TDS disallowance for Trust.

 

TDS disallowance for Trust.

 

Section 40(a) not applicable in case of charitable trust or institution

The question for consideration is as to whether the provisions of Section 40(a)(ia) is applicable for computing the income chargeable under the head “Profits and gains of business or profession” or computation of income under any other heads of income also.

Section 40 clearly stipulates that “Notwithstanding anything to the contrary in Sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”.

Hence it is evident that the provisions of Section 40(a)(ia) is applicable while computing income chargeable under the head “Profits and gains of business or profession” and it is not applicable to any other heads of income.

In the case of Mrs. Sushila Mallick vs. ITO reported in 19 taxmann.com 233, the Hon’ble Lucknow ITAT has held that the brokerage had been paid on account of sale of the properties, the income of which had been shown under the head ‘short-term capital gain’. The selling of properties was not the business of the assessee and, as such, the amount involved in the transaction relating to the selling of properties was not the part of turnover of the assessee. In view of same the Hon’ble ITAT held that in facts of the case the provisions of Section 40(a)(ia) of the Act is not applicable. This decision was affirmed by the Hon’ble Allahabad High court in the case of CIT Vs. Sushila Mallick (2013) 36 taxmann.com 537 (All).

In the case of Mahatma Gandhi Seva Mandir vs. DDIT (Exemp) reported in (2012) 21 taxmann. com 321 the Hon’ble ITAT Mumbai has held that the exception in Section 40 is carved out, only for the purpose of Section 28 and not for computing the exemption of income of a charitable trust under Section 11.

The disallowance made under Section 40(a) will only go to enhance the business profit of an assessee whose income is assessable under Section 28 and not otherwise.

Hence, provisions of Section 40(a) are not applicable in case of charitable trust or institution where income and expenditure are computed in terms of Section 11.