'Charitable Purpose' includes relief of the poor, education, medical relief and the advancement of any object of general public utility. [Section 2(15)]. The Finance Act (No. 2), 2009 has added two more limbs to the definition with retrospective effect from Assessment Year 2009-10 i.e. "preservation of environment (including watersheds, forest and wildlife) and preservation of monuments or places or objects of artistic or historic interest", thus taking such activities outside the term "advancement of any other object of general public utility". Where predominant object of the activity is to carry out charitable purpose, it would not lose its character of charitable purpose, merely because some profit arises from such activity. The Finance Act 2009, has amended the definition of 'charitable purpose' to provide that 'advancement of any other object of general public utility' will not be considered as 'charitable purpose' if it involves carrying on of 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 any fee, cess or other consideration irrespective of nature of use or application or retention of the income from such activity.
A retrospective amendment is now made in the Finance Act, 2010 with effect from A.Y. 2009-10, to the effect that if the aggregate value of the receipts from such activities is not more than Rs .10,00,000 during the year, such purpose would still be a charitable. The monetary limit of Rs. 10,00,000 has now been enhanced to Rs. 25,00,000 (A.Y. 2012-13 i.e. w.e.f. 1st April, 2011). The effect of this amendment would therefore be that in a particular year, an object of the trust may be regarded as a charitable purpose, but in a subsequent year or an earlier year, it may not be so regarded depending upon the amount of receipts from such activity.
Income of the Trust
Income derived from property under trust subject to sections 60 to 63 wholly for charitable or religious purposes is exempt to the extent such income is applied on the objects of the trust in India, during the previous year. The trust must apply at least 85% of such income on the objects in such cases balance 15% will deemed to be accumulated for the purpose of charity and exempt.[Section 11(2)]. If the amount applied by the trust is less than 85%, the shortfall in application is not taxable in the following cases —
u/s. 139(1) for furnishing the return. If such income is not applied, it shall be deemed to be the income of previous year immediately following the year in which such income was derived [Explanation 2 to Section 11(1)].
REGISTRATION
The trust shall make an application to the Commissioner for registration u/s 12A in Form 10A within one year of creation of trust in such cases registration can be granted from the date of creation of trust. In case of delay, the registration could be granted from inception if Commissioner was satisfied with the reasons of delay. Otherwise, the registration would be granted from 1st day of financial year in which application is made. W.e.f. 1-6-2007 Commissioner's power of condonation has now been withdrawn. Every order granting or rejecting registration has to be passed within 6 months from the end of the month in which application is made. The Commissioner can revoke the registration granted to the trust after giving an opportunity of being heard. The appeal against the order u/s 12AA can be made to Appellate Tribunal.The income of the following Institutions are exempt u/s 10.
u/s 10(23C) may apply for recognition u/s 80G(5). Charities shall be existing for charitable purpose and not for religious purpose. The charity shall be registered under general law governing charities such as Bombay Public Trust Act, 1950 or Society Registration Act, 1860 or Company's Act, 1956 under section 25. Upon getting this recognition any donation paid to such charities will be eligible for deduction in the hands of the donor.Recognition u/s 80G(5) is governed by rule 11AA and such recognition could be granted upto a period of five years. This position of law has undergone change w.e.f. 1.10.2009. The registration valid and subsisting as on 1.10.2009 will continue to be so recognized in perpetuity. Commissioner of Income Tax has power to recall this recognition after giving opportunity of being heard to charity whose recognition is proposed to be withdrawn.
CANCELLATION OF REGISTRATION
Section 12AA(3) provides for cancellation of registration of a charitable trust, where the Commissioner is satisfied that the activities of the trust are not genuine or are not being carried out in accordance with the objects of the trust. The Tribunal, in the case of Bharati Vidyapeeth vs. ITO 119 TTJ (Pune) 261, had held that his provision does not empower a commissioner to cancel registration granted under Section 12A before the insertion of Section 12AA. The ratio of this decision is being reversed, by extending the right to cancel registration even to trusts registered under Section 12A. Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard. This provision comes into effect from 1st June, 2010.
AUDIT
Where total income before the exemptions u/ss. 11 and 12 of the trust exceeds the maximum amount not chargeable to tax; i.e., Rs. 1,80,000 (A.Y. 2012-13) (w.e.f. 1/4/2011), in order to get exemption u/ss. 11 and 12, the accounts have to be audited by an accountant as defined in explanation below sub-section 2 of Section 288, who will give his report in Form 10B.If the income of the trust/institution referred to in clause (iv), (v), (vi) or (via) of Sec.10(23C) without giving effect to the provisions of these clauses exceeds the maximum amount not chargeable to tax, such trusts will have to get their accounts audited by the accountant as defined in Explanation below sub-section (2) of Section 288. (As provided in the Taxation (Amendment) Act, 2006) in form 10BB.
INVESTMENTS
All investments of the trust must be in forms and modes provided in Section 11(5), which are as under —
CORPUS DONATION
Where a trust receives voluntary contributions (Act 2(24 (iia)) made with a specific direction that they will form part of the corpus, such donation will not be included in the total income of the trust. [Section 11(1)(d) r.w.s. 12].
BUSINESS INCOME
Section 11(4A) provides that tax exemption will not apply in relation to any income of a trust being profits and gains of the business unless the business is incidental to the attainment of the objectives of the trust and separate books of account are maintained by such trust in respect of such business. ICAI has expressed the view that running of hospital by a trust is a business activity. Therefore, if gross receipts from business exceeds Rs. 60 lakhs, the accounts should be audited u/s 44AB.
CAPITAL GAINS
Where a capital asset is transferred and entire net consideration is utilised to acquire a new capital asset, the whole of capital gains is deemed to have been applied for charitable/religious purposes. If part of the net consideration is used to acquire a new capital asset, then the capital gains equal to the amount, if any, by which the amount so utilised exceeds the cost of the transferred asset, will be deemed to have been applied for charitable/religious purposes [Section 11(1A)]. Also refer Instruction 883 dt. 24.9.1975.
TDS
The trust is required to deduct tax at source u/Chapter XVIIB as per the provisions of the Act. The trust is may obtain certificate from the AO u/s 197 so that it can receive income without deduction of tax at source.
EXEMPTION U/S 11 NOT TO APPLY IN CERTAIN CASES (SECTION 13)
Section 13(1)(a) — Trust for private religious purposes.Section 13(1)(b) — Trust established for the benefit of any particular religious community or caste.Section 13(1)(c) — Income of the trust is applied directly or indirectly for the benefit of persons referred to in sub-section (3).Section 13(1)(d) — Funds are invested otherwise than in any form or modes specified in 11(5).
MISCELLANEOUS POINTS
- If whole or part of the relevant income is not exempt u/s 11 or 12 by virtue of provisions contained in clauses 13(1)(c) and (d), the tax will be charged at maximum marginal rate. [Proviso to Section 164].
- New Section 115BBC — The anonymous donations as aforesaid will be taxed @ 30% (plus Surcharge and Education Cess), except in the following two situations:
- Filing of return [Sec. 139(4A)] on or before 30th September.
- Filing of return by the institutions referred to in clauses 21, 22B, 23A, 23B, sub-clauses a and b of clause 24 of Section 10 and sub-clauses (iv), (v), (vi), (via) of clause 23C [Section 139(4C)].
- Application for grant of approval or continuance thereof, wherever required in Section 10(23C), shall be filed by 30th September of the relevant assessment year for the assessment year from which exemption is sought (e.g. for A.Y. 2010-11, it should be filed on or before
30-9-2010, Finance Act ( No. 2) of 2009, with effect from 1-4-2009). The Taxation (Amendment) Act, 2006, has replaced the present system of obtaining approval periodically in case the annual receipts are more than Rs. 1 crore by a one-time approval u/s 10(23C). This approval shall be granted or rejected within a period of 12 months from the end of the month in which such application is received. - Penalty of Rs. 100/- per day for failure to furnish return under sub-sections 4A and 4C of Section 139 [Section 272A(2)]. Similarly penalty of Rs 100 per day can be levied for delay in submitting Audit Report in Form 10B/10BB (272A)(2)(g)
- 13B [Electoral Trust]: The Finance Act (No. 2) of 2009 has recognized the concept of electoral trust for tax purposes. The salient features are
- Any charitable trust, desirous of receiving any foreign contribution from a foreign source, is required to obtain registration u/s. 6(1) of Foreign Contribution (Regulation) Act, 1976 (FCRA). Any such association which is not registered or which has been denied registration, can receive foreign contribution only after obtaining prior permission from Home Ministry of the Central Government under Section 6(1A) of (FCRA) Act.
IMPORTANT CIRCULARS OF CBDT
- Instruction 883 dt. 24-9-1975 – Fixed Deposit exceeding 6 months is also a capital asset.
- No. 5-P (LXX, 6) dt. 19-6-1968 — The income of the trust is to be computed in the commercial sense; i.e., "book income". Even when the trust derives income from property, or dividends, such income will be computed on actual commercial basis and not under provisions relating to income from house property or income from other sources.
- No. 100 dt. 24-1-1973 — The repayment of loans originally taken to fulfil any of the objects of the trust is also considered as an application. The loan given by an educational trust is also an application for charitable purpose.
- No. 566 dt. 17-7-1990 — Indira Vikas Patras and Kisan Vikas Patras are permitted investments u/s 11(5)(i).
Income Tax Appellate Tribunal - Ahmedabad
Charotar Education Society, ... vs Department Of Income Tax on 24 June, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
'D' BENCH - AHMEDABAD
(BEFORE S/SHRI BHAVNESH SAINI, JM AND A. N. PAHUJA, AM)
ITA No.3198/Ahd/2010
A. Y.: 2007-08
The Income Tax Officer, Vs Charotar Education Society, Ward 3, 2nd floor, S. P. Station Road, Complex, Nr. Old C.K. Hall, Anand 388 001 Mayfair Road,
Anand 388001
PA No. ADAPK 9546 J
(Appellant) (Respondent)
Appellant by Shri S. S. Parida, DR Respondent by Shri Asheem L. Thakkar, AR
ORDER
PER BHAVNESH SAINI: This appeal by the revenue is directed against the order of the learned CIT(A)-IV, Baroda dated 27th September, 2010, for assessment year 2007-08, challenging the order of the learned CIT(A) in directing the AO to examine the claim u/s 11 of the IT Act on the basis of revised audit report in Form No.10B on merits.
2. Briefly, the facts of the case as noted by the learned CIT(A) in the impugned order are that return of income was filed claiming exemption u/s 10 (23C) (iiiad) of the IT Act. The return of income was accompanied with Form No.10BB and Form No.10B. At the assessment stage it was pointed out by the AO that exemption u/s 10 (23C) (iiiad) of the IT Act cannot be granted because assessee's ITA No.3198/Ahd/2010 2 ITO, Ward 3, Anand Vs Charotar Education Society
annual receipt exceeded Rs.1 Crores and the institution was not approved by the prescribed authority. It was submitted that the assessee was wholly Educational Trust and application was made to the CCIT being the prescribed authority for approval and the assessee was also eligible for relief u/s 11 (2) of the IT Act. It was submitted that the assessee was registered u/s 12A of the IT Act with CIT, Baroda and was also having registration certificate u/s 80G (5) of the IT Act which is also renewed. It was submitted that even if exemption claimed u/s 10 (23C) of the IT Act was not available; still the assessee was eligible for deduction u/s 11 of the IT Act. The AO further noted that form No.10B filed by the assessee for assessment year 2006-07 as well as for assessment year 2007-08 was filed without relevant information for claiming exemption u/s 11 of the IT Act. The AO was of the view that the claim of exemption u/s 11 of the IT Act was not substantiated with corroborative evidences, necessary and vital to fulfill pre-conditions for allowing exemption u/s11 of the IT Act. The assessee was required to file copy of the exemption certificate u/s 12A of the IT Act because it was found to be misplaced. The assessee thereafter, filed certified copy of registration u/s 12A and 80 G certificates. The AO denied exemption u/s 11 of the IT Act by observing that the assessee was required to fulfill the conditions of section 11(5) of the IT Act and has to furnish the necessary details in form No.10 before expiry of the time allowed u/s 139 (1) of the IT Act and since in the case of the assessee return was filed late, therefore, exemption cannot be granted u/s 11 of the IT Act. The assessee challenged the order before the learned CIT(A) and filed written submission which is reproduced in the impugned order by the learned ITA No.3198/Ahd/2010 3 ITO, Ward 3, Anand Vs Charotar Education Society
CIT(A) and it was briefly explained that the assessee is registered u/s 12A and 80G of the IT Act and further approval is granted u/s 10(23C) of the IT Act by the CCIT. It was submitted that the assessee is a Charitable Trust which runs and operates educational institutions. It was submitted that complete details were furnished for claiming exemption u/s 11A of the IT Act. Further details were also filed. Comments of the AO were called for on the submissions of the assessee. Further comments of the assessee were called for on the remand report. Same have been reproduced in the appellate order. The learned CIT(A) considering the explanation of the assessee and material on record noted that the assessee filed audit report in form NO.10B Curing the defects in the report filed with the return of income which is not examined by the AO. Therefore, the AO was directed to verify the claim on the basis of the revised audit report in form No.10 B and examine the facts of the case. The findings of the learned CIT(A) in Para 4 of the impugned order are reproduced as under:
"4. I have carefully considered the facts of the case, AO's report and appellant's submissions. Appellant had claimed exemption u/s. 10 (23C) in the return of income filed; however on being pointed out that approval of Chief Commissioner of Income tax under Rule 2CA of Income- tax Rules was pending, appellant made a claim u/s. 11 before the Assessing Officer. AO's observation in the remand repot that the claim u/s. 11 should have been made by filing a revised return u/s. 139(5) in view of Supreme Court's decision in th4e case of Goetze India Ltd. 284 ITR 323 is taken up first. Claim u/s. 11 was made by the appellant at assessment stage itself and at that time, this objection was not raised by the Assessing Officer. Such an objection has been raised by the Assessing Officer at appellate stage only. ITA No.3198/Ahd/2010 4 ITO, Ward 3, Anand Vs Charotar Education Society
Courts/Tribunals have held in various decisions that CIT(Appeals)/Tribunal have to entertain claims on merits, even though not made by filing a revised return. In the case of Chicago Pneumatic India Ltd. (2007) 15 SOT 252 (Mumbai), it was held that CIT (appeals) having co- terminus powers with Assessing Officer and due to appellate proceedings being continuation of original proceedings, has to entertain claim of assessee and allow it, if other conditions of provisions of law are satisfied. In case of Jay Parabolic Prints Ltd. (2008) 306 ITR 42 (Del.), Emerson Network Power India Ltd. (2009) 122 TTJ (Mumbai) 67, Hero Honda Finlease Ltd. (2008) 115 TTJ (Del) (T M) 752 and Ramco International [ITA No.1417 of 2008] (Punjab & Haryana), similar view was taken. It is therefore, held that the claim u/s. 11 is required to be examined on merits. Contention of the Assessing Officer that audit was got done late and return of income was filed late, cannot be a valid reason to reject the claim u/s.
11. The condition of filing return of income within the due date is applicable u/s. 139 (3) in respect of loss return only for allowing carry forward losses. Appellant filed the return within the time allowed u/s. 139(4) and the claim had to be examined on merits. Assessing Officer's another observation was that the appellant had to furnish details in Form 10 before expiry of time u/s. 139(1). Appellant claims to have applied more than 85% of income derived from property held under trust for charitable purposes during the previous year. Form 10 is to be filed in cases where less than 85% of income is applied towards charitable purpose during the previous year. Assessing Officer has not examined the claim u/s. 11 on merits and it was therefore, premature to come to a conclusion that Form 10 was required to be filed. Appellant has filed audit report in Form 10B curing the defects in the report filed with return of income. Since the Assessing Officer has not examined the claim for exemption u/s. 11 on merits so far, it is directed that the claim u/s. 11 made on the basis of revised audit report in Form 10B examined on merits and allowed accordingly." ITA No.3198/Ahd/2010 5 ITO, Ward 3, Anand Vs Charotar Education Society
3. The learned DR relied upon the order of the AO and submitted that since audit report in Form No.10 B was filed late, therefore, claim u/s 11 of the IT Act was rightly rejected by the AO. On the other hand, the learned Counsel for the assessee reiterated the submissions made before the authorities below.
4. On consideration of the above facts, we are of the view the issue is now squarely covered by the order of the ITAT Ahmedabad "C" Bench in the case of The Xavier Kelavani Mandal Pvt. Ltd in ITA No.2050/Ahd/2009 in which departmental appeal has been dismissed vide order dated 17-06-2011. The findings of the Tribunal in Para 7 and 8 are reproduced as under:
7. We have considered the rival submissions and the material available on record. The facts noted above are not in dispute. The affidavit of the concern person Mohamad Iqbal Vohra (PB-4) filed before the learned CIT(A) in support of the contention of filing of the prescribed return of income. It is explained in the affidavit that dispatch clerk refused to accept the return on the ground that ACIT, Circle-6 is Company Circle and only company return can be accepted. He advised to file return in Form No.1 through e-filing because it was mandatory to do so. The dispatch clerk of ADIT (Exemption) refused to accept the return on the ground that though the return is in Form No.3A, the PAN mentioned is of company; therefore, same cannot be accepted. Since both the dispatch clerks refused to accept the proper return, therefore, income tax return in Form No.1 was filed through e-mailing on 20-12-2006. Form No.3A along with audit report in Form No.10B was handed over to ACIT, Circle- 6 in person on 29-12-2006. The learned CIT(A) called for comments of the AO at the appellate stage. The assessee explained that the powers of learned CIT(A) is ITA No.3198/Ahd/2010 6 ITO, Ward 3, Anand Vs Charotar Education Society
coterminous as that of the AO, therefore, report filed before the learned CIT(A) may be admitted in evidence. The learned CIT(A) admitted the same audit report at the appellate stage on which the revenue has not taken any ground of appeal challenging the discretion exercised by the learned CIT(A) in admitting the audit report at the appellate stage. Since, the findings of the learned CIT(A) to that extent have not been disputed or challenged, therefore, it stands finally concluded that the audit report in prescribed form was admitted at the appellate stage. The Hon'ble Calcutta High Court in the case of CIT Vs Hardeodas Agarwalla Trust (SUPRA) held as under:
"Held, that, in the instant case, the assessee was not given an opportunity to file the audit report in the prescribed form which was
available with the assessee before the
assessment was completed. In such a case, the appeal being a continuation of the original proceedings, the appellate authority had the power to accept the audit report and direct the Assessing Officer to redo the assessment."
7.1 The Hon'ble Punjab & Haryana High Court in the case of CIT Vs Shahzedanand Charity Trust 228 ITR 292 held as under:
"Under section 11 of the Income-tax Act, 1961, subject to certain provisions of the Act, and on fulfilling of certain conditions provided under section 12A, income from property held for charitable or religious purpose has been
exempted from payment of tax. Section 12A
provides that the provisions of sections 11 and 12 shall not apply in relation to the income of any trust or institution unless the two
conditions provided in clauses (a) and (b) of section 12A are fulfilled. Section 12A lays down that the trust or institution has to furnish an auditor's report duly signed and verified by the ITA No.3198/Ahd/2010 7 ITO, Ward 3, Anand Vs Charotar Education Society
chartered accountant with the return of income. According to circular dated February 9, 1978 of the Central Board of Direct Taxes, it is not mandatory under section 12A (b) to file the audit report along with the return of income.
Normally, a charitable or religious trust or institution is expected to file the auditor's report along with the return but in cases where for reasons beyond the control of the assessee some delay has occurred in filing the said report, the Income-tax Officer, for reasons to be recorded, has been authorized to condone the delay in furnishing the auditor's report and accept the same at a belated stage. It has been clarified that the exemption available to the trust under section 11 may not be denied merely on account of delay in furnishing the auditor's report. The word "shall" occurring in section 12A cannot, under the circumstances, be read as "must" making it mandatory for the trust to furnish the auditor's report along with the filing of the return. If for certain unavoidable
circumstances, the assessee is unable to
furnish the auditor's report along with the return, then the same can be furnished at a later date with the permission of the Assessing
Officer who may permit the assessee to do so after recording his reasons. The Central Board of Direct Taxes by issuing the circular dated February 9, 1978, has treated the provisions regarding furnishing of auditor's report along with the return to be procedural and, therefore, directory in nature. By showing sufficient cause, the auditor's report could be produced at any later stage either before the Income-tax Officer or before the appellate authority."
7.2 In this case, the AO has not given any notice to the assessee at the assessment stage that the return was incomplete because of non-filing of the audit report, the ITA No.3198/Ahd/2010 8 ITO, Ward 3, Anand Vs Charotar Education Society
same be filed at the appellate stage. Therefore, appellate proceedings being continuation of the assessment proceedings, the learned CIT(A) on proper appreciation of the facts correctly admitted the audit report at the appellate stage. In the above position, it was held that the assessee can file auditors report before the appellate authority and the appeal being continuation process of the assessment proceedings, the appellate authority has the power to accept the audit report and the appellate authority can do what the AO can do and direct him to do what he has failed to do. In this case, it is not in dispute that the audit report in prescribed form was obtained prior to filing of the return on 20-12-2006; therefore, there was no reason for the assessee to keep the audit report with it in order to loose the exemption. The assessee in the earlier as well as in the subsequent assessment years filed the audit report and got the exemption. The conduct of the assessee in earlier year and subsequent years would prove that due to the facts stated above there was delay in filing the audit report and the contention of the assessee was supported by the affidavit of Mohamad Iqbal Vohra (PB-4). The learned CIT(A) on proper appreciation of the facts and material on record in the light of the decisions of the Hon'ble Punjab & Haryana High Court and the Hon'ble Calcutta High Court rightly directed the AO to accept the audit report of the assessee and grant exemption u/s 11 of the IT Act. We, therefore, do not find any infirmity in the order of the learned CIT(A). We confirm his findings and dismiss the appeal of the revenue.
8. In the result, the departmental appeal is dismissed."
5. Considering the facts of the case in the light of the above order of the Tribunal we are of the view that since the assessee filed audit report in prescribed form before the AO, therefore, the AO shall have to examine the claim of the assessee u/s 11 of the IT Act on merits. The learned CIT(A), therefore, rightly directed the AO to examine the ITA No.3198/Ahd/2010 9 ITO, Ward 3, Anand Vs Charotar Education Society
claim of the assessee u/s 11 of the IT Act on the basis of revised audit report in Form No.10B. There is no merit in the departmental appeal. The same is accordingly dismissed.
6. In the result, the departmental appeal is dismissed. Order pronounced in the open Court on 24-06-2011
Sd/- Sd/-
(A. N. PAHUJA) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER Date : 24-06-2011
Lakshmikant/-
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Dy. Registrar, ITAT, Ahmedabad
From: ANIL AGRAWAL <agrawalaka56@yahoo.in>
To: AAykarbhawan <aaykarbhavan@yahoogroups.com>; ANIL AGRAWAL <agrawalkanil@rediffmail.com>; CA ranjit <echange-professionally@googlegroups.com>; "Chartered_accountant-subscribe@yahoogroups.com" <Chartered_accountant-subscribe@yahoogroups.com>; "djshah1944@yahoo.com" <djshah1944@yahoo.com>; "echange-professionally+unsubscribe@googlegroups.com" <echange-professionally+unsubscribe@googlegroups.com>; PD Rungta <forum4ca@googlegroups.com>; GajiabadCaGroup <ghaziabad_ca@yahoogroups.com>; AmreshVashisth <icai_circ_meerut_ca@yahoogroups.com>
Sent: Wednesday, 14 August 2013 10:30 AM
Subject: IT return of educational institution (Trust) U/S 10(23C)(iiiad)
Dear Friends,
I am thankful for your professional advise from time to time.
I have query regarding section 10(23C)(iiiad)
The Edu. Institution is not register any where in income tax – as the TO is less than Rs. 1.00 crore. It is claiming exemption under section 10(23C)(iiiad)
Whether any audit required in Form 10B or 10BB
In Form No. 7 should we show the net surplus after depreciation
Or Gross Receipt and amount expended
CA Anil Agrawal
9431881950__._,_.___
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