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PRESENTATION ON TDS PROVISIONS PRESENTATION ON TDS PROVISIONS

Exemption,Application ,& Accumulation of Income of Public Trusts & NPOs. PRESENTATION ON TDS PROVISIONS PRESENTATION ON TDS PROVISIONS. by. E. PHALGUNA KUMAR MA.,M.C0M.,MBA.,BL.,FCA.,FCS.,DISA., CHARTERED ACCOUNTANT TIRUPATI.

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PRESENTATION ON TDS PROVISIONS PRESENTATION ON TDS PROVISIONS

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  1. Exemption,Application,& Accumulation of Income of Public Trusts & NPOs PRESENTATION ONTDS PROVISIONSPRESENTATIONONTDS PROVISIONS by E. PHALGUNA KUMAR MA.,M.C0M.,MBA.,BL.,FCA.,FCS.,DISA., CHARTERED ACCOUNTANT TIRUPATI.

  2. Total Exemptions –Section 10(23C)

  3. Section 10(23C) vs. Section 11 • Sec.10(23C) Vs. Sec.11 with 12AA • To be by DIT/CCIT by CIT • Not appealable Appeal lies to ITAT • Gross income for Capital receipts 85% includes capital excluded- 11(1)(d) Receipts • Can be applied within Should apply within 6months after Fin.Year the Fin. Year • Only one option for Two options for accumulation . Accumulation • Both can operate simultaneously

  4. Section2(15) First proviso Advancement of any other object of general public utility shall not be a charitable purpose Carrying on of any activity in the nature of trade, commerce or business or any service to above, For a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity First proviso shall NOT apply if the aggregate value of the receipts from the activities referred to there in is twenty five lakh rupees or less.

  5. Advancement of Any other Object of General Public Utility CBDT Circular No.11 of 2008 dt.19.12.2008 where the purpose of a trust or institution is ‘Relief of the poor’, ‘Education’, Medical relief’ it will constitute ‘Charitable purpose’ even if it incidentally involves the carrying on of commercial activities. ‘Relief of the poor’, encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will ,therefore, include within it ambit purposes such as relief to destitute, orphans or the handicapped , disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid.

  6. Meaning of Trade, Commerce, or business • Bureau of Indian Standards DGIT (E) 358 ITR 78(Del) • Statutory Body established under BIS Act brought into • existence for harmonious development of activities of • standardisation, making and quality certification, which • is its primary and predominant object. • Taking licence fees for granting marks/certification cannot be • said to be done for the purpose of profit- any • profit/income earned is purely incidental • Performs Sovereign and Regulatory function in its capacity • as an instrumentality of the state. • Not involved in carrying on any activity of trade, commerce or • business. • GS1 India Vs. DGIT (E) 262 CTR Del 585 • An Institution promoted by Govt for setting global standards. • Held to be a charitable Institution.

  7. Advancement of any other object of public utility • Promotion of sports and games is charitable – Circ 385 dated 24.9.1984 • Promotion of yoga and meditation is charitable – Rajneesh Foundation 280 ITR 553 Bombay • Music, Dance, Drama Cultural promotion activities are Charitable • Urban Development Authorities are Charitable • Trade Associations are charitable (Sec.28(iii), read with Sec 2(24)(v) & 44A-Specific services) • A Seed certification Agency –may not be charitable. 356 ITR 360 (AP) • A State Road Tr. Corpn- can be charitable.

  8. Advancement of Any other object Meaning of Trade, Commerce or Business • Lala Lajpatrai Memorial Trust v DIT(E) 28 ITR (Trib) 546 (Mum). Merely for few days if the College Auditorium is let out it cannot be said that it carried on commercial activity. • CIT v Lucknow Development Authority 219 Taxman 162 (All).Mere selling some product at profit will not ipso facto attract proviso to s.2(15) to deny exemption –intention of trustees & manner in which activities undertaken are highly relevant to decide the issue • Sabarmati Ashram GaushalaTrust v ADIT 25 ITR (Trib) 701 (Ahd). • •

  9. Taxation of Chambers of Commerce & Trade Organisations • •F. M's speech –not be affected by amendment & continue to be regarded as "advancement of object of general public utility“. • •Mutuality for dealings with members • •For dealings with non-members, claim to be charitable organisation now governed by additional conditions • •S.28(iii) read with s.2(24)(v) & s.44A -income from specific services to members. • PHD Chamber of Commerce & Industry v DIT(E) 212 Taxman 194

  10. Conditions for Exemption U/s 11 • Only I.Tax Dept registered Trusts can claim. • Income must be derived from property held under a trust. • The exemption is confined to only such proportions of the trust’s income which is applied or accumulated for applying to such purposes in India. • 85% of the income is required to be applied for the purposes and the unapplied income and the money accumulated or set apart should be invested in the specified forms or modes.Sec.11(5). • No part of the income should enure, directly or indirectly , for the benefit of the settler or other specified persons. Sec. 13(1)(c ). • Income being profits and gains of business which is incidental to the attainment of the objects of the trust subject to certain conditions and limits.Sec. 11(4A).

  11. Corpus donations • ‘Corpus Donation’ is not defined. But the donor with a written direction if he gives it shall go to corpus U/s11(1)(d). • Corpus /Specific Direction Donations are to be excluded in computing the income for 85% application-. • Corpus donations can be used even for meeting revenue expenses.(with a resolution) • In kind donations are in general Capital receipts

  12. Budget 2014 Proposals • Even with Sec. 12AA Regn. Only Sec. 11 Exemption and Sec. 10(23C) exemptions—No other Sec. 10 exemption is available. • No Depreciation on those assets whose cost is already claimed in total. • Even for a later year if Regn. is given for earlier years no reopening u/sec. 147. • “Substantially finance by Govt-means such percentage as may be prescribed- Sec. 10(23C). • For trust Regd. Prior to 1996 under Sec.12A, cancellation applying Sec.13(1) should not be done without a ‘Reasonable Cause’ applying.

  13. ANONYMOUS DONATIONS • Section 115 BBC (3): Anonymous donation means • Where a person receiving contribution does not maintain a record of identity (Name and address of the donor), any other particulars. • Anonymous donations are liable to be taxed at 30% plus SC. • Exclusions • 1. Wholly religious trust. • 2. Trust covered by s. 10(23C)(iiiab)/(iiiac). 3. 5% of total donations received by the assessee; or Rs.1.0 lakh which ever is higher

  14. Application of income • Revenue expenditure • Capital expenditure • Loans repayment • Exempted incomes(eg.Agrl income) are also to be applied. • Income-tax paid is an application • Statutory deposits is an application • Donations to similar institution from current year income is also an application

  15. Accumulation of income • Two options are available • Either sec. 11(1) Explanation 2 route--- to be applied in the immediately succeeding year or in the year of receipt of income • OR Sec. 11(2) route--to apply for a specific purpose with in Five years by Filing Form 10. • Purpose can be changed with the prior permission of the Assessing officer

  16. Section 11(1a) Treatment of Capital gains • Section 2(24) includes “Capital Gain” and hence income U/s 11(1)(a) includes capital gain. • Entire / Part Sale consideration utilized for acquiring new capital asset , entire / proportionate amount is considered applied. • Loan against mortgage of property eligible • Bafna Charitable Trust vs. CIT (1998) 230 ITR 864 (Bom) • Investment in fixed deposit is considered as an investment in Capital Asset. • The CBDT instruction No.883 , dt. 24.09.1975, specifies that , such fixed deposits should be for 6 months or more . • CIT vs. Hindustan Welfare Trust 206 ITR 138 (Cal), 60 days FD qualifies • ADIT (E) vs. Murugappa Chettiar Trust 303 ITR 360 (Mad), even current account balance is a deposit and qualifies.

  17. SECTION11 (1A) TREATMENT OF CAPITAL GAINS • No time limit has been provided U/s 11(1A) , for retention of the new asset. • Subsequent year investment is also permissible • Option can be exercised U/s 11(1) explanation • CIT vs. East India Charitable Trust 206 ITR 152 (Cal).

  18. Carry Forward of Deficit(Loss) • There are no specific provisions for carry forward of deficit. • The Courts have held that if a trust has incurred a deficit during a particular year , then the surplus made by it in a subsequent year to make up for the past deficit should be allowed to be set off against such deficit. • CIT vs. Matriseva Trust 242 ITR 20 (Mad.), • CIT vs.Institute of Banking Personnel Selection 264 ITR 110 (Bomb.)

  19. Sec.11 (4A) Business income of a trust • As per Section 11(4A) , the income earned by a trust from any business activity shall be exempted from tax provided the following conditions are satisfied: • The business carried on is incidental to the attainment of the objects of the trust and • Separate books of accounts are maintained in respect of such business • It has been held in [CIT vs. 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.

  20. Audit & Audit Report • Audit is required if GROSS income is in excess of the maximum amount which is not chargeable to income tax . • This audit is necessary under the Income Tax Act and is distinct from an audit, which may be necessary under the Bombay Public Trust Act or a similar statute under the relevant State law. • An audit report furnished in Form 10B. (For Sec. 1023C –Form 10BB). • While computing the limit for conducting an audit, exempt gross receipts have to be considered • A belated Audit report also can be filed, before the completion of the Asst.

  21. Denial of exemption

  22. Taxability of a Public trust at a glance

  23. Controversies • What is ‘ income ’ for arriving 85% • Depreciation --is it an application ? • For violation of Sec.11(5) whether relevant income or whole income is taxable-Sec 164(2)- Proviso. • Can both Religious and Charitable objects be in one trust • A new Capital asset acquired out of Capital Gains how long should be retained • Capitation fees in Educational Institutions---- DIT(E) Vs.Sri Belimatha MSC & Educational Trust. 336 ITR 694( Karntk)(2011).

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