Assessment of Charitable Institution-

A Comprehensive Case study

CMA RAKESH KUMAR SINHA/FCMA

PRACTICING COST ACCOUNTANT
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 Assessment of Charitable Institution
• If income of a AOP/BOI/Any Artificial Judicial
Person does not exceed maximum taxable
exemption limit i.e., Rs. 250000/- no income tax
is payable. Also in this case filing of income tax
return is optional.
• Any charitable Trust or Institution may be
AOP/BOI/Artificial Judicial person/Company(in
some cases), whether registered u/s 12A or not, if
income does not exceed maximum exemption
limit, filing of income tax return is not mandatory
and tax liability shall be Nil.
 Assessment of Charitable Institution
• When income of Trust or Institution exceeds
the maximum exemption limit, then filing of
income tax return is compulsory and there
shall be tax liability.
• Section 11 and 12 shall be applicable to a trust
or institution, which are formed by any law for
charitable or religious purpose and is
registered u/s 12A of IT Act, 1961.
 Assessment of Charitable Institution
• Trust may be a
• Trust registered under the Indian Trusts Act,1882
• Society registered under the Societies
Registration Act, 1860
• A company registered u/s 8, of Companies Act,
2013[u/s 25, of repealed Companies Act, 1956]
• Any other institution formed under any other law
, like sports association, stock exchange, etc.,
 Assessment of Charitable Institution
• Section 2(15) define that when a trust or
institution shall be called as formed for charitable
purpose, if object of trust or institution is
• Relief of poor;
• Education;
• Yoga;
• Medical Relief;
• Preservation of environment (including water
sheds, forests and wildlife);
 Assessment of Charitable Institution
• Preservation of monuments or places or objects of artistic or
historic interest;
• The advancement of any other object of public utility; provided that
the advancement of any other object of general public utility shall
not be a charitable purpose, if it involves the carrying on any
activity in the nature of trade, commerce or business, or any
activity of rendering any service in relation to any trade, commerce
or business, for a cess or fee or any other consideration,
irrespective of the nature of use or application, or retention, of the
income from such activity , unless – (i) such activity is undertaken in
the course of actual carrying out of such advancement of any other
object of general public utility and (ii) the aggregate receipts from
such activity or activities during the previous year, do not exceed
25% of the total receipts, of the trust or institution undertaking
such activity or activities of that previous year.
 Assessment of Charitable Institution
• Section 11, Income from property held for charitable or
religious purpose:- The following income shall not be
included in the total income of the previous year of the
person in receipt of the income
• i) 85% of income derived from the property held under
trust wholly for charitable or religious purpose is applied in
India in conformity to the object of that trust and
remaining 15% accumulated or set apart.
• ii) 85% of income derived from the property held under
trust, having been created before the commencement of IT
Act, 1961, wholly for charitable or religious purpose is
applied in India to the object of that trust and remaining
15% accumulated or set apart.
 Assessment of Charitable Institution
• Income from property held under trust created
on or after 01-04-1952 for a charitable purpose
to promote international welfare in which India is
interested to the extent applied such purposes
outside of India, and created before 01-04-1952
to the extent applied such purposes outside of
India
• Income in the form of voluntary contributions
made with specific direction that they shall form
part of the corpus of the trust or institution.
 Assessment of Charitable Institution
• Section-12:- Income of trusts or institutions from
contributions, shall for the purpose of section 11
be deemed to be income derived from property
held under trust.
• Income in the form of voluntary contributions,
without any specification direction to be part of
corpus
• The value of any services, being medical or
educational services , made available by any
charitable or religious trust.
• Any amount of donation received.
 Assessment of Charitable Institution
• In case where charitable institution or trust could not applied 85% of
income during the p.y due to income wholly or partly not received or due
to any other reason, may apply in form 9A, electronically to the AO, before
the expiry of filing of Income tax return due date as per section 139(1) and
it is deemed to be income applied to such purposes during the p.y.
• For example for the A.Y. 2020-21, up to 31st July or 30th
September, 2020 as the case may be. And suppose total
income credited to Income & Expenditure account is Rs. 1
Lakhs. Applied Rs. 0.50 lakhs, then shortfall is Rs. 0.35
lakhs. If not file application in form 9A, then Rs.0.35 lakhs
shall be taxable income, in other hand if application made
in form 9A, Rs 0.35 lakhs shall be deemed to be applied for
charitable purposes during the previous year.
 Assessment of Charitable Institution
• In case, where 85% of the income could not applied to
such charitable purposes and option for deemed to be
applied in the same P.Y. is not avail but is accumulated
or set apart for the purpose of application in India,
then in this case, i) an application shall be made in
form 10 electronically before the expiry of due date to
file income tax return under section 139(1), to the AO,
that accumulated or set apart income shall be applied
for charitable purpose within 5 years, ii) money so
accumulated or set apart is invested or deposited in
the forms or modes specified in sub-section 5,i.e. in
Post office saving banks, schedule bank, UTI etc.,
 Assessment of Charitable Institution
• “ Property held under trust” includes a
business undertaking, book debt, exploitation
rights of space on either side of an overbridge
for advertisement etc;
• Separate books of accounts have to maintain
of each commercial activities
 Case Laws: 1, A charitable Company,
Pleaded by me
• X club Ltd. was formed u/s 25 of Companies Act, 1956, in the year
1967, by the members of a PSU.
• Objects are to provide recreation facility, sports facility, and others
for the entertainment of members.
• Source of income is subscription fee, sale of wine, income from hall
booking, rental income from shops and miscellaneous income.
• Club gets Financial audit report every year.
• Since, its registration Club has not furnished income tax return. Club
is not registered u/s 12A of Income Tax Act, 1961.
• Got notice from Income tax department u/s 142(1), for scrutiny for
the A,Y, 2009-10, 2010-11 and 2011-12.
• Basic question arise in which form Income tax return has to filed ?
• Whether audit report in form 10B is required or not?
 Case Laws: 1, A charitable Company
• Club has filed return in ITR Form 7. This was not accepted by the AO on
the ground that since it is a company so income tax return shall be filed in
ITR form 6. And passed best judgment order u/s 144 and demanded Rs.
15 lakhs as income tax.
• Logic behind filing ITR 7.
• i) Main source of income is voluntary contribution from the members of
club in the form of subscription fee.
• ii) As per Section 139(4A), every person in receipt of income derived
from property held under trust, wholly for charitable or religious
purposes or of income being voluntary contributions referred to section
2(24)(iia), exceeds the maximum amount which is not chargeable to tax
without giving effect to section 11 and 12, shall file income tax return in
ITR 7.
• iii) Read rule 12(1)(g), in the case of a person including company
whether or not registered under section 25 of Co. Act, 1956 or section 8
of Co. Act, 2013, required to file a return under sub-section 4A, 4B, 4C,
4D of section 139, be in form ITR 7.
 Case Laws: 1, A charitable Company
• Whether audit report in Form 10B is required or
not?
• Answer: No, because audit report shall be
required in case where a trust or institution is
registered under section 12A of IT Act, 1961.
• An appeal was filed before the commissioner
(appeal) and CIT(appeal) after going through the
argument placed before him by Club, passed an
order in favor of club and directed the AO to
accept the income tax return in ITR form 7 and
pass a fresh order.
 Case Laws: 2, A Society registered
under the Society Act, 1860
• A Samiti was formed by the house wives and registered
under the Society Act, 1860 in the year 1977.
• Samiti is also registered under section 12A of IT Act,
1860.
• Samiti, every year get its accounts audited and get
audit report in form 10B.
• Samiti apart from charitable activities also have
commercial activities, through which earn huge
income.
• AO, treated those commercial activities as
advancement of general public utility and raised
demand of income tax .
 Case Laws: 2, A Society registered
under the Society Act, 1860
• On aggrieved, Samiti file an appeal before the
CIT(appeal).
• CIT(appeal), disallow the appeal of Samiti.
• Then, Samiti has filed an appeal before the
Income Tax Appellate Tribunal.
• After heard the argument on behalf of Samiti,
ITAT allow the appeal.
 Case Laws: 2, A Society registered
under the Society Act, 1860
• Object of the society are:
• To promote the welfare of needy, poor, disabled and such other persons;
• To work among women and children of Bokaro Steel City as well as woman and
• children of local people in order to promote sports, games, cultural and artistic
• talents;
• To promote educational facilitation and to provide merit scholarships to needy
• students residing within the area of operation of the samiti;
• To arrange help for the victims of natural calamities;
• To promote social and cultural integration;
• To co-operate with appropriate authorities and other organizations interested in
• any of the objects of the society and to affiliate to any other similar organization
• with a view to promote the objects of the society;
• To do all such other lawful things as are incidental or conducive to the attainment
• of the above objects.
 Case Laws: 2, A Society registered
under the Society Act, 1860
• Question of Law: whether any commercial
activity of a charitable trust or institution is
exempt from tax and benefit of section 11 and
section 12A is available or not.
• GROUNDS OF APPEAL
• 1. The activities carried out in the constituent units Surabhi, Udyog
kendra and Soap factory are incidental to the objects of the society
i.e. promote the welfare of needy, poor, disabled and such other
person, to work among women and children to promote social and
cultural integration, to co-operate with appropriate authorised and
any other organisation interested in any of the object of the society,
to do all such other law full things as are incidental or conducive to
the object of the society.
 Case Laws: 2, A Society registered
under the Society Act, 1860
• 2. The above activities are fall under the category relief to the poor of sec.2(15) of
IT Act, 1961.
• 3 .These activities are not for a certain class or section of general public. So this is
not a advancement of general public utility.
• 4 .Sub-section (4) and (4A) of section 11 of IT Act, 1961 allow business undertaking
if separate books of accounts are maintained and are incidental to the attainment
of the objectives of the trust or institution.
• 5. Income of units under question i.e. Surabhi, Udyog kendra and Soap factory are
incidental to the objects i.e. to promote the welfare of needy, poor, disabled and
such other person and also separate books of accounts of these units are
maintained.
• 6 .As per sec 11(4), the AO is not dis-agree with the income of these units as
shown in its books of accounts.
• 7. Samiti fulfill all the conditions as mentioned in sub- sec (1), (2), (3), (3A),(4),(4A),
(5),(6), (7) of section 11 and AO has virtually accepted this.
• 8. Thus, order passed based on the only definition of charitable purpose u/s 2(15)
is erred and bad in practice.
• 9 .Any other ground may be placed on or before the hearing.
 Case Laws: 2, A Society registered
under the Society Act, 1860
• Director of Income Tax(Exemption), Vs.
Sabarmiti Ashram Gaushala Trust. Gujrat High
Court, 15-01-2014
•
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