I built a structure for a temple at my own cost instead of handing over money. Can I claim the s.80G deduction for what I spent?
Not now. Explanation 5 to s.80G, inserted by the Finance Act 1976 with effect from 1 April 1976, declares that no deduction is allowed under the section unless the donation is of a sum of money. This judgment allowed such a claim only because it concerned AY 1969-70, before that Explanation existed, and the Madras High Court expressly recorded that the Explanation was inserted to get over decisions of that kind.
Decided by the High Court (A. Varadarajan J) on 1977-11-11, reported as Reference under s.256(1) of the Income-tax Act 1961, Madras High Court; Assessment Year 1969-70. It bears on section 80G, section 80G(2)(b), section 80G(1), section 256(1) of the Income Tax Act 1961, in Deductions & Disallowances, How Tax Law Is Read and Charitable Trusts & Exemption matters.
The case is carried here for the rule it now cannot help with. Donations in kind — a building, equipment, medicines, food, computers given to a school or a hospital — are still claimed under s.80G with some regularity, and the receipt often values them in rupees, which makes the claim look like a money donation. Explanation 5 forecloses it, and this judgment is the clearest statement of why: the Bombay High Court in CIT v. Associated Cement Co. Ltd. [1968] 68 ITR 478 had looked to the substance of the transaction and allowed a kiln built for a university, the Madras High Court followed that for a museum building put up in the temple's prakaram, and Parliament then inserted the Explanation. Three further limits go with it and should be checked in the same breath: under s.80G(5D) no deduction is allowed for a donation of any sum exceeding two thousand rupees unless paid otherwise than in cash; under s.80G(4) the aggregate of the sums falling in the specified sub-clauses is restricted to ten per cent of the gross total income and the excess is ignored, which is the qualifying limit that sits underneath the 50 and 100 per cent categories; and from AY 2022-23 the donee must deliver the prescribed statement of donations and furnish the donor a certificate under s.80G(5)(viii) and (ix), which are Form 10BD and Form 10BE. Finally, s.80G is not available at all to an assessee in the s.115BAC regime, which is the default from AY 2024-25.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee, Messrs. Abhai Maligai of Tiruchirapalli, claimed for AY 1969-70 a deduction of Rs.18,529, being fifty per cent of the amount spent on constructing a museum building in the Southern Prakaram of Sri Ranganathaswami Temple, Srirangam, and on its electrification, under s.80G(2)(b). The temple had been notified by the Central Government on 25 October 1966 as of historic and archaeological importance and a place of public worship of renown throughout Tamil Nadu. The executive officer of the temple had written on 15 February 1968 asking the assessee to construct the museum building at its own cost and hand it over, the assessee did so and handed the building over on 30 November 1968, and asked the temple for a letter acknowledging the donation for production before the income-tax authorities. The Income-tax Officer disallowed the claim on the ground that there was no cash donation to the temple. The Appellate Assistant Commissioner allowed it, following the Bombay High Court in CIT v. Associated Cement Co. Ltd. [1968] 68 ITR 478, and the Tribunal upheld that, finding that in substance what the assessee gave was the money spent on the construction. On the Revenue's reference the question was whether the Tribunal was right in holding the Rs.18,529 qualified for deduction under s.80G(2)(b).
The question was answered against the Revenue and in favour of the assessee, with costs. Explanation 5 to s.80G(2), inserted by the Finance Act 1976 with effect from 1 April 1976, could not be applied to AY 1969-70 (para 11). Looking to the substance of the transaction, the interposition of a contractor between the assessee and the temple did not affect it; the building was constructed on the temple's land and was an accretion to the temple, and instead of handing over the money and taking it back the assessee had itself put up the building with the funds set apart for that purpose, so the transaction in effect amounted to a donation of a sum of money falling within s.80G(2)(b) (para 15).
The Court set out s.80G(1) and s.80G(2)(b) as they then stood and recorded that the temple's notified status was not in dispute (paras 3 to 5). It then noted the insertion of Explanation 5 to s.80G(2) by the Finance Act 1976 with effect from 1 April 1976, declaring that no deduction is allowed under the section unless the donation is of a sum of money, and observed that it had probably been inserted to get over the effect of decisions such as the Bombay High Court's in Associated Cement (para 7). The Revenue relied on Jogendra Nath Naskar and, through it, on Cape Brandy Syndicate v. IRC [1921] 2 KB 403 for the proposition that later legislation may fix the construction of ambiguous earlier legislation (paras 8 and 9); the assessee relied on the Kerala High Court in Hajee K. Assainar v. CIT [1971] 81 ITR 423 on the prospective operation of amendments (para 10). The Court held Explanation 5 inapplicable to AY 1969-70 (para 11). It noted that the Tribunal's finding that the construction amounted to renovation or repair within s.80G(2)(b) had not been challenged by the Revenue and so did not arise (para 12). It set out Associated Cement, where the Bombay High Court had held that in substance what the company gave the University of Bombay was Rs.6,600 and that a contrary construction would unnecessarily limit the language and purpose of the section (para 13), and considered the Andhra Pradesh High Court in CIT v. Amonbolu Rajiah [1976] 102 ITR 403, which had disagreed that a donation in kind could earn rebate but had nevertheless held that what was donated in that case was money (para 14). Agreeing with the Bombay view that the substance of the transaction is what matters, and reasoning that the building on temple land was an accretion to the temple requiring no deed of transfer, the Court held the transaction amounted in effect to a donation of a sum of money (para 15).
Explanation 5 to Section 80G(2) of the Act was inserted by the Finance Act, 1976, with effect from 1st April, 1976, probably with the object of getting over the effect of decisions such as the one rendered by the Bombay High Court in the aforesaid Commissioner of Income-tax v. Associated Cement Co. Ltd. [1968] 68 ITR 478.
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Handle my notice → Ask a CA on WhatsAppNot now. Explanation 5 to s.80G, inserted by the Finance Act 1976 with effect from 1 April 1976, declares that no deduction is allowed under the section unless the donation is of a sum of money. This judgment allowed such a claim only because it concerned AY 1969-70, before that Explanation existed, and the Madras High Court expressly recorded that the Explanation was inserted to get over decisions of that kind. This was decided by the High Court (A. Varadarajan J) and bears on section 80G, section 80G(2)(b), section 80G(1), section 256(1) of the Income Tax Act 1961. It is reported as Reference under s.256(1) of the Income-tax Act 1961, Madras High Court; Assessment Year 1969-70. The case is carried here for the rule it now cannot help with. Donations in kind — a building, equipment, medicines, food, computers given to a school or a hospital — are still claimed under s.80G with some regularity, and the receipt often values them in rupees, which makes the claim look like a money donation. Explanation 5 forecloses it, and this judgment is the clearest statement of why: the Bombay High Court in CIT v. Associated Cement Co. Ltd. [1968] 68 ITR 478 had looked to the substance of the transaction and allowed a kiln built for a university, the Madras High Court followed that for a museum building put up in the temple's prakaram, and Parliament then inserted the Explanation. Three further limits go with it and should be checked in the same breath: under s.80G(5D) no deduction is allowed for a donation of any sum exceeding two thousand rupees unless paid otherwise than in cash; under s.80G(4) the aggregate of the sums falling in the specified sub-clauses is restricted to ten per cent of the gross total income and the excess is ignored, which is the qualifying limit that sits underneath the 50 and 100 per cent categories; and from AY 2022-23 the donee must deliver the prescribed statement of donations and furnish the donor a certificate under s.80G(5)(viii) and (ix), which are Form 10BD and Form 10BE. Finally, s.80G is not available at all to an assessee in the s.115BAC regime, which is the default from AY 2024-25. If it applies to you, the first step is this: If the contribution was of an asset, goods or services rather than money, do not claim it under s.80G — Explanation 5 is a complete answer and it has stood since 1 April 1976.
The assessee, Messrs. Abhai Maligai of Tiruchirapalli, claimed for AY 1969-70 a deduction of Rs.18,529, being fifty per cent of the amount spent on constructing a museum building in the Southern Prakaram of Sri Ranganathaswami Temple, Srirangam, and on its electrification, under s.80G(2)(b). The temple had been notified by the Central Government on 25 October 1966 as of historic and archaeological importance and a place of public worship of renown throughout Tamil Nadu. The executive officer of the temple had written on 15 February 1968 asking the assessee to construct the museum building at its own cost and hand it over, the assessee did so and handed the building over on 30 November 1968, and asked the temple for a letter acknowledging the donation for production before the income-tax authorities. The Income-tax Officer disallowed the claim on the ground that there was no cash donation to the temple. The Appellate Assistant Commissioner allowed it, following the Bombay High Court in CIT v. Associated Cement Co. Ltd. [1968] 68 ITR 478, and the Tribunal upheld that, finding that in substance what the assessee gave was the money spent on the construction. On the Revenue's reference the question was whether the Tribunal was right in holding the Rs.18,529 qualified for deduction under s.80G(2)(b). The matter was decided on 1977-11-11 by the High Court (A. Varadarajan J). On those facts the High Court held as follows. The question was answered against the Revenue and in favour of the assessee, with costs. Explanation 5 to s.80G(2), inserted by the Finance Act 1976 with effect from 1 April 1976, could not be applied to AY 1969-70 (para 11). Looking to the substance of the transaction, the interposition of a contractor between the assessee and the temple did not affect it; the building was constructed on the temple's land and was an accretion to the temple, and instead of handing over the money and taking it back the assessee had itself put up the building with the funds set apart for that purpose, so the transaction in effect amounted to a donation of a sum of money falling within s.80G(2)(b) (para 15).
The Court set out s.80G(1) and s.80G(2)(b) as they then stood and recorded that the temple's notified status was not in dispute (paras 3 to 5). It then noted the insertion of Explanation 5 to s.80G(2) by the Finance Act 1976 with effect from 1 April 1976, declaring that no deduction is allowed under the section unless the donation is of a sum of money, and observed that it had probably been inserted to get over the effect of decisions such as the Bombay High Court's in Associated Cement (para 7). The Revenue relied on Jogendra Nath Naskar and, through it, on Cape Brandy Syndicate v. IRC [1921] 2 KB 403 for the proposition that later legislation may fix the construction of ambiguous earlier legislation (paras 8 and 9); the assessee relied on the Kerala High Court in Hajee K. Assainar v. CIT [1971] 81 ITR 423 on the prospective operation of amendments (para 10). The Court held Explanation 5 inapplicable to AY 1969-70 (para 11). It noted that the Tribunal's finding that the construction amounted to renovation or repair within s.80G(2)(b) had not been challenged by the Revenue and so did not arise (para 12). It set out Associated Cement, where the Bombay High Court had held that in substance what the company gave the University of Bombay was Rs.6,600 and that a contrary construction would unnecessarily limit the language and purpose of the section (para 13), and considered the Andhra Pradesh High Court in CIT v. Amonbolu Rajiah [1976] 102 ITR 403, which had disagreed that a donation in kind could earn rebate but had nevertheless held that what was donated in that case was money (para 14). Agreeing with the Bombay view that the substance of the transaction is what matters, and reasoning that the building on temple land was an accretion to the temple requiring no deed of transfer, the Court held the transaction amounted in effect to a donation of a sum of money (para 15). In the words reproduced by the source cited on this page: "Explanation 5 to Section 80G(2) of the Act was inserted by the Finance Act, 1976, with effect from 1st April, 1976, probably with the object of getting over the effect of decisions such as the one rendered by the Bombay High Court in the aforesaid Commissioner of Income-tax v. Associated Cement Co. Ltd. [1968] 68 ITR 478." The decision followed or applied CIT v. Associated Cement Co. Ltd. [1968] 68 ITR 478 (Bom) — followed; CIT v. Amonbolu Rajiah [1976] 102 ITR 403 (AP) — considered, its view that a donation in kind cannot earn rebate noted; Hajee K. Assainar v. CIT [1971] 81 ITR 423 (Ker) — relied on for prospective operation.
It was decided by the High Court on 1977-11-11 and is reported as Reference under s.256(1) of the Income-tax Act 1961, Madras High Court; Assessment Year 1969-70. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 80G, section 80G(2)(b), section 80G(1), section 256(1), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The question was answered against the Revenue and in favour of the assessee, with costs. Explanation 5 to s.80G(2), inserted by the Finance Act 1976 with effect from 1 April 1976, could not be applied to AY 1969-70 (para 11). Looking to the substance of the transaction, the interposition of a contractor between the assessee and the temple did not affect it; the building was constructed on the temple's land and was an accretion to the temple, and instead of handing over the money and taking it back the assessee had itself put up the building with the funds set apart for that purpose, so the transaction in effect amounted to a donation of a sum of money falling within s.80G(2)(b) (para 15). It arises in Deductions & Disallowances, How Tax Law Is Read and Charitable Trusts & Exemption matters, on section 80G, section 80G(2)(b), section 80G(1), section 256(1) of the Income Tax Act 1961, and was decided by A. Varadarajan J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Where money is genuinely paid but at the donee's direction spent on something the donee wanted, keep the payment leg documented as a payment to the donee, because it is the substance-of-payment reasoning in Associated Cement and here that such an arrangement depends on, and it is now heavily constrained by the Explanation. Check the mode: s.80G(5D) bars a deduction for any single donation exceeding Rs.2,000 unless it is paid otherwise than in cash. Apply s.80G(4) before applying the 50 or 100 per cent rate — the aggregate of the sums in the specified sub-clauses is capped at ten per cent of gross total income and the excess is ignored. For AY 2022-23 onwards, obtain Form 10BE from the donee and reconcile it with the Form 10BD it has filed; a claim unsupported by the certificate now fails at processing. Before any of this, establish which regime the client is in — s.80G is unavailable under s.115BAC, the default from AY 2024-25.
Superseded by amendment. The result is confined to assessment years before 1 April 1976. Explanation 5 to s.80G, inserted by the Finance Act 1976 with effect from that date and still in force in the terms quoted in the judgment and confirmed on the Income Tax Department's own page for s.80G, declares that no deduction is allowed under the section unless the donation is of a sum of money. The judgment must therefore not be cited as authority that a donation in kind qualifies. Whether the decision was itself appealed or later considered was not checked. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This is a reference under s.256(1) and the decision itself went for the assessee, but it is carried for the opposite reason: it is the clearest judicial statement that Explanation 5 to s.80G reversed the substance-of-the-transaction line of cases prospectively from 1 April 1976. Do not cite it as authority that a donation in kind qualifies. The text of Explanation 5 quoted at para 7 of the judgment was checked against the Income Tax Department's own page for s.80G and matches; sub-sections (4) and (5D) and clauses (viii) and (ix) of sub-section (5) stated in this entry were read from that same departmental page, not from the judgment. The judgment also records at para 12 that the Revenue did not question the Tribunal's finding that construction of the museum building amounted to renovation or repair within s.80G(2)(b), so that question was not decided. Paragraph 10 of the judgment reproduces a long passage from the Kerala High Court in Hajee K. Assainar v. CIT [1971] 81 ITR 423 which concerns the Explanation to s.271(1) and not s.80G at all; it is quoted in the report for the proposition about prospective operation of amendments. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The question was answered against the Revenue and in favour of the assessee, with costs. Explanation 5 to s.80G(2), inserted by the Finance Act 1976 with effect from 1 April 1976, could not be applied to AY 1969-70 (para 11). Looking to the substance of the transaction, the interposition of a contractor between the assessee and the temple did not affect it; the building was constructed on the temple's land and was an accretion to the temple, and instead of handing over the money and taking it back the assessee had itself put up the building with the funds set apart for that purpose, so the transaction in effect amounted to a donation of a sum of money falling within s.80G(2)(b) (para 15).
TaxSphere, “Additional CIT v Abhai Maligai”, https://taxnotice.vittsphere.com/caselaw/case/addl-cit-v-abhai-maligai-80g-donation-in-kind-explanation-5/ (validity last checked 2026-09-07)
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