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Taxation of Charitable Trusts

Taxation of Charitable Trusts. Corpus Donation. Corpus donations upto 88-89 were outside the purview of income u/s 2(24)(iia) Section 11 “income derived from property held under trust” exempt U/s 11(1)(d) Corpus Donations are still out of the preview of Definition of Income

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Taxation of Charitable Trusts

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  1. Taxation of Charitable Trusts

  2. Corpus Donation • Corpus donations upto 88-89 were outside the purview of income u/s 2(24)(iia) • Section 11 “income derived from property held under trust” exempt • U/s 11(1)(d) Corpus Donations are still out of the preview of Definition of Income • Section 12(1) lays that Donations received by trust (Other than Corpus donations) shall be deemed to be “income derived from property held under trust”

  3. Corpus Donation • Refer Shri Dwarkadheesh Charitable Trust v ITO 98 ITR 557 (Alld) & Trustees of Kilachand and Devchand Foundation v CIT 172 ITR 382 (Bom) • IT act can not convert a capital receipt into an income in absence of specific words in section 2(24)(iia)

  4. Corpus Donation • Not duty of the Trust to produce Donors of Corpus Donation only letter is required to be produced ITAT (Mumbai Bench) in case of Ghatkopar Jolly Gymkhana ITA 3069/Mum/02 and also DIT (Exemptions) v Bharat Kalyan Pratishthan 257 ITR 609 (del)

  5. Depreciation • Income to be computed applying commercial principals- Depreciation provided should be deducted 146 ITR 28 (Kar), 180 ITR 579 (MP), 198 ITR 598 (Guj) etc • Assets acquired for the purposes of carrying out its objectives, is to be treated as application of the income for section 11(1) 230 ITR 636 (SC) • Double deduction? No as per ITO v Trustees of Marathi Mission 1 ITD 539 (Bom) as both operate of different fields. • BUT in Escorts Ltd v Union of India 19 ITR 43(SC) held that unless there is an specific provision permitting double deduction in respect of any item, it can not be presumed that the law intends to grant double deduction

  6. 15% of Gross Income or net Income Whether 15% accumulation should be applied on Gross Income as reduced by the administrative expenses or on Gross Income. Refer CIT v Program for Community Organization 228 ITR 620 (ker)-held that 15% can be applied before making deduction for Administrative expenses- confirmed by SC on 248 ITR 1. Also 208 ITR 372 (Cal)- held that any administrative expenditure incurred should also be regarded as expenditure on the objects of the trust.

  7. Part Object Not Charitable • If primary or dominant object of the trust is charitable, then any ancillary non-charitable object will not make trust ineligible for exemption CIT v Andhra Chamber of Commerce 55 ITR 722 (SC), & Addl CIT v Surat Art Silk 121 ITR 1 (SC) • Differentiate between Objects and Power

  8. Assessment of Taxable Income • Under Section 164(2) as an AOP • At Normal Rate applicable to the individual DIT (Exemptions) v Sheth Mafatlal Gagalbhai Foundation Trust 249 ITR 533 (Bom) • If income of the trust becomes taxable by virtue of violation of section 13(1)(c)/(d) then such Income would be taxable at Maximum Marginal Rate 164(3)

  9. Accounts • Significant Accounting Policies should be attached with final accounts.

  10. SUGGESTIVE CLAUSE • Nothing contained in this deed shall be deemed to authorize the trustees to do any act which may in any way be construed as violative or contrary to the provisions of sections 2(15), 10(23B), 10(23C), 11, 12, 12A, 12AA, 13 and/or 80G of the Income Tax Act, 1961 and/or any statutory modifications thereof and all activities of the trust shall be carried out with a view to benefit the public at large, without any profit motive and in accordance with the provisions of the Income Tax Act, 1961, or any statutory modification thereof. • The Trust is hereby expressly declared to be a public charitable trust and all the provisions of this deed are to be constituted accordingly.”

  11. Excess Expenditure of earlier years • 211 ITR 293 (Guj) & 164 ITR 439 (Raj)- Excess of expenditure in earlier years can be adjusted against income of subsequent year for claiming exemption under S. 11.

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