Assessment of Trust –OverviewByShankar BoseInspector of Income-taxMSTU, Puri
TRUSTCharitable and Religious Purpose Charitable Purpose : includes Relief of the poor Education Medical relief Preservation of Environment, Monuments, Placesor Objects of artistic or historic importance Advancement of General Public Utility Religious Purpose : does not include private religious purpose.1. Section 11 – Assessment(Non–Chargeability to Tax)2. Section 12 – Registration under theIT Act for getting benefits u/s 11.3. Section 13 – Withdrawal of the benefitsWhat’s not Applicable1. Meaning of income as defined U/S 2(45)2. Heads of Income U/S 14.3. Provisions relating to assessment of Business IncomeAssessment u/s 143(3)/11Scheme of Section 111. Application of Income.2. Accumulation of Income.3. Chargeability to Tax.a) Income derived from property.* Return on Investments in Assets viz Interest,Dividend, Rent etc.* Income from activities viz Educational, Medical,Public Utility.* Independent Business Undertakings held as Property.* Business Incidental to the Attainment of the Objects.b) Voluntary contribution other than contribution to Corpus fund with specific direction.c) Value of benefits (Educational and Medical) to specified persons.d) Violation of Explanation to Sec. 11(1), and Sec. 11(2)Application to be made out of Current Year’s income.At least 85% of the income to be applied for Charitable or Religious purpose in the current year.Application falling short of 85% can be considered as deemed application as per Explanation toSection 11(1)(a).
Application made out of Corpus Fund or Accumulated Income of earlier years not to be consideredas application of income in the current year.Application made out of Borrowed Fund not to be considered as application in the current year,however, repayment of Borrowed Fund will be considered as application in the year of repayment.Application in excess of income of the current year not allowed to be carried forward for adjustmentwith the income of subsequent years.(A) As per Explanation to Section 11(1)(a)* Where 85% of income could not be applied for the reason that it was not received during theyear, that part of the income can be applied during the PY in which it is received or during the PYimmediately following. However, this application of income will not be allowed in the year of receipt.* Where 85% of income could not be applied for any other reason, the same can be applied duringthe PY immediately following the PY in which the same was derived. However, this application ofincome will not be allowed in the year of application.(B) As per Section 11(2)* Income can be accumulated or set apart in excess of 15% for specific purpose and for a periodnot exceeding 5 years by filing Form No. 10 and the money so accumulated or set apart is invested ordeposited in specified instruments.Non Compliance of (A) or (B) above will make that part of the income as deemed income of the PYfollowing the PY in which the Non Compliance takes place or of the PY in which the violation takesplace respectively.Any amount paid or credited out of the set apart or accumulated income, to any trust registered u/s12AA or section 10(23C) shall not be treated as application of income for charitable or religiouspurposes, either during the period of accumulation or there after.1. Eligible Institution/Organisation is a registered Trust or Society.2. Eligible Institution/Organisation is Established for Operation in India.3. Eligible Institution/Organisation is Established for Charitable or Religious purpose forGeneral Public.Sec.13-Withdrawal of benefit available u/s 111. Application of income for private religious purposes not for general public.2. Application of income by Trust established for a particular religious community or caste.3. Use or application of income, directly or indirectly, for the benefit of specified persons,except:(a) By way of compliance with a mandatory term or rule of the Trust established beforethe commencement of the Act.(b) If such use or application relates to any period before 1stJune 1971 in respect of the Trustestablished before the commencement of the Act.4. Holding of shares in a company other than a Public Sector Company except where the sharesform part of the Corpus of the Trust as on 1stJune 1973 and any accretion to the same by wayof bonus shares.
5. Investments of deposits in other than specified modes [section 11(5)] except :(a) Any debentures acquired by the Trust before 1stMarch 1983.(b) Where the asset is not held (sold/transferred) after expiry of 1(one) year from theend of the previous year in which such asset is acquired or the 31stMarch 1993, which ever is later.Specific cases of benefits to specified persons1. Any part of the income or property of the trust is, or continues to be, lent to any specifiedperson during the previous year without adequate security or interest or both.2. Any land, building or other property of the trust is, or continues to be, made available for theuse of any specified person during the previous year without adequate rent or compensation.3. Payment of salary, allowance, etc. to any specified person for any services to the trust, inexcess of what may be reasonably paid for such services.4. Making available to any specified person services of the trust without adequate compensation.5. Purchase of any share, security or other property from any specified person for aconsideration which is more than adequate.6. Sale of any share, security or other property to any specified person for a consideration whichis less than adequate.7. Any income or property of the trust is diverted during the previous year to any specifiedperson exceeding Rs.1,000/- .8. Any funds of the trust are, or continue to remain, invested for any period during the previousyear in any concern in which any specified person has substantial interest.Chargeability of TaxTax shall be charged on the total income of the Trust at Maximum Marginal Rate or a higher rate, ifapplicable.Tax on anonymous donations received by Institutions approved u/s 10(23C) or anonymous donationswith specific direction received by any other trust, shall be charged @ 30% of aggregate of suchdonations, if the same exceeds higher of (i) Rs. 1 lac or (ii) 5% of the total donations.ThanksThanks