lender whose money is
lying deposited has been found to be false, it would be remote and forfeited
conclusion to hold that money belongs to the assessee and that he would in such
a case, have any direct nexus between the facts and the conclusion found
therefrom.

Anonymous donation is different from unaccounted donation

Anonymous donation is different from unaccounted donation. In case of
anonymous donations, the donations are on record but donors are not traceable.
However, the unaccounted donations may attract the provisions of Section
13(1)(c).

Vidhyavardhini v. Asst. CIT, Thane [2012] 20 Taxmnn.com 81
(Mumbai)

It was held that since the Trust is an artificial juridical person and has to
act through Trustees or anybody authorized by Trustees, acts of trustees or
person so authorized have to be considered as acts on behalf of the Trust.
Therefore, considering material on record and entire surrounding circumstances,
it was held that unaccounted donations, collected by Secretary were on
instructions of trustees on behalf of Trust and had been assessed as income of
the assessee Trust. It was further held that having regard to fact that
donations were not accounted in books of assessee trust and used by the 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.

Anonymous donation in case of Foreign Donation can attract Money
Laundering Act

Prevention of Money Laundering Act (PMLA) 2002, all religious organizations
have been included within the purview of Prevention of Money Laundering Act,
2002 (PMLA). For this reason, it may not be possible to take large donations,
because under PMLA Act, it is necessary to provide for the details of the donor,
particularly in case of foreign receipts. Therefore, religious organizations
though are not covered under Section 115BBC will also be covered under the
Prevention of Money Laundering Act.

Anonymous donation and provisions of Section 68, 69 and 69A to 69C

The provisions of Sections 68 to 69D as to unexplained cash credits, money
investment expenditure etc. are subjected to income tax. Before the insertion of
provisions relating to anonymous donation, there was always a debate / arguments
whether sections 68 to 69D applies to an organization subject to Section 10
(23C) or Section 11. However, after the insertion of section 115BBC all the
controversies have been settled as Income-tax Act provided a separate mechanism
to deal with such situations. In short, with effect from 1st April, 2007 any
undisclosed income or credits in the books of account which otherwise would have
been taxable under Section 68 will fall within the purview of Section 115 BBC.

The provisions of Sections 68 and 69 and can be invoked only when the
assessee does not treat a particular receipt as income. However, in case of
charitable organization, anonymous donations shown as income of the Trust, it
would be possible on the part of Assessing Officer to invoke the provisions of
68 to 69D of the Income-tax Act. Hon’ble Delhi High Court in DIT (Exemption)
v. Keshav Social and Charitable Foundation 278 ITR 152 (Delhi) 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 donations as a part of its income. Thus, there
was full disclosure of its income and its application by the assessee. The
provision of the Act is very clear about treating anonymous donations as valid
income available for charitable purposes.

Assessing Offices cannot declare the donations as anonymous or bogus
by examining few donors

In case of CIT v. Geetanjali Education Society 114 Taxman 440 (Rajasthan),
Hon’ble Rajasthan High Court held 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 Education Society could not have
been held to be bogus 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.

Burden of Proof is entirely on the assessee

In case of Madhavi Raksha Sankalp Nirmal Niketan 165 ITO 627 (Mumbai
Tribunal) that onus as well as burden of proof is entirely on the assessee
to provide to the Assessing Officer as to the compliance of Section 115BBC and
as to genuineness of the said donation and if the assessee failed to do so, the
entire transaction will be hit by provisions of Section 115BBC.

Hon’ble ITAT, Mumbai Bench in case of Madhavi Raksha Sankalp Nirmal
Niketan v. Dy. CIT [2017] 83 Taxmann.com 316 (Mumbai Tribunal) held that
burden of proof is entirely on the assessee to provide to the Assessing Officer
all details to his satisfaction as to compliance of Section 115BBC and the
genuineness of the said donations failing which entire transactions will be hit
by provisions of Section 115BBC.

Conclusion

Finance Act, 2006 had brought in some radical changes with regard to
anonymous donations received by charitable organizations. Section 115 BBC was
introduced with effect from 1st April, 2007 whereby anonymous donations are
taxable at the rate of 30% without any deduction or set off under any other
head. This amendment has caused harassment to many genuine voluntary
organizations who received anonymous donations through donation boxes and
various sources. However, Finance Act, 2009 brought some relief to the taxation
of anonymous donations by providing some relief to such organizations atleast
amount of anonymous upto 5% of the total income of ₹ 1 lakh whichever is higher
was exempted from taxation.