The concept of trust is still a mystery to the
taxpayer due to its complexities. The concept had been explained in the part-1.
(link provided at end) where the taxpayer can get the knowledge on trust.
However, for practical purpose, it is also important to know the latest
judgements which has been announced by various High courts and ITAT of
India in respect of public trust.
·
Commencement
of Activity: Commissioner cannot refuse to register trust on the ground
that trust has not commenced its activities. Refer, CIT v. KutchiDasaOswal Moto
PariwarAmbamaTrust, 362 ITR 194. Similar
decision provided in the case of DIT(E)
.v. SeerviSamajTambaram Trust, 362 ITR 199.
·
Denial
of exemption: on denial of
exemption only net income to be taxed. Refer, DDIT(E) .v. Petroleum Sports
Promotion Board, 362 ITR 235.
·
Commercial activity : Activity not in accordance with objects –Major
portion of income was spent towards construction of commercial complex-Not entitled to exemption. Refer, KammaSangham
.v. DIT,. 362 ITR 30.
In the case of CIT v.
Working Womens Forum, 365 ITR 353, it was held that when Trust making investment
in shares of company then denial of exemption only to extent provision violated
and not total denial of exemption.
Property held for
charitable or religious purposes- Provide medical relief through yoga, ayurved,
acupressure and naturopathy and to impart education in field of yoga for purpose
of alleviating all kinds of disease- Business held in trust-charitable trust
can carry on business and utilize its profits there from for charitable
purposes but it cannot have its purpose, an activity that involves buying and
selling of goods and making profits-Entitled exemption. Refer, Divya Yog Mandir
Trust .v. Jt.CIT, 60 SOT 154.
The assessee
subsidised rates of blood components in favour of corporate entity which was
its associate company. The associate company was distributing it to patients at
much higher rates. Held, assessee was not entitled to exemption as this was not
a charitable activity. Refer, Advance Transfusion Medicine Research Foundation
.v. ADIT, 28 ITR 566.
In the case of Deputy
Director of Income-tax (Exemptions) v. Petroleum Sports Promotion Board, 362
ITR 235, it was held that Expenditure incurred for purpose of promoting sports
events and activities is allowable.
Conducting coaching
classes and campus placements for a fee by the Institute of Chartered
Accountants of India cannot be held as business. Refer, Institute Of Chartered
Accountants Of India v. DGIT, 217 Taxman 152/260 CTR 1 (Delhi.)(HC).
Receipts derived by a
Chamber of Commerce and industry for performing specific services to its
members, though treated as business income, would still be entitled to
exemption under section 11, provided there is no profit motive. Issue is
decided in favour of assesse. Refer, PHD Chamber of Commerce & Industry v.
DIT, 212 Taxman 194.
·
Cancellation of registration: Only on Commissioners satisfaction that activities
of trust not genuine or not carried out in accordance with objects of trust.
Refer, Parkar Medical Foundation v. Deputy CIT (Pune), VOL 34 PG 286.
In the case of Cancer
Aid and Research Foundation v. DIT, VOL 34 PG 56, it was held that Scholarships
to students routed through another trust was no violation of objects of trust
and hence not sufficient ground for cancellation of registration
In the case of ITO v.
Science Olympiad Foundation, VOL 33 PG 451, it was held that charging of
service fees from students does not
amount for dis-qualification. Similar decision was also given in the case of
GS 1 India .v. DIT(E), 94 DTR 105 (Delhi)(HC).
In the case of CIT v.
MBA Nahata Charitable Trust, 364 ITR 693
all the donation had been received in cheque but failed to produce the donors. In this case
also trust entitled for exemption.
Exemption cannot be
denied on the ground that trust is not registered under a state act or sums
received are used for a different scheme as far as prior approval is received
from donors. Refer, DDIT(E) .v. Society for Integrated Development in Urban and
Rural Areas, 29 ITR 506.
Object of society is
construction of public lavatories. Maintenance of public lavatories being
incidental to object of society ,amounts spent on such maintenance is entitled
to exemption. As there was no evidence of diversion of funds to founder of
society, section 13 is not applicable, hence the Society is entitled for
registration. Refer, Dy. CIT v. Sulabh International Social Service Organisation,
350 ITR 189.
·
Application of Income: Expenditure incurred in the earlier year, repaid out
of income of the current year amounts to application of income. Refer, CIT .v.
Punjab Mandi Board, 98 DTR 267.
A request by letter
complying with the requirement and furnishing all the information as required
in Form 10 was made and there was sufficient proof before the AO that the
amount was not only kept apart but was
also spent in the next year, the adherence to the form and not substance, was
not valid .The AO should allow exemption.
Refer, CIT .v. Moti Ram Gopi Chand Charitable Trust, 98 DTR 68.
Requirement of
section 11(1)(a) is that income of trust should be applied for charitable
purposes, and it should be applied in India. Amounts spent by assessee-trust
outside India for participating in a fair held in Germany could not be treated
as application of income of trust for purpose of section 11(1)(a) and were
rightly disallowed . Refer, India Brand Equity Foundation v. ACIT, 53 SOT 506
(Delhi) (Trib.).
·
Others : Once registration under section 12A has been granted by Commissioner,
Assessing Officer cannot question charitable character of institution during
course of assessment proceedings. Refer, Divya Yog Mandir Trust .v. Jt.CIT, 60
SOT 154.
Both section 10(23C)
and section 11 are independent sections and as assessee was registered under
section 12A, as such, it was entitled to benefit under section 11. Refer, CIT
.v. Indian Institute of Engineering Society, 218 Taxman 151.
In order to claim
benefit of s. 11, it is mandatory to give intimation to assessing authority in
Form 10 at any time before finalisation of assessment proceedings. Since the
assessee failed to furnish Form No. 10 before completion of assessment, benefit
under provisions of s. 11 for accumulation of profits was rightly denied by
authorities below. Refer, Haryana Labour Welfare Board .v. CIT, 219 Taxman 158.
The assessee trust
exercised option for allowing accumulation of income under Explanation to
section 11(1) on 22-9-2009.Subsequently, it revised its claim on ground that
bona fidely wrong claim was made. However, the assessing authority held that
the assessee had not exercised option within time as prescribed by law and,
therefore, was not entitled for exemption. Held, since the requirement of exercising option is directory in nature, a
liberal approach ought to have been adopted and the claim of the assessee ought
to have been allowed, particularly when mistake in exercising option was
committed by assessee bona fidely.. Refer, ACIT .v. Industrial Extension Bureau,
59 SOT 189 (Ahd.)(Trib.).
The assessee-society
filed a letter conveying its intention of exercising option of carrying forward
of unspent funds in next year and
claimed exemption under section 11 which was disallowed on the ground of
technical default of delay in filing the prescribed form. Where an amount of
investment exceeded unspent amount within prescribed period in next year,
irregularity and delay in filing prescribed form could be condoned and
exemption could be allowed under section 11.Where the fact of assessee having
spent significant amount in next year was not examined by Assessing Officer, matter
was to be remitted back. Refer, Moti Ram Gopi Chand Charitable Trust .v. ACIT, 59
SOT 197.
Even if business of
insurance was carried out by assessee-society for carrying on primary purpose
of charitable activities in accordance with aims and objects of trust, assessee
would still be entitled to exemption. Refer, CIT v. Modi Charitable Fund
Society, 216 Taxman 140.
·
Corpus donation: Corpus donation was in the nature of a capital
receipt and not taxable, irrespective of whether trust was registered under
section 12AA or not. Refer, ITO .v.
Gaudiya Granth Anuved Trust, 28 ITR 161.
Received shares as
corpus and subsequent sale there is no violation the assessee is eligible for
exemption. [S. 11(1)(d) (S.13(d)]. Refer, Sera Foundation v. ITO, 79 DTR 210.
·
Computation : Since income for purposes of section 11(1) has to be
computed in normal commercial manner, amount of depreciation debited in books
is deductible while computing such income. Refer, DCIT .v. Cutchi Memon Union, 60
SOT 260. Similar judgment came in the case
of A. P. Olympic Association v. Asst. Director of Income-tax, VOL 30 PG 314.
Where a charitable or
religious trust has income from different sources and a part of such income
comes within ambit of taxation, it will not be possible to earmark any part of
such income to a particular head and such income has to be computed in a normal
commercial manner; therefore, question of allowing any statutory deductions as
contemplated by different provisions of Act dealing with different heads of
income cannot arise while deciding percentage of application or accumulation under
section 11.While computing income of a trust, deduction under section 24 from
income from property held for charitable or religious purposes cannot be
allowed. Refer, DCIT .v. Cutchi Memon Union, 60 SOT 260.
Deduction of
depreciation on fixed assets of whose cost has already been claimed as
application of income is permissible. Refer, CIT .v. Devi SakuntalaTharal
Charitable Foundation, 358 ITR 452.
Depreciation is
treated as application of income. Receipt of loan does not invite denial of
exemption & Repayment of loan will amount application of income.
1. Claim for
depreciation on fixed assets is treated as application of income;
2. Receipt of loan in
violation of the Bombay Public Trust Act does not invite denial of exemption
u/s. 11;
3. Repayment of loan
originally taken for the objects of the trust will amount to an application of
income
Refer, Dy.DIT v.
G.K.R. Charities, Mumbai ITAT, ITA No.8210/Mum/2010, Dr. 10-08-2012 A.Y. 2007 –
2008., (2012) BCAJ Pg. 26, Vol. 44-B Part 3, December, 2012. Mumbai ITAT.
·
Anonymous donation : Voluntary donations as “anonymous donations”–Cash
credits-Does not apply as the assessee has maintained a record of the identity
indicating the name and address of the person making the contribution. Refer, Sunder
Deep Educational Society .v. ACIT, Delhi ITAT.
·
Public Utility : Advancement of animal welfare directed towards
prevention and suppression of cruelty to animals or prevention or relief of
suffering by animal is nothing but charity and society engaged in such
activity falls within definition of
general public utility as stated in section 2(15). Refer, Retired Race Horse
Welfare Society .v. DIT, 59 SOT 209 (Hyd.)(Trib.).
Assessee an
educational institution conducting various courses categorized as continuing
education diploma and certificate programmes, management development
programmes, seminars and workshops and conferences. 80 % receipts were from
continuing education programme. The A.O. was of the opinion that on going
through the nature of courses and duration, the resultant surplus for each
activity, the activity of the assessee is not educational and it was held by
the A.O. that the assessee's activities are not educational and since the
provisions of Section 2(15) are applicable and therefore the assessee is not
entitled for exemption. In appeal CIT (A) also confirmed the view of A.O. On
appeal the Tribunal held that the assessee is conducting various diploma
courses, certificate progarmmes seminars, workshops etc all these programmes
fulfilled systematic instruction and training test hence covered under section
2 (15) as education hence eligible for exemption under section 11. Refer, Ahmedabad
Management Association v. JDIT, 143 ITD 476 .
Income from
management development program, hiring premises is eligible for exemption.
1. Income from
management development program earned by educational institute considered as
eligible for exemption;
2. Income from hiring
premises and advertisement rights since applied for educational activities
eligible for exemption;
3. Claim for
depreciation on fixed assets, the cost of which was allowed as application of
income, allowed. The tribunal observed that the assessee was not claiming
double deduction on account of depreciation as has been held by the AO.
According to it, the income of the assessee being exempt, the assessee was only
claiming that depreciation should be recued from the income for determining the
percentage of funds which have to be applied for the purpose of Trust. Thus,
there was no double deduction claimed by the assessee.
Refer, ADIT v. Shri
Vile Parle Kelvani Mandal, Mumbai ITAT, ITA No. 7106/Mum/2011, Dt. 05-10-2012,
BCAJ Pg. 26, Vol. 44-B Part 2, November, 2012, Mumbai ITAT.
An assessee that
engages itself only or predominantly in activities relating to its ancillary or
incidental objects which are not related to any charitable purpose and does not
carry on any activity relating to its main object of charitable nature is not
entitled to exemption u/s. 11 ; assessee institution having never carried out
any scientific research, and applied a very insignificant portion of its income
towards research and development activities, it is not entitled to exemption
u/s. 11; claim for exemption u/s. 11 is also not sustainable in view of cl. (b)
of sub s(4A) thereof as the leasing business carried on by the assessee was not
wholly for the charitable purposes. Refer, M. Visvesvaraya Inds. Research and
Development Centre vs. CIT, 79 DTR 387.
·
Capital Gain: If capital gain is applied for charitable purpose of
assessee not by acquiring a new asset but for other charitable purpose, then
there is no reason why it should not be considered as application of income for
charitable purpose enabling assessee to claim exemption under section 11(1).
Refer, Al Ameen Education Society v. DIT, 139 ITD 245.
·
Accumulated Profit : Assessee-society was running educational institute.
It was held that where assessee-society had accumulated income for specific
purpose as per objects of trust and accumulated funds had been used accordingly
in subsequent years, disallowance of accumulation was not justified. Refer, ACIT
v. Jamia Urdu, 139 ITD 590 (Agra)(Trib.).
In case you have any further
clarification, feel free to contact me at taxbymanish@yahoo.com or else you can view more articles & news related to Indian tax
& finance at http://taxbymanish.blogspot.in/
Thank you.
No comments:
Post a Comment