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Disallowance of donation paid

Prasanna (Articled Assistant) (119 Points)

30 August 2010

Hi everyone,

I wanted to know under which section / provision of income tax donation given is disallowed under business income?

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13 Replies

Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 30 August 2010

section 37..

regards,

manoj

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venkatraman shrinivas (Tax consultant/Tax Advocate In Practice.) (313 Points)
Replied 31 August 2010

Only such expenditure as are laid out wholly and exclusively for the purpose of earning of income is allowed under section 36 or the residuary 37. However in order to encourage a social benefit to the society such sum (donation) is allowed to be deducted from the total income, based on the merit of each donation.

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(Guest)

any specific case law or explanation??

Max Payne (employed) (2574 Points)
Replied 31 August 2010

Disallowed u/s 37,

since not an "expenditure" incurred wholly for the "purpose of business".

Expenditure implies a benefit matching the resource outflow. No benefit derived by you by giving donation, unlike purchase or other expenditure like salaries, electricity etc.

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Naga Praveen (Chartered Accountant) (304 Points)
Replied 31 August 2010

Donation being a non business expenditure, it is disallowed while computing Business Income and may be allowed U/s 80G if it is an eligible donation while computing Total Income.

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CA. BIJENDER KR. BANSAL (ACA, B.COM) (8148 Points)
Replied 31 August 2010

AGREED WITH EXPERTS.

DISALLOWANCE U/S 37

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Azim Khan ACA,CS,CMA*,LLB* (Proprietor) (1312 Points)
Replied 31 August 2010

It is disallowable u/s 37(1) of the I.T. Act

1 Like

Sunshine (Helping All) (10575 Points)
Replied 31 August 2010

u/s 37

KBV Narayan (EVP) (33 Points)
Replied 01 September 2010

When a business entity pays a donation it can make the payment (a) as a secret contributor - the donor's name not shown anywhere or (b) as a donor whose name is shown somewhere.

In case the donor follows the alternative "a" - the only recourse is either get a deduction under 80G, if available or settle for disallowance.

If the donor entity follows alternative "b", its name is shown somewhere. The donor can evaluate whether the publicity gained by him is commensurate with the amount paid by him "as donation" and make a suitable claim u/s 37. There was a decision of a HC where the person receiving the money termed it as a donation while the paying entity showed it as publicity expenditure and the HC decided that the nomenclature used by the receiving entity is immaterial if the paying entity has received adequate publicity [I don't have the citation readily].

Take a case when a company donates a vehicle to be used as an ambulance by a charitable association providing transportation for sick persons. The donated vehicle displays on both sides the name of the donor "sponsored by XYZ Ltd". Compare the cost of that vehicle with the cost of putting up two a hoarding of a comparable size for say a couple of years. Don't you think that the cost of the donated vehicle would be less than maintaining two hoardings for a couple of years.

There are adequate number of judgements on this issue which can be found in any standard book of taxation or on the net.

Jayant Shetye (Audit Assistant) (86 Points)
Replied 28 September 2016

THIS IS DISALLOWED BUT ON WHICH SEC IN BUSINESS AND PROFESSION , WHICH IN NEXT WILL BE ALLOWED IN 80G .?????

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UDAY BASU (B.Com) (27 Points)
Replied 16 September 2017

Dear Sir,

I want to know the amount of donation which is allowed to be taken for which money receipt has been received for puja.

Priya Prasannan (2 Points)
Replied 05 June 2018

Is disallowance applicable for cash donation to political parties?

Prachi Bansal (3129 Points)
Replied 25 February 2021

Cash contributions are not allowed under Section 80 GGB. Therefore, the respective contributions to political parties must be made through other modes of payments such as Cheque, Demand Draft or Electronic Transfer.