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Trusts
Societies
Section 25 Companies
The Income Tax Act gives all categories equal treatment, in terms of exempting their income and granting 80G certificates, whereby donors to non-profit organizations may claim a rebate against donations made. Foreign contributions to non-profits are governed by FC(R)A regulations and the Home Ministry
Trust
Relevant State Trust Act or Indian Trust Act, 1882 Deputy Registrar/Charity commissioner As trust
Society
Societies Registration Act, 1860
Section 25 Company
Indian Companies Act, 1956
Jurisdiction
Registrar of societies (charity commissioner in Maharashtra). As Society In Maharashtra, both as a society and as a trust
Registrar of companies
Registration
Registration Document
Trust deed
Memorandum of association and rules and regulations No stamp paper required for memorandum of association and rules and regulations. Minimum seven managing committee members. No upper limit. Governing body or council/managing or executive committee Appointment or Election by members of the general body
Memorandum and articles of association. and regulations No stamp paper required for memorandum and articles of association.
Stamp Duty
Trust deed to be executed on non-judicial stamp paper, vary from state to state Minimum two trustees. No upper limit. Trustees / Board of Trustees Appointment or Election
Members Required
Board of Management
Meaning of Trust
A trust is a relationship in which :
a person or entity (the trustee) holds legal title
to certain property (the trust property or trust corpus), but is bound by a fiduciary duty to exercise that legal control
for the benefit of one or more individuals or organizations (the beneficiary), who hold beneficial or equitable title.
The trust is governed by the terms of the (usually) written trust agreement and local law. The entity (one or more individuals, a partnership or a corporation) that creates the trust is called the settlor.
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Types of Trusts
Bare Trust A trust where the beneficiary is absolutely entitled to the assets, and the trustee is obliged simply to pay them over to the beneficiary. Resulting and Constructive trusts are usually bare trusts. Bare trusts generally do not continue for any length of time, unless they arise out of protracted litigation, or the beneficiaries are minors (in which case the bare trust must continue till they reach majority) Constructive Trust It is imposed by law as an equitable remedy. It generally occurs due to some wrong doing, where the wrong doer has acquired legal title to some property and cannot in good conscience be allowed to benefit from it.
Resulting Trust
It is a form of implied trust which occurs where a trust fails, wholly or in part, as a result of which the settlor becomes entitled to the assets.
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Types of Trusts
Discretionary Trust It is an arrangement where the trustee may choose, from time to time, who (if anyone) among the beneficiaries is to benefit from the trust, and to what extent, so long as the decision is made based on the beneficiaries best interests. The purpose of such a trust is that no individual can claim to be entitled to any specific interest in the trustees assets, which often has tax advantages or asset protection advantages. Fixed Trust the entitlement of the beneficiaries is fixed by the settlor. The trustee has little or no discretion. E.g. a trust for a minor (to X if she attains 21) a life interest (to pay the income to X for her lifetime)
Types of Trusts
Hybrid Trust It combines elements of both fixed and discretionary trusts. The trustee must pay a certain amount of the trust property to each beneficiary fixed by the settlor. But the trustee has the discretion as to how any remaining trust property, once these fixed amounts have been paid out, is to be paid to the beneficiaries. Express Trust
It arises where a settlor deliberately and consciously decides to create a trust, over his or her assets, either now or upon his death. In these case this will be achieved by signing a trust instrument which will either be a will or a trust deed.
Implied Trust It is created where some of the legal requirements for an express trust are not met, but an intention on behalf of the parties to create a trust can be presumed to exist.
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Types of Trusts
Intervivos Trust A settlor who is living at the time the trust is established creates an intervivos trust. Testamentary Trust A trust created in an individuals will.
Irrevocable Trust
It is the one that will not come to an end until the terms of the trust have been fulfilled.
Revocable Trust A trust of this kind can be revoked (cancelled) by its settlor at any time.
Public Trusts
Like private trusts, public trusts may be created inter-vivos or by will. Public trusts are however governed by general law, though the principles forming the basis of the Indian Trusts Act can be applied in the case. It was held in the case of State of UP Vs. Bansi Dhar, AIR (1974) SC 1084, 1090 that it is true that Indian Trusts Act relates only to private trusts, public charitable trust have been expressly excluded from its ambit. But while provisions of section 83 of the Trusts Act proprio vigore do not apply, there is a common area of principles which covers all trusts, private and public, and merely because they find a place in the trusts Act, they cannot become untouchable where public trusts are involved. It is a trust established for charitable purposes; normally must be for the benefit of public at large or a class of beneficiaries. These are entitled to special treatment under the law of taxation.
Public Trusts
These are exempt from the rule against perpetuities, which would otherwise require a trust to come to an end after a certain period. Charitable trusts may continue indefinitely.
A formal deed is not necessary to constitute a public trusts, even where immovable property is dedicated because section 5 of Indian Trusts Act 1882 is not applicable on public Trusts. Public trusts are an exception to the well settled rule that there is no valid trust unless the objects thereof are specified. The trusts is not
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Public Trusts
A charitable trust is synonymous with public trust. There is nothing called as a private charitable trust. Charitable trusts come under the doctrine of cy pres, under which if the charitable purposes of the trust cannot be fulfilled, then they can be replaced by new and more appropriate charitable purposes. Management or Control may vest in private hands. In the case of Smt. Ganesha Devi Rami Devi Charity Trust Vs. CIT (1969) 71 ITR 696, 704 (Cal) it was held that the implication, therefore, is that if the trust or fund is controlled by a body of persons which is not a public body, but if it enures to the benefit of a public it will still be a charitable trust or fund
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Private Trusts
Private trust may be created inter vivos or by will. Private trust are governed by the provisions of the Indian Trust Act 1882
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An Act to enable the Government to divest itself of the management of Religious Endowments
CHARITABLE ENDOWMENTS ACT, 1890 An Act to provide for the Vesting and Administration of property held in the trust for charitable purposes. Whereas it is expedient to provide for the vesting and administration of property held in trust for charitable purposes; It is hereby enacted as follows:
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Essentials of a Trust
The existence of the author/settlor of the trust or someone at whose instance the trust comes into existence.
It may, however, be noted that the Indian Trusts Act does not apply to public trusts which can be formed by any person under general law. Under the Hindu Law, any Hindu can create a Hindu endowment and under the Muslim law, any Muslim can create a public wakf. Public Trusts are essentially of charitable or religious nature, and can be constituted by any person.
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However, no trust is defeated for want of a trustee. Where there is no trustee in existence, an official trustee may be appointed by the court and the trust can be administered. An executor of a Will may become a trustee by his dealing with the assets under the provisions of the Will.
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Instrument of trust
The instrument by which the trust is declared is called instrument of Trust, and is generally known as Trust Deed. It is well settled that no formal document is necessary to create a Trust as held in Radha Soami Satsung vs. CIT- (1992) 193 ITR 321 (SC). But for many practical purposes a written instrument becomes necessary under following cases When the trust is created by a will irrespective of whether the trust is public or private or it relates to movable or immovable property. This is because as per Indian Succession Act, a will has to be in writing When the trust is created in relation to an immovable property of the value of Rs.100 and upwards, in case of a private trust. In case of public trusts, a written trust deed is not mandatory, even in respect of immovable property, but is optional. Where the trust/association is being formed as a society or company, the instrument of trust; i.e., the memorandum of association, and Rules and Regulations has to be in writing.
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Instrument of trust
A written trust-deed is always desirable, even if not required statutorily, due to following benefits : a written trust deed is a prima facie evidence of existence of a trust ; it facilitates devolution of trust property to the trust; it clearly specifies the trust-objectives which enables one to ascertain whether the trust is charitable or otherwise; it is essential for registration of conveyance of immovable property in name of the Trust; it is essential for obtaining registration under the Income-tax Act and claiming exemption from tax; it helps to control, regulate and manage the working and operations of the trust; it lays down the procedure for appointment and removal of the trustee(s), his/their powers, rights and duties; and it prescribes the course of action to be followed under any eventuality including dissolution of the trust.
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Provisions in the Income Tax Act, 1961 impacting Trusts- Brief overview
Section 2(15) Defines a charitable objective Section 10(23C) Provides exemption to educational, medical, charitable and public religious institutions, existing not for the purposes of profit Section 11-13 Provides for tax treatment in case of charitable trusts Section 80G Deals with deduction in respect of donations to certain funds , charitable institutions etc.
Section 161-164 Deals with liability in special cases i.e. of representative assessee, which includes taxation of private discretionary trusts.
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Real income has to be taken into account for the purpose of considering the exemption u/s 11 (CIT Vs. Birla Janhit Trust (1994) 208 ITR 372, 375-76 (Cal)
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Charitable Purpose
Action flowing from charitable thought should not be for benefiting once own self. The action should always be for benefit of others. [Sole Trustee, Lok Shikshana Trust v. CIT [1975] 101 ITR 234 (SC)] The Court may disallow a project as being charitable even if the trust deed declares it to be so. [All India Spinners Association v. CIT [1944] 12 ITR 482 (PC)]
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Charitable Purpose
Inclusive Definition The statutory definition is not exhaustive or exclusive. Even if the object or purpose may not be regarded as charitable in its popular signification as not tending to give relief to the poor or for advancement of education or medical relief, it would still be included in the expression charitable purpose if it advances an object of general public utility. [CIT v. Andhra chamber of Commerce [1965] 55 ITR 722(SC)] Concept of charity The very concept of charity denotes altruistic thought and action. Its object must necessarily be to benefit others rather than ones self. The action which flows from charitable thinking is always directed at benefiting others. It is this direction of thought and effort and not the result of what is done in terms of financially measurable gain which determines that it is charitable. [Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC)]
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Charitable Purpose
Relief for the poor
The relief in order to be charitable must, in every case, be to such section of the community, which may be well defined and identified by some common quality of public nature. If the class were vague and ill defined, the institution would not be a valid charitable trust.
The object need not be to benefit all persons living in a particular country or province. It is sufficient if the object is to benefit a section of the public as distinguished from specified individuals.
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Charitable Purpose
Education As per wider and extensive meaning, the word education would connote every acquisition of further knowledge. However section 10(22) of the I. T. Act, which grants exemption to the income of a university or other educational institution, existing solely for educational purposes not for profit the word education would connote the process of training and developing the knowledge, skill, mind and character of students by normal schooling.
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Charitable Purpose
The coaching of students in an institutions is not imparting education, which can be said to be a process of training and developing of students and character of students by normal schooling. A coaching institution cannot be said to be an institution where normal schooling is done. Coaching institute was held not to be entitled to exemption from Income Tax U/s 10(22) of the Act. [Institute of Mining and Mines surveying Vs. CIT, (1994) 208 ITR 608 (Pat)] Education is per se regarded as an activity that is charitable in nature. The fee structure must take into consideration the need to generate funds to be utilized for the betterment and growth of the educational institution, the betterment of education in that institution and to provide facilities necessary for the benefit of the students [T.M.A Pai & Others vs. State of Karnataka & others]
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Charitable Purpose
Medical relief Hospital/Other Institution for the reception and treatment of persons suffering from illness or mental defectiveness or for reception and treatment of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit. General public utility An object of general public utility means an object of public utility, which is available to the general public as distinct from any section of the public. The expression object of general public utility includes all objects which promote the welfare of the general public. Therefore when the principal object of a chamber of commerce is to promote and protect trade, commerce and industry in India or any part of India, the said object can be said to be general utility and therefore a charitable purpose. [CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC)]
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Charitable Purpose
The State Bar Council is a body constituted for general public utility since the advancement of any object beneficial to even a section of public as distinguished from an individual or group of individuals would be an object of public utility and consequently a charitable purpose. [CIT v. Bar Council of Maharashtra [1981] 130 ITR (SC)] Society of Chartered Accountants being engaged in activities of general public utility, is a charitable society. [CIT v. Jodhpur Chartered Accountants Society [2002] 258 ITR 548 (Raj.)] Delhi Stock Exchange is non charitable institution. [Delhi Stock Exchange Association Ltd. V. CIT [1997] 224 ITR 235] Where primary or dominant purpose of institution is charitable and other objects which, by themselves, may not be charitable, but are merely ancillary or incidental to primary or dominant object, same would not prevent institution from validly being recognized as charitable trust. [Director of Income Tax v. Bharat Diamond Bourse [2003] 259 ITR 280]
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Religious Purpose
It means a religious purpose within the meaning of the personal law applicable to the assessee. [Bai Hirbai Rahim Trust v. CIT [1968] 68 ITR 821 (Bom)] [Saraswathi Ammal v. Rajagopal Ammal, AIR [1953] (CS) 491] Starting and maintaining a Sanskrit Pathshala or a Dharamshala or a temple accessible to the public, or a Sadabrata i.e food distributed to the public whoever may come and take it, or a piyau or kund where water was available to everybody, hospitals or other charitable or religious institutions are all charitable or religious purposes. [Smt. Ganeshi Devi Rami Devi Charity trust v. CIT [1969] 71 ITR 696 (al)]
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Religious Purpose
Holding and maintaining of samadhs in reverence of guru where people at large come and pay homage and worship at the samadhs, also holding of mela at such samadhs to propagate and remind the people of the teachings of the guru in whose memory the mela is held. [CIT v. Guryani Brij Balabh Kaur trust [1980] 125 ITR 381 (Punj.)] [CIT v. Guryani Brij Balabh Kaur trust [1989] 178 ITR 615 (Punj.)] Provision of dinner to Brahmins on specified occasions is religious purpose. [CIT v. Ahmedabad Rana Caste Association [1973] 88 ITR 354 (Guj.)] [CIT v. Ahmedabad Rana Caste Association [1983] 140 ITR 1 (SC)]
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Religious Purpose
Public worship by itself will be a public religious object, but not if it is linked with other objects like conduct of marriage, staging dramas. [Ochira Temple Administration Board v. State of Kerala [1988] 171 ITR 429 (Ker.)] Reciting prayers is a religious object but renovation of public hall for purposes of settlor will lose benefit. [Court Receiver v. CIT [1964] 54 ITR 189 (Bom.)] Charities undertaken during religious occasions like Ramzan do not become religious solely on this account. [CGT v. Mecotronics Pvt. Ltd. [2000] 242 ITR 542 (Mad.)]
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Religious Purpose
Ceremonies for repose of soul of founder and his wife alonwith other religious objects cannot be treated as private because such ceremonies like raogar and muktad are for benefit of mankind. [CWT v. Trustees of the J.P. Pardiwala Charity Trust [2965] 58 ITR 46 (Bom.)] Section 13(1)(b) applied only to a charitable trust and not to a religious trust.. The test of this section will not be applicable to a religious trust who will, therefore, be entitled to exemption under Section 11(1)(a) [Income tax Officer v. Catholic Church [1982] 13 TTJ 200(Ahd.)]
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Profit Motive
Justice Bhagwati, who delivered the majority judgement of the Supreme Court in the case of Sole Trustee, Loka Shikshana Trust (1975) 101 ITR 234, 256 observed that But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. In the same case the Ld. Judge observed that it would indeed be difficult for persons in charge of a trust or institutions to so carry on the activity that the expenditure balances the income and there is no resulting profit. That would not only be difficult of practical realisation but would also reflect unsound principal of management. In CIT Vs. Thyaga Brahma Gana Sabha (Sri.) (1991) 188 ITR 160 (Mad.), the court held that the exclusionary clause does not require that the activity must be carried on in a such a manner that it does not result in any profit at all. Charitable purpose would not loose its character merely because some profit had arisen from the activity- Director of Income Tax (Exemption) vs. Shilpam (1998) 230 ITR 126 (Cal.)
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Where a trust is formed and the trust deed does not reveal any specific object of a public, religious or charitable nature it shall not be entitled to claim exemption under the Act (Additional CIT Vs. Ganga Bai Charities (1983) 142 ITR 718 (Mad).
Where the deed of creation of the voluntary organization was not specific as regards the utilization of the income, the organization was not entitled to claim any exemption under the provisions of section 11 of the Act. (Assembly Rooms Vs. CIT (2000) 241 ITR 76 (Mad)
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Objectives partly charitable A trust created for providing benefit first for the relatives and balance amount for charities and after death of the relatives to the applied totally for charities was held not to have been formed for charitable purposes as the trustees had absolutely discretion to apply the income [Sarah Cherian Trust Vs. ITO (1987) 173 ITR 656 (Ker] When there are several objects of a trust some of them being charitable and some non charitable, and if the trustee could have discretion in applying the trust income to any of the objects , whole of the trust must be treated as non charitable and no part of the income would be exempt from tax [South Indian Athletic Association Ltd. Vs. CIT (1975) 107 ITR 108 (Mad)]
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It would be sufficient if the objects are for the benefit of a section of the public as distinguished from individuals. It may be noted that in order to become charitable, the relief should be for section of the community which could be well defined and identified by some common quality of public nature. If the class is not properly defined or is ambiguous , then the object will not be a valid charitable object. Refer decision in the case of Sherwani Charitable Trust Vs. CIT (1968) 79 ITR 750( All)
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Even in such case exemption will be available so long as these objects sub serve the main objects, which should be of religious or charitable nature CIT Vs. Jaipur Charitable Trust (1976) 103 ITR 777 (SC)
Objects for carrying out business activity The objects should be specified with the purpose of enabling the trust to carry on business. At the same time, it should be clear that the object of carrying out the business is only to subserve the main objects of carrying out charitable work.
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Nature of income
Income derived from property held under trust wholly for charitable or religious purposes
11(1)(c)
Income derived from property held under trust for a charitable purpose, which tends to promote international welfare in which India is interested
To the extent income is applied to such charitable or religious purposes outside India.
Exemption is available only if the Board has directed such exemption. 100% exemption.
11(1)(d)
Income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.
In computing the 15% of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in Section 12 shall be deemed to be part of the income.
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13(1)(c)
Income/ property of charitable or religious trust applied for direct or indirect benefit of person referred in 13(3)
Any income, is taxable if If any funds are invested other than in 11(5) Any funds invested earlier than 1983 remain invested thereafter Shares and company are held after 1983.
13(1)(d)
11(4A)
Income from business which is not incidental to the attainment of the objectives of the trust, or in respect of which separate books of accounts have not been maintained.
Value of medial/ education services provided to specified persons by trust running hospital and educational institution shall be income of trust and will be chargeable in the year in which services are provided and chargeable to tax, despite section 11(1). 54
12(2)
Conditions subject to which income derived from property held under trust is exempted under section11
Trust must have been created for any lawful purpose. The trust should not be created for the benefit of any particular religious community or caste. The trust should be registered with the Commissioner of Income Tax under Section 12A The property from which income is derived should be held under a trust by such charitable or religious trust / institution. The property should be held wholly for charitable purposes. The exemption is confined to only such portions of the trusts income which is applied to charitable or religious purposes or is accumulated for applying to such purposes in India. 85% of the income is required to be applied for the approved purposes and the unapplied income and the money accumulated or set apart (in excess of 15% of the income from such property) should be invested in the specified forms or modes. No part of the income should ensure, directly or indirectly, for the benefit of the settler or other specified persons.
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Concept of Corpus
There is no judicial guidance on the subject as to what amount in the funds of a trust will constitute its corpus. According to Blacks Law Dictionary, it means an aggregate or mass; physical substance, as distinguished from intellectual conception; the principal sum or capital, as distinguished from interest or income; the main body or principal of a trust. The corpus ingredient constituted of the originally donated or settled capital amount in the form of money, movable property or immovable property (which might conveniently be termed as original corpus) plus any contribution received by the trust with a specific direction that it shall form part of the corpus of the trust. To claim a donation to be a corpus donation it is necessary that a written direction from donor is obtained.
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[Trustee of Shri Kot Hindu Stree mandal v. CIT [1994] 209 ITR (Bom.)]
Where a trust received voluntary contribution with specific direction that it should form a part of the trust corpus, the trust will not loose exemption if the contribution is applied for meeting running expenses.
Application of Income
The exemption under Section 11 is available only if the income derived from property held under trust is applied to the charitable or religious purposes.
Income must be available for application. TDS cannot be considered as income. CIT V.Jayshree Charity Trust 1985 Tax LR 247 (Cal)
The application of income need not necessarily result in expenditure. Therefore, an amount irretrievably earmarked or allocated for the purposes of the trust or institution is also treated as applied even though it has not been actually spent.[CIT Vs. Trustees of the HEH Nizams Charitable Trust (1981) 131 ITR 497 (AP)] Application need not necessarily result in revenue expenditure. Even capital expenditure is considered to be application of income for the purposes of Section 11if it is incurred for charitable purposes.[CIT v. Kannika Parameshwari Devasthanam & Charities [1982] 133 ITR 779 (Mad.)]
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Capital expenditure on purchase of a building to be utilized as a hospital for promotion of the charitable purpose.
[CIT v. S.Rm.M.ct.M. Tirupanni Trust Trust v. CIT [1998] 230 ITR 636 (SC)]
Deficit arising out of excess of expenditure over income during a particular year should be set off against surplus relating to subsequent year CIT Vs. Mahrana of Mewar Charitable Foundation (1987) 164 ITR 439 (Raj)
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Similarly, it has been held in the case of CIT Vs. Silk & Art Silk Mills Association Ltd. (1990) 182 ITR 38 that expenditure for the objects of the trust should be first deemed to have been made out of the assessable income and balance, if any , should be deemed to have come out of non-assessable income. In such circumstances pro-rata basis cannot be adopted.
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clause (2)(a)(i) to
11(1B)(a): Taxable in the year immediately following the previous year in which income was received.
11(1B)(b): Taxable in the year immediately following the year in which income was derived.
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Conditions Of Accumulation
11(2): Accumulation of unapplied income.
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Conditions of Accumulation
Section 11 (2) not to restrict operation of section 11(1) In the case of Addl. CIT Vs. A.L.N. Rao Charitable Trust (1995) 216 ITR 697 (SC), it is been held that accumulated income which is exempt under section 11(1)(a) need not be invested in Government Securities.
11(3)(a): Applied for purposes other than charity or ceases to be accumulated or set apart for charity taxed in such year of application. 11(3)(b): Ceases to be invested in 11(5) taxed in year of cessation. 11(3)(c): Is not utilized for the purpose for which it was accumulated, by the expiry of the year immediately following the period of accumulation taxed in year immediately following expiry of period aforesaid.
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11(3A): In case of 11(2), if the income can not be applied for the purpose for which it was allowed to be accumulated, then an application can be made to change the purpose of accumulation. Proviso1: The changed purpose can not be for payment to exempted trust. Proviso2: Accumulated funds of dissolved trust can be credited or paid to exempted trust in the year the accumulating trust was dissolved.
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Under section 11(1A), if a part of the entire amount of net consideration is invested in another Capital Asset then, the appropriate fraction of the Capital Gain will be deemed to have been applied for charitable or Religious Purposes.
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80,000
20,000
1,00,000
Nil 60,000
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(vi) Capital gains deemed to have been applied for charitable purposes (iii) - (v) 40,000
Where any income so determined is in excess of the income as shown in the accounts of the undertaking such excess shall be deemed to be applied to purposes other than charitable or religious purposes and thus, it will be liable to be taxed accordingly.
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It has been held in [CIT v. Thanthi Trust [2001] 247 ITR 785 (SC)], that a business whose income is utilized by the trust for the purpose of achieving the objectives of the trust is, surely, a business, which is incidental to the attainment of the objectives of the trust. In any event if there is an ambiguity, the provision must be construed in a manner that benefits the assessee.
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Section 13 (1)(a)
The exemption under the head religious trusts has always been available only in respect of religious trusts which enure for the benefit of the public. Where the trust is for private religious purposes, the exclusion did not and does not apply to that part of the income from property held under trust which does not enure for the benefit of the public. [CIT v. Bengal Mills & Streamers Presbyterian Assn [1983] 140 ITR 586 (Cal.)]
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Section 13(1)(b)
This section enacts that income of a trust or charitable institution created or established after 1.4.1962 for the benefit of any particular religious community or caste is not excluded from its total income. In [CIT v. Shri Maheshwari Agarwal Marwari Panchayat [1982] 136 ITR 556 (MP)] it was held that since the trust was for a particular religious community, the provisions of section 13(1)(b) were not applicable as they apply only to charitable trusts. As per this interpretation, 13(1)(b) will not apply in case of religious or both Religious & charitable trusts.
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Section 13(1)(c)
Where a part of income of the charitable or religious trust or institution enures or is used or applied, directly or indirectly, for the benefit of the settlor, founder and certain other specified persons is not eligible for exemption. [Director of income tax v. Bharat Diamond Burse [2003] 259 ITR 280 (SC)]
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Section 13(1)(d)
The income of any charitable or religious trust will not be entitled to exemption under section 11 or 12 if, for any period during the previous year: Any funds of the trust are invested after 28.02.1983, otherwise than in any one of more of the forms specified in 11(5); In [CIT v. ALN Rao Charitable Trust [1995] 216 ITR 697 (SC)], it was held that accumulated income which is exempt u/s 11(1)(a) need not be invested in the Govt. Securities; it is only in respect of any additional accumulated income beyond 15% that, if the assessee wants exemption of its additional accumulated income also, the assessee is required to invest the additional accumulated income in the manner laid down in section 11(5)
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Anonymous Donations
Anonymous donations of the following entities shall be included in the total income u/s 115 BBC and taxed at the rate of 30%. (i) any trust or institution referred to in section 11; (ii) any university or other educational institution referred to in section 10(23C)(iiiad) and (vi) i.e. its annual receipts is less than or more than Rs. 1 crore; (iii) any hospital or other institution referred to in section 10(23C) (iii a e) and (vi a) i.e. its annual receipts is less than or more than Rs. 1 crore; (iv) any fund or institution referred to in section 10(23C)(iv); (established for charitable purpose) (v) any trust or institution referred to in section 10(23C)(v). (established for public religious purposes or public religious & charitable purposes )
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Anonymous Donations
Anonymous donations not covered under section 115BBC The following anonymous donations shall, however, be not be covered under section 115BBC:
(a) donations received by any trust or institution created or established wholly for religious purposes.
(b) donations received by any trust or institution created or established for both religious as well as charitable purposes (other than any anonymous donation made with a specific direction that such donation is for any university or other educational institution or any hospital or other medical institution run by such trust or institution.) The term "anonymous donation" is defined to mean any voluntary contribution, where the person receiving such contribution does not maintain a record consisting of the identity of the person making such contribution indicating the name and address of the person and such other particulars as may be prescribed. Such anonymous donations will be taxed @ 30% (to be increased by surcharge as applicable and education cess.)
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Section 11(1)(a)
Mode of investment as specified u/s 11(5) Mode of investment can be other than as u/s 11(5) to the extent the income remains invested in business as per clause (iii) of the proviso to section 13(1)(d)
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Legal Compliances
Basis of differences When is Application required to be made? Section 10(23C) Required to be made by educational institutions where: Gross annual receipt exceeds Rs. 1 crore; or Is not substantially financed by the Government. Form for the above Application Rules applicable Form 56 D Form 10 A Form 10 G Section 12 AA Required to be made by all NGOs in order to claim exemption u/s 11 Section 80G Required to be made by all NGOs which wishes to take the benefit under this section
2CA
17A
11AA
Before the end of the previous year Within 12 months from the end of the month in which application is received Lifetime
Before the end of the previous year Within 6 months from date of application
NA.
Lifetime
Upto 5 Years
By CCIT
By CIT
N.A
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Legal Compliances
Basis of differences Exemption w.e.f. Section 10(23C) The year in which it is granted and thereafter Not provided Section 12 The year in which it is granted and thereafter Lies to Appellate Tribunal Section 80G AY as specified in order Lies to Appellate Tribunal
Appeal on rejection
Form of Application for accumulation Last date of filing of form for accumulation Power to condone belated application Form for filing of return
Not prescribed
Form 10
ITR 7
ITR 7
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Legal Compliances-Audit
Audit If the income of the trust before giving effect to exemption under Section 11 and 12 exceeds Rs. 50,000 then the accounts of such trust are to be audited and the audit report is to be furnished in the prescribed form (Form 10B) For the purpose of computing aforesaid limit of Rs. 50,000, corpus donations will be included while incomes exempt under any provision other than Section 11 and 12 (e.g. Section 10) will not be included. A charitable institution was registered under Section 12A(a). It was held that the AO was not justified in refusing benefit of exemption under Section 11 on the ground that trust had violated provisions of Section 12A(b) by not filing audit report in Form No. 10B along with its report of income. [Calcutta Management Association v. ITO [1992] 42 ITD 62 (Cal.)]
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Legal Compliances-12AA
Procedure for Application [Section 12AA] On receipt of an application for registration of a trust made under Section 12A, the Commissioner shall: Call for requisite documents or information from the trust or institution in order to satisfy himself about the genuineness of activities of trust and may also make requisite enquiries in this behalf; and After satisfying himself about the objects of the trust and the genuineness of its activities, he shall pass an order in writing registering the trust, or if he is not so satisfied, pass an order in writing refusing to register the trust. A copy of such order shall be sent to the applicant. However, an order refusing to register the trust shall only be passed after the applicant has been given a reasonable opportunity of being heard.
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Name & Address of founders / authors Date of creation of trust Name & address of trustees Certified copy of instrument of trust Copies of accounts for last 3 years
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Legal Compliances-80G
Registration [Section 80G]
An application in triplicate in Form 10G should be filed with the CIT or DIT (Exemption), alongwith the following documents: After receiving the application the CIT or DIT(E) may call for a report from AO and if he is satisfied that the conditions mentioned in 80G(5) (i) (v) he will issue a certificate for allowing deduction u/s 80G to the donors making donations to the applicant trust for a period upto 5 years as may be ordered by him. After expiry of the time for which the deduction u/s 80G is granted, a fresh application for renewal has to be made in the manner mentioned above.
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Legal Compliances
Registration u/s 12A cannot be denied on the ground that the objects or the activities of the trust are of public religious purposes [New Life in Christ Evangelistic Association v. CIT [2000] 246 ITR 532 (Mad.)] W.e.f. AY 2000-01 a trust can be registered u/s 80G even if upto 5% of its total income of the PY is spent for religious purposes. However, upto AY 1999-2000, registration u/s 80G could be denied if one or more of its objects was wholly or substantially attributable to religious purpose.
[Upper Ganges Sugar Mills Ltd. V. CIT 227 ITR 578 (SC)]
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Under Section
11(1)(d) 11(1)(a) 11( 1B) 11(3) 11(4)
Tax Rates
Exempt AOP Rate AOP Rate AOP Rate AOP Rate AOP Rate MMR 30%
Excess Business Income as assessed by the AO Income derived u/s 13(1)(a) & 13(1)(b) Income derived u/s 13(1)(c) & 13 (1)(d) Anonymous Donations u/s 115BBC
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Exemption u/s 11 or 12 is forfeited due to contravention u/s 13(1)(c) or 13(1)(d) Section 164(2)
case of AOP
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However, in the case where the assessee is not entitled to exemption under Section 11 or 12, by virtue of the provisions contained in Section 13(1)(b), the maximum marginal rate does not become applicable. The income will then be charged on rates specified for an association of persons as provided under Section 164(3)
[ITO v. Gurjar Pushkarna Vidyotejak Mandal [1988] 30 TTJ 610 (Ahd.)]
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Where income does not include business profits The trustee is assessable
Where income does not include business profits** The income of the trust is
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Where income does not include profits from any business and if: None of the beneficiaries has taxable income exceeding maximum amount not chargeable to tax or is a beneficiary in any other trust; or The income is receivable under a trust declared by any person by will and such trust is the only trust so declared by him; or The income is receivable under a non testamentary trust created before 1.03.1970 exclusively for the benefit of relatives of settlor, or member of HUF, who are mainly dependant upon settlor; or The income is receivable by trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or any other bona fide fund created by the employer carrying on business or profession for the benefit of his employees, Then, income of the trust is taxable in the hands of trustees at the rates applicable to an AOP. In any other case, income is taxable at the maximum marginal rate.
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Thank You
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