Chaitable or Religious Trust

1.    Charitable Purpose :
    As per Sec.2(15)  “ Charitable Purpose” includes.
�    Relief to the poor;
�    Education & medical relief;
�    The advancement of any other object of general public utility.

    The expression of any other object of general public utility includes any object which will be beneficial to a segment of the society and not necessarily to the whole man kind. But it is important to note that the object should not be for the benefit of specified individuals.

�    If the main object of a chamber of commerce is to promote and protect trade, commerce and industry in India or in any part of India, the said object can be said to be for general public utility.
    CIT Vs. Andhra Chamber of Commerce (1964) 55 ITR 722 (SC).
�    If the main object of the Chartered Accountant’s Society is dissemination of knowledge and education of commercial law and tax law for the benefit of society, it can be regarded as general public utility CIT Vs. Jodhpur Chartered Accountants Society, 258 ITR 548 (Raj.).
2.    Conditions for claiming exemptions U/s 11 and 12 :
    Income from property held under trust, wholly for charitable and religious purpose shall be exempted. The assessee is required to apply atleast 85% of such income for charitable or religious purposes during the previous year. Assessee can accumulate upto 15% of such income to be utilized for charitable or religious purposes in India at a later date.

    The income derived from property held under trust wholly for charitable or religious purposes is exempt from tax u/s.11 if it satisfy certain conditions. As per sec.12 any voluntary contributions received by a trust or an institution shall be deemed as income for the purpose of Sec.11. But it exclude corpus donation received with specific direction that the donated amount shall treated as the corpus of the trust.

    The conditions to be fulfilled are as follows :
i)    The trust should be registered with the Commissioner of Income-Tax u/s12A.

ii)    The accounts of the trust for the previous year should be audited if the total income exceeds Rs. 50,000.iii)   

At least 85% of the income is required to be applied for the approved purposes.
iv)    The unapplied income and the money accumulated or set apart should be invested or deposited in the specified investments.
3.    (Sec. 12A) Registration of Trust :

    Every trust or institution shall submit an application for registration in the prescribed form (Form 10A) as required u/s. 12A to the Commissioner of Income-tax before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution.

4.    (Sec. 12AA) Procedure for Registration :

    On receipt of the application, the Commissioner shall call for such documents or information as considered necessary in order to satisfy about the genuineness of activities of the trust or institution. Inquiries can also be made as deemed necessary. After being satisfied about the objects and the genuineness of activities an order shall be passed in writing, registering the trust or institution. If not so satisfied, an order shall be passed in writing, refusing to register. Copy of any such order shall be sent to the applicant. Before an order is passed refusing registration , reasonable opportunity of being heard should be given. The time limit for passing an order u/s. 12AA is six months from the end of the month in which the application is received.5.    Application of Income :

    A trust must utilise 85% of its income within the previous year for the objects of trust. A trust can apply its income either for revenue expenditure or for capital expenditure provided the expenditure is incurred for promoting the objects of the trust.

    If, in any previous year, the income applied to the objects of the trust falls short of 85% of the income derived during that year due to the reason that the whole or any part of the income has not been received during that year, then such income can be applied during the previous year in which the income is received or in the immediately following previous year.

    If the non-application of income is due to any other reason, then such income can be applied during the previous year immediately following the previous year in which the income was derived. The option to apply the income in the other year as above should be exercised before the expiry of the time allowed u/s. 139(1) for furnishing the return of income.

    The amount equivalent to 15% of the income of the trust is exempt even if it is not spent for the objects of the trust during the previous year or at the later point of time. Such income can be retained permanently by the trust and still it qualifies for exemption. 15% is required to be worked out after reducing expenses and depreciation directly  incurred for earning the income.

6.    Accumulation of Income :

a)    The trust can accumulate or set apart its income for a specified purpose by informing the concerned Assessing officer. However the period for which the funds can be accumulated cannot exceed 5 years.

b)    If the income accumulated is not utilised for the specified purpose during the specified period or in the immediately following year, it will be deemed to be the income of the trust for the previous  year immediately following the expiry of the specified period.

c)    If the trust is unable to apply the accumulated funds for the purpose for which it was accumulated due to circumstances beyond control, the Assessing Officer may allow the application of such funds for other charitable or religious purpose requested for by the assessee in conformity with the objects of the trust.

d)    A Charitable Trust is expected to make an application for accumulation of income along with the return of income.

7.    Cases when income shall not be exempt u/s. 11 :
    According to sec.13, in the following cases the income derived shall not be exempt;

i)    any part of the income from the property held under a trust for private religious purposes which does not ensure for the benefit of the public;

ii)    the income of charitable trust or institution created for the benefit of any particular religion, community or caste.

    Exception : Trust formed for the benefit of scheduled castes, backward classes, scheduled tribes or women & children.

iii)    any income of a trust used directly or indirectly for the benefit of specified person u/s 13(3) shall be deemed to be income of such trust or institution. If a charitable or religious trust is running an educational institution or a hospital, exemption shall not be denied by reason only that such trust has provided educational or medical facilities to any of these specified persons. However, the value of such education or medical facility shall be deemed to be income of such trust or institution and shall be chargeable to income-tax.

    U/s 13(3) “Specified person” means :
a)    author or founder of the trust or institution.
b)    any person who has made a substantial contribution to the trust (total contribution exceeding Rs. 50,000 upto the end of relevant previous year)   
c)    Where such person is a HUF, a member of the family
d)    any trustee or manager of the institution.
e)    any relative of above said person.
f)    any concern in which the above person has a substantial interest.8.    Sec. 11(1A) Capital Gain :

    Where a capital asset held under trust is transferred and the whole of the net consideration is utlised for acquiring another capital asset then the entire capital gain is deemed to have been applied for the objects of the trust.

    If only a part of the net consideration is utilised for acquiring the new capital asset, so much of such capital gain as is equal to the amount, if any, by which the amount so utlised exceeds the cost of the transferred asset shall be considered to have been so utilised.

9.    Sec. 11 (4) & (4A) Business Income :
    Income from business by a trust would be eligible for exemption if the following two conditions are satisfied :
(i)    The business carried on the trust should be incidental to the attainment of the object of the trust.
(ii)    Separate books of accounts should be kept in respect of such business.
10.    SEC. 13A POLITIcAL PARTIES :
    Exempt Income :
    The following categories of income derived by a political party are exempt.
i)    income from house property;
ii)    income from other sources;
iii)    income by way of voluntary contributions;
iv)    income from capital gain.
Conditions :
The above exemption is available only if the following conditions are fulfilled;
1)    the political party is registered with the Election Commission of India;
2)    the political party keeps and maintains such books of account and other documents as would enable the Assessing Officer to properly calculate its income there from;
3)    the political party keeps and maintains a record of each such voluntary contribution in excess of Rs. 20,000 and of the name and address of the person who has made such contribution; and
4)    the accounts of the political party should be audited.
5)    such political party has to file a report to the Election Commission before the due date for furnishing a return u/s 139 of the Incom-Tax Act.

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