Formation, Management & Taxation of Charitable & Religious Trusts & Institutions

Description

CONTENTS
Chapter – 1 : Introduction
Evolution and growth of Charitable Organizations in India…1
History of NGO Activity in India…1
Early traditions…2
Why do we form a Trust…3
Meaning of Charitable Organization…3
Characteristics of a Charitable Organization…3
Assessment of trust under Income Tax Act…5
Services by Charitable Trust : Exempted from Service Tax…5
Constitutional Provisions…5
Income Tax Act’s sections dealing with trusts/institutions…5
Income Tax Rules dealing with trusts/institutions…8
Chapter – 2 : Public Institutions Exempt from Tax [Section 10]
[1] Income of a Local Authority [Section 10(20)]…9
[2] Income of a Research Association [Section 10(21)]…10
[3] Income of a notified news agency [Section 10(22B)]…11
[4] Income of Professional Associations [Section 10(23A)]…11
[5] Income of Funds established for welfare of employees [Section 10(23AAA)]…12
[6] Income of a fund set up by the Life Insurance Corporation of India under a Pension Scheme [Section 10(23AAB)]…14
[7] Income of Khadi and Village Industries [Section 10(23B)]…14
[8] Income of any body or authority set up to manage Religious and Charitable Institutions [Section 10(23BBA)]…15
[9] Income of Other Funds [Section 10(23C)]…15
[10] Income of Mutual Fund [Section 10(23D)]…16
[11] Income of a business trust [Section 10(23FC)]…17
[12] Income of Registered Trade Union [Section 10(24)]…18
[13] Income of Employees’ State Insurance Fund [Section 10(25A)]…20
Chapter – 3 : Non-Governmental Organisation (NGO)
What is a Non-Governmental Organization (NGO) or Non-Profit Organization (NPO)…22
Non-Profit Organizations in India…23
Types of Non-Governmental Organization (NGO) (i.e. Structure
of a Non-Profit Organizations in India)…23
Taxation of Non-Governmental Organizations (NGOs)…24
Comparison among Trust, Society and Non-profit Company…24
Tax exemptions for Non-Governmental Organizations (NGOs)…29
Application for Permanent Account Number…29
Mandatory Requirement of obtaining PAN for the Trustees [Section 139A(v) & (vi)]…29
Chapter – 4 : Laws governing Trusts/Institutions in India
[1] Main laws governing the Charity Sector…30
[2] Other Laws governing Charity Sector…31
[3] Trusts…31
[4] State Acts…32
[5] Other Allied Laws…33
[6] Constitutional Provisions with regard to Charitable Organizations…33
Chapter – 5 : Trust
What is Trust…35
Why do we form a Trust…36
Advantages of a Trust…36
Types of trust…37
Classification according to the beneficiaries – public trust, private
trust and combined trust…37
Classification according to the Evidence of trust – Written or Oral…37
Who can create a trust?…38
Flexibility in naming your trust…39
Three certainties required…39
Essential elements of a valid charitable trust…40
[1] Founder or Author of the trust or Settlor of the trust
(person who puts asset into a trust)…40
[2] Trustees (The person who manages the trust)…40
[3] Beneficiaries (The person who benefits from the trust)…42
Unborn Person can be a Beneficiary…42
Consent of Beneficiary is not necessary for a Valid Trust…42
[4] Trust property or the subject-matter of the trust…42
Transfer of Property is not necessary in every case…43
[5] Instrument of trust/object of the trust…43
Types of instrument of Trust…44
Trust by Trust Deed…44
Trust by will…45
Requirement of a Will…46
Trust created by book entries…46
Application for registration…46
What happens to assets of a trust when it is dissolved ?…47
Chapter – 6 : Public Trust
What is a Public Trust…48
Purposes for establishing a Public Trust…48
Charitable trusts not governed by the provisions of the Indian Trusts Act, 1882…48
Creation of a public trust…49
Three certainties required…49
Trust deed of Public trust…50
Compulsory clauses to be included in the deeds of Charitable Trusts…51
Legal title of the property of a Public Charitable Trust…51
Irrevocable Trust…51
When will provisions of sections 60 to 63 be applicable…52
Dissolution…55
GST on Charitable and Religious Trusts…55
Taxability of a Public Trust at a glance…55
NRIs can be appointed as Trustees of valid Indian Trusts under Income Tax Act…57
Trust deed is not necessary to create a trust…58
Chapter – 7 : Private Trust (Family Trust)
What is Private Trust?…60
Why to form a Private Trust?…61
Formation of Private Trust…61
Who are the Parties in a Trust?…62
Who can create a Private Trust? [Section 7 of the Indian Trusts Act, 1882]…62
Who can be a trustee of a Private Trust?…63
Who can be a beneficiary of a Trust?…63
Unborn persons as beneficiaries…63
Benefit of Private Trust…63
Essential Elements of a Private Trust…64
Procedure for forming a Private Trust…65
Main instrument of declaring a trust…65
Types of instrument of trust…65
Written trust deed is always desirable…66
How to register a Private Trust…67
Types of assets can be part of the trust…68
Legal owner of the assets of the trust…68
When can the trust assets be distributed?…68
Income from assets transferred to a person for the benefit of spouse
[Section 64(1)(vii)]…68
Income from assets transferred to a person for the benefit of son’s wife (Daughter-in-law) [Section 64(1)(viii)]…69
Settlor not liable to any tax on settlement of the irrevocable Trust…69
Taxation of Beneficiaries under section 56(2)(x) – No tax implications would arise under section 56(2)(x) of the Income Tax Act…69
Trust for a Deity…70
Family Deity…70
Private Trust for Minors…70
Private trust for major son…71
Private trust for married daughter…71
Status of Private trust…71
Status of the trustee would depend upon the status of the beneficiaries…72
How long can the trust operate…72
When a trust is revocable, irrevocable and revoked – Consequences…72
Private trust is not an AOP…73
Trust cannot be considered as a Body of Individuals…73
Trustees of a trust assessable as individual under Wealth Tax Act …74
Private Trust how extinguished [Section 77 of The Indian Trusts Act, 1882]…74
Unlawful purpose cannot be an object to create a trust…75
How a Private Trust can be revoked [Section 78 of the Indian Trusts Act, 1882]…75
Types of Private trust (relevant for income-tax purposes)…76
Types of Private Family Trusts prevailing in India…76
(1) Private Specific Trust (Private Non-Discretionary Trust)…76
Taxation of Settlor…80
Rates – Specific Trust [Section 161(1) and 161(1A)]…80
(2) Private Discretionary Trust [Section 164(1)]…81
Role of the Discretionary Trust…82
Taxation of Private Discretionary Trusts…82
Difference between Discretionary Family Trust & Non-Discretionary family trust…83
Applicability General Anti -Avoidance Rule of GAAR…84
Character of discretionary trust cannot be changed by resolution passed by trustees…85
Trust – Charge of tax where shares of beneficiary are unknown…85
Oral Trust [Sections 160(1)(v) and 164A]…85
Private Trust can claim deductions under Chapter VIA…86
Sum received by a beneficiary could not be taxed if trust had paid taxes on its income…87
A public-cum-private trust becomes a public trust if the private beneficiaries renounce their rights in favour of public…95
Chapter – 8 : Religious Trust
Religious purpose not defined in the Act…97
What is ‘religious’ or ‘charitable purpose’…98
Essentials of religious and charitable trust under Hindu law…99
“Charitable purpose” to include religious purposes as well…100
True character of particular temple whether public or private in nature…100
Establishment of a religious trust or endowment…102
No writing is necessary to create an endowment…102
Complete or Partial Dedication…103
Trust established “Wholly for Religious purpose” (no charitable
purpose) – Anonymous donations shall not be taxable under
section 115BBC [Section 115BBC(2)(a)]…103
If a temple is not registered under section 12A…104
Donations made to the Temple, Mosque, Gurdwara, Church, etc…104
Exemption granted by section 11 is confined to public religious trusts
and does not extend to private religious trusts…106
Anonymous donations received by wholly religious trust cannot
be treated as unexplained cash credit under section 68…106
Chapter – 9 : Society
Legislations…117
Purposes for which a Society can be formed…118
Persons eligible to form a Society…118
Documents of Society (main instrument)…118
Process of Registration of Society…119
Document to be furnished for Registration…119
Cancellation of registration of society…119
Statutory and Management Committee…120
Foreigner can be the member of the Society…120
Other than individual can be the member of the society…121
Rights of members…121
Income of a society…121
Tax rate…121
Amendment of Memorandum of Association…121
Opening of Bank Accounts…122
Dissolution…122
Chapter – 10 : Private Limited Non-profit Company [Section 8 of Companies Act, 2013]
About Section 8 Company…123
Features of Section 8 companies…124
Purpose of section 8 company…124
Benefit of section 8 company…124
Governance of section 8 companies under Companies Act, 2013…126
Formation of companies with charitable objects, etc…126
Registration – Procedure…126
Incorporation of Section 8 company…127
Application for Incorporation of Company…128
Grant of License…129
Conditions for formation of Section 8 company…129
Main Instrument…130
Contents of Memorandum of Association…130
Contents of Articles of Association…130
Preparation of the Memorandum of Association (MOA) and
Articles of Association (AOA)…131
Provisions of Section 8 Companies shall not be altered…131
Annual compliances for a Section 8 Company…132
Dissolution…132
Revocation of Licence by Central Government…133
Penalty for violation of Section 8…133
Chapter – 11 : Wakf (Charitable Trust)
Meaning of Wakf…134
Wakf (Charitable Trust)…135
Subject of Wakf…135
Essential conditions of a valid Wakf…135
Objects held Valid…136
Objects held Invalid…137
Creation of Wakf…137
Classification of Wakf…138
Kinds of Wakfs…138
Completion of Wakf…139
Mutawalli (Trustee)…140
Who can be a Mutawalli…140
Who can appoint a Mutawalli…140
Powers of a Mutawalli…141
Removal of a Mutawalli…141
Legal Consequences (Legal Incidents) of Wakf…142
Revocation of Wakf…143
Important legislations…143
Chapter – 12 : Business Trust [Section 2(13A)]
Background…145
No requirement of the units of business trust to be listed on a
recognised stock exchange…146
Structure of Real Estate Investment Trust (REIT)…146
Structure of Infrastructure Investment Trust (Inf. ITs)…147
Income of Business Trust…147
Exemption of income of Business Trust…147
Taxability of Business Trust…149
Chapter – 13 : Electoral Trust [Section 2(22AAA) & Section 13-B]
Background…153
Objective of Electoral Trust…153
Eligibility for Electoral Trust…154
Conditions for approval of Electoral Trusts…154
Procedure for approval…155
Renewal of approval…157
Withdrawal of approval…157
Functions of electoral trust [Rule 17CA]…158
Approval can be withdrawn by the Central Board of Direct
Taxes (CBDT)…161
Fund raising by political parties…161
Donation Deductions…161
Exempt under Section 13B …162
Quantum of exemption…162
Chapter – 14 : Unregistered Trust
Audit report in form 10B not required in case of unregistered
institutions …168
Unregistered Trust – Taxed as AOP on the slab rates applicable to individuals/AOPs, etc…168
Trust not registered under Section 12A cannot claim exemption
towards foreign donations…168
Chapter – 15 : Trust Deed for Trust/Institutions
Advantages of a Trust-Deed…176
Trust Deed is not necessary to create a Trust…177
Some Do’s and Donots of Drafting…177
Contents of a Trust Deed…178
Revocable vs Irrevocable Trust…180
Essentials of a Trust Deed…181
Amendment in Trust Deed…182
Rectify the objects of trust…183
Rectification of Trust Deed : Power of Civil Court…183
Revenue need not be a party to rectification…185
Effect of rectification is not retrospective…185
Supplementary Trust Deeds permitted by appropriate Civil Court…185
Deletion of objectionable/offending clauses by subsequent amendments…186
How trust deed could be treated as revocable or irrevocable ?…186
Taxability of income in case of revocation of property…187
Mere non-intimation of amendments in Trust Deed cannot lead to cancellation of registration…187
Where the trust is empowered under the trust deed to make amendment there is no need to approach civil court…188
Amendment of the Trust Deed by trustees…188
Major clauses of Trust Deed…189
No denial of exemption on ground of missing original deed if trust was acquired by Endowment Act, 1984…194
Formal deed not required for registration under section 12AA,
objects of trust to be considered…195
Express words for creation of trust are needed…197
For construction of deed it must be read as a whole…199
Chapter – 16 : Types of Registration of a Charitable & Religious Trust
(i) Registration under the Indian Registration Act, 1908…200
(ii) Registration under Public Trusts Act…201
(iii) Registration under Bombay Public Trust Act, 1950 [Section 18]…201
(iv) Registration under Income-tax Act, 1961…201
(v) Registration under Foreign Contribution (Regulation) Act, 2010…201
(vi) Registration under Societies Registration Act, 1860…202
(vii) Registration under the Companies Act, 2013…202
(viii) Registration under Niti Aayog…202
Chapter – 17 : Status of Charitable Trust or Institutions
Assessment of trust under Income Tax Act…203
Allows deduction under Chapter VI-A where Trust assessed as AOP,
not claimed Section 11 exemption…203
Chapter – 18 : Source of Income of a Trust
Sources of funding …205
(A) Internal sources:…205
(B) External sources:…205
Definition of Income of Trust [Section 2(24)(iia)]…206
Income in commercial sense…206
Chapter – 19 : Foreign Contribution
Main objective…208
Who are covered under the FCRA Act, 2010…208
Meaning of Foreign Contribution…208
Foreign Hospitality [Section 2(i)]…209
Who can receive foreign contribution?…209
Reporting Foreign Contributions…210
Restrictions on transfer of Foreign Contribution…211
Restrictions on utilization of Foreign Contribution…211
Types of Foreign Contribution Regulation Act (FCRA) Registration…211
Benefits of Foreign Contribution Regulation Act Registration…212
Procedure for Permnent Registration…213
Documents required for FCRA Registration…213
Eligibility criteria for registration…213
Registration under FCRA…214
Conditions for the grant of Registration…214
Renewal of Registration…215
Provision for compounding of offences…215
Foreign Contribution (Regulation) Act, (FCRA) guidelines…215
Eligibility criteria for grant of prior permission…215
Sources of foreign funds [Section 2(i)]…216
Prohibition to accept foreign contribution [Section 3]…217
Foreign contribution cannot be mixed with local receipts…217
Foreign contribution can be received in rupees…217
Requirement of Audit…217
Mandatory nature of Return…218
Cancellation of FCRA Registration [Section 14]…218
Consequences of cancellation…218
Chapter – 20 : Rental income of Trusts/Institutions
Trust cannot claim rental income under the head “Income from
House Property”…220
Chapter – 21 : Agricultural income of Trust…226
Agricultural income is to be excluded…226
Exemption under section 10 not available to trust except under
sections 10(1) and 10(23C) [Section 11(7)]…226
Onus lies on the assessee…228
Agricultural income is to be excluded…228
Where no separate books of account for income from agricultural
income maintained…228
Only agricultural income – registration not required…229
Chapter – 22 : Charitable Purpose
[1] Relief of the Poor…231
[2] Education…233
[3] Yoga…234
[4] Medical Relief…234
[5] Preservation of environment [With effect from assessment year 2009-10]…234
[6] Preservation of monuments or places or objects of artistic or
historic interest [With effect from Assessment year 2009-10]…234
[7] Advancement of any other object of general public utility
[With effect from Assessment year 2009-10]…235
Chapter – 23 : Charitable objects – ‘Relief of the Poor’…238
Relief of the poor must not be relief to a body of private individuals but must have a public character…242
Trusts for the relief of poverty of poor relatives of the settler were not for a charitable purpose since no element of public benefit was involved…243
Chapter – 24 : Charitable objects – ‘Education’
Prospective operation of Supreme Court’s New Noble ruling
restricted to ‘solely’, not ‘education’…245
Construes ‘solely’ under Section 10(23C) strictly & prospectively for educational institutions; Overrules Queen’s Education Society…248
Expenses incidental to imparting training not deterrent to Section 10(23C) exemption…250
Proviso to section 2(15) has no role to play once activities of trust fall within ambit of ‘Education’ under section 2(15)…252
Holds educational institute eligible for exemption under section 11 based on registration of its parent society…252
Online Coaching considered as Education under section 2(15), hence eligible for Exemption under section 11/12…253
CSR activities are charitable in nature – Eligible for registration…254
Expenditure incurred on catering services for maintenance of its boarding school – Held to be educational purposes…254
Educational institution – Skill training programme – Placement activities– Entitled to exemption…255
Providing hostel facility to students is an essential component of educational institution and also an aid for attaining educational object– Entitled to exemption…255
Providing specialized training in industrial field to persons sent by companies…255
Pre-School falls in the term ‘education’ as envisaged under section 2(15)…255
Mere surplus by educational institution does not mean that it ceases to exist solely for educational purposes…255
Purpose of educational institution…257
Educational institutions…257
Elements of normal schooling must exist…258
Chapter – 25 : Charitable objects – ‘Yoga’
Yoga included as a limb of Charitable Purpose…259
Chapter – 26 : Charitable objects – ‘Medical Relief’
Rules on Section 10(23C) exemption eligibility for entity engaged in population control & health awareness…264
Carrying ‘awareness’ program for eradication of HIV AIDS,
a charitable activity under section 2(15)…266
Chapter – 27 : Charitable objects – ‘prevention of the environment (including watersheds, forests and wildlife)’…269
Chapter – 28 : Charitable objects – ‘Preservation of monuments or places or objects of artistic or historic interest’…272
Chapter – 29 : Charitable objects – ‘Advancement of any other object of general public utility’
Advancement of any other object of general public activity’ …274
Object of promoting sport of cricket – Object of general public
utility – Entitled to exemption…288
For One Samaj only cannot be considered as section of general public…289
Expression “any other object of general public utility” is of widest connotation…290
Where activities are not mentioned in objectives of Trust…291
Promotion of sports and games is considered to be a charitable
purpose within the meaning of section 2(15)…292
Charitable purpose includes benefit of a section of public…296
Chapter – 30 : Essential conditions for exemptions…297
Chapter – 31 : Income includes voluntary contributions receivedby a trust [Section 2(24)(iia)]…300
Chapter – 32 : Educational and Medical Institutions
[Section 10(23C)(iiiab) to Section 10(23)(via)]
Types of Institutions…306
Chapter – 33 : Universities or other Educational Institutions [Section 10(23C) (iiiab), Section 10(23C)(iiiad) & Section 10 (23C)(vi)]
Educational Institutions run other than by Trusts
(Up to assessment year 1998-99)…308
Source of income of Educational Institutions…308
Pre-School [Stage prior to normal schooling]…310
Basic Legal Provisions Granting Exemption…310
Types of educational Institutions eligible for exemption under
section 10(23C)…310
Chapter – 34 : Hospitals or other Medical Institutions
[Section 10(23C)(iiiac), 10(23C)(iiiae) and 10(23C)(via)]
Meaning of a Hospital…321
[1] Wholly or substantially Government Financed
Hospital/Medical Institutions [Section 10(23C) (iiiac)]…323
CONTENTS (xxi)
[2] Small Hospitals/Medical Institutions with Gross receipts
do not exceed Rs. 5 crore [Section 10(23C)(iiiae)]…323
[3] Other Hospitals/Medical Institutions [Section 10(23C)(via)]…324
Chapter – 35 : Exemption of income of any university or other
educational institution substantially financed by
government [Section 10(23C)(iiiab)]
Text of Section 10(23C)(iiiab)…333
Furnishing of Return of income is mandatory
[With effect from 2016-17]…333
Chapter – 36 : Exemption of income of any hospital or other
institution substantially financed by government
[Section 10(23C)(iiiac)]…337
Chapter – 37 : Exemption for the income received by any university
or other educational institution do not exceed five crore
rupees [Section 10(23C)(iiiad)]
Threshold limit of Rs. 5 crores on aggregate basis for the whole
trust itself [Explanation of sub-clauses (iiiad) and (iiiae) to
clause (23C) of section 10]…338
Furnishing of Return of income is mandatory
[With effect from 2016-17]…339
Chapter – 38 : Exemption for the income received by any hospital
or hospitals or institution or institutions do not exceed
five crore rupees [Section 10(23C)(iiiae)]
Threshold limit of Rs. 5 crores on aggregate basis for the whole
trust itself [Explanation of sub-clauses (iiiad) and (iiiae) to
clause (23C) of section 10]…342
Chapter – 39 : Fund or institution established for charitable
purposes [Section 10(23C)(iv)]…345
Chapter – 40 : Trust (including legal obligation) or institution only for public religious purposes or wholly for public religious and charitable purposes [Section 10(23C)(v)]
Trust making surplus no ground for denying Section 10(23C)(v)
benefit; Allows exemption to Gurudwara Nanded Sahib…351
Chapter – 41 : Any university or other educational institutions
approved by the Principal Commissioner or Commissioner
[Section 10(23C)(vi)]
Conditions to be satisfied before an application can be given approval
under Section 10(23C)(vi)…355
(xxii) CONTENTS
Income of all Schools and colleges of a charitable trust should be
clubbed together…355
No need to examine foreign laws while allowing Section 10(23C)
claim if assessee receiving funds from outside India…355
Elucidates on definition of ‘other educational institution’; Restores
Section 10(23C)(vi) exemption application for re-adjudication…359
AOP of two charitable trusts running school, eligible for exemption
under section 10(23C)(vi)…362
Chapter – 42 : Exemption for the income received by any hospital
or other institution do not exceed five crore rupees
[Section 10(23C)(via)]
Furnish a Return of income [With effect from 2016-17]…367
Chapter – 43 : Application for approval of Educational Institution
or any University or any Hospital or other Medical
Institution to be made in prescribed form
[First proviso to clause (23C) of section 10]
Documents which are required alongwith the application…372
Process of approval and registration of trusts, institutions, funds,
university, hospital, etc. …373
Chapter – 44 : Pass an order in writing granting it approval for a period
of five years [Second proviso to clause (23C) of section 10]
Commissioner or other authority is not in any manner constrained
from examining accounts and other related documents to see
the pattern of income and expenditure…377
Second proviso to clause (23C) of Section 10 [Upto 31.03.2021]…377
Chapter – 45 : Application of income and investment of funds
[Third proviso to clause (23C) of section 10]
Accumulation is permitted subject to conditions [Explanation 3 to
Third proviso of section 10(23C)]…383
Period of an order or injunction of any court, shall be excluded
in computing 5-year period [Proviso to Explanation 3 of
section 10(23C)]…383
Accumulated income shall be deemed to be income in the following
previous years [Explanation 4 to third proviso of section 10(23C)]…384
Assessing Officer can, on request of the assessee, allow use of
accumulated funds, for purposes other than those specified
[Explanation 5 to third proviso of section 10(23C)]…384
Chapter – 46 : Exemption not to be denied in certain circumstances
[Fourth proviso to clause (23C) of section 10] …388
CONTENTS (xxiii)
Chapter – 47: Investment of funds [Fifth proviso to clause (23C) of
section 10]
Investments in specified forms and modes…389
Chapter – 48 : Contribution in kind [Sixth proviso to
clause (23C) of section 10] …390
Chapter – 49 : Business income of any university or other
educational institution or any hospital or other medical
institution shall be chargeable to tax, unless the business
is incidental to the attainment of its objects and separate
books of accounts are maintained by it in respect of such
business [Seventh proviso to clause (23C) of section 10]
Text of Seventh Proviso to clause (23C) of Section 10
Profits and Gains of business of any university or other educational institution or any hospital or other medical institution…392
Chapter – 50 : Any approval granted under the second proviso
shall apply in relation to the income of the fund or trust
or institution or university or other educational institution
or hospital or other medical institution [Eighth proviso to
clause (23C) of section 10]
Eighth proviso to clause (23C) of Section 10 [Upto 31.03.2021]…394
Chapter – 51 : Order under clause (i), sub-clause (b) of clause (ii)
and clause (iii) of the second proviso shall be passed,
in such form and manner as may be prescribed, before
expiry of period of three months, six months and one
month respectively, calculated from the end of the month
in which the application was received [Ninth proviso to
clause (23C) of section 10]
Ninth proviso to clause (23C) of Section 10 [Applicable up to
31.03.2021]…396
Chapter – 52 : Trust or institution or university or other educational institution or hospital or other medical institution shall
keep and maintain books of account and other documents
get its accounts audited [Tenth proviso to clause (23C)
of section 10]
Form of report of audit prescribed under tenth proviso to
section 10(23C) [Rule 16CC]…398
Chapter – 53 : Taxability of donations received for but not applied,
to earthquake relief in Gujarat [Eleventh proviso to
clause (23C) of section 10]…400
(xxiv) CONTENTS
Chapter – 54 : Restriction on exemption in case of corpus donation
by exempt entities to other exempt entities
[Twelfth proviso to clause (23C) of section 10]…401
Chapter – 55 : Applicability of TDS provisions & restrictions
on cash payments – Expenditure incurred without deduction
of tax and in cash will not be eligible as application of income
under section 10(23C) [Thirteenth proviso to clause (23C)
of section 10]
Text of Thirteenth proviso to clause (23C) of Section 10…404
No deduction allowed where cash payment is made exceeding
Rs.10,000 …405
Mandatorily required to deduct TDS…405
Chapter – 56 : Not be treated as application of income to the objects
for which such fund or trust or institution or university or
educational institution or hospital or other medical
institution [Fourteenth proviso to clause (23C) of
section 10]…407
Chapter – 57 : Non-fulfilment of the conditions laid down
under ection 10(23C) and withdrawal of approval
granted to University or Educational Institution under
section 10(23C)(vi) or any hospital or other medical
institution referred to in section 10(23C)(via)
[Fifteenth proviso to clause (23C) of section 10]…408
Chapter – 58 : Any anonymous donation referred to in
section 115BBC on which tax is payable in accordance
with the provisions of the said section shall be included
in the total income [Sixteenth proviso to clause (23C)
of section 10]…412
Chapter – 59 : All applications made under the existing first proviso, pending before the Principal Commissioner or Commissioner,
on which no order has been passed, shall be deemed to be an application made under clause (iv) of the first proviso on that
date [Seventeenth proviso to clause (23C) of section 10]…413
Chapter – 60 : Eighteenth proviso to clause (23C) of Section 10…414
Chapter – 61 : All applications made under the existing first proviso, pending before the Principal Commissioner or Commissioner,
on which no order has been passed, shall be deemed to be an application made under clause (iv) of the first proviso on that
date [Nineteenth proviso to clause (23C) of section 10]…415
CONTENTS (xxv)
Chapter – 62 : Fund or institution or trust or any university or
other educational institution or any hospital or other
medical institution shall furnish the return of income
in accordance with the provisions of section 139(4C)
[Twentieth proviso to clause (23C) of section 10]…417
Chapter – 63 : Unreasonable benefit to specified persons
[Twenty-first proviso to clause (23C) of section 10]…419
Chapter – 64 : Any fund or trust or institution or university
or other educational institution or hospital or other
medical institution violates the conditions specified
under the tenth or twentieth proviso, or where the
provisions of the eighteenth proviso are applicable
[Twenty-second proviso to clause (23C) of section 10]…421
Chapter – 65 : For the purposes of computing income chargeable
to tax under twenty-second proviso, no deduction in respect
of any expenditure or allowance or set-off of any loss shall be
allowed to the assessee under any other provision
[Twenty-third proviso to clause (23C) of section 10]
Allows earlier year’s deficit carry forward, holds Explanation 2 to
Section 10(23C) applicable from Assessment year 2022-23…423
Chapter – 66 : Trust eligible for exemption under section 11
Who is allowed exemption under section 11…424
Legal obligation as mentioned in section 11…424
Conditions to be satisfied for claiming exemption under section 11…425
Applicability of sections 11 and 12 – only if it furnishes return of
income within the time…426
Trust or institution can claim exemption either under section 11 or
under section 10(23C)…429
Circumstances where exemption from tax not available …430
Section 11 exemption deniable only to the extent of Section 13
violation…431
Denial of Section 11 exemption absent real connection between
construction activity & trust’s objectives…431
Income generated by trust during pendency of its Section 12A
registration is also eligible for exemption…432
Exemption under sections 11 to 13 cannot be claimed in absence of registration under section 12AA…433
(xxvi) CONTENTS
Chapter – 67 : Income from property held under trust for charitable
and religious purposes [Section 11(1)]
Section 11 will not apply where Sections 60 to 63 are applicable…434
Real Income v. Notional Income…450
Tax Deduction at Source cannot be considered as Income…451
Chapter – 68 : Trust created wholly for charitable or religious
purposes and applying (or accumulating) their income to
such purposes, in India [Section 11(1)(a)]…453
Extent to which exemption allowed…453
Meaning/Explanation of Words used in Section 11(1)(a)…454
Chapter – 69 : Income from property held under Trust which
is applied in part only for charitable or religious purposes
[Section 11(1)(b)]
Nature of income…463
Conditions applicable…463
To what extent exemption allowed…463
“Mixed Trust”…464
Trustees cannot convert a partial trust into a wholly Charitable Trust…464
Chapter – 70 : Income from property held under Trust which is
applied for charitable purposes outside India
[Section 11(1)(c)]
Nature of income…466
Will a clause of activities outside india in the trust deed invite
forfeiture?…467
Applied in India…467
Chapter – 71 : Voluntary contribution forming part of corpus
[Section 11(1)(d)]
Donations made by a trust to any other trust with the specific
direction…470
What constitutes a Corpus Donation?…471
How does a trust or institution create a corpus?…471
Sources of Corpus Funds…472
Corpus fund can be created from its internal accrual and surpluses…472
Written documentary is necessary…472
Corpus Donation – onus to prove is on the assessee…472
Voluntary contribution with specific direction…472
Discretion with the donor…473
CONTENTS (xxvii)
A donor can make a contribution to the Corpus Fund with certain
conditions and/or qualification to be fulfilled by the recipient…473
No format of specific direction…473
Donor has no right to call-back the amount of contribution to the
Corpus Fund made by him…473
Income generated from Corpus Fund is a part of Income…473
Deposit/investment of corpus donations should be specific
(i.e., separate from non-corpus income) …475
Donation through charity boxes…475
Corpus donation to another organization (as applicable up to
assessment year 2017-18)…476
Restriction on exemption in case of corpus donation by exempt
entities to other exempt entities [Explanation 2 to section 11(1)]…476
Corpus donations will be taxable income in absence of exemption
under section 11…478
Disclosure of corpus…479
Chapter – 72 : Capital Gains deemed to be applied for
charitable/religious purposes [Section 11(1A)]
Background…484
No distinguishment between Long Term and Short Term…486
Treatment of Capital Gain in case of Charitable Trusts…486
Quantum of gains deemed to have been applied…487
No time limit has been provided under section 11(1A)…493
When the benefit of indexation available?…493
Chapter – 73 : Consequences if the income is not actually applied
within the prescribed period after exercising the option
[Section 11(1B)]…497
Chapter – 74 : Accumulation of income in excess of 15% of the
income earned [Section 11(2)]
Exercise of option, etc., under section 11 [Rule 17]…500
Procedure of obtaining permission for accumulation of funds…502
Circumstances where accumulation is permitted…502
Conditions to be satisfied for exemption for Accumulation of Income in excess of Specified Limit [Section 11(2)]…503
Option to be exercised to spend the income in the next year…504
Such option is to be exercised in a prescribed form for the said
accumulation in Form No. 9A read with Rule 17(1)…505
Purpose of Accumulation must be specified…516
(xxviii) CONTENTS
Chapter – 75 : Withdrawal of Exemption granted to income
accumulated under section 11(2) [Section 11(3)]…517
Chapter – 76 : Circumstances where the accumulated income
in excess of 15% can be utilised for a purpose other than
that for which it was accumulated [Section 11(3A)]
Modification of objects specified in Form 10 [Section 11(3A)]…521
Chapter – 77 : Income from a business carried on by the trust
[Section 11(4)]
Treatment of business income of a trust…523
Business Income of a Trust…523
Difference between business held under trust and business carried
on by a trust…524
Chapter – 78 : Profits and Gains from Incidental Business
[Section 11(4A)]
Business Income shall be eligible for exemption [Section 11(4A)]…532
Fee received by trust by providing training to new employees of
hotel to be treated as business income under section 11(4A)…534
Rejection of Section 11 exemption as imparting managerial training not incidental/ancillary to Main Objects…535
Chapter – 79 : Modes of investment or deposits by a Charitable or
Religious Trust or Institution [Section 11(5)]
Notifies share or bonds of ONDCL as mode of investment for charitable entities under Section 11(5)…551
What are the accumulated income to be invested by Trust or Institutions Under Section 11(5)…551
Corpus Donation (Section 11(1)(d)]…552
Income fall short of 85% – Money so accumulated [Section 11(2)(b)]…552
Modes specified in Section 11(5)…552
Any other mode of investment or deposit as per section 11(5)(xii)
[Rule 17C]…553
Investment in shares by a charitable Trust…555
Consequences for failure to invest as per section 11(5)…556
Chapter – 80 : For the purpose of accumulation or setting apart of income for application, depreciation on assets, the acquisition of which have been claimed as application shall not be allowed
[Section 11(6)]
Depreciation claim not allowed if cost of acquisition of asset was
already claimed as application of income…559
CONTENTS (xxix)
Chapter – 81 : Assessee can either obtain registration under
section 12AB or obtain approval under section 10(23C),
but he cannot adopt both [Section 11(7)]
Background…561
Exemption to development authorities, etc. [Section 10(46), 10(46A)]…563
Where registration of the trust or institution has become inoperative
due to the first proviso to sub-section (7) of section 11…564
Chapter – 82 : Voluntary contributions (Donation) not forming part of corpus of the Trust or institution treated as income
[Section 12(1)]
Term “Voluntary Contribution”…567
Difference between voluntary contributions and subscription…567
Grant-in-aid is a voluntary contribution under section 12(1)…568
Chapter – 83 : Value of medical/education services provided to
specified persons by trust running hospitals and educational institution – Exemption under section 11 shall not be available
for services provided to specified persons [Section 12(2)]
Donation of shares received towards corpus of trust cannot be taxed
as deemed income of trust under section 12(2)…569
Chapter – 84 : Conditions for applicability of Sections 11 and 12
[Section 12A]
Provisional registration no longer permissible once activities are
commenced [With effect from 01.01.2023]…575
Combining Provisional and Regular Registration [With effect from 01.10.2023]…575
Denial of exemption where return of income is not furnished within
time [Clause (ba) of Section 12A(1)] …576
Retrospective exemptions benefit withdrawn – Rollback provisions
[second, third and fourth provisos to Section 12A(2)]
are removed …577
Section 68 – Not applicable…582
Chapter – 85 : Section 12AA – Procedure for registration
[As applicable up to 31.03.2021]
Due date of filing application for registration under section 12AA…585
Charitable or religious trust or institution can apply for registration
under section 12A online…585
Application for registration of charitable or religious trusts, etc.
[Rule 17A] …586
Time limit for passing order under section 12AA…588
(xxx) CONTENTS
Following the prescribed Time limit in passing order under
section 12AA of the Act…589
Tenure of registration [Applicable upto 31.03.2021]…589
Section 11 exemption cannot be granted just because assessee having
section 12AA registration…591
Main object is required to be examined by the CIT…602
Trust or Society not registered in India cannot be granted section 12A registration…605
While granting the registration the Commissioner cannot apply the provisions of section 13…613
In absence of trust deed CIT cannot consider Trust registration
application…614
If the object of the trust is charitable, registration cannot be denied…614
Chapter – 86 : Cancellation of Registration of the Trust or Institution [Section 12AA(3) & 12AA(4)] [As Applicable up to 31-03-2021]
Consequences if registration is not granted…622
Rejection of registration – options…622
Violation of Section 13 is not a ground for cancellation of registration…631
Section 12AA registration cannot be cancelled for mere violation
of sections 11 and 13…631
Chapter – 87 : Procedure of registration of a Trust/Institution
[Section 12AB]
Benefits of Registration under section 12A…635
Procedure for registration [Section 12AB – Applicable from 01.04.2021]…635
Timelines for applying for provisional and final registrations
[With effect from 01.10.2023]…640
Time limit for making Application for registration under section 12AB…641
Chapter – 88 : Cancellation of Registration or provisional registration
of a trust or an institution under certain circumstances
[Section 12AB(4)]
Giving incomplete/false information can attract cancellation of
registration [Clause (g) of Explanation of Section 12AB(4)]…650
Rationale for bringing amendment as per the memorandum
explaining Finance Bill, 2023 …651
Cancellation of registration/approval in certain circumstances…651
Reference to the Principal Commissioner or Commissioner for the cancellation of registration/approval…651
CONTENTS (xxxi)
Chapter – 89 : Forfeiture of exemption to Trust and Institutions
[Section 13(1)]
[1] Income of Private Religious Trust not used for public benefit,
i.e., Income applied for private religious purpose and not for
the public at large [Section 13(1)(a)]…658
[2] Income of Charitable Trust/Institution created for the benefit of particular religious community or caste [Section 13(1)(b)]…659
[3] Income for the benefit of Specified Persons [Section 13(1)(c)]…663
[4] If the funds are applied in modes other than those specified
in section 11(5) [Section 13(1)(d)]…667
Chapter – 90 : Income for the benefit of a person specified in
Section 13(3) [Section 13(2)]
(a) Interest free loan or loan without security [Section 13(2)(a)]…677
(b) Use of properties without charging adequate rent
[Section 13(2)(b)]…678
(c) Excessive payment for services [Section 13(2)(c)]…678
(d) Services of trust without adequate remuneration or other
compensation [Section 13(2)(d)]…679
(e) Purchase of property for trust for excessive consideration
[Section 13(2)(e)]…679
(f) Sale of trust property for inadequate consideration
[Section 13(2)(f)]…679
(g) Diversion of income or property exceeding Rs. 1,000/-
[Section 13(2)(g)]…679
(h) Investment in substantial interest concerns [Section 13(2)(h)]…679
Chapter – 91 : Meaning of specified persons (as referred to in
clause (c) of sub-section (1) and sub-section (2) of Section 13
[Section 13(3)]…681
Chapter – 92 : Exemption not be denied if the investment of the trust or institution, in a concern, in which the specified person has a substantial interest [Section 13(4)]…684
Chapter – 93 : Exemption under sections 11 and 12 shall not be denied if Debentures purchased after 28.02.1983 but before 25.07.1991 do not continue to remain invested beyond 31.03.1992
[Section 13(5)]…685
Chapter – 94 : Charitable trusts not lose exemption if educational or medical facilities provided to specified persons
[Section 13(6)]…686
(xxxii) CONTENTS
Chapter – 95 : Anonymous Donation specified in section 115BBC
not exempt [Section 13(7)]…687
Chapter – 96 : When commercial receipts exceed the specified
threshold [Section 13(8)]…688
Chapter – 97 : In case return is not filed by prescribed date then
benefit of accumulation under section 11(2) will not be
available [Section 13(9)]…689
Chapter – 98 : Allowing certain expenditure incurred for its objects,
subject to certain conditions in case of denial of exemption
[Section 13(10)]…690
Chapter – 99 : For the purposes of computing income chargeable
to tax no deduction in respect of any expenditure or
allowance or set-off of any loss shall be allowed to the
assessee under any other provision [Section 13(11)]…692
Chapter – 100 : Procedure for Registration for Exemption Certificate
under Section 80G
Benefits of Registration under Section 80G…693
Where is Section 80G certificate to be applied…693
Type of Institution or Fund…693
Penalty for failure to furnish statements, etc. [Section 271K]…703
Documents required for Registration for certificate under section 80G…704
Time limit for passing order…707
Donations in kind do not qualify for deduction under section 80G [Explanation 5 to Section 80G]…708
Appeal against order of rejecting approval under section 80G…712
Chapter – 101 : Anonymous donations to be taxed in ceretain cases
[Section 115BBC]
Treatment of Anonymous Donations…726
Computation of Taxable Anonymous donations…726
Special Rate of Tax [Under Section 115BBC(1)]…728
Chapter – 102 : Specified Income of Certain Institutions
[Section 115BBI]…739
Chapter – 103 : Special provisions relating to tax on accreted
income of certain Trusts and Institutions
[Sections 115TD, 115TE and 115TF]
Purpose for Introducing Chapter XII-EB…741
Levy of exit tax on non-filing of application…743
CONTENTS (xxxiii)
Applicability – Circumstances where Exit Tax is levied…751
Accreted income…752
Rate of accreted income tax…757
Liability for payment of the additional tax…758
Consequences on failure to pay tax by Trust or Institution
[Section 115TE]…758
Chapter – 104 : Furnishing of Return of Income by Trust/Institution
(i) Return of Income of Charitable/Religious Trusts and Institutions [Section 139(4A)]…759
(ii) Return of Income of Political Parties [Section 139(4B)]…760
(iii) Return of income persons claiming exemption under section 10
[Section 139(4C)]…760
(iv) Return by University, College or other institution
[Section 139(4D)]…761
(v) Return by Business trust [Section 139(4E)]…761
(vi) Return by investment fund [Section 139(4F)]…761
(vii) Return of persons claiming exemption under section 10(23C)…762
Chapter – 105 : Application of Income
[1] Revenue or capital purposes…768
[2] Capital expenditure…769
[3] Acquisition of an Asset…769
[4] Administrative expenditure…770
[5] Establishment expenses…771
[6] Application in form of revenue/capital expenditure out of
Loans & borrowed funds …771
[7] Payment of taxes (including Income Tax)…775
[8] Expenditure of earlier years [Applicable upto assessment
year 2021-22]…776
[9] Amount advanced to another charitable trust…778
[10] Expenditure to the contrary of trust deed…778
[11] Tax deducted at source…778
[12] Income Tax Act does not provide exemption on application of
income outside India…782
[13] Double deduction not allowed…782
[14] Provision of sections 22 to 27 not attractive…782
[15] Reasonable remuneration paid to trustees, managers,
functionaries, etc., towards services rendered is considered
as application for charitable or religious purposes…783
(xxxiv) CONTENTS
[16] Income deemed to have been applied during the previous year for charitable or religious purposes [Explanation 2 to section 11(1)]…783
[17] Application of income on unspecified purposes [Section 11(3A)]…785
[18] Donation made by one Charitable Organisation to another …785
Chapter – 106 : Inter-Charity Donations
(one charitable trust to another)
[1] Only 85% of the eligible donations made by a trust or institution
to another trust out of current year’s income shall be treated as application only to the extent of 85% of such donation…790
[2] Inter charity donations out of the funds accumulated under
section 11(2) is not at all valid except in case of dissolution of
charitable organisation…793
[3] Inter-charity donation as corpus to other organisation
with same objectives is allowed but cannot be treated
as application of income …793
Chapter – 107 : Not allowed as Application of Income
[1] Corpus donations not to be treated as ‘application of income’
[Twelfth proviso to clause (23C) of Section 10 & Explanation 2 to Section 11(1)]…799
[2] Adjustment of Previous years Excess Application against
current years income…800
Chapter – 108 : Tax Deducted at Source (TDS) Obligations of
Trust/Institutions
[1] Salary Income [Section 192]…801
[2] Payment to Contractors and Sub-Contractors [Section 194C]…802
[3] Payment of rent for land and buildings [Section 194-I]…803
[4] Payment of professional fees [Section 194-J]…804
Chapter – 109 : Penalties in Trust/Institution cases
[1] Penalty for passing on unreasonable benefits to trustee or
specified persons [Section 271AAE]…810
[2] Penalty for failure to furnish statements, etc. [Section 271(K)]…811
[3] Penalty for failure to furnish the return of income which he is
required to furnish under sub-section (4A) or sub-section (4C) of
section 139 or to furnish it within the time allowed and in the
manner required under those sub-sections [Section 272A(2)(e)]…814
Chapter – 110 : Maintenance of books of accounts by the trust or institutions
Where the books of account are to be maintained …819
CONTENTS (xxxv)
Chapter – 111 : Audit of accounts of Trusts/Institutions & Audit Report
[1] Audit under Income Tax Act, 1961…830
[2] Audit under Companies Act, 2013…836
[3] Audit under Societies Registration Act, 1860…836
[4] Audit under Foreign Contribution (Regulation) Act, 2010…836
[5] Audit under Maharashtra Public Trusts Act, 1950…837
Chapter – 112 : Extinguishment/Revocation of Trust
(i) Fulfillment of the purpose…844
(ii) Purpose becomes unlawful…844
(iii) Destruction of subject-matter…844
(iv) Express revocation by the author…844
Chapter – 113 : Liability in Special Cases
Treatment of trusts under Income Tax Act…847
Applicable tax rates…847
Public Trusts – with respect to part of income not exempt under
section 11 or 12…848
Chapter – 114 : Rate of Tax : Trusts/Institutions
Charge of tax…851
Rate of Tax – Applicable to a Public Trust…851
Normal Slab Rate [Section 164(2) and 164(3)]…852
Maximum marginal rate of tax [Section 164(2) and (3)]…852
Rate of Tax – Section 164(2) and section 164(3)…852
Maximum Marginal Rate [Provisos to section 164(2) and 164(3)]…852
Forfeiture of Exemption and Rate of Tax…853
Total Forfeit of Exemption and Rate of Tax…854
Basic exemption not available…854
Section 167B will not be applicable in case of charitable trust or
institution…858
Chapter – 115 : Computation of income of
Trust/Institution
Broad Scheme of Computation of Income under section 11…864
Computation of Total Income of Trust/Institution…865
Chapter – 116 : Assessment of income of a charitable or religious
trust or institution
Section 14 and five heads of income do not apply to trusts/institutions…868
How to find out Exemption of Income in case of Charitable or
Religious Trust…870
(xxxvi) CONTENTS
Surplus in charitable society’s books not undisclosed income, ‘intent
to conceal’ missing…871
Loss on sale of investment is not deductible…872
Chapter – 117 : Limitation/compliance period in respect of various procedures, applications, etc., for Trust or Institution…873
Chapter – 118 : Meaning of Important Terms…881
Chapter – 119 : Important Forms
FORM No. 9…885
FORM 9A…887
FORM No. 10…889
FORM No. 10A…891
FORM No. 10AB…899
FORM No. 10AC…904
FORM No. 10AD…905
FORM No. 10B…906
FORM No.10BB…924
FORM No. 10BC…930
FORM No. 10BD…933
FORM No. 10BE…935
FORM No. 10 [Omitted]…936

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