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Trust Presentation Large_version2

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    1. Exemption Basics

    2. Section 10(23)3. Section 11of Income TAX Act4. Charitable Purpose5. Wholly or Substantially Financed

    6. Contemporary Issues7. SIES : A Case Study8. Transfer of Funds9. BCCI : A Case Study

    10. Accumulation U/S 11(1)(a)11. Accumulation U/S 11(2)12. TISS: A Case Study13. Set Off Carry Forward Loss Deficit

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    Why Exemption??

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    Preamble enjoins upon the State/Government to ensure

    and secure social, economic, political and social justice tothe citizen of the Nation.

    The Constitution Makers provided in Part-IV of the

    Constitution, the Directive principles as guidelines to theState.

    India is a Republic and also a Welfare state.

    The constitution of India declare by its preamble statingthat WE, THE PEOPLE OF INDIA.

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    Government provides a public participation to ensureabove objectives.

    To fill that gap, charitable institutions have beeninstrumental in supplementing the efforts of theGovernment.

    Therefore Exemption !!!

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    Institutions engaged in carrying out philanthropic

    activities which are charitable in nature,are

    eligible to claim exemption, subject to the

    fulfillment of conditions laid down in

    1. Section 10(23C)

    OR

    2. Section 11 of the Income-tax Act, 1961.

    WHO WILL GET EXEMPTION?

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    It grants exemption to certain types of trusts andinstitutions

    They are not liable to get registered with the

    Commissioner or get their accounts audited under

    section 12 AA(b).

    SECTION (10)

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    The expression used is trust or institution. Definition of Trust: A trust is not defined in the income tax act. Section 3 of the Indian Trusts Act 1882 defines Trust

    The term institution will take in a society registered under the Societies Registration Act 1860 a company incorporated without profit motive and registeredunder Section 25 of the Companies Act 1956.

    In Maharashtra, Bombay Public Trusts Act has been passed.Societies registered under the Societies registration Act, arerequired to be simultaneously registered with BPT.

    (Gross Violation by BCCI) .

    SECTION (11)

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    It is possible that income of an association or

    institution may be exempt under section 10 as well

    as under section 11.

    The Income Tax Act grants exemption to the

    income from property held under trust or any

    other legal obligation for religious or charitable

    purposes, subject to the fulfillment of certain

    conditions laid down under the act. .

    SECTION (11) (Continued)

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    The exemption to a trust under section 11 can begranted only if

    The source of its income is some property which isheld under trust.

    Income of religious and charitable trusts wascompletely exempt under Section 4(3) of the I. T

    Act 1922. Thus, the trust got the exemption, though the

    objects of the trusts were not fulfilled.

    law was very liberal till 1962

    Charitable trusts were utilized as a device for

    evasion or avoidance of Income Tax in many ways. Provisions of section 11 to 13 in the Income Tax

    Act, 1961 was introducedto grant exemption onlyto the income actually applied to charitable

    purposes in India.

    SECTION (11)(Continued)

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    Charitable purpose is defined in the Income TaxAct in a wide manner under section 2(15).

    Charity for tax purposes is not confined to relief ofpoverty.

    It is more philanthropy than charity.

    Charitable Purpose)

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    Scheme of Taxation of Charitable Trusts

    Scheme of Taxation of Charitable TrustsSection 2(15)defines Charitable purpose as follows;

    charitable purpose includesrelief of the poor, education, medical relief,

    preservation of environment (includingwatersheds, forests and wildlife) andpreservation of monuments or places orobjects of artistic or historic interest, and

    the advancement of any other object ofgeneral public utility:

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    Scheme of Taxation of Charitable Trusts

    Providedthat the advancement of any other objectof general public utility shall not be a charitablepurpose,if it involves the carrying on of any activity in the

    nature of trade, irrespective of the nature of use :]

    Provided furtherthat the first proviso shall notapply if the aggregate value of the receipts fromthe activities referred to therein is ten lakh rupeesor less in the previous year

    (25 lakhs w.e.f 1-4 -2012);

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    Scheme of Taxation of Charitable Trusts

    Section 11(1)(a) & (b)grant exemption to income from propertyheld for religious or charitable purposes to the extent it is appliedfor charitable or religious purposes during the year. They alsoprovide for exemption of income, accumulated up to the extent of15% of the income of the trusts.

    Section 11(1)(d)exempts donations received with a stipulation thatthey shall form part of the corpus of the trust.

    Section 11(1A)allows exemption of capital gains in the hands of acharitable trust, to the extent such gains are utilised for theacquisition of another capital asset.

    Section 11(1)(4A)denies exemption to business income of trust,subject to certain exceptions.

    Section 11(5) prescribes prescribed in the modes of investmentsfor a charitable trust.

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    Scheme of Taxation of Charitable Trusts

    Section 12(1)deems voluntary contributions received by acharitable or religious trust to be income from property held forcharitable or religious purposes.Section 12(2) deems the value of certain services provided by thetrust to specified persons to be the income of the trust fromproperty held under trust, which is chargeable to tax andnotwithstanding the provisions of section 11(1).

    Section 12 Alays down the conditions of registration, audit andpublication of accounts in order to claim exemption under section11 and 12, while section 12 AA lays down the procedure forregistration.

    Section 13provides for denial of exemption to charitable orreligious trusts under certain circumstances.

    Section 2(24)(iia) provides that the term income includes voluntarycontributions received by wholly or partly religious or charitabletrusts, amongst other bodies. 18

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    Under section 80 GDeductions for donations to institutionswhich are primarily of a religious nature

    are not allowed.

    Donations in kind are not eligible fordeduction under section 80 G.

    Deductions for donations are restricted to

    10% of gross total income or to 50% of theamount of donations

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    Provisions of clauses (iiiab) to (iiiae), (iv) to (via) ofSec 10(23C) deals with educational institutions andhospitals.

    Newly introduced Sec 115BBCdeals taxation ofanonymous donations.

    The rate of tax applicable to a public is thatapplicable to an association of persons

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    Section 10(23)(C) in the case of

    Educational/Hospitals institutions:

    Contemporary Issues

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    Section 10 23) C) in the case of Educational institutions:

    There are three types of universities/educational institutions to whichthe benefit of exemption is available u/s 10(23).

    (1)Section 10(23C)(iiiab),(2)Section 10(23C)(iiiad)(3)Section 10(23C)(vi).

    In all the aforesaid three provisions, the requirement that theuniversity or other educational institution should exist solely foreducational purposes and not for purposes of profit,is common.

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    Section 10 23) C) in the case ofUniversities/Hospitals

    10(23C)(iiiab) for universities:::::::( 10(23C)(iiiac) for hospitals

    The universities and educational institutions

    Exist solely for educational purposes and not for purposes of

    profit

    AND

    wholly or substantially financed by the Government.???

    No audit to be carried out by the accountants as defined u/s288 of the Income-tax Act.

    Some of the institutions receiving govt. grants areTISS,

    SIES, Somaiyya, Jai Hind etc..

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    Section 10(23C)(iiiad) for universitiesBodies whose gross annual receiptsdo not exceed

    a specified amount ( Rs.1 crore vide rule 2BC).

    No audit to be carried out either by the Government

    or by the accountants as defined u/s 288 of the

    Income-tax Act( small educational bodies)..

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    the institution is notified by the prescribedauthority in the Official Gazette.

    subject to audit by an accountant as defined u/s288 of the Income-tax Act (Rule 16CC of theIncome-tax Rules)( non-governmental audit).

    Section 10(23C)(vi) for educational Institutions

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    Proviso to Section 10(23)3rdProviso, Accumulation of amount exceeding 15% of incomeshall in no case exceeds 5 yrs(w.e.f. 1-4-2003) andinvestment should be as per modes specified in section 11(5).Under 7thproviso, business should be incidental to attainmentof objectives and separate books of account should bemaintained.Under 12th proviso, If an institution does not apply its incomeduring the year of receipt and accumulates it and makespayment there from to any trust or institution registered undersection 12AA or to any trust such payment shall not be treatedas application of income.Under 13th proviso,the circumstances under which theprescribed authority is empowered to withdraw the approvalearlier granted.Under 15thProviso, anonymous donation referred in section115 BBC shall be included in total income. 26

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    Controversies in Claim for exemption u/s10(23C(iiiab):The assessee must satisfy 2(two) conditions cumulativelynamelyExist solely for educational purposes and not for purposes ofprofit; ANDIs wholly or substantially financed by the Government.

    The term substantially financed is not defined anywhere inthe I-T Act.If the term wholly means cent per cent financing by theGovernment, the term substantially financed has tonecessarily take its colour from the term wholly preceding it.Under the doctrine of noscuntur a sociis, the meaning of adoubtful word may be ascertained by reference wordsassociated with it.

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    Controversies in Claim for exemption u/s10(23C(iiiab):In all the three provisions namely 10(23C)(iiiab), section

    10(23C)(iiiad), section 10(23C)(vi)PhraseExist solely for educational purposes and not forpurposes of profit, is common.However,Section 10(23C)(iiiad)-No requirement to carry out any audit

    by the Government or by the accountants as defined u/s 288of the Income-tax Act.

    Section 10(23C)(vi) are subject to audit by an accountant asdefined u/s 288 of the Income-tax Act (Rule 16CC of theIncome-tax Rules).

    Section 10 23C) iiiab), which are wholly or substantiallyfinanced by the Government, are not subject to audit by anaccountant as defined u/s 288 of the Income-tax Act( non-governmental audit).

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    Wholly or Substantially Financed?? The Government seeks to exercise control

    over the utilization of finances by a privatebody being wholly or substantially financedby the Government

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    h b d b h /

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    They are subject to audit by the C&AG u/s14(1) of the Comptroller and Auditor-Generals (Duties, Powers and Conditions ofService) Act, 1971 since they are wholly orsubstantially financed by the Government(not subject to audit by Accountant).

    Phrase substantially financed by the

    Government in section 10(23C)(iiiab) andExplanation to section 14(1) of theComptroller and Auditor-Generals Act,1971 is identical.

    Explanation to sub-section (1) of

    section 14 of the CAG ACT is the onlyprovision in which legislative guidance isavailable for phrase substantially

    financed by the Government. 30

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    Section 14 of the Comptroller and Auditor-

    Generals Act, 1971Act reads as under:

    14 (1) Where any body or authority is

    substantially financed by grants or loans from theConsolidated Fund of India or of any State , the

    Comptroller and Auditor General shall, audit all

    receipts and expenditure of that body or authority

    and to report on the receipts and expenditureaudited by him.

    Explanation:- Where the grant or loan to a body or

    authority from the Consolidated Fund of India or of

    any State ..in a financial year is not less than

    Rupees twenty-five lakhs and the amount of suchgrant or loan is not less than seventy-five percent

    of the total expenditure of that body or authority,

    such body or authority shall be deemed, to be

    substantially financed by such grants or loans 31

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    Deeming provisions in the Income-tax Act, e.g., are in the

    context of determining substantial interest or substantiallyinterested .

    They varygreatly. While section 2(18)(a) regards holding of not less than 40% of

    the shares of a company by the Reserve bank as substantial,

    sub-section (22) of section 2, regards, beneficial entitlementto not less than 20% of the income of a concern by a personas substantial interest in that concern.

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    Perusal of Section 14(1) shows that it is the only

    provision in a Central Act in which the meaning

    and content of the phrase substantially financedhas been statutorily laid down.

    75% of total expenditure of such bodies must be

    financed by the Government.

    The Government finances both revenue as well as

    capital expenditure of private bodies and hence

    both together will determine the totalexpenditure.

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    CASE STUDY of South Indian

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    CASE STUDY of South IndianEducation Society for A.Y. 07-08:The assessee is engaged in running

    various degree courses in Commerce andScienceincluding courses in Managementstudies, technology, packaging etc.,

    The society also conducts and maintainsa home for the senior citizens.

    The assessee is a Government-aidededucational institution having receivedgrants from the Government.

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    :

    The Government Grant is only towardsHigh Schools, Junior Colleges and DegreeColleges.

    majority income of the assessee is fromEngineering College and Management

    Institute which are unaided???

    The assessee also claimed to have receivedvoluntary contributions and claimed

    exemption u/s 11(1)(d) (section 2(24)(iia)income includes????

    The assessee has credited various sumstowards various corpus funds in theBalance Sheet directly. 37

    Rejection of the claim for exemption u/s

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    More than 1600 contributors/donors whosechildren were studying in the institutions

    Payment in cash outside the banking channels.

    Contributions on or around particular dates and

    mostly at the time of admission.

    At the time of receipt of money, temporary moneyreceipts were initially issued to Contributors.

    Rejection of the claim for exemption u/s

    11:

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    Rejection of the claim (continued)

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    Surrender of temporary money receipts andcollection of permanent money receipts after 3-4

    months.

    These permanent money receipts did not contain

    any direction by the contributors under their

    signatures that their contributions would form part

    of the corpus.

    Rejection of the claim (continued)

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    Extra fees in the garb of voluntary contributions,

    over and above the prescribed fees notified by theGovernment is nothing but capitation fees and

    involve an element of profiteering.

    In earlier years also, the assessee has been deniedexemption u/s 11. The assessee has accepted that

    position by not filing appeal.

    Subsequently Search was conducted on the assesseepremises and proof of cash given in lieu of donation

    taken in cheque was found and admitted. Claim of Section 11 was denied. Consequently,

    Section 11(2) ,11(1)(d), capital expenditure???

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    Scrutiny of the claim for exemption u/s10(23C(iiiab): Besides school and colleges, the assessee is also

    running a Senior Citizen Home. On being confronted with the aforesaid position, the

    assessee claimed that the Senior citizen home is for

    the retired teachers. It is seen from the Rules thatany senior citizen can apply for admission into thehome.

    The surplus generated by the assessee constitutesmore than 20% of the gross receipts including extrafees charged by the assessee.

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    Section 11(1) refers to Application Of Income.

    The assessee Trusts have been setting apart funds

    for specific purpose and claiming it as application offunds.

    Such funds cannot be treated as application of

    income as the fund has only been earmarked andallocated for a purpose but not applied or the

    purpose.

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    Section 11(1) refers to Application Of Income.

    Reliance is placed on the decision of Hon. Bombay

    High Court in the case of Hanmantram Ramnath v.CIT (1946) 14 ITR 716 (Bom) where there was only

    declaration but not set apart or credited to the

    account of any trust.

    Similar view was taken by the Supreme Court in the

    case of Nachimuthu Industrial Association v. CIT

    (1999) 235 ITR 190 that mere setting apart may not

    be enough.

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    S ti 11(1)( ) b tit t d b T ti L

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    Section 11(1)(a) as substituted by Taxation Laws(Amendment) Act, 1975 with effect from 1.4.1976

    makes a distinction between what is appliedand

    what is accumulated or set apart.

    Example::

    Income Rs. 20,90,91,973/-

    Less: Fund transfer Rs. 1,75,00,000/- Total Income Rs. 19,15,91,973/

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    BCCI

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    It was noticed on perusal of various Schedules of

    Balance Sheet that the assessee has been maintaining

    various earmarked funds namely Benevolent FundDomestic and International.

    There are accretions to the earmarked funds

    The assessee had credited interest

    The assessee had further claimed the interest on the

    earmarked funds as Application of Income in

    Computation of Income.

    BCCI

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    The assessee further claimed an amount of

    Rs.51,92,40,260/- as amount spent out ofaccumulation made u/s 11(2) in earlier years, out of

    which Rs.14,34,95,000/- was transfer to Platinum

    Jubilee Benevolent fundand the same was considered

    as amount spent out of accumulation made in earlieryears u/s.11(2).

    Transfer to fund does not amount to application

    therefore, transfer to Platinum Jubilee Benevolent fundwas not considered as amount spent out of

    accumulation made u/s.11(2).

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    Gross Total Income Rs. 2,00,00,000/Less: 15 Accumulation u/s.11(1((a)Rs. 30,00,000/-Less: Expenditure on object of the trust

    a) Establishment expenses Rs.2,00,000/-b) Repairs & maintenance Rs.1,00,000/-

    Rs.1,67,00,000/-Less: Capital expenditure Rs. 1,97,00,000/-Loss (-)30,00,000/- (C/F)

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    Assessee is claiming 15% accumulation u/s

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    g /11(1)(a) of the Act even when the entire income

    has been expended towards object of the trust

    andthere is no surplus left to be accumulated.

    15% accumulation in cases where there is no

    surplus is not permissible. Accumulation canonly be made when there is surplus.

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    Where 85% of the income could not be applied

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    Such amount can be accumulated U/s.11(2) either in

    whole or in part ,

    If the assessee specifies by

    notice in writing given to the Assessing Officerin the prescribed manner,(FORM 10 in Rule 17 of I.T.

    Rules, 1962)

    (iii)the purpose for which the income is being

    accumulated or set apart and(iv) the period for which the income is accumulated

    which in any case

    shall not exceed five years.

    (v)The money so accumulated is invested or deposited

    in the forms or modes specified in Section 11(5).

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    A critical examination of From No.10 reveals that the

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    assessee has many options. One of the options reads

    such sum as is available at the end of the

    previous year

    Hence, the assessee wrongly enjoys the liberty to

    accumulate the surplus determined by the Assessing

    Officer and escape any tax liability which may arisethereon.

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    Case Study:

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    Form No.10 was not filed with the Return of Income and

    the same was produced by the assessee at the time of

    appellate proceedings.

    Form No.10 was not prepared before the date of filing ofReturn of Income requirement as specified( Section

    139(1) of the I.T. Act, 1961) in rule 17 of I T Rules 1962.

    Section 11(2) inter alia reads as under:

    Such option to be exercised in writing before the expiryof the time allowed under sub section (1) of section 139

    for furnishing the return of income.

    Preparation of Form No. 10 before the due datefor filing

    of return of income (Section 139(1) of the I.T. Act, 61 isa statutory requirement.

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    Audit Report in Form No. 10 B is a statutory

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    requirement u/s 12A.

    If an assessee files audit report in Form 10BB or any

    other statutory Form or if the Return of Income is notaccompanied by Audit Report in Form No. 10 B,

    exemption u/s 11 is liable to be denied to the assessee.

    The claim of an assessee that The object is achieved bythe audit report in FORM 10BB isvery farfetched

    argument.

    In Form 10B , one of the column is verification by

    Auditor of attraction of provisions of Section 13 whichis very essential for grant of exemption u/s 11

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    Th t hi d R h i tit ti

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    The assessee,a teaching and Research institution,

    had claimed exemption u/s.10(23C)(iiiab).

    The assessee was not filing its accounts before

    the CAG under the provisions of Comptroller andAuditor Generals (DPC) Act,1971 though it was

    receiving Substantial Grant(UGC) from the

    Government.

    Thereby not subjecting their accounts to any Audit

    escaping any kind of control either under

    Government or under income Tax Act

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    Th I di A dit & A t D t t id l tt

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    The Indian Audit & Accounts Department vide letter

    No. DGA/C&AB/Sec. 14-15/C-L dated 25/02/2010

    has asked TISS, the assessee to submit copies of

    their annual audited accounts since the year 2004-05 to examine the applicability of section 14-15 of

    the Comptroller and Auditor Generals(DPC)Act,1971

    In the case of DDIT vs. Indian Institute of

    Management, it was held that Indian Institute of

    Management is set up by the Government and

    managed by the Government.

    In the case of ITO vs. Deeshiya Vidya Shala Samithi,

    the AO opined that wholly or substantially financed

    means 100%-90% whereas the institute was

    receiving grants of 78.5 % from the Government. 60

    I th f S t h H i P h tt Ti i

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    In the case of Santosh Hazari vs. Purushottam Tiwari

    the word used is merely substantial .

    The assessee is also registered u/s 12A of the IT Actbut had filed Audit Report in Form 10BB.

    The return of income was not accompanied by

    Audit Report in the prescribed Form No. 10 B

    which is a statutory requirement u/s 12A.

    12A(1)

    (b) The person ..furnishes along with the return

    of incomefor the relevant assessment year the

    report of such audit in the prescribed form dulysigned and verified by such accountant...

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    Tr st comp te deficit from e cess E pendit re o er

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    Trust compute deficit from excess Expenditure over

    Income.

    Excess expenditure is spent out of corpus fund or

    other funds reflected in the Balance Sheet on which

    exemption has already been claimed by virtue of

    various provisions of section 11 of the Act.

    Expenditure out of Accumulated fund u/s 11(2) is

    generally not reduced from claim of expenditure by

    the assessee.

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    Source of funding excess expenditure is exempt

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    Source of funding excess expenditure is exempt

    income.

    Claim of deficit amounts to claiming a doublededuction, as the Income/ fund expended has

    already been allowed exemption under different

    provisions of section 11 of the Income tax Act,1961.

    In the case of CIT v/s Institute of Banking Personnel

    Selection 264 ITR 110(Bom) this issue has been

    decided in favour of the assesseeon commercial

    principles.

    Department did not file SLP in Honble SupremeCourt on account of low Tax effect .

    the ratio of judgement in the case of Escorts Ltd. v/s

    Union of India 119 ITR 43 was not considered

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    wherein it was held that

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    wherein it was held that

    Double deduction cannot be presumed if the

    same is not specifically provided by Law in

    addition to normal deduction.

    Accumulated surplus of 15% u/s 11(1)(a) , Corpus

    Donation u/s 11(1)(d), Accumulation u/s 11(2)

    utilised for excess expenditure have already been

    claimed as exempt income

    Cases where such excess expenditure are allowed to

    be carried forward to be set off against income of the

    subsequent years amount to multiple benefits whichis against the legislative intention.

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    Depreciation:

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    Depreciation:

    This is a recurring issue in the assessment of almost

    every trust.

    Trust claim entire expenditure on the Capital Assetas application of Income.

    Further, claims depreciation on the said asset.

    It amounts to claiming double decuction.

    decision of the Honble Bomaby High Court in the

    case of Commissioner of Income Tax Vs. Institute of

    Banking andPersonnel (264 ITR 110) is in assessees

    favour.

    It isa fundamental axiom that no Legislature could

    have at all intended a double deduction in regard to

    the same business outgoing ; and, if it is intended, it

    will be clearly expressed. 66

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    A.Y. 05-06

    Exempt income(Rs. 100)

    The entire corpus donation is exempt u/s 11(1)(d) of the

    Income TaxAct,1961

    A.Y06-07

    Exempt income(Rs. 130)

    the entire amount of Rs.100/- utilized for purchase ofcapital asset and Rs.30/-

    A.Y 07-08

    Exempt income(Rs. 42)

    It is evident from the above table that the total exemptionbeing enjoyed by the assessee is Rs.272/- for a donation

    of merely Rs.100/- in the above three A.Y.

    67

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    Amendment of objects:BCCI

    Registration u/s 12A is granted by the Director of Income

    Tax (Exemptions) on the basis of the Trust Deed

    submitted at the time of the registration.

    Several trust thereafter amend the objects of the trust

    without the permission of the Director of Income Tax

    (Exemptions).

    Where the objects of the trust or institution, which werethe basis of grant of registration, are altered after such

    grant of registration, the very foundation of the

    registration having been removed by a voluntary act of

    the assessee trust, the registration would not survive.This view has been held by the Allahabad High Court in

    its decision in the case of Allahabad Agricultural Institute

    and Another v. Union of India and Others, reported in

    291 ITR 116.68

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    III Repayment of Loan:Cases where assessee trust has received certain

    secured/unsecured loans. The receipt of such loans

    being capital in nature, is not declared as income

    The utilization of such receipts from loans, on

    acquisition of movable or immovable assets, is claimed

    as Application ,

    In addition to the same, even the repayment of such

    loans, is claimed as deduction in the year of repayment

    relying upon Circular No.100 of CBDT dated24/01/1973, which permits the repayment of loans to be

    claimed as Application, which amounts to claiming

    double deduction.

    69

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    Case Study of BCCI:

    The assessee institution is heavily banking on the

    Boards Circular wherein Promotion of Sports is

    Charitable object.Promotion of sports is certainly a

    charitable purpose. However, the activities of the

    trust need to be in conformity with the objects of thetrust. Thus the stated objects of the institution are not

    determinative for deciding the issue in this case and it istherefore necessary to examine the actual activities

    carried out.

    It was held that major income arises not from thegame of cricket but from the business of cricket.

    71

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    Case Study of Media Research:

    It was held that the assessee is making EXCESS

    PAYMENT FOR SERVICES TO EXCLUDED

    PERSONS(persons covered u/s 13(3) read with

    Section 13(2)(c).

    The assessee had also given huge sum of advance to thesaid company.

    The assessee had declared that income is from Business

    activities incidental to charitable purposes. From A.Y. 09-10 they are subject to tax if amount exceeds 10 lakhs.

    72

    Benefits to Trustee :Section 13 of the Income tax act :

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    Benefits to Trustee :Section 13 of the Income tax act :

    Purchase Property in the name of the Trust but it is

    actually meant for personal use of the trustee.

    The trustee was running his office from the samepremises or other non educational purposes.

    In one of the reputed trust hospital,the main trustee

    was paid substantially higher salary as compared to

    other doctors .

    In the case of a renowned sports society,the

    managing committee members had visited outside

    India . There was no connection of the visit and

    development of the particular sport

    Important Case laws on this issue:DIT v/s Bharat Diamond Bourse 126 taxman 365(SC)

    CIT v/s Rattan Trust 227 ITR 356 (SC)

    Ram Bhawan Dharamsala 258 ITR 725 (Raj)

    73

    Case Study of Symbiosis Society: the assessee was

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    Case Study of Symbiosis Society: the assesseewas

    exemption u/s.10(23C) (vi)

    The assessee had transferred fund directly to the land andbuilding earmarking fund).

    Surplus-Institute wise

    Symbiosis Society was running 25 institutes.. The surplus

    of each institution was transferred to the Symbiosis

    Society.

    The Surplus was generated mainly from the very high fee

    structure ,

    The surplus funds was being mainly used in purchase of

    land and construction of buildings. The society was in turncharging rental income from different institutes.

    74

    Article 20 of the Trust deed: Only the Permanent

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    Article 20 of the Trust deed: Only the Permanent

    Fund will be used for purchase or acquisition of

    immovable properties. However in the balance

    sheet, amount was directly transferred to land andbuilding fund out of the current fund.

    In Trust deed, it was written that the properties

    of the society shall vest in the Management

    Committee. In the case of Ganpatrai Sagarmal

    (Trustees) for Charity Fund Vs. CIT (1963), 47 ITR

    625 the Calcatta High Court held that it was not

    enough that the income form the property should be

    held for religious or charitable purposes, but theproperty itself should be held in trust .

    75

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    JITO Administrative Foundation Trust v. DIT

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    JITO Administrative Foundation Trust v. DIT

    (Exemption) [2010] 7 TAXMANN.COM 83 (MUM -

    ITAT.), Registration was refused to the assessee

    u/s.12A of the Act. The main objects of the Trust asgiven in the Trust deed was as under:-

    to enable them to qualify for and make them fit and

    proper for admission to the class I & II civil services

    of Government of India and States ...

    It was held that the assessee was merely refreshing

    knowledge already possessed by the students and

    not imparting any further education. It was pointed

    out that the assessee was not engaged in educationalactivities.

    78

    Profiteering in Hospital activity

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    Profiteering in Hospital activity

    Case Study 1

    Issue of Incidental Business :

    The assessee was running a pharmacy in the hospitalpremises on the ground floor.

    The medicines are sold at MRP i.e. maximum retail

    price. Many of the items which are sold at pharmacy

    are non medicinal items.

    Assessee had not supplied the information regarding

    Running Cafeteria, Gymnasium at the time of

    obtaining approval.

    Hospitals claim that Cafeteria, Pharmacy isincidental activity. Similarly activity of running

    gymnasium, Ayurvedic massage, etc can not be said

    to be incidental activity.

    79

    Bogus Bills :

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    Bogus Bills :

    It was observed that to increase the expenses one

    reputed Hospital was getting Bogus Bill for Medicines

    and other Items.. The difference was siphoned totrustee from the parties who issued bogus bills.

    In one of the private Hospital the Surgeon had paid

    Surgery assistance charges to his wife who was just

    MBBS.

    Maintainance of Separate Books of Accounts :The

    Hospital has to maintain separate books of accounts

    for the incidental business.(section 11(4A)of IT act.).

    It will be observed that the same bill contain the

    medicines and other items purchased from thePharmacy and caffeteria. This shows that there are

    no separate books of accounts for the so called

    incidental business.

    80

    Amendments:

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    e d e tsThe definition of income in S. 2(24)(iia) is changed

    retrospectively from 1-4-1999 to provide for inclusion of any

    voluntary contributions.

    Section 12 has been amended by Finance act 2000 with effect

    from 1.4.2001 providing that the value of any medical or

    educational services, made available by a trust running a

    hospital or an educational institution to trustees or related

    persons would be deemed to be income of such trust andchargeable to tax.

    Also section 80G has been amended to provide that an

    institution or fund which incurs expenditure during any

    previous year, which is of a religious nature will not lose thebenefit of section 80 G if such expenditure does not exceed 5%

    of its total income.

    81

    Further public trusts falling under section 11 cannot

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    p g

    accumulate their income for more than 5 years and a

    similar limit has been introduced for the 1st time in

    case of notified trusts of importance or medical oreducational institutions falling under section 10

    (23C).

    The amount which can be set aside is reduced from

    25% to 15%.

    The accumulation of section 11(2) cannot be credited

    or paid to any other trust or institution registered

    under section 12AA or to any educational or medicalinstitution under section 10 (23C).

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    Anonymous Donation:

    The earlier liberal provision in the taxation law was

    grossly misused by the charitable organizations.

    The Government of India had imposed 30% tax on

    anonymous donations in the Finance Bill of Budgetof 2006/07 w.e.f. 1.4.2007.

    Anonymous donations received by wholly religious

    organizations remain exempt from tax.

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    Anonymous donations received by partly religious

    and partly charitable organizations also remain

    exempt from tax except In the case ofPartly religious and partly charitable

    organizations, anonymous donations received

    towards a medical or educational institution

    run by such organizations.

    All other charitable organizations, anonymous

    donations received

    shall only be taxed to the extent they exceed:

    5% of the total donations received by the

    organizations, orRupees One lakh Whichever is higher.

    84

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    Other Acts and laws Applicable :

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    pp

    As per the Bombay Public Trust Act, 1950, the trust

    has to be apply for approval of Charity Commissioneru/s 36A(3) in respect of raising loan or deposit.

    Foreign Contribution Regulation Act:

    Any Trust who regularly receives Foreign Donations

    has to get it Registered. Prior registration is a must.

    Rule 3A , is regarding Application for registration.An

    application for registration is to be made in Form FC-

    8.

    Rule 8 : Maintenance of Accounts : A separate set ofAccounts and records shall be maintained exclusively

    for foreign contribution and duly certified by

    Chartered Accountant in Form FC 3.

    86

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    Wealth Tax Act:

    Exemption u/s 5(1)(i) of the Wealth Tax Act is

    available only for the property held under trust for apublic purpose of charitable or religious nature in

    India.

    87

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