CASE STUDIES ON TAXATION OF TRUST & SOCIETY
1.
2.
Uttrakhand Educational Trust, which was created in
order to promote literacy among people living in
slump and nearby rural areas at cost or free of cost to
all section of society. Its trustees were Mr. Gandhi,
Mrs. Gandhi, son of Mr. Gandhi and daughter of Mr.
Gandhi, all belonging to a family who donated land
and money towards corpus fund. The said trust
applied for registration to CIT, Varanasi in the
prescribed time allowed u/ sec. 12A of the Income Tax
Act, 1961 and rule 17A of the Income Tax Rules, 1962,
in prescribed form 10A. Learned CIT had no doubt
over objects and documents evidencing the creation
of the trust but objected that in the event of vacancy,
the trustees shall co-opt another person out of the
family members of that person to fill up the vacancy.
On the same basis he denied registration. Whether
action of the CIT was correct?
Rama Krishna Swasthya Samiti, is a religious trust
running a hospital & Ayurvedic college in semi urban
area. Its gross receipts in FY 2005-06 & 2006-07
amounted to Rs 1,006.25 Lacs & Rs 1,098.42 Lacs
respectively excluding gupta daan. It had placed two
Donation boxes at the common hall of the hospital
since inception 20 years back. One is meant for
donating surplus drugs & other for cash gupta daan.
Management takes out donations on weekly basis.
During FY 2005-06 & FY 2006-07 Cash donations
amounted to Rs. 36,62,546/- & Rs 39,28,422/- while
value of medicines received in FY 2005-06 & 2006-07
amounted to Rs 21,68,870/- & Rs 31,77,238/-.
Management considering them tax free, being
charitable seek your advice.
CIT has no such power.
Perpetual succession of trustee
in appointment cannot be basis
of denial of registration NLB
Charitable Trust 28 SOT 291
(Del)
Sec 115 BBC from 1-4-2007 i.e.
assessment year 2007-08.
Normally the amount will be
exempt in FY 2005-06 but not
in 2006-07 being anonymous
donations.
The
amounts
received were more than 5%
also of total Receipts.
However Under 115BBC(2)
being Religious trust section
115BBC(1) is not applicable.
There should be positive
indication of Donor Prabodhan
Prakashan 50 ITD 135 & Shri
Digambar Jain Naya Mandir 70
ITD 121- Box marked “Corpus”
will not be sufficient.
Contrary view in Shree
Mahadevi Tirath Sharda Ma
Seva Sangh 133 TTJ (UO) 157
(Chd)
but the intention of the donor
is to give money to the trust
which will keep it in the trust
account in deposit and income
from the same is utilized for
carrying on charitable and
religious activities, it satisfies
the definition part of corpus
and, in such a situation
assessee would be entitled to
benefit of exemption from
payment of tax u/s 11(1)(d).
[DIT vs. Sri Ramakrishna Seva
Ashrama 205 Taxman 26 (Kar.)
(HC) (2012)]
3.
4.
Doon Researchers Association is a society of scientists
carrying out activity of holding conferences for its
members, social awareness program for members &
public at large on different illness for last two years.
During the financial year 2008-09, its members
researched on medicine and found it useful in
preventing a virus infected disease. Medicine was
distributed amongst its 2000 members and family first
at cost plus 10% resulting into realization of Rs 25 lacs.
Cost incurred on research studies were around 5%. It
incurred difference amount on paying honorarium to
member scientists’ majority of who were office
bearers. On finding it very useful, it proposes to
distribute amongst general public at same cost in FY
2009-10. It applied to Income Tax department to get
registered u/sec 12A. CIT refuses the registration
referring noncompliance of provisions of section
13(1)(c )(ii)
Avadh Educational Institute is Society running
educational Institution. All object clauses in
memorandum are charitable in nature. Upto year
ended on 31-3-2010, it had gross receipts of Rs 95 Lacs
from Fee and Rs 2 Lacs from Interest income. It had
no surplus till that date & Income & Exp A/C showing
Dr Rs 50,000/- Society was not registered in 12A
For year ended 31-3-2011 society had following
financial disclosures:Receipts from Fee Rs 1,25,00,000/-
NO CIT cannot refuse
AO can see contravention of
Sec 13(1)(c)(ii)
Ref 13(2)(c)- if payment
reasonable no con compliance.
For Asstt Year 2010-11 there
being no surplus there will not
be any tax implications hence
no provision for tax would be
required.
In Asstt yr. 2011-12 also net
income will be taxable Rs
3,12,500/- less 1,20,000/- =
Receipts from Bank Interest Rs 2,25,000/Income from School Bus Transportation Rs 20,000/Corpus donation received for Building construction Rs
25 Lacs
During the year Excess of Income over Expenditure
amounted to Rs 3,12,500/- before allowing salary to
Society Secretary Rs 1,20,000/-
1,92,500/- + 25,00,000/-. Being
registered society tax will be
levied on this as Individual
Sheth Mafatlal Gagalbhai
Foundation Trust 249 ITR 533
(Bom) for which provision
would be made.
Amount Received for building
fund will not be exempted
because sec 11 will not be
applicable as society not
registered u/s 12
Vidyananda
Educational
Society, ... vs Assessee on 30
April, 2012 989/Hyd/2010
“Further, we make it clear that
donations towards corpus
funds of charitable trust are
exempt under Section 12.
However, Section 12 provides
that provisions of Section 11
and 12 shall not apply unless
the trust is registered under
Section 12AA. In this view of
the matter even corpus
contribution
for
the
assessment years 2003-04 and
04-05 will not be eligible for
exemption under Section 11, as
the Assessee trust did not have
requisite
approval
under
Section 12AA. Further, we
make it clear that there was
insertion of clause (d) to
section 11(1) by the Direct Tax
Laws (Amendment) Act, 1987,
with effect from 1.4.1989.
Section 2(24) of the Act has
also been amended by the
same Amendment Act. The
effect of amendment is that
although corpus donation
should be treated as income in
the hands of the recipient, but
in the case of trust or
institution, who comply with
the requirement for exemption
u/s. 11, they will be exempted
from their income. However,
the trust or institution loses the
exemption u/s. 11, either by not
complying with the condition
laid down in section 12A or by
falling within the mischief of
section 13, corpus donation will
be included in the income of
the institution and to be
assessed accordingly.
On 1-4-2011, Society applied for registration for 12A
which is yet to be disposed by concerned authorities.
5.
You being both Auditor as well as Tax Consultant are
required to audit with due precautions and reporting
& computing taxable income.
Bright Educational Society’s objects contain solely for
running some schools. Society runs these schools in
its own building premises. Society has been filing its
income tax return since inception claiming exemption
under section 10(23C) (iiiad).
Now the society wants to donate one of its schools to
another similar objects society Decent Educational
Society along with land, building and other
infrastructure.
Please discuss tax implications over both societies.
CBDT instruction No. 1132, dt.
05.01.1978
and
Sarladevi
Sarabhai Trust 172 ITR 698
(Guj.) following 133 ITR 494
(Bom) and 243 ITR 93 (Mad)
Proviso 12 of 10(23C) not
applicable on (iiiad).
For receiving trust it will be
donation
received
and
application of donation also.
The amendment to section
11(2) effected by the Finance
Act, 2002 with effect from 1st
April 2003 effectively nullifies
the decisions in M. Ct.
Muthaiah Chettiar Family Trust
and CIT v. Sarladevi Sarabhai
Trust (No. 2) to the extent that
it concerns donation of funds
accumulated under section
11(2) to another trust. The
Amendment does not affect
the position as regards
donations to another trust out
of current income or income
accumulated within 15%, which
continues to be regarded as
application of income by the
donor trust.
6.
7.
BBD trust carries out multiple activities and it sold text
books and note books to general public. Trust has
following options for investing/utilizing income from
such activity amounting to Rs 38.50 lacs. Discuss tax
implication for each such activity:To acquire printing machines.
To build college library
To make temple in educational institution‘s campus.
To run ambulance free of cost.
To run a mobile van for sale of books etc.
Rishi shiksha Samiti was running an Inter college.
Upto FY 2009-10 it had receipts amounting to Rs.
98.76 lacs. It earned surplus of Rs 14 lacs which was
invested in a partnership firm in which two out of
three partners were office bearers in Samiti. Please
discuss the taxability for Asstt Year 2010-11.
Selling text books and note
books does not seem to be
Charitable object.
Further in FY 2010-11 its receipts amounted to Rs. 103
lacs. Samiti applied for registration u/sec 12A in which
CIT questioned such investment (which remained as
such in partnership firm) –why not to reject its
application. Discuss legality of action of CIT (If
application rejected) Further after rejection, please
discuss taxability of society for Asstt Year 2011-12.
Cannot reject application u/s
12A. If rejected assessee should
file appeal before ITAT. If
adequate security and interest
is charged from firm then no
problem
For FY 2009-10 section
10(23C)(iiiad) was applicable
hence the investment in
partnership firm will not have
any impact. Proviso 3 not
applicable on (iiiad)