1985 PLP 147 (PTD)

SALEEM AKHTAR, J.‑‑ The department has filed this application under section 66(1,) of the Income‑tax Act raising the following question: "Whether on the facts and in the circumstances of the case the Income‑tax Appellate Tribunal was justified in allowing rebate on the entire amount of donation to National Defence Funds? The assessee respondent is a private limited Company. During the assessment year 1966‑67 it carried on business in manufacturing as well as agency in two different divisions. The Manufacturing Division enjoyed tax holiday under section 15‑BB of the Income‑tax Act. The Company maintained accounts of the two divisions separately and during the relevant assessment year it showed a net loss of Rs.2,85,136 in the tax holiday unit and a profit of Rs.26,050 in the agency division. The company had donated Rs.31,010 to the National Defence Fund in the relevant accounting year. The cash book showed the funds of both the Division and this contribution was made out of the common fund and was debited in the cash book accordingly. The respondent‑company claimed full contribution in agency division and nothing was claimed in the manufacturing division which was exempt from tax. The Income‑tax Officer assessed the income of the agency Division at Rs.43,800 and disallowed the entire donation. However, for the purpose of allowing rebate under section 15‑D of the Act he only considered half of the donation relatable to the assessees agency business and the other half to the Manufacturing division enjoying tax holiday. The appeal filed before the learned Tribunal was allowed and the Income‑tax Officer was directed to allow rebate on the full amount of donation under section 15‑D of the Act. Mr. I. N. Pasha, the learned counsel for the respondent has contended that as the donation was paid from the common fund without specifying from which division it was paid, the option lay with the respondent to claim it in respect of income from any division. The admitted position is that respondent was carrying on business in two different divisions. One called the manufacturing division and the other agency division. The manufacturing division enjoyed tax holiday under section 15‑BB of the Act. The respondent made contribution out of the common fund. The fact that he had claimed the entire amount from the agency business proves that he had paid it from that income. In these circumstances question arises whether the Income‑tax Officer had the authority to apportion the donation in two portions. The learned counsel for the Department has not been able to point out to any provision authorising the Income‑tax Officer to make such apportionment. Nor any provision has been referred which restricts the assessee from allocating such donations to any division of his income. Section 15‑D provides that 'the Tax shall not be payable by any assessee in respect of any sums paid by him as donation. Such donation can be paid on of the taxable income or exempted income. The sole discretion to decide apportionment is entirely with the assessee and not the Assessing Officer. The assessee is free to manage his own affairs according his own wishes. In this regard the learned counsel for the respondent has referred to Raja Sheri Sailendra Narayan Bhanja Deo v. Commissioner of Income tax Bihar and Orissa (1959) 36 I T R

94. In that case the assessee who derived agricultural and non‑agricultural income donated Rs.10,000 to charitable institution approved under the Income‑tax Act and claimed exemption from Tax. The Income‑tax Officer found that RS.10,000 was debited in composite cash book without specifying whether it came out of the agricultural or non‑agricultural income. The Department apportioned the donation to both the income proportionately. Ultimately the Question was referred to High Court whether the assessee was entitled to rebate on the entire amount of Rs.10,000 and not on the proportionate amount paid out of non‑agricultural income. The High Court answered that the Department was not entitled to apportion the contribution between the agricultural and non‑agricultural income of the assessee and he was entitled to exemption from Tax of the entire sum of Rs.10,

000. Reference can be made to Rajandra Narain v. Commissioner of Income‑tax A I R 1929 Pat. 449 where the assessees claimed exemption in respect of income arising out of a building maintained for collection agricultural income, which was not taxable. It was held that the Depart ment could not apportion as say that only a proportionate income from a portion of the building necessary for agricultural purposes would be exempted. In Central Provinces & Bearer Provincial Co‑operative Bank Ltd. v. Commissioner of Income‑tax (1946) 14 I T R 479 it was observed that in computing the income under section 8 of the Income‑tax Act, the Department was not justified in splitting up and apportioning the interest on borrowed capital between the taxable and tax‑free securities in proportion to the amount spent on the purchase of each kind of security and allowing deduction only in respect of the interest so apportioned to taxable securities." Reference can also be made to (1947) 15, I T R

346. It is thus well‑settled that where the assessee has paid any donation for which he is entitled to claim exemption or rebate, out of the common fund of exempted income and taxable income, the option lies with the assessee to allocate this donation to any income he chooses. The Department cannot split the donation or apportion it proportionately or entirely to any of the specified income. We, therefore, answer the question in the affirmative. M. B. A. Question answered in affirmative.