Are we allowed to lie when we know it will do good to someone?

Interesting! Thats something we face is our life almost everyday, and we don't realize that it's a sin but you need elaborate your question, As lying is allowed in Islam only in 3 cases: Follow the answer..

It was narrated that Asma’ Bint Yazeed said: “The Messenger of Allah (peace and blessings of Allah be upon him) said: ‘It is not permissible to tell lies except in three (cases): when a man speaks to his wife in a way to please her; lying in war; and lying in order to reconcile between people.’”
(Narrated by al-Tirmidhi, 1939)

I was shocked when I came to know this, but as far as your question is concerned, I dun know what u mean here by "it will do good to someone" but where ever I have read the explanations of this hadith, it says that u can lie to "bring peace between two people" I have not read/heard that it okay to lie to make some1 happy.
I think it's okay to lie in extreme situations, for example, if someone is mentally disturbed and you are not suppose to tell him a bad news so you lie to the person to make him not feel worse. Have you heard, "amal ka dar ul madar neeyat per hay" ? It's a hadith or a saying im not sure, but if your attentions are not wrong and it wudnt harm anyone, Allah is there to understand you, listen to you n will forgive you.
P.S I try my level best to not to lie just to make someone happy : ) rest is up to you.

we are not allowed to lie even it will do good to someone.. prophet Muhammad (S.A.W) curses a person who speak lies just to make a person laugh he also said that: "when a person speaks lies,the angel's go one mile away from him because of the bad smell that comes from him." galat cheez galat hi hoti hai woh kisi ko faida nai phuncha sakti. so always speak truth . :)

Below is the quote which specify the ONLY 3 conditions in which lie is not considered as lie ... !

Sahih MuslimBook 032, Number 6303:
Humaid b. 'Abd al-Rahman b. 'Auf reported that his mother Umm Kulthum daughter of 'Uqba b. Abu Mu'ait, and she was one amongst the first emigrants who pledged allegiance to Allah's Apostle (may peace be upon him), as saying that she heard Allah's Messenger (may peace be upon him) as saying: A liar is not one who tries to bring reconciliation amongst people and speaks good (in order to avert dispute), or he conveys good. Ibn Shihab said he did not hear that exemption was granted in anything what the people speak as lie but in three cases: in battle, for bringing reconciliation amongst persons and the narration of the words of the husband to his wife, and the narration of the words of a wife to her husband (in a twisted form in order to bring reconciliation between them).


For details : http://muslim-responses.com/Islam_on_Lying/

I would absolutely HATE it if someone lied to me. As Zainab said in her answer, the 3 types of (somewhat allowed) lies were defined by the Prophet (salallahu alaihi wasalam). I believe that is because we cannot know what is good for the other person, there can always be wisdom in something which we think is bad for them.

Agree to what others have said so far. People often think that they might serve some greater good for a person/community etc. if they lied (twisted the facts). They, however, sadly forget that their judgement and knowledge of what may benefit someone might greatly differ from what Allah considers beneficial for that person. Often, people are actually not doing the others (whom they perhaps want to protect and cause no harm) a favor, rather, they could even cause harm. It's not always easy to be open and deliver an information in such a way that it does not hurt the person, but it is better to tell the truth (if asked).
Allah knows best.

As Zainab, Osama and others pointed out that it is permissible to lie in only three cases, but there can still be certain cases in which, I think we can lie. For example, if you are invited to a dinner at some one's home, and food is not at all delicious, but if they ask you, how is it cooked? You will never say that it tastes terrible, because you know they have put all their efforts in making it, and you couldn't be that straight forward, so lying in such a case, won’t do any harm, I think. Similarly, exaggerating or lying to cheer up somebody won't do any harm as well. Like, for example, if someone is coming to our home, and we tell our grandmother about the exact time of their arrival, she will get extremely anxious, if they will be only a few minutes late, so to avoid that, we usually tell her a wrong time, say with 1-2 hour margin, so that she does not feel impatient and become worried. In such cases, I think it is allowed, and as according to the hadith, "amal ka dar ul madar neeyat per hay". So it depends completely on your intentions. And this in return doesn't affect any other person, like nobody is going to be hurt because of your lie, but the person (to whom you are lying) will feel satisfied and content.
I might be wrong, but this is what I think.

Lying in Islam is allowed but as mentioned in the Ahadiths quoted above are not outright lie, but in a way which is closer to reality.

I am totally agree with the answer of Zainab. I was about to type that all but i'm late... :)

NO, i wud say... As mentioned above that only in 3 cases lie is permissable...and i think ur case is otherwise!!

Lying is only allowed to make reconciliation /or peace between ppl.