1.Introdcution:
Trust formed for charitable or religious purposes which are not intended to
do commercial activities are allowed various benefits under the Income-Tax
Act, inter-alia, exemption under section 11.
The term religious purpose is not defined under the Income-Tax Act.
However, Section 2(15) of the Act defines “charitable purpose” to include
relief of the poor, education, medical relief, preservation of environment
(including watersheds, forests and wildlife) and preservation of monuments
or places or objects of artistic or historic interest, and the advancement of
any other object of general 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 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 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 20% of the total receipts, of the trust or
institution undertaking such activity or activities, of that previous year;
2.Registration
Is registration of a trust mandatory?
It is mandatory for a trust to get the registration under Section 12AA of the
Income-tax Act, 1961 so as to claim exemption under Section 11.
When a trust can apply for registration?
There is no time-limit to apply for the registration. However, if application
for registration as trust has been made on or after June 1, 2007, the
exemption would be available only from the financial year in which such
application is made.
However, exemption to a trust could not be denied in respect of earlier
assessment years (for which the proceedings are pending before the
Assessing Officer) provided that objects and activities of the trust for such
preceding assessment years were same.
Form to be used to apply for registration?
A trust is required to apply for registration in Form No. 10A
Documents to be furnished along with application form?
The documents which are required to be furnished along with application
Form No. 10A are as follows:
(a) where the trust is created, or the institution is established, under an
instrument, self-certified copy of the instrument creating the trust or
establishing the institution;
(b) where the trust is created, or the institution is established, otherwise
than under an instrument, self-certified copy of the document evidencing
the creation of the trust, or establishment of the institution;
(c) self-certified copy of registration with Registrar of Companies or
Registrar of Firms and Societies or Registrar of Public Trusts, as the case
may be;
(d) self-certified copy of the documents evidencing adoption or modification
of the objects, if any;
(e) where the trust or institution has been in existence during any year or
years prior to the financial year in which the application for registration is
made, self certified copies of the annual accounts of the trust or institution
relating to such prior year or years (not being more than three years
immediately preceding the year in which the said application is made) for
which such accounts have been made up; note on the activities of the trust
or institution;
(f) self-certified copy of existing order granting registration under section
12A or Section 12AA, as the case may be; and
(g) self-certified copy of order of rejection of application for grant of
registration under section 12A or Section 12AA, as the case may be, if any.
3.Exemption to a trust
Income of a charitable and religious trust is exempt from tax subject
to certain conditions. The exemptions are provided to the trusts
under various provisions, inter-alia, Section 10, Section 11, etc.
Some of the exemptions allowed to a trust are as under:
1) Section 11 provides exemption for income derived from property
held under trust wholly for charitable or religious purposes to the
extent such income is applied for charitable or religious purpose in
India. However, this exemption shall be subject to certain conditions.
2) In view of Section 12, income in the form of voluntary
contributions received by a trust created wholly for charitable or
religious purposes or by an institution established wholly for such
purposes shall also be exempt from tax (subject to certain
conditions).
3) Any voluntary contributions received by an electoral trust shall not
be included in its total income (subject to certain conditions).
4) Income of an educational institute is subject to exemption
under Sections 10(23C)(iiiab)/(iiiad)/(vi).
5) Income of a hospital or other institution shall be eligible for
exemption if it satisfies the conditions prescribed under Sections
10(23C)(iiiab)/(iiiad)/(vi).
By CA Pankaj Mishra Mishra