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CA Final · Direct Tax Laws & International Taxation · Assessment of Trusts and Institutions, Political Parties and Other Special Entities

Lok Shakti Party, registered under section 29A of the Representation of the People Act, 1951, earned Rs 8,00,000 as income from other sources and Rs 3,00,000 as capital gains in the tax year. It received voluntary contributions of Rs 20,00,000, including one donation of Rs 5,000 received in cash. All other conditions were fulfilled. What is the effect under Schedule VIII and section 12?

Income of Rs 31,00,000 is charged to tax. A donation above Rs 2,000 received in cash breaches condition (d) of Schedule VIII, and section 12(2) then charges the enumerated income to tax. That covers other-sources income, capital gains and voluntary contributions for the tax year.

  1. AOnly the Rs 5,000 cash donation is taxed, and the rest remains exempt
  2. BNothing is taxed, since the cash donation is below Rs 20,000
  3. COnly the Rs 8,00,000 other-sources income is taxed
  4. DIncome of Rs 31,00,000 is charged to tax for that tax yearCorrect

Explanation

Condition (d) bars any donation exceeding Rs 2,000 received otherwise than by account payee cheque, draft, electronic mode or electoral bond. The Rs 5,000 cash donation breaches it. Under section 12(2), where conditions are not satisfied, such income is charged to tax. The income enumerated (8,00,000 + 3,00,000 + 20,00,000 = 31,00,000) is therefore charged. The Rs 20,000 limit relates only to record keeping, not mode of receipt.

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