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Taxation of Charitable Trust/Institution. Introduction The Income-tax Act grants exemption to the income from property held under trust or any other legal.

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Presentation on theme: "Taxation of Charitable Trust/Institution. Introduction The Income-tax Act grants exemption to the income from property held under trust or any other legal."— Presentation transcript:

1 Taxation of Charitable Trust/Institution

2 Introduction 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. The object is to encourage the role of philanthropy in relieving distress and in helping to meet the economic, social, cultural and religious needs of the society. 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. The object is to encourage the role of philanthropy in relieving distress and in helping to meet the economic, social, cultural and religious needs of the society. Section 11 to 13 of the Income-tax Act, 1961 deals with taxation of Charitable Trust/Institution. Section 11 to 13 of the Income-tax Act, 1961 deals with taxation of Charitable Trust/Institution.

3 Introduction (Contd…)  Section 11 provides the manner in which income is exempt from income-tax.  Section 12 provides the income of trust or institutions from contributions.  Section 12A provides the conditions as to registration of trusts, etc.  Section 12AA provides the procedure for registration.  Section 13 provides section 11 not to apply in certain cases.

4 The basic condition for claiming exemption of income by the trust/institution is that income should be derived from the property held under a trust and the said income should be applied to charitable or religious purpose in India. The basic condition for claiming exemption of income by the trust/institution is that income should be derived from the property held under a trust and the said income should be applied to charitable or religious purpose in India.

5 Meaning of ‘Property Held under Trust’ : The expression ‘property’ used in Section 11 has the widest amplitude. It includes a business undertaking. It certainly takes in movable or immovable property like money, shares, securities, lands, buildings and houses. It may comprise of an interest in a partnership firm.

6 Charitable purpose :  The term “Charitable Purpose” has been defined in section 2(15) of the Income-tax Act to include relief of the poor, education, medical relief and the advancement of any other object of general public utility.  w.e.f PROVIDED THAT 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 services in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the use or application or retention, of the income from such activity.

7 Charitable Purpose : (Contd…) The definition of charitable purpose is inclusive and not exhaustive or exclusive. The expression “object of general public utility” was not restricted to objects beneficial to whole of mankind. An object beneficial to a section of the public was an object of general public utility. [CIT v Andhra Chamber of Commerce 55 ITR 722 (SC)] The definition of charitable purpose is inclusive and not exhaustive or exclusive. The expression “object of general public utility” was not restricted to objects beneficial to whole of mankind. An object beneficial to a section of the public was an object of general public utility. [CIT v Andhra Chamber of Commerce 55 ITR 722 (SC)] A trust is not charitable, unless it benefits the community or a section of the community. A trust would not be charitable, if it only conferred private benefits.The onus is on the assessee to show that his object are of general public utility and that in the advancement of the objects there is no involvement in activities for profit.[Indian Chamber of Commerce v CIT 101 ITR 796 (SC)] A trust is not charitable, unless it benefits the community or a section of the community. A trust would not be charitable, if it only conferred private benefits.The onus is on the assessee to show that his object are of general public utility and that in the advancement of the objects there is no involvement in activities for profit.[Indian Chamber of Commerce v CIT 101 ITR 796 (SC)]

8 Religious Purpose : The term religious purpose has not been defined in the Income-tax Act. ‘Religious Purposes’ are necessarily associated with religion. ‘Religious Purpose’ includes the advancement, support or propagation of religion or its tenets. The term religious purpose has not been defined in the Income-tax Act. ‘Religious Purposes’ are necessarily associated with religion. ‘Religious Purpose’ includes the advancement, support or propagation of religion or its tenets. A charitable trust created after would lose exemption if it is for the benefit of any particular religious community or caste. [Sec. 13(1)(a)] A charitable trust created after would lose exemption if it is for the benefit of any particular religious community or caste. [Sec. 13(1)(a)]

9 Registration of trust/institution before the Commissioner of Income-tax : Registration before the Commissioner is precondition for exemption. Registration before the Commissioner is precondition for exemption. Registration u/s. 12AA does not mean that the trust is automatically entitled to the exemption u/s. 11 each year, as the issue of whether there is any application of income for charitable or religious purposes or accumulation of income during the previous year or whether any of the provisions of section 13 are attracted for the year, can be examined by the Assessing Officer each year, before granting the exemption. Registration u/s. 12AA does not mean that the trust is automatically entitled to the exemption u/s. 11 each year, as the issue of whether there is any application of income for charitable or religious purposes or accumulation of income during the previous year or whether any of the provisions of section 13 are attracted for the year, can be examined by the Assessing Officer each year, before granting the exemption. However, An Assessing Officer cannot deny exemption under section 11 to a trust registered under section 12AA, on the ground that its objects are not charitable or religious in nature. This view is supported by the decision of the Ahmedabad Tribunal in the case of Stock Exchange of Ahmedabad vs. ACIT 74 ITD 1 (Ahd.) However, An Assessing Officer cannot deny exemption under section 11 to a trust registered under section 12AA, on the ground that its objects are not charitable or religious in nature. This view is supported by the decision of the Ahmedabad Tribunal in the case of Stock Exchange of Ahmedabad vs. ACIT 74 ITD 1 (Ahd.)

10 Section 12A Condition as to Registration There are two conditions for registration of trust have been provided, namely : There are two conditions for registration of trust have been provided, namely : 1. An application to be made for registration in the prescribed form (Form 10A) and in the prescribed manner to the Commissioner of Income tax either before 1st July 1973 or within one year from the date on which the trust is created whichever is later 2. Where the total income of the trust or institution without giving effect to the provisions of section 11 & 12 exceeds 50,000/- in any previous year, the accounts of the trust or institution for that year has to be audited by a chartered accountant or any other accountant entitled to be appointed as an auditor of companies. The report of audit should be in Form No. 10B prescribed in the Income-tax Rules, 1962 and said audit report has to be furnished along with the return of income.

11 Condition as to Registration : (Contd…)  The Audit Report has to accompany the Return of Income, otherwise the return may be treated as incomplete. However, the report may accompany a revised or subsequent return. As held by the Allahabad High Court in the case of CIT vs. Shri Baldeoji Maharaj Trust (1983) 142 ITR 584, not enclosing the report alongwith the return filed under section 139(4A) is an omission, which entitles an assessee to file a revised return under section 139(5).  In case the report has remained to be filed along with the return through oversight, it can be submitted at any time before the completion of assessment. In the case of CIT vs. Rai Bahadur Bissesswarlal Motilal Malwasie Trust (1992) 195 ITR 825, the Calcutta High Court has affirmed this view, holding that the requirement of filing the audit report with the return is merely a procedural requirement, and that exemption cannot be denied so long as the report is available to the assessing officer before the completion of assessment.

12 Condonation of delay for filling of application for registration  Before , Commissioner has power to condone the delay in filing of application for registration.  However, an application for registration made after , the provisions of section11 and 12 shall apply in relation to income of such trust or institute from the assessment year immediately following the financial year in which such application is made. [Sec. 12A(2)]

13 Section 12AA Procedure for registration of Trust 1. On receipt of application for registration, Commissioner shall call for such documents or information from the trust/institution as he thinks necessary and may also make such inquires as he may deem necessary. 2. On being satisfied about the genuineness of the activities of the trust/institution, he shall grant the registration. In case, he is not satisfied, he may refuse to grant such registration after giving a reasonable opportunity of being heard. 3. Every order granting or refusing registration shall be passed within 6 months from the end of the month in which application is made. At the stage of granting registration, the Commissioner is not to examine the application of income. All that he may examine is whether the application is made in accordance with the requirement of Section 12A read with rule 17A and whether Form No. 10A has been properly filled up. He may also see whether the objects of the trust are charitable or not. At this stage, it is not proper to examine the application of income. [Fifth Generation Education Society v CIT 185 ITR 634 (All.)]

14 Incomes entitiled for Exemption u/s. 11 & 12 1.Income in the form of voluntary contributions towards the corpus of the trust. 2.Income derived from property held under trust (including voluntary contributions other than those made towards the corpus received by a wholly charitable or religious trust ) is exempt to the extent it is applied to charitable or religious purposes or is accumulated or set apart for application to such purposes, subject to certain conditions & limits. 3.Income being profits and gains of an eligible business, that is, business which is incidental to the attainment of the objects of the trust and separate books of account are maintained in respect thereof and income of the said business is applied to charitable or religious purposes or is accumulated or set apart for application to such purposes, subject to certain conditions & limits. 4.Income being capital gains arising on transfer of a capital asset, where the sale consideration is utilized in acquisition of another capital asset. The Supreme Court in the case of Gangabai Charities v. CIT (1992) 197 ITR 416 held that the crux of the statutory exemption under section 11(1)(a) of the Act is not the income earned from property held under trust but the actual application of the said income for religious and charitable purposes.

15 Application of Income :  Under the provisions of section 11(1)(a), income from property held under trust for religious or charitable purposes is exempt to the extent to which the income so accumulated or set apart is not exceeding 15% of the income from property held under trust and it is applied for such purposes in India. It is not correct to equate the word “applied” as used in section 11 with the word “spent”. For instance, if the charitable trust debits its accounts as soon as it passes resolutions sanctioning donations to various donees and such amounts, as are outstanding, are shown as liabilities in the balance sheet (this will happen when in certain cases the amounts, though sanctioned and debited as expenditure in one accounting year, are actually disbursed in the next year) the amounts which are sanctioned but not actually spent in the relevant accounting year will constitute application of funds for charitable purpose with the meaning of section 11(1)(a). [CIT vs. Trustees of H. E. H. the Nizam’s Charitable Trust [1981] 131 ITR 497 (AP)] It is not correct to equate the word “applied” as used in section 11 with the word “spent”. For instance, if the charitable trust debits its accounts as soon as it passes resolutions sanctioning donations to various donees and such amounts, as are outstanding, are shown as liabilities in the balance sheet (this will happen when in certain cases the amounts, though sanctioned and debited as expenditure in one accounting year, are actually disbursed in the next year) the amounts which are sanctioned but not actually spent in the relevant accounting year will constitute application of funds for charitable purpose with the meaning of section 11(1)(a). [CIT vs. Trustees of H. E. H. the Nizam’s Charitable Trust [1981] 131 ITR 497 (AP)]

16 Expenditure considered as application of income : 1. Administrative Expenses : It is not only the direct expenditure on objects like scholarships or medical relief which is to be considered, but all other expenses incurred in fulfilling the objects of the trust viz. rent, rates and taxes, establishment expenses, interest etc., as without incurring such expenses, it may not be possible for the trust to function. 2. Capital Expenditure : All capital expenditure laid out in furtherance of the objects and purposes of the Trust will be treated as application of income. The application of the income of a trust can be for a revenue or capital purpose as long as the expenditure is incurred on the objects of the trust. However, capital expenditure incurred for acquiring assets, not in furtherance of the objects, but for enhancing the income, it is in reality an investment, and acquisition of such an asset cannot be regarded as an application of income for charitable or religious purposes.

17 Expenditure considered as Application of Income : (Contd..)  Repayment of loans : Repayment of loans taken to fulfil one of the object of trust is treated as an application of income for charitable purpose.  Payment of taxes : The expenditure incurred by way of payment of tax out of the current year’s income has to be considered as application for charitable purposes.  Donation to other trusts : When a donor trust which is itself a charitable and religious trust donates its income to another trust, the donor trust can be said to have applied its income for religious and charitable purposes. Utilisation by the donee trust in any year would not be relevant for the purpose of deciding whether the donor trust can exemption u/s. 11 or not – CIT v. Sarladevi Sarabhai Trust (No. 2) [1988] 172 ITR 698 (Guj.), CIT v. Thanthi Trust [1999] 239 ITR 502 (SC).

18 Expenditure considered as Application of Income : (Contd..)  Depreciation : Depreciation on assets of a trust is to be deducted for the purpose of calculating income of a trust. This is because of the fact that the concept of commercial income necessarily envisages deduction of depreciation on assets of the trust.  CIT v. Framjee Cawasjee Institute (1993)109CTR 463,  CIT v. Seth Manilal Ranchhoddas Vishram Bhavan Trust [1992] 105 CTR (Guj.) 303.  Bombay High Court in the case of CIT v. Institute of Banking Personnel Selection (2003) 185 CTR 492 held that depreciation is allowable on the assets, even though, the cost of which has been fully allowed as application of income u/s. 11 in past years.

19 Deedmed Application of Income  As per Clause (2) of Explanation to Section 11(1), where the income applied to charitable or religious purposes falls short of 85% of the income derived during the previous year because – I.the whole or any part of the income has not been received during the previous year; or II.for any other reason the assessee has an option to : (a)apply such income [referred in clause(i)] for such purposes during the previous year in which it is received or during the previous year next following the said previous year; and (b)apply such income [referred in clause(ii)] for such purposes during the previous year next following the previous year in which the income was derived. The option is to be exercised in writing within the time allowed for filing return of income u/s. 139(1).

20 Deemed Application of Income : (Contd…) If the option is exercised by the assessee/trust, the income is regulated in the following manner : If the option is exercised by the assessee/trust, the income is regulated in the following manner : 1. such income shall be deemed to have been applied to charitable or religious purposes in the previous year in which it is derived; 2. such income shall not be taken into account for computing the income applied to such purposes in the year it is actually applied; 3. if such income, or any part thereof, is not applied to such purposes within the prescribed period aforesaid, such income, or such part, shall be deemed to be income for the previous year immediately following the previous year in which the income was received or derived, as the case may be.

21 Accumulation of Income  If a trust/institution for any reason cannot utilize its income wholly or partially, or wants to accumulate its income for some project or scheme, it can obtain exemption under section 11(2) by accumulating the income subject to the following conditions : 1. The trustee must apply in Form No. 10 as per Rule 17 to the Income-tax Officer for permission to accumulate the income, stating the purpose and period of accumulation, which shall, in no case, exceed 5 years. The notice once given need not be given every year during the period of accumulation. A separate notice may also be given for the surplus of each year, though the purpose may be same. 2. Section 11(2)(b) provides that the money so accumulated should be invested or deposited in any mode or form prescribed under section 11(5), as in the case of investments of other funds. 3. The time limit for filing Form No. 10 is the same time limit as for filing return under section 139(1). This time limit is prescribed in Rule 17. The time limit for making investments is not laid down either in the Act or the rules, but Form No. 10 contains a declaration that the amount accumulated has been or will be invested within six months of the end of the previous year.

22 Accumulation of Income : (Contd…)  Though Rule 17 states that Form No. 10 should be filed before the expiry of the time limit u/s. 139(1), the Bombay High Court in the case of CIT vs. Nagpur Hotel Owners Association (1994) 209 ITR 441 had held that this rule is beyond the scope of the section and that the application for accumulation can be made even after completion of assessment, at the stage when the matter is pending before the Tribunal. The matter went up to the Supreme Court and it was held at 247 ITR 201 and 165 CTR 1 that Form No. 10 must be filed with the assessing officer before completion of the assessment proceedings.

23 Section 12 : Income from contributions  Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly.  The term “voluntary contributions” has been defined in section 2(24)(iia) of the Income-tax Act.  However, any contributions received with a specific direction that they shall form part of the corpus of the trust or institution shall not be income of the trust or institution. The term corpus has not been defined in the Income-tax Act. Various dictionary meaning says that it is capital.

24 Income from Contribution : (Contd…)  Section 11(1)(d) grants exemption to donations made with a specific direction that they shall form part of the corpus, but the benefit of this section is available only to trusts enjoying the benefit of exemption under section 11. If a trust loses exemption under section 11, corpus donations would be taxable as income.  In order to prove that a donation is towards the corpus of a trust, it would be advisable to obtain a specific letter from the donor mentioning clearly that the donation is given towards the corpus of the trust and that only the interest arising on the investment of the corpus donation is to be utilized for the objects of the trust.

25 Income in commercial sense :  For the purpose of determining the income of the trust eligible for exemption u/s. 11, the income arising from property held under trust constitutes the income of the trust. It will mean income from property, business, dividends, interest on securities or other interest. It will also include donations received by the trust, by virtue of the provisions of section 12. In other words, the income for the purpose of section 11 is the income as per the accounts of the trust. It means the income in the commercial sense, without reference to the heads of income specified in section 14, i.e., the book income and not total income as defined in section 2(45), ‘being the total amount of the income ………… computed in the manner laid down in the Act’.  The total income as per section 2(45), being artificially computed income, will normally differ from the actual income of the trust, but so long as the trust has utilized its actual income, it will not be liable to tax, irrespective of the position of the total income. If it has not utilized part of the actual income, the balance, after accumulation of 15 per cent under section 11(1)(a) and any additional amount under section 11(2), will be liable to tax.

26 Capital Gain :  Income by way of capital gain is also to be computed as per commercial principles in case of a charitable trust. Section 11(1A) deals with the computation of capital gains and provides that if the entire sale proceeds are utilized for acquisition of another capital asset, then the capital gains shall be deemed to have been applied for the objects of the trust. In case only part of the sale proceeds are reinvested, the excess of the investment over the cost of the transferred asset is deemed to be applied for charitable purposes and qualifies for exemption.  Though the time limit for re-investement is not mention in Section 11(1A), it should be within the same year or the next year, as per the Explanation to section 11(1). The Calcutta High Court, in the case of CIT vs. East India Charitable Trust (1996) 206 ITR 152 has confirmed this view, on the ground that the term “income” includes capital gains, and therefore it is possible to exercise the option of spending income in subsequent year for investment of the capital gains as well.

27 Business Income :  There is no prohibition on a charitable trust carrying on a business. A charitable trust can be settled in relation to any property including a business undertaking. The income from such business shall also qualify for exemption provided the other conditions of section 11 and 12 are fulfilled.  The income of such business shall be determined in accordance with provisions of the Act. Where the income from such business as determined by the Assessing Officer is found to be in excess of the income shown in the accounts, then such excess shall be deemed to have been applied to non-charitable or non-religious purposes and such excess income shall not qualify for exemption u/s. 11. [Section 11(4)]  Section 11(4A) provides that the business income of any Trust/Institution will not qualify for exemption unless the business it carries on is incidental to the attainment of the objectives of the Trust/Institution and separate books of accounts are maintain with respect to such business.

28 Forfeiture of Exemption (Section 13) The exemption will not be available u/s. 11 & 12 in the following circumstances: The exemption will not be available u/s. 11 & 12 in the following circumstances: 1. If the trust is a private religious trust which does not enure for the benefit of the public. 2. In the case of a Charitable Trust created after , it should not be for the benefit of any particular religious community or caste, unless it is a trust for the benefit of scheduled castes, backward classes, scheduled tribes or women and children, as provided by Explanation 2 to section In the case of a Trust or Institution set up for Charitable or Religious purposes after 31st March, 1962 if : (i)under the terms of the Trust or rules of the Institution any part of its income enures directly or indirectly for the benefit of certain ‘excluded’ persons specified in section 13(3) (ii)in fact, any part of the income or property is used or applied directly or indirectly for the benefit of any such excluded person.

29 Forfeiture of Exemption : (Contd…)  Section 13(2) specifies the following categories of transactions which would be deemed to be the use or application of the income or property of the Trust for the benefit of the excluded persons : a) Lending any part of the income or property of the Trust to ‘excluded’ persons without adequate security or adequate interest or both. It may be noted that both rate of interest and security must be adequate. b. Making available any land, building or other property of the Trust for the use of ‘excluded’ persons without adequate rent or compensation. c. Payment of excessive remuneration to the ‘excluded’ persons for service rendered to the Trust. d. Making available services of the Trust to such persons without adequate remuneration or compensation.

30 Forfeiture of Exemption : (Contd…)  Purchasing any shares, securities or other properties for the Trust from such persons for more than adequate consideration.  Selling any shares, securities or other properties of the Trust to such persons for less than adequate consideration.  Diverting any income or property of the Trust in excess of Rs. 1,000/- to such persons.  Investing any funds of the Trust in any concern in which such person has a substantial interest, provided such investment is made or continues to remain so invested on or after 1st January, 1971.

31 Forfeiture of Exemption : (Contd…) Section 13(3) specifies the following categories of “excluded “persons : a) the author of the trust or founder of the Institution, b) the person who has made substantial contribution to the trust, c) where the author, founder or substantial contributor is a HUF, a member of the family, d) any trustee of the trust or manager of the institution, e) any relative of the persons mentioned in (a) to (d) above, f) any concern in which any of the aforesaid persons has substantial interest.

32 Assessable Status  A Charitable trust would become liable to tax if it has not utilized 85% of its income on its objects nor applied for accumulation. Similarly the trust would be liable to tax if it has forfeited exemption on account of violation of the conditions laid down in section 13.  Explanation to section 2(31) w.e.f relevant to A. Y and subsequent year provides that an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profit or gains.  After the amendment made by the Finance Act, 2002, effective from , the status will be that of AOP.

33 Levy of tax at maximum marginal rate in case of public charitable and religious trusts Charitable or religious trusts, which may otherwise be eligible for tax exemption, are liable to forfeit this exemption in the following circumstances, namely: 1. Where the trust is created after , any part of the income of the trust enures, under the terms of the trust deed, directly or indirectly, for the benefit of specified categories of persons. 2. Any part of the income or any property of the trust (whenever created) is used or applied during the relevant year, directly or indirectly, for the benefit of specified categories of persons. 3. The trust funds (with certain exceptions) are invested in contravention of the investment pattern of such funds.

34 Levy of tax at maximum marginal rate in case of public charitable and religious trusts  Where a charitable or religious trust forfeits tax exemption in the circumstances mentioned above, the trust shall be charged to tax at the maximum marginal rate. However, a trust will attract the maximum marginal rate of tax only on that part of income which has forfeited exemption under the above circumstances and not on the entire income of the trust. - DIT (Exemption) vs. Sheth Mafatlal Gagalbhai Foundation Trust [2001] 114 Taxman 19 (Bom.)

35 Broad Outline of the Scheme of Taxation  The method of computing the income of a charitable trust is quite different from that followed in case of other assesses, in that, it is the commercial concept of income which is to be considered and not the income as computed under the various heads of income as specified in section 14. In other words, the income for the purpose of section 11 is the income as per the accounts of the trust. It means the income in the commercial sense, without reference to the heads of income specified in section 14, i.e., the book income and not total income as defined in section 2(45).  In computing the income of the trust, the income arising from property held under trust for public charitable or religious purposes is to be first computed and thereafter, the amount applied for charitable purpose is determined.  Under certain circumstances the income of the trust can be applied for charitable purposes in the subsequent year. The trust is also permitted to accumulate its income for a longer period under section 11(2) by filing a prescribed form (Form No. 10) with the assessing officer. The form must mention the purpose and the period of accumulation, which shall, in no case, exceed five years.

36 Carry Forward of Deficit  There are no specific provisions for carry forward of deficit.  The Court have also held that if a trust has incurred a deficit during a particular year, then the surplus made by it in a subsequent year to make up for the past deficit should be allowed to be set off against such deficit. CIT vs Maharana of Mewar Charitable Foundation 164 ITR 439 (Raj.), CIT vs. Shri Plot Swetambar Murti Pujak Jain Mandal, 211 ITR 293 (Guj.), CIT vs. Matriseava Trust 242 ITR 20 (Mad.), Govindu Naicker Estate vs. ADIT 248 ITR 368 (Mad) and CIT vs. Institute of Banking 264 ITR 114 (Bom.).  The Court have taken the view that there are no words of limitation in section 11 of the Income-tax Act requiring that the income should have been applied for charitable or religious purposes only in the year in which the income has arisen. It has also been held that income derived from trust property is to be determined on commercial principles and the application of such commercial principles also warrants the conclusion that the expenditure incurred in an earlier year can be set off against the income of the subsequent year.

37 Debateable issue :  Income-tax Refund : Whether income-tax refund should be taken as part of the income of the trust based on the principles of commercial income or can it be argued that refund of tax can never be considered in computation of income?  Dividend & Income from Mutual Funds : Dividend & income from mutual funds are exempt from tax u/s. 10. The question that needs to be debated is whether, in the context of charitable trust, the same is to be excluded in computing the income of the trust or is the same required to be included by following the concept of real income.  Depreciation : Whether Depreciation is allowable in light of the decision of the Supreme Court in the case of Escorts Ltd. vs. Union of India 199 ITR 43, wherein it was held that double deduction cannot be presumed, unless specifically provided for by the law.

38 Debateable Issue : (Contd…)  Carry forward of deficit : How many years the trust can carry forward deficit ?  Order granting or refusing for registration of the trust : Order granting or refusing for registration of the trust is not passed by the Commissioner within 6 months then what course of action is available? Or can it be presumed to have been granted?  Capital Gain : Whether the requirement of computing the income on the principles of commercial income will preclude the trust from the benefit of indexation contained in section 48 of the Income-tax Act.  Head of Income : Under which head of income, income of charitable trust is charged to tax?


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