Application of Income of a
Charitable Trust or Society
Section 11 permits deduction of
expenditure from income. The expenditure incurred by a
trust or institution by way of application of income in
India towards religious or charitable purposes, as per
its Memorandum, is deductible from the income. The
assessee may also set apart and accumulate 15% of
income for such application and such amount will also be
taken as expenditure of the year. These provisions are
applicable mutatis-mutandis to a partly religious or
charitable trust. This section also permits deduction of
expenditure incurred outside India, provided that such
application of income promotes international welfare in
which India is interested. However, for deduction of
such expenditure, prior approval of the Board is
required. In conformity with section 12, corpus
donations constitute deductible expenditure under
Capital Gain of Charitable
Section 11(1A) of Income Tax Act have provisions deals
with Capital Gains arising or accruing to a charitable
trust or institution. The position of law is that if the
whole of the net consideration (Consideration minus the
expenditure incurred in connection with transfer) is
applied towards acquiring a new capital asset, then, the
capital gains is taken to have been applied for
charitable or religious purpose. However, if only a part
of the net consideration is applied for acquiring a new
capital asset, then, the capital gains to the extent of
differences between amount so applied and original cost
of the asset is taken to be applied for religious or
charitable purpose. The provision applies
mutatis-mutandis where the capital asset is held partly
for religious or charitable purpose.
Accumulation of Income of Charitable Institutions
As per the Act apart from accumulation of 15% of income
permitted u/s 11(1) of the Act, a trust or institution
is permitted to accumulate or set apart income for
specific purpose (s) (emphasis supplied) u/s 11(2). The
accumulation and setting apart of income has to be for
specific purpose as distinguished from general purpose
(s) mentioned in the Memorandum. We may refer to the
following case in this behalf:-
If the charitable institution did not utilized the
specified percentage of income in a particular year,
Form 10 needs to be filed with Income Tax Department.
Business Income of a Charitable
As per Section 11(4) of Income Tax Act a business as a
going concern can be held as property under trust.
Therefore, a legitimate claim can be made that the
income of such business may not be included in the total
income of the person receiving such income. In such a
case, the assessing officer is required to assess the
income of such business under the provisions of the Act.
The difference between income so determined and the
income shown in accounts shall not be deemed to have
been applied towards religious or charitable purpose,
but applied to other purposes. The point to be noted is
that the income of the business has to be calculated
under usual provisions contained in Chapter IV-D and not
as per Chapter III of the Act, applicable to income of
charitable trusts and institutions.
Incidental Business Income
Section 11(4A) of Income tax Act has provision related
to income of a trust or institution by way of a
business, which is incidental to attainment of its
objects. The income of such a business will be entitled
to exemption u/s 11 if separate books of account are
maintained, otherwise, the income will not be entitled
to benefit of exemption under section 11 and section 12.
The cases on this issue have already been discussed in
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