Presentation by: ca vijay joshi

Presentation by: ca vijay joshi vpj1258@gmail.com
Taxation of Charitable Trusts (including) Registration U/s 12A & Approval u/s. 80G of Income Tax Act,1961 Presentation by: ca vijay joshi

Contents Definitions of certain important words
Applicable Sections covering exempt income Filing of Return by Charitable Trust Assessment of Income of Charitable Trust Other Miscellaneous Provisions relating to Charitable Trusts Amendments by Budget 2017 Charitable Trust and GST Role of Professional

Exemption provisions for a Charitable Trust
Trusts and Institutions established for Charitable and religious purposes are entitled for exemptions from income tax as specified in the act. The Trust must be carrying on charitable activity covered under provisions of section 2(15) of Income Tax Act, 1961. The eligible trust is required to make an application for grant of exemption u/s. 12A and 12AA of Income Tax Act, 1961. The exemption is governed by section 11 and 12 r.w.s. 13 of Income Tax Act, 1961. One needs to understand the intricacies of these sections to properly appreciate the requirements of the act.

Conditions for availing exemption
Exemption u/s. 11 is available only to trust/institution which holds the property in trust wholly for charitable purpose or religious purpose. The trust must have been created wholly for charitable purpose or wholly for religious purposes. It should not have been created for the benefit of a particulars religious community or caste. It should not be carrying any business except subject to limits laid down in section 2(15). The objects of the trust should be charitable covered within the meaning of section 2(15). Exemption is available to income applied to charitable or religious purpose. Income of the trust and the property is utilised for charitable purpose in India. Income or the property of the trust does not enure for the benefit of the settlor (author) or trustees. [Refer section 13]

Income – S. 2(24) Income includes –
[(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub- clause (v) of clause (23C) of section 10] or by an electoral trust. Explanation.- For the purposes of this sub- clause," trust" includes any other legal obligation]

Charitable Purpose Section 2(15) of the Income Tax Act, 1961, defines “charitable purpose” Which includes:- i) Relief of the poor, ii) Education, iii) Yoga, (w.e.f. 01/04/2016) iv) Medical relief, v) Preservation of environments (including water sheds, forests and wild life) and preservation of monuments or places or objects of artistic or historic interest (Added w.e.f i.e. from A.Y ) vi) The advancement of any other object of general public utility.

Charitable Purpose ‘Charitable Purpose’ includes relief of poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places of artistic or historic interest and the advancement of any other object of general public utility. A purpose must, in order to be charitable, be directed to the benefit of the community or a section of the community, as distinguished from an individual or a group of individuals as held in - CIT v Ahmadabad Rana Caste Association (1983) 140 ITR 1 (SC). Where the primary purpose of the settler is to benefit the members of his family and relations and only remotely and indirectly the general public, the trust is not a charitable trust. Not necessary to benefit whole of mankind Not necessary to provide free services Cross subsidization permissible

Charitable Purpose – Few Judgments
Where assessee institution was engaged in imparting higher and specialised education in the field of communication including advertising and its related subjects as well as training was being given to individuals and persons by companies to meet the needs of Indian industry and commerce, the activity was held to be related to education and not a service related to trade, commerce and industry. The exemption was granted treating the same as imparting education. Mudra Foundation for Communications Research & Education v CCIT [2016] 237 taxman 139 However, as against the above, a trust was conducting review and courses for helping aspiring members in preparing for CISA, CISSM organizing seminars and workshops on various topics in the field of ‘Information Technology (IT)’, AO denied exemption u/s. 11, CIT(A) confirmed the order and Hon’ble ITAT endorsed the same denying to accept the same as educational activity. Information Systems Audit and Control Association v DDIT [2016] 157 ITD 815/179 TTJ 99 (Chennai Trib) Again where Society running an educational institution for courses of B.Tech, M. Tech and MBA maintained a textile unit for purpose of imparting practical training to students. ITAT held that proviso to S. 2(15) would not be attracted. Technological Institute of Textile & Science v DIT(E) [2016] 158 ITD 808 (Kolkata Trib)

Charitable Purpose – Few Judgments
Where assessee trust is formed with the object of taking care of sick animals, it is charitable activity. Snehalaya for Animals v ITO [2012] 52 SOT 352 (Chennai Trib) Activity of maintenance and development of park, would certainly fall within words ‘preservation of environment’ u/s. 2(15). New Saibaba Nagar Welfare Association v DIT [2012] 53 SOT 495 (Mumbai Trib) Objects of setting up memorials to perpetuate memory of national war heroes are charitable in nature. Yodha Smarak Samiti v CIT [2012] 138 ITD 512 (Chd) Thus, every activity has to be properly analysed and presented for its appropriate classification to look for coverage u/s. 2(15).

Distinction between religious and charitable purpose
No where the word ‘religion’ has been defined under Hindu Law since all actions or acts of piety and benevolence are included under the practice of Hinduism irrespective of Hindu Religion. The word ‘religion’ in its primary sense imports, as applied to moral questions, only a recognition of a conscious duty to obey restraining principles of conduct. In such a sense, we suppose there is no one, who will admit that he is without religion. The word ‘religion’ has different shades and colours and its important shade is ‘dharma(duty), that is to say, duty towards the society and the soul. [Aruna Roy v UOI 7 SCC 368, 393 para 36]. Even S. 8 of Companies Act, 2013 permits formation of a company having its object the promotion of ‘religion’ with no fetters attached to this activity. The holding out of objects which are apparently ‘religious’ may not be wholly religious only to fall within the meaning of section 139(1)(a) of Income Tax Act, 1961, if looked into in detail. Thus, holding prayers regularly may be termed for peace of mind which could be attributed physical or mental health of an individual. One more reference is made to judgment by Nagpur bench of Mumbai Tribunal in ‘Shiv Mandir Devsttan Panch Committee Nagpur v CIT, Nagpur’ ITA No:223/Nagpur/2009.

Religious Purpose The expression religious purpose has not been defined under the Act. Religious purposes are necessarily associated with religion. A religion is certainly a matter of faith with individuals or communities. A religion has its basic in a system of beliefs or doctrines. Religious Purpose’ includes the advancement, support or propagation of a religion and its tenets. The income of a religious trust or institution is entitled to exemption even though it may be for the benefit of a particular religious community or caste. The exemption u/s 11 available to public religious trusts only; and not available to trust for private religious purposes which does not enure for the benefit of the public. One needs to be careful in drafting and interpreting the objects of the proposed trust.

Advancement of Object of General Public Utility
A trust or institution for charitable purpose being advancement of any other object of general public utility shall not be entitled to exemption u/s 11 or 12, in the year in which its receipts from commercial activities exceed Rs.25 lakhs, and the trust/ institution is regarded as of non-charitable nature by virtue of Section 2 (15) First and second proviso. Above limit was Rs. 10 lakhs for A.Y to and is Rs. 25 lakhs for A.Y to Now w.e.f (i.e. w.e.f. A.Y ) provisions are substituted to the effect that advancement of any other object of general public utility shall not be treated as charitable purpose- if it has receipts from commercial 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. (ii) The aggregate receipts from such activity/activities during the previous year do not exceed 20% the total receipts of Trust/institution during previous year. (iii) Also as per section 13(8) benefit of exemption of income as per section 11 & 12 is not available in case of first proviso to section 2(15) is attracted.

Advancement of Object of General Public Utility
CBDT Circular No.11/2008 dated states: The newly inserted proviso to section 2(15) will apply only to entities whose purpose is advancement of any other object of general public utility i.e. the fourth limb of the definition of the ‘charitable purpose’ contained in section 2(15).’ Thus, all charitable trusts for the last object, namely, object of general public utility will cease to be for charitable purpose, if the advancement of the object involves the carrying on of any activity in the nature of trade, commerce or business or rendering any service in relation to trade, commerce or business. Reference to the cases: CIT v Indian Chamber of Commerce – 81 ITR 147 (SC) Addl.CIT v Surat Art Silk Cloth Manufacturers Association – 121 ITR 1 (SC) Asst. CIT v Thanthi Trust [2001] 247 ITR 785 (SC) Sole Trustee Lok Shikshana Trust v CIT [1975] 101 ITR 234 (SC) DIT(Exem) v Sabarmati Ashram Gaushala Trust [2014] 362 ITR 539 (Guj) ICAI v DGIT (Exem) [2013] 358 ITR 91 (Delhi)

Other important points
Transfer of Income without involving Transfer of Assets [S.60] where a person settles a charitable or religious trust in respect of the income arising from an asset of which he is the owner but retains the ownership of the asset, the income so transferred shall be deemed to be the income of the transferor and not that of the trust, and shall not qualify for exemption u/s 11. Trusts by Revocable Transfer of Assets [S.61] Any income arising to a person by virtue of a revocable transfer of assets shall be clubbed in the hands of the transferor. Where, however a trust is not revocable during the lifetime of the beneficiary and the transferor (settlor) derives no direct or indirect benefit from the income of the trust, the income of the trust shall not be taxable in the hands of the transferor, unless the power to revoke arises and when power to revoke arises such income shall be included in total income of transferor. [S. 62] For the purposes of Sec 60, 61, 62 & 63 a ‘revocable transfer’ is one which contains a provision for re-transfer of the income or assets to the transferor, or giving the transferor a right to reassume control, over the income or assets. [Sec.63]

Conditions for applicability of sections 11 and 12.
Section 12A specifies the conditions for applicability of section 11 and 12. -Clause (a) is made applicable for applications made prior to 1st June 2007-Grant of registration from the date of establishment of trust if the application was not submitted within one year from establishment of trust. -Clause (aa) is made applicable for applications made after 1st June 2007. Application for registration of the trust to be made in duplicate in Form No.10A along with the following documents:

Corpus Donations-Section 11(1)(d)
Corpus donations refer to the donations made by a donor to a trust with a specific direction that they shall form part of the corpus of the recipient trust. The donor alone can give a specific direction that the donation made by him shall form part of the corpus of the trust. Trustees have no power to treat in their discretion any donation as corpus donation. Corpus donations being capital receipt in the hands of the recipient trust are not income of the trust. This provision has undergone substantial change in as much as the amendments made by Finance Act, has now treated ‘corpus donations’ as taxable in the hands of recipient trust under certain circumstances. Section 11(1)(d) expressly grants exemption to corpus donations to make the position clear beyond doubt. Contributions to corpus fund kept in fixed deposit cannot be taxed as income even if corpus fund is misused -CIT v Sri Durga Nimishambha Trust [2012] 205 Taxman 59 (Mag) (Kar). Note: Donations received by way of box collections and other anonymous donations, do not form part of the corpus of the trust, but are deemed to be income of the trust. Anonymous Donations and Accreted Income Provisions are discussed separately in this presentation in Assessment Section.

Registration of Trust u/s. 12A and 12AA

Registration Procedure u/s. 12A/12AA
The requirement of filing an application for registration within one year from the date of creation of the trust/institution has been removed w.e.f. 1st June 2007. Now, an application for registration may be made at any time by the trust/institution. However, exemption u/s 11 and 12 shall be available only from the assessment year immediately following the financial year in which such application is made. The application should be made to the Commissioner in Form, No.10A (in duplicate) along with the following documents: Original or Certified Copy and an extra copy of the instrument under which the trust or institution was set up, Or In case the trust/institution was not set up under an instrument, the original or a certified copy and an extra copy of the document (s) evidencing the setting up of the institution, Memorandum of association and bye-laws of the society; (b) If the trust or institution was in existence for any completed number of years prior to making of the application, copies of the accounts for one, two or three years, as may be available.

Instrument in original with a copy of it—where trust is created under an instrument Document evidencing creation of trust—where trust is created otherwise than by instrument Two copies of accounts of trust(3 years prior)– if application is made for financial year other than the year in which trust is created. Where the total income without taking into account exemption u/s 11/ 12 exceeds the maximum amount not chargeable to tax – audit report in form 10B is to be filed electronically.

(2) Where an application has been made on or after the 1st day of June, 2007, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made: Provided that where registration has been granted to the trust or institution under section 12AA, then, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on the date of such registration and the objects and activities of such trust or institution remain the same for such preceding assessment year: Provided further that no action under section 147 shall be taken by the Assessing Officer in case of such trust or institution for any assessment year preceding the aforesaid assessment year only for non-registration of such trust or institution for the said assessment year: Provided also that provisions contained in the first and second proviso shall not apply in case of any trust or institution which was refused registration or the registration granted to it was cancelled at any time under section 12AA.

Year from which registration is granted Year 1 Year 4 Asst proceedings for year 1 to year 3 is completed on the date of registration—Exemption shall apply from year 4 Trust is formed Application for registration Asst proceedings are not yet initiated—No action u/s 147 can be initiated– no tax demand can be raised by reason of non-registration Consequences Exemption shall apply from year 4 i.e. prospectively. However, w.e.f.01/10/2014 exemption shall apply retrospectively provided that the proceedings are pending AND the trust object for earlier AY is the same as that on which it is registered. Asst proceedings are pending—registration shall apply retrospectively i.e. from year 1 to year 3

Thus, effect of amendment made by Finance Act, 2014 w.e.f has been to allow the exemption from the AY in which the registration has been so granted. However, Tribunals have held that the insertion of proviso covers even the prior assessments as shown in earlier slides. Reference can be made to – Sree Sree Ramkrishna Samity v DCIT [2015] 64 taxmann.com 330 (Kolkata Trib) Shree Bhanushali Mitra Mandal v ITO [2016] 68 taxmann.com 250 (Ahemadabad Trib) St. Jude’s Convent School v ACIT [2017] 77 taxmann.com 173 (Amritsar Trib) SNDP Yogam v ADIT [2016] 161 ITD 1 (Cochin Trib) However, the above judgments have been rendered on the limb ‘proceedings are pending’ and ‘objects and activities are same’ in the relevant assessment years.

The Principal Commissioner/ Commissioner on receipt of application in form 10A shall call for such documents or information as he deem fit to satisfy himself about the genuineness of the activities of trust and accordingly shall pass an order in writing granting/ refusing to grant the registration of trust. The order shall be passed only after giving reasonable opportunity of being heard to assesse. Where a charitable trust applied for issuance of registration u/s 12A within a short time span after its formation, can registration be denied on the ground that no charitable activity has been commenced? (Meenakshi Amma Endowment Trust)[ITA No. 640 & 641/ Bangalore/2009]

The order shall be passed within the 6 months from the end of month in which application for registration is received. In a case where the application for registration of charitable trust is not disposed of within period of 6 months as required, can the trust be deemed to have been registered?— Madras HC Held that the time frame is directory in nature and non-registration within said time frame would not amount to deemed registration(Karimangalam Onriya Pengal Semipu Amaipu Ltd.) T.C.(A) No of 2010-Order dated

However, recently, Supreme Court has clearly stated that where the society filed an application under section 12A for grant of registration on and the same was not responded to within six months, registration of application was to be deemed to have taken effect from CIT,Kanpur v Society for Promotion of Education, adventure sport & conservation of environment [2016] 67 taxmann.com 264 (SC) The judgment by Allahabad High Court in the same matter reported in 216 CTR 167 (All) was confirmed.

The Principal Commissioner/ Commissioner may pass an order for cancelling the registration granted to the trust if he is satisfied that the activities carried on by trust are not genuine or are not being carried out in accordance with the objects with which the trust was created. The order shall be passed only after giving reasonable opportunity of being heard. Amendment vide FA 2014 w.e.f. 01/06/2013 Where trust or institution has been granted registration u/s 12A (old) or u/s 12AA and subsequently it is noticed that the activities of the trust or the institution are being carried out in a manner that— - income does not enure for the benefit of public - Income applied for specified person -Funds are invested in prohibited modes then, the Principal Commissioner or the Commissioner may by an order in writing cancel the registration of such trust or institution. However, opportunity of being heard shall be given.

One of the condition for availing exemption of income is ‘application of income in India’. While section 11(1)(c) directly prohibits application of income outside India, it also provides for following concessions – For a charitable trust created after , where the charitable purpose which tends to promote international welfare in which India is interested and income is applied outside India; For a charitable trust created prior to , the income is applied to such purposes outside India; AND In both the above cases, CBDT, by a general or special order, has issued directions for exclusion of such income from out of total income. Section 12AA refers to application of income for charitable purpose, not to activities whether in India or outside; institution carrying out charitable or religious activities outside India, would be registered under section 12AA. Foundation for Indo-German Studies v DIT (Exe),Hyderabad [2016] 74 taxmann.com 66 (Hyderabad - Trib.) Interestingly, Tribunals have interpreted this provision to permit application of income outside India under different circumstances.

Applicability of sections 11 and 12 – application of income outside India
Education grant given to Indian students for studying abroad fulfils conditions of application of money in order to claim exemption under section 11 Jamsetji Tata Trust v Jt.DIT(E) [2014] 44 taxmann.com 447 (Mumbai - Trib.) Assessee brought on record, grant sanction letter of Ministry of Commerce and Industry, showing that said amount of grant had to be spent outside India for some specific purposes such as trade fairs. Handloom Export Promotion Council v ADIT(E),Chennai [2015] 62 taxmann.com 288 (Chennai - Trib.) Amount spent outside India for participating in a fair held outside India cannot be treated as application of income of trust for purpose of section 11(1)(a), Here, there was no express approval by the Board or any Government department as was the case earlier. India Brand Equity Foundation v ACIT(E),Delhi [2012] 23 taxmann.com 323 (Delhi) If activities of a trust are found to be charitable and property is held wholly and exclusively under trust for charitable and religious purposes, then such a trust cannot be denied registration merely because its activities are extended outside India. Here, the judgment was based on activities tend to promote international welfare in which India is interested and approval has been granted by CBDT for such application of income. Critical Art and Media Practices v DIT(E),Mumbai [2015] 56 taxmann.com 118 (Mumbai - Trib.)

Reasons for Rejection of Application u/s. 12A
Trust has not carried out any activity before applying for registration. Trust Deed does not contain dissolution clause. Trust has large surplus income from activities and surplus itself is a sign of non-genuine activities. Trust is not registered with Charity Commissioner of Maharashtra Public Trust Act,1950. Trust is carrying out activity in the state other than the state in which it is registered. Trust owning and maintaining sanatorium for convalescent persons, the application was rejected on the ground that the sanatorium was a guest house since those admitted were not treated by the trust. Professional representing the applicant trust needs to be well equipped in these matters for rebutting frivolous reasons.

Points to be noted Rejection of application cannot be justified if the assessee is deprived of reasonable opportunity to produce all relevant documents due to time constraint. St. Paul’s Anglo Indian Education Society (2003) 262 ITR 377 (Pat) The Commissioner cannot direct an applicant-trust to incorporate a clause indicating that any amendment to the trust deed would be carried out after obtaining approval from the Commissioner, and furnish the amended trust deed, duly registered, along with notes on the activities of the trust with regard to various expenses; such a requisition has been held to be extra-statutory.-CIT v RMS Trust (2010)326 ITR 310 (Mad) When an assessee fulfils all relevant conditions for registration u/s 12AA, no other condition can be imposed on it while granting registration. If a trust fulfills all the conditions mentioned in section 12A/12AA, registration cannot be denied on the ground that some conditions of sections 11 and 12 are not fulfilled. The manner of application by trusts and as to whether the trust could claim the benefit of exemption in terms of sections 11 and 12 are questions which have to be examined by the Assessing Officer at the stage when same are urged and not by the Commissioner while considering the application for registration. DIT v Garden City Educational Trust (2010) 191 Taxman 238(Kar).

Points to be noted Appeal against Refusal to grant Registration- An assessee has a right to appeal to the Appellate Tribunal against the order passed by the Commissioner u/s 12AA. W.e.f.1st June 2007, the power of Commissioner to grant registration for past years by condoning the delay in filing such application has been withdrawn. Accordingly, in respect of applications filed on or after the 1st June 2007, the provisions of section 11 and 12 shall apply from the assessment year relevant to financial year in which the application is made. As per section 12A(2), the provisions of sections 11 and 12 shall apply in relation to income of a trust from the assessment year relevant to financial year in which the application for registration is made. The benefit cannot be claimed retrospectively, in respect of any earlier assessment year. However, w.e.f , the benefit of sections 11 and 12 shall be allowed also in respect of income of the trust for any preceding assessment year, the assessment proceedings for which are pending as on the date of date of grant of registration, provided the objects and activities of the trust remain same for such preceding assessment year. However, this benefit shall not be available in case the trust had at any time applied for registration and the same was refused u/s 12AA or a registration once granted was cancelled.

Cases Registration u/s 12A is a condition precedent for availing benefit u/s 11 and 12. Unless and until an institution is registered u/s 12A, it cannot claim the benefit of section 11(1)(a)- U.P. forest Corporation v. CIT[2007] 165 taxman 533 (SC). While considering granting of registration u/s 12AA, the Commissioner should satisfy himself only about genuineness of activities of trust in accordance with its objects and not about credential , capacity and qualification, etc. of trust – PIMS Medical & Education Charitable Society v. CIT[2013] 56 SOT 522 (Chd.). While considering an application for registration u/s 12AA sufficiency or otherwise of initial contribution made by founder of trust and dedication to object of trust, is not a relevant factor – Acharya Sewa Niyas Uttaranchal v. CIT[2007] 13 SOT 54 (Delhi).

Cases Registration cannot be refused on the ground that trust is running a school in a village without seeking necessary prior permission from the appropriate authority to run the school. Even if school for some of classes is run without requisite permission , it is not fatal for grant of registration u/s 12AA- Sri Elumalayan Education Trust v.CIT[2010] 5 ITR (Trib.) 127 (Chennai). Likewise, registration cannot be denied on the ground that the assessee-trust has not submitted its return of income for last several years- CIT v. Shri Advait Ashram Society[2012] 211 Taxman 311 (All). A trust, which is in process of establishing educational institute, cannot be refused registration u/s 12AA on the ground that it has not yet commenced charitable or religious activity- Hardayal Charitable & Educational Trust v. CIT[2013] 214 Taxman 655 (All). Moreover, in such a case, application cannot be rejected by the Commissioner on the ground that the trust failed to convince him about genuineness of activities – CIT v. Kutchi Dasa Oswal Moto Pariwar Ambama Trust[2013] 212 Taxman 435 (Guj). Moreover, while granting registration the Commissioner cannot impose condition that trust should not charge any fee/amount from the beneficiaries – DIT v. Commerce Teachers Association[2011] 203 Taxman 171 (Delhi), Shri Gian Ganga Vocational & Education Society v. CIT [2013] 143 ITD 297 (Delhi).

Cases Merely because all trustee are family members. It does not mean that trust is not public trust. Merely because the assessee –trust has not carried out any activities, that would be correct to state that the trust has totally stopped activity forever and withdrawal of registration will not be justified – Jupiter Medical Research Centre Trust v. DIT (2010) 128 TTJ (Ahd.) (UO) 118. When certain amount is not spent for aims and objects of a charitable society, it cannot be a ground for cancellation of registration. In such a case, the benefits of exemption under section 11 maybe denied to the extent income is not applied for the objects of society- Institute of Science & Management v. CIT(2012) 53 SOT 167 (Ranchi).

Cases Where applicant trust was running pre-school which was stage prior to normal schooling and was charging fee for issue of prospectus, supply of kit, admission fee etc. rejection of application was held not to be justified holding that pre-schooling is very much integral part of term ‘education’ and thus rejection was not justified. Green Acres Educational Trust v DCIT [2016] 49 ITR 533 (Mum)(Trib) Registration cannot be refused on the ground that it has not yet commenced charitable or religious activity. Ashutosh Charitable Trust of Educational & Medical Sciences v CIT [2017] 163 ITD 301 (Chd)(Trib) Activities of Banquet Hall, Hiring, Hospitality (Restaurants) and permit room (Bar) are prima facie in the nature of carrying on trade, commerce and business. The DIT is required to conduct detailed enquiry and examination of as to the nexus between the activities and trade, commerce and business. The matter was remanded back. MIG Cricket Club v DIT (E)(Mum)(Trib)

Approval u/s 80G (5)

Conditions for Applicability of section 80G
Section 80G applies to donations to institution or fund, only if it is established in India for a charitable purpose and if it fulfills the following conditions, namely :— (i) Income not liable to be included in total income - where the institution or fund derives any income, such income of the fund or institution is not liable to be included in its total income under the provisions of sections and 12 or 10(23AA) (i.e. Regimental fund) or 10 (23C) : Exception: where an institution or fund derives any income, being profits and gains of business, the condition of non inclusion of business income in its total income under the provisions of section 11 shall not apply in relation to business income, if— a) the institution or fund maintains separate books of account in respect of such business; b) the donations made to the institution or fund are not used by it, directly or indirectly, for the purposes of such business; and c) the institution or fund issues to donor a certificate to the effect that it maintains separate books of account in respect of such business and that the donations received by it will not be used, directly or indirectly, for the purposes of such business;

(ii) Instrument/governing rules do not permit application of income for non –charitable purpose - the instrument under which the institution or fund is constituted does not, or the rules governing the institution or fund do not, contain any provision for the transfer or application at any time of the whole or any part of the income or assets of the institution or fund for any purpose other than a charitable purpose; (iii) the institution or fund is not for the benefit of any particular religious community or caste;—An the institution or fund is not expressed to be for the benefit of any particular religious community or caste; However as per Explanation 1 exception is made out as follows. — An institution or fund established for the benefit of Scheduled Castes, backward classes, Scheduled Tribes or of women and children shall not be deemed to be an institution or fund expressed to be for the benefit of a religious community or caste within the meaning of this clause. (iv) maintains regular accounts: the institution or fund maintains regular accounts of its receipts and expenditure;

(v) Type of institution or fund: the institution or fund is either 1. constituted as a public charitable trust or 2. is registered under the Societies Registration Act, or under any law corresponding to that Act in force in any part of India or 3. Is registered under section 8 of the Companies Act, 2013,or 4. is a University established by law, or 5. is any other educational institution recognized by the Government or by a University established by law, or affiliated to any University established by law, or 6. is an institution financed wholly or in part by the Government or a local authority;

Requirements for approval under section 80G-Rule 11AA
As per sub rule(1) The application for approval of any institution or fund under section 80G(5)(vi) shall be in Form No. 10G and shall be made in triplicate. As per sub rule (2) The application shall be accompanied by the following documents, namely :— Copy of registration granted u/s. 12A or copy of notification issued u/s. 10(23) or 10(23C) ; Notes on activities of institution or fund since its inception or during the last three years, whichever is less ; Copies of accounts of the institution or fund since its inception or during the last three years, whichever is less. As per sub rule (3) The Commissioner may call for such further documents or information from the institution or fund or cause such inquiries to be made as he may deem necessary in order to satisfy himself about the genuineness of the activities of such institution or fund.

Requirements for approval under section 80G
As per sub rule (4) Where the Commissioner is satisfied that all the conditions laid down in clauses (i) to (v) of sub-section (5) of section 80G are fulfilled by the institution or fund, he shall record such satisfaction in writing and grant approval to the institution or fund . As per sub rule (5) Where the Commissioner is satisfied that one or more of the conditions laid down in clauses (i) to (v) of sub-section (5) of section 80G are not fulfilled, he shall reject the application for approval, after recording the reasons for such rejection in writing : Provided that no order of rejection shall be passed without giving the institution or fund an opportunity of being heard. As per sub rule (6) The time limit within which the Commissioner shall pass an order either granting the approval or rejecting the application shall not exceed six months from the end of the month in which such application was made: Provided that in computing the period of six months, any time taken by the applicant in not complying with the directions of the Commissioner under sub-rule (3) shall be excluded.

Approval under section 80G
One Time Approval: Approval of the Commissioner under section 80G(5)(vi) has earlier effect for such assessment year or years, not exceeding five assessment years, as may be specified in the approval. The time-limit of 5 years has been omitted with effect from 1st October ,2009 by the Finance (No.2) Act, After this amendment, the approval once granted shall continue to be valid in perpetuity. Accordingly, existing approvals expiring on or after October 1, 2009 shall be deemed to have been extended in perpetuity, unless specifically withdrawn. However, in case of approvals expiring before October 1, 2009, these will have to be renewed and once renewed these shall continue to be valid in perpetuity, unless specifically withdrawn.

80G(5) Total income under the provisions of section 11 shall not apply in relation to such income, if— the institution or fund maintains separate books of account in respect of such business; the donations made to the institution or fund are not used by it, directly or indirectly, for the purposes of such business; and the institution or fund issues to a person making the donation a certificate to the effect that it maintains separate books of account in respect of such business and that the donations received by it will not be used, directly or indirectly, for the purposes of such business; (ii) the instrument under which the institution or fund is constituted does not, or the rules governing the institution or fund do not, contain any provision for the transfer or application at any time of the whole or any part of the income or assets of the institution or fund for any purpose other than a charitable purpose; (iii) the institution or fund is not expressed to be for the benefit of any particular religious community or caste; However as per Explanation 1.—An institution or fund established for the benefit of Scheduled Castes, backward classes, Scheduled Tribes or of women and children shall not be deemed to be an institution or fund expressed to be for the benefit of a religious community or caste within the meaning of this clause. (iv) the institution or fund maintains regular accounts of its receipts and expenditure;

80G(5) (v) the institution or fund is either constituted as a public charitable trust or is registered under the Societies Registration Act, 1860 or under any law corresponding to that Act in force in any part of India or under section 25 of the Companies Act, 1956, or is a University established by law, or is any other educational institution recognized by the Government or by a University established by law, or affiliated to any University established by law, or is an institution financed wholly or in part by the Government or a local authority; (vi) in relation to donations made after the 31st day of March, 1992, the institution or fund is for the time being approved by the Commissioner in accordance with the rules made in this behalf (vii) where any institution or fund had been approved under clause (vi) for the previous year beginning on the 1st day of April, 2007 and ending on the 31st day of March, 2008, such institution or fund shall, for the purposes of this section and notwithstanding anything contained in the proviso to clause (15) of section 2, be deemed to have been,— (a) established for charitable purposes for the previous year beginning on the 1st day of April, 2008 and ending on the 31st day of March, 2009; and (b) approved under the said clause (vi) for the previous year beginning on the 1st day of April, 2008 and ending on the 31st day of March, 2009.]

80G(5) (Permissible spending for religious purposes: As per Sec 80G(5B) an institution or fund which incurs expenditure, during any previous year, which is of a religious nature for an amount not exceeding 5% of its total income in that previous year . Deduction to which the assessee is entitled in respect of any donation made to an institution or fund to which sub-section (5) applies shall not be denied merely on either or both of the following grounds, namely :— -that, subsequent to the donation, any part of the income of the institution or fund has become chargeable to tax due to non-compliance with any of the provisions of section 11, section 12 or section 12A -that, under clause (c) of sub-section (1) of section 13, the exemption under section 11 or section 12 is denied to the institution or fund in relation to any income arising to it from any investment referred to in clause (h) of sub-section (2) of section 13 where the aggregate of the funds invested by it in a concern does not exceed five per cent of the capital of that concern.

80G(5) Explanation 3.—In this section, “charitable purpose” does not include any purpose the whole or substantially the whole of which is of a religious nature. Explanation 4.—For the purposes of this section, an association or institution having as its object the control, supervision, regulation or encouragement in India of such games or sports as the Central Government may, by notification in the Official Gazette, specify in this behalf, shall be deemed to be an institution established in India for a charitable purpose.

Cases The Delhi High Court in the case of M.K. Nambyar Saarc Law Charitable Trust vs. Union of India 269 ITR 556 held that application of Income outside India could not be taken as a ground for refusing recognition u/s.80G. The Gujarat High Court has held, in the case of N.N.Desai Charitable Trust vs. CIT (2000) 246 ITR 452, that while processing the application for approval under section 80G, the commissioner is not expected to act as an assessing authority, but his enquiry should be confined to finding out whether the trust satisfies the prescribed conditions. In Kalyanam Karoti vs.CIT (2010) 123 ITD 317 (Lucknow), the Tribunal held that the Commissioner could not refuse renewal of approval on the ground that Permanent Account Numbers of donors were not provided.

Cases S. 80G(5) : At stage of registration, extent and nature of activities were not required to be examined, recognition under section 80G(5) was to be granted to assessee. CIT v.Arvindbhai Maniar Charitable Foundation (2015) 231 Taxman 908 (Guj.)(HC) At time of granting approval what is to be examined is object of trust- Order of Tribunal was affirmed. CIT v. Pujya Shri Jalarambapa & Matushri Virbaima Charitable Trust (2015) 229 Taxman 534 (Guj.)(HC) There is no clause in section 80G which says that section 80G approval be rejected if any institution or fund accepts anonymous donation. Shri Krishna Kirpa Gaushala Samiti v CIT (Exem) 64 taxmann.com 420 (Chandigadh)(Trib) Where assessee trust object of propagating and inculcating religious feelings, brotherhood and nationalism among Aggarwal community, only aimed at bringing together members of Aggarwal community and developing feeling of nationalism amongst them which benefited society at large, same could not be said to be either benefiting Aggarwal community only nor being in nature of religious purpose, assessee could not be denied approval under section 80G Maharaja Aggarsen Charitable Trust v CIT (Exem) 87 taxmann.com 153 (Chandigarh - Trib.)

Remedy for rejection order
On refusal to grant registration / approval by Commissioner remedy available is appeal to Tribunal .

ASSESSMENT OF CHARITABLE TRUST
Assessment proceedings commence either when return is filed or when notice is issued for filing return whichever is earlier and it is terminated by an order of assessment. Ghanshyamdas v ACST – 51 ITR 557 (sc) ASSESSMENT OF CHARITABLE TRUST

Assessment proceedings for Charitable Trusts are similar to any other assessments. Hence, provisions of section 139, 142, 143 and 144 and all the other applicable provisions apply equally to the assessment of charitable trusts. The peculiarity of assessment of charitable trusts lies in claim of exemption of income and one therefore, needs to look at the provisions of section 11 and section 13 r.w.s 10 as well as section 115BBC (Anonymous Donations) and newly enacted provisions of section 115TD (Accredited Income in specific circumstances). Assessment proceedings are quasi-judicial since conclusion or decisions taken by the officer have some attributes of judicial decision though there are no attributes of a judicial proceedings. In coming slides we shall consider few aspects of the assessment as well.

Assessing Officer should act in a judicial manner, proceed with a judicial spirit and come to a judicial decision. Though he is an executive or administrative officer engaged in the administration of the act, his function is fundamentally quasi-judicial. His duty is to administer the provisions of the act in the interest of public revenue and to prevent evasion or escapement of tax legitimately due to the state but this does not mean that he should exercise his powers only in a manner beneficial to the revenue and adverse to the assessee. [CIT v Simon Carves Ltd. 105 ITR 212 SC] He should proceed without bias, give sufficient opportunity to the assessee to place his case before him and conduct himself in accordance with the rules of justice, equity and good conscience. It is in his discretion what material he would accept and what he will reject but he cannot pick and choose some part of the material produced before him ignoring others and without considering explanation of the assessee for discrepancies. [Indore Malwa United Mills Ltd v State of Madhya Pradesh 60 ITR 41 SC] He should give a fair hearing to the assessee before deciding against him. [M.Chokkalingam and M.Meyyappan v CIT 48 ITR 34 SC]

Rules of natural justice to be followed. [Jagadambika Pratap narayan Singh V CBDT 100 ITR 698 SC] Furnishing of information or evidence from time to time during the assessment proceedings to the assessee. Gathering of material before assessment. If an assessment authority is relying in the testimony of the witness, the assessee is to be afforded an opportunity to cross-examine him. [CIT v Eastern Commercial Enterprises 210 ITR (Cal)] Presumption and burden of proof normally lies on assessee in respect of material so tendered by him or claims made by him in the course of assessment proceedings. At the same time, AO cannot proceed assessee to be dishonest unless proved right. [Tolaram Daga v CIT 59 ITR 632 (Assam) and Addl. CIT v Jay Engineering Works Ltd 113 ITR 389 (Del)] The list is endless but in the light of this brief discussion, let us proceed to look at provisions of section 11 and section 13 for better assessment.

Application of Income – section 11
In order to be eligible for claiming exemption, it is essential that the income of the trust is applied to such objects. A charitable trust or institution will have to apply at least 85 % of the income to charitable or religious purposes. Voluntary contribution or donations (not being contributions made with a specific direction that they will form part of the the corpus) will be deemed to be a part of income derived from property held under trust. If the income spent on charitable or religious purposes, during the previous year, falls short of 85 % of the income derived during the year, such shortfall will be liable to tax. The crux of the statutory exemption under Section 11(1)(a) and (b) 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. Thus, where there was no mandate as to how the income of the trust was to be applied, the trust failed to apply its income for charitable purpose. [Gangabai Charities v CIT 197 ITR 416 SC]

How to determine application of income?
It is very difficult to make an exhaustive list of such expenditures or payments as to constitute application. However, so long as nexus between income by way of donations and expenditure on charitable objects pursued by the trust can be fairly established without resorting to extreme exercise, the same should be a sufficient compliance. Establishment Expenses Repayment of Loans Revenue or Capital expenditure Payment of Taxes Donation to Other trusts Excess application in the previous year set off Acquisition of an Asset

How to determine application of income?
Accumulation of Unspent Income to be applied subsequently – [Expl. 2 to Sec 11(1)] Where the income applied to charitable or religious purposes falls short of 85% of the income derived during the previous year because – the whole or any part of the income has not been received during the previous year; or for any other reason; the assessee has an option to: a. apply such income referred to in clause (i) for such purposes during the previous year in which it is received or during the previous year immediately following the said previous year; and b. apply such income referred to in clause (ii) for such purposes during the previous year immediately following the previous year in which the income was derived. The option is to be exercised (w.e.f ) in Form 9A to be furnished electronically with or without digital signature by the trust within the time allowed for filing return of income u/s 139(1). Earlier it was to be exercised in writing by letter addressed to AO. However, it has been held that where a belated return is filed within the time specified u/s 139(4), i.e. within one year from the end of relevant assessment year, and the option is exercised along with such return, the option shall be deemed to have been exercised within the time allowed u/s 139(1) and the assessee will be entitled to exemption.

Accumulation of Income-Deemed Application
If the option is exercises by the assessee/trust, the income is regulated in the following manner. such income shall be deemed to have been applied to charitable or religious purposes in the previous year in which it is derived; such income shall not be taken into account for computing the income applied to such purposes in the year it is actually applied; if such income, or any part thereof, is not applied to such purpose 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. This exemption can be availed without any requirement as to intimation to the Assessing Officer, or application of accumulated income within the specified period. Thus, if a trust accumulates a larger amount than the specified limit, what would be chargeable to tax is the excess over the exemption limit, and not the entire accumulation including the exempted portion.

Accumulation of Income-Deemed Application
Where 85% of income derived from trust property is not applied or is not deemed to have been applied to charitable or religious purposes, but is accumulated or set apart for application to such purposes in India, exemption can be claimed for the income so accumulated or set apart in excess of 15% limit, provided the following conditions are complied with: (a) statement in form 10 to be uploaded electronically within the time allowed for furnishing the return u/s 139(1), notifying the amount being accumulated and the period of accumulation. In case form no. 10 is not uploaded before this date then the benefit of accumulation will not be available and such income will be taxable at appropriate rate. (b) the period of accumulation does not exceed 5 years and (c) the money so accumulated is invested or deposited in modes or forms specified u/s 11(5). (d) From A.Y benefit of accumulation is not available if return of income is not furnished before due date of filing return as per Sec 139(1).

Purpose of Accumulation must be specified
The provision of section 11(2) is a concession provision to enable a charitable trust to meet the contingency where the fulfillment of any project within its object or objects needs heavy outlay calling for accumulation to amass sufficient money to implement it. Section 11(2) requires specification of the purpose, which must be a concrete one, an itemized purpose or a purpose instrumental or ancillary to the implementation of the object or objects. Thus a trust cannot list all its objects as purposes for accumulation of income u/s 11(2)- [DIT(E) v Trustee of Singhania Charitable Trust (1993) 199 ITR 819 (Cal)] Plurality of the purpose of accumulation is not precluded but it depends on the precise purpose for which the accumulation is intended. [CIT v Hotel & Restaurant Association (2003) 132 Taxman 76 (Delhi)]

Delay in filing of Form 10-consequences
The delay in filing application Form No. 10 can be condoned by the Commissioner in certain cases. The relevant instructions issued by the Board, vide Circular No. 273 [F. No. 180/ 57/80- IT (A-I)], dated are as follows,: ………In exercise of the powers conferred under Section 119(2)(b) of the Income- tax Act,1961 the CBDT hereby authorize the Commissioners to admit applications under Section 11(2) read with rule 17 of the Income- tax Rules, 1962 from persons deriving income from property held under trust wholly for charitable or religious purposes for accumulation of such income to be applied for such purposes in India when the aforementioned applications are filed beyond the time stipulated. The Commissioner will, while entertaining such applications, satisfy themselves that the following conditions are fulfilled: (a) that the genuineness of the trust is not in doubt; (b) that the failure to give notice to the Income-tax Officer under Section 11(2) of the Act and investment of the money in the prescribed securities was due only to oversight2; (c) that the trustees or the settler have not been benefitted by such failure directly or indirectly; (d) that the trust agrees to deposit its funds in the prescribed securities prior to the issue of the Government sanction extending the time under Section 11(2); and (e) that the accumulation or setting apart of income was necessary for carrying out the objects of the trust. However, with the insertion of sub-section (9) in section 13, above option may not be exercised by Commissioners.

Withdrawal of Exemption granted to Income accumulated u/s 11(2)
The income which is accumulated or set apart in accordance with the provision of Section 11(2), shall become taxable if- (a) It is applied to purpose other than charitable or religious purposes; (b) It ceases to remain invested in the specified form or modes of deposit; or (c) It is not utilized for charitable or religious purposes within the specified accumulation period (which shall not exceed 10 years/5 years in respect of income accumulated on or after ); or (d) It is paid or credited to any trust/institution registered u/s12AA or to any fund/institution/trust/university/other educational institution/hospital/any other medical institution referred to in clauses (iv), (v), (vi), and (via) of Section 10(23C). Under any of the aforesaid circumstances, the amount involved shall be deemed to be income of the previous year in which it is so misapplied or ceases to be so accumulated or ceases to remain invested or is credited or paid or the previous year immediately following the expiry of the specified accumulation period, as the case may be. [Sec 11(3)].

Investment of Trust Funds – Section 11(5)
A charitable trust or institution shall not be allowed exemption u/s 11 or 12, if any part of its funds are not invested or deposited in the modes or forms specified u/s 11(5), or any shares in a company (other than shares in a public sector company or shares prescribed u/s 11(5)(xii), that is in a depository company) are held by the trust/institution. As per sec 11(5) only the following investments and deposits are permitted: (i) Investment in saving certificates and other securities or certificates issued by Central Govt. under the small saving schemes of the Govt. (ii) Deposit in any account with post office saving bank (iii) Deposit in any account with a scheduled bank or co-operative bank (iv) Investment in units of UTI (v) Investment in any securities issued by Central or State Government (vi) Investment in any Debentures issues by any Company or Corporation where both principle and interest are guaranteed by the Central or State Government (vii) Investment or deposit in any public sector company (viii) Deposit or investment in any bonds issued by a financial corporation engaged in providing long term finance for industrial development in India eligible for deduction u/s 36(1)(viii)

List contd (ix) Deposits with or investment in bonds issued by a public co formed and registered in India with the main object of carrying on the business of providing long term finance for construction or purchase of houses in India for residential purpose eligible for deduction u/s 36(1)(viii) (x) Deposits with or investment in bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long term finance for urban infrastructure projects in India (xi) Investment in immovable property (xii) Deposit with IDBI (xiii) Any other form or mode of deposit. Under this clause, rule 17C prescribes investment in units issued under any scheme of a mutual fund referred to in sec 10(23D),deposits with authority constituted in India for satisfying needs of housing accommodation or planning of cities towns or villages, investment in equity shares of depository etc. are covered.

Besides, donation in kind cannot be said to be funds of the trust as contemplated by Section 13(1)(d)(i), though they generally form part of the assets of the trust constituting its corpus. In order to claim exemption under Section 11, it is not incumbent on the part of the recipient trust to dispose of donations in kind, convert the same into cash and invest the proceeds thereof into permissible forms or modes, since that would amount to destroying trusts holdings properties, movable or immovable, as their corpus. [Auditor Dasaradha Rami Reddy Charities v CIT (1989)177 ITR 249 (Mad)] Where investments have been made in non-specified forms, it is only the income from such investments which loses exemption and is taxed at the maximum marginal rate.

Section 13 Section 11 or 12 shall not apply to:
Income from property held under a trust for private religious purposes which does not enure for the benefit of the public. any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste Exception: Which says a trust or institution created or established for the benefit of Scheduled Castes, backward classes, Scheduled Tribes or women and children shall not be deemed to be a trust or institution created or established for the benefit of a religious community or caste .

Section 13 in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof— if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of specified persons Exception: a trust or institution created or established before the commencement of this Act,, if use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution:

Section 13 in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year— (i) any funds of the trust or institution are invested or deposited on or after 1st March otherwise than in any one or more of the forms or modes specified in Section 11(5) (ii) any funds of the trust or institution invested or deposited before the 1st day of March, otherwise than in any one or more of the forms or modes specified in section 11(5) continue to remain so invested or deposited after the 30th day of November, 1983; or (iii) Trust/ institution holds any shares in a company, other than— (A) shares in a public sector company ; (B) shares prescribed as a form or mode of investment under clause (xii) of section 11(5) i.e. units of MF as per 10 (23D), equity shares of depository, etc.) after the 30th day of November, 1983:

Section 13 Exceptions: (i) any assets forming part of the corpus as on the 1st day of June, 1973 (ia) any accretion to the shares, forming part of the corpus by way of bonus shares allotted to the trust or institution; (ii) debentures issued by, or on behalf of, any company or corporation acquired by the trust or institution before the 1st day of March, 1983; (iia) any asset, which is not an investment or deposit in any of the forms or modes specified in section 11 (5) and, such asset is not held by the trust or institution, in form or modes specified in section 11(5), after the expiry of one year from the end of the previous year in which such asset is acquired (i.e. one year is available for converting such asset into investment in specified mode) (iii) any funds representing the profits and gains of business, being profits and gains of any previous year relevant to the assessment year provided- separate books of accounts are maintained by such trusts / institutions

Section 13 As per Sec 13(2), the income or the property of the trust or institution or any part of such income or property shall, be deemed to have been used or applied for the benefit of a person referred to in sub- section (3),— cl.(a) if any part of the income or property of the trust or institution is, or continues to be, lent to specified person for any period during the previous year without either adequate security or adequate interest or both; cl.(b) if any land, building or other property of the trust or institution is, made available for the use of specified person for any period during the previous year without charging adequate rent or other compensation; cl.(c) if any amount is paid by way of salary, allowance or otherwise during the previous year to specified person out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; cl.(d) if the services of the trust or institution are made available to specified person during the previous year without adequate remuneration or other compensation; Exception:- Medical / Educational institution (See Sec 13(6))

Section 13 cl.(e) if any share, security or other property is purchased by or on behalf of the trust or institution from specified person during the previous year for consideration which is more than adequate; cl.(f) if any share, security or other property is sold by or on behalf of the trust or institution to specified person during the previous year for consideration which is less than adequate; cl.(g) if any income or property of the trust or institution is diverted during the previous year in favour of specified person : Except - where the income, or the value of the property or, as the case may be, the aggregate of the income and the value of the property, so diverted does not exceed Rs.1000/-; cl.(h) if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year in any concern in which any specified person has a substantial interest.

Section 13 Who are treated as specified persons:
Sec 13(3) describes specified persons as follows :— -the author of the trust or the founder of the institution; -any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds 50000/- rupees -where such author, founder or person is a HUF, a member of the family; - any trustee of the trust or manager (by whatever name called) of the institution; -any relative of any such author, founder, person, member, trustee or manager as aforesaid; ( meaning of term relative is given in Explanation 1 to sec 13) -any concern in which any of the persons referred above has a substantial interest.

Section 13 Sec.13 (4) provides for exception in a case where the aggregate of the funds of the trust or institution invested in a concern in which any specified person has a substantial interest, does not exceed 5% of the capital of that concern, the exemption under section 11 or section 12 shall not be denied in relation to any income other than the income arising to the trust or the institution from such investment,(i.e . only relevant interest income will loose exemption benefit) Proviso to Section 2(15)- 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 twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year; 13(9) -Nothing contained in sub-section (2) of section 11 shall operate so as to exclude any income from the total income of the previous year of a person in receipt thereof, if— (i) the statement referred to in clause (a) of the said sub-section in respect of such income is not furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year; or (ii) the return of income for the previous year is not furnished by such person on or before the due date specified under section 139(1) for furnishing the return of income for the said previous year.

Section 13 for the purposes of section 13 “relative”, in relation to an individual, means— spouse of the individual; brother or sister of the individual; ( and their spouse) brother or sister of the spouse of the individual; ( and their spouse) any lineal ascendant or descendant of the individual; ( and their spouse) any lineal ascendant or descendant of the spouse of the individual; ( and their spouse) any lineal descendant of a brother or sister of either the individual or of the spouse of the individual

Section 13 Explanation 3.—For the purposes of this section, a person shall be deemed to have a substantial interest in a concern,— in a case where the concern is a company, if its shares (not being shares entitled to a fixed rate of dividend…) carrying not less than 20% of the voting power are, at any time during the previous year, owned beneficially by such person or partly by such person and partly by one or more of the specified person; in the case of any other concern, if such person is entitled, or such person and one or more of the other specified persons are entitled in the aggregate, at any time during the previous year, to not less than 20% of the profits of such concern.

Cases It has been held that a trust constituted for the purpose of propagation of Jainism could be considered to be a religious trust and not a charitable trust and therefore the bar contained in Section 13(1) (b) would not apply to such a trust Shri Chandra Charitable Trust v ITO (1995) 51 ITJ 87 (Ahd) A community is a section of public and the trust created for giving medical aid, social welfare, uplifting of poor members of a particular community and giving financial help on the occasion of marriage of members of such community was for religious and charitable purposes and was entitled to exemption CIT v Surji Devi Kunjilal Jaipuria Charitable Trust (1990) 186 ITR 728 (All). The Madras HC held in Gujarathi Mandal ITR 293(Mad) that sec 13(1)(b)could have no application if what is sought to be done by the trust is to promote the interest of a linguistic group, as language cannot be equated to religion. The main object of the trust was to impart knowledge and education primarily in Gujarati language and to help promote religious social and moral standards of the members.

Cases It has been held by Nagpur Bench Of ITAT in case of Shiv Mandir Devastan Panch Committee Sansthan that- it cannot be said that Hindu is a separate community or a separate religion. Technically Hindu is neither a religion nor a community. Therefore expenses incurred for worshiping of Lord Shiva, Hanuman, Godess Durga and for maintenance of temple cannot be regarded to be for religious purpose- accordingly CIT was directed to grant approval u/s 80 G (5)(vi). It may be noted that where a trust receives as donations shares in a company in which any of the specified persons has a substantial interest, the trust cannot be said to have invested its funds in purchasing the said shares and this clause will have no application and the dividend income shall be entitled for exemption.- CIT vs Sahitya Trust (1993) 203 ITR 349 (Guj) and Trustees of Mangaldas N. Varma Charitable Trust vs CIT (1994) 207 ITR 332 (Bom) Similarly where bonus shares are issued in respect of shares donated to the trust, of a company, in which the author of the trust has substantial interest, it does not amount to investment of trust funds falling within the mischief of this clause. CIT vs J.K.Charitable Trust(1992) 196 ITR31(All)

Cases Loan by one charitable trust/institution to another charitable trust/institution having similar activities are considered not to be violative of section 13(1)(d). [DIT vs Pariwar Seva Sansthan (2001) 118 taxman 587 (Delhi)] It has been held that advancing of an interest-free temporary loan by one society to another society having similar objects, whose president was brother of president of donor society, would not amount to an ‘investment; or a ‘deposit’ attracting section 13(1)(d). [DIT(Exemption) vs ACME Educational Society (2010) 326 ITR 146 (Del)] Similarly, inter charity donations have been treated as application of income for the purpose of section 11 of the Act. However, here one needs to keep in mind the proposed amendments in Finance Act, 2017 where a new explanation to section 11 is being inserted to provide that any amount credited or paid, out of income referred to in section 11(1)(a) or 11(1)(b), being contributions with specific direction that they shall form part of the corpus of the trust or institution shall not be treated as application of income. A proviso in clause (23C) of section 10 is also being inserted to provide similar restrictions.

Filing of Returns Filing of Return [ Sec 139(4A) ]
Where the total income of the trust (before allowing exemption under sections 11 and 12) exceeds the maximum amounts which is not chargeable to tax (i.e. Rs.2,50,000 for A.Y and onwards), it is required to file its return in Form ITR-7, before the date specified in section 139. However, with the amendment made by Finance Act, 2017, filing of income tax return has been made mandatory. The due date specified under section 139 is 30th September every year where the trust is required to get its accounts audited under any provision of the Act and 31st July every year in other case. In case return is not filed by prescribed date then benefit of accumulation u/s 11(2) will not be available. [sec 13(9)inserted w.e.f ]

Who is required to file return of income in ITR-7?
Rule 12(g) of the Income Tax Rules specifies that, in the case of a person including a company whether or not registered under section 25 of the Companies Act, 1956 (1 of 1956), required to file a return under sub-section (4A) or sub-section (4B) or sub-section (4C) or sub-section (4D) or sub-section (4E)or sub-section (4F) of section 139, be in Form No. ITR-7 and be verified in the manner indicated therein; Problems associated with filing of ITR-7 It has been noticed that below mentioned status is filing the ITR-7: Co-operative Society – Correct ITR to be used is ITR 5 Individual - Correct ITR to be used is ITR 1 to 4 HUF - Correct ITR to be used is ITR 1 to 4 Family Trust - Correct ITR to be used is ITR 5 Return filed without claiming any exemptions as per the subsection (4A) to (4F) of Section 139. Return filed claiming exemptions u/s. 10 or Section 11 without furnishing the necessary particulars of exemption and / or not e-filed audit report and necessary forms as applicable

Defect Description Elaboration of the Defect Assessee has not provided the Registration details u/s. 12A/12AA in Schedule Other Details and has claimed deduction/exemption under section 11 in the return of income Claim of exemption/deduction u/s. 11 is applicable to an assessee registered u/s. 21A/21AA. The details of the same needs to be provided in the Schedule Other Details. The income of the trust or institution exceeds the maximum amount chargeable to tax and has claimed exemption u/s. 11 but has not furnished the audit report Form 10B. As per section 12A(1)(b), where the total income of the trust or institution as computed under this act without giving effect to the provisions of the section 11 and 12 exceeds the maximum amount chargeable to tax, the accounts of the trust or institution has to be audited. The audit report Form 10B, has to be e-filed before or along with the return of income. The trust or institution has claimed exemption u/s. 10(23C)(iv) or 10(23C)(v) or 10(23C)(vi) or 10(23C) (via) and has not furnished the audit report Form 10BB. As per proviso of section 10(23C), where the total income of the fund or trust or institution or university or other educational institution or hospital or other medical institution as computed under this act without giving effect to the clauses of section 10 exceeds the maximum amount chargeable to tax, the accounts of the trust or institution has to be audited. The audit report has to be e-filed before or along with the return of income. Filing of Returns

Defect Description Elaboration of the defect Assessee claiming exemption u/s. 10(23C)(iiiad) or 10(23C)(iiiae) has not furnished the aggregate annual receipts in Schedule Other Details Every university or other educational institution or hospital or other medical institution is exempt only in case the aggregate annual receipts do not exceed Rs. 1 Crore. Hence, this information is required to be furnished in the return of income. Assessee is General Public Utility(GPU) as referred u/s 2(15) and the object is advancement of any other general public utility and involves activities in the nature of trade, commerce or business and the amount of annual aggregate receipts from such activities is not furnished in Schedule Other details. If the assessee is running an Institution and one of the object is advancement of Any Other Object of general public utility as per the proviso to section 2(15) involving activities in the nature of trade, commerce or business, then the amount of annual aggregate receipts from such activities has to be furnished in the ITR 7. If the aggregate annual receipts from activities of advancement of any other object of general public utility in the nature of trade, commerce or business referred to in proviso of 2(15) is more than 25 lakh for AY and earlier years or 20% for AY onwards, activity of the assessee is not a charitable purpose as per section 2(15) of the Income Tax Act.

Elaboration of the defect
Defect Description Elaboration of the defect The name mentioned in the Return of Income does not match with the name as per the PAN (Permanent Account Number) in data base. The assessee is required to enter the correct name of in the return of income as per Permanent Account Number (PAN) allotted. In case of name change, the same has to be updated in PAN data base. Return of Income filed is ITR-7 Form but the status mentioned in the return is “individual OR HUF”. Rule 12(g) of the Income Tax Rules specifies that, in case of a person including a company whether or not registered under section 25 of the Companies Act, 1956, and who are required to file the return under sub- section (4A) or sub-section (4B) or sub-section (4C) or sub-section (4D) or sub-section (4E) or sub-section (4F) of section 139 are required to furnish the return of income in ITR-7. Hence "Individual" and "HUF" should not file return in ITR 7. Assessee has claimed exemptions under the clauses of Section 10 in Schedule Part BTI. However the details of exemptions u/s 10 has not been furnished in Part A - General (1). Assessee has to furnish information in Schedule Part A Gen of the return under “Details of the projects/institutions..” including Name of Project & Institution and Clause of section 10 under which Exemption is claimed. In Schedule Part BTI for the claim of exemption u/s 10, the income eligible for exemption has to be entered under “Amount of income exempt under any clause of section 10, to the extent that is included …”. The amount of exemption has to be entered in the row relating to the clause of Section 10.

Elaboration of the defect
Defect Description Elaboration of the defect No income is offered in the Schedules in ITR Form 7 and has claimed TDS/TCS. As per Rule 37BA of the Income Tax Rules, 1962, read with Section 199 of the Income Tax Act, 1961, credit of tax deducted at source shall be given for the assessment year for which such income is assessable. In order to claim TDS/TCS, the corresponding receipts/ income, on which the TDS/TCS has been made should be reflected in the return of income and exemptions claimed as per applicable provisions. Assessee has furnished the return claiming amount accumulated or set apart for specified purpose as prescribed u/s 11(2). However the Details of accumulation and its Investments/deposits made u/s 11(5) has not been furnished in Schedule I and Schedule J. Further Form 10 has to be e-filed within due date for filing Return. Schedule I and J has to be appropriately filled in, giving the details of amount accumulated year-wise and the forms and modes of Investment/Deposits made under section 11(5). The assessee should furnish Form 10, stating the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart. This report is required to be furnished before the due date of filing the return. Assessee has not shown income in any of the heads of income in Schedule Part B-TI, but assessee has entered Sl. No. 7 being aggregate of income referred to in section 11 and 12 derived during the previous year excluding Voluntary contribution Schedule Part B-TI should be properly filled along with appropriate income schedules. The Gross Income being total of the heads of income in Schedule Part B-TI cannot be less than the income entered at Sl.No.7 of Schedule Part-B-TI being income referred to under section 11 and 12 of the Income tax Act. Further the Exemptions under all fields in Schedule Part BTI cannot exceed the Gross Income (note: Gross Income is not GTI )

Sr. Reasons No of cases 1 Exemption u/s. 11 claimed but not registered u/s. 12A 29,126 2 Exemption u/s. 10 claimed but details not mentioned in Personal Info Schedule 3,805 3 Form 10B not filed along with the return where Section 11 is claimed 4,141 4 10(23C)(iiiad) or 10(23C)(iiiae) claimed and aggregate annual receipts are exceeding Rs. 1 Crore 337 5 Form 10 not e-filed when income is accumulated or set apart 2,387 6 Deemed application claimed but option in writing to the AO not exercised/Form 9A not e-filed. 1,012 7 General Public Utility and aggregate annual receipts exceed limits 630 8 No exemption claimed and no tax computed 19,996 9 Cost of acquisition and cost of improvement claimed by the trust 972 10 15% accumulation claimed more than available amount or aggregate income referred to u/s. 11 & 12 is not offered 998

Anonymous Donations-S.115BBC
It is a voluntary contribution and person receiving such contribution does not maintain any record of identity indicating name and address of person making such contribution. Voluntary contributions being anonymous donations are also eligible for exemption in case of – i) wholly religious trust, ii) partly religious and charitable trust (except when such anonymous donations are made specifically for an educational/medical institution run by the trust) Voluntary contributions being anonymous donations are taxable in case of – i) wholly charitable trust, ii) partly religious and charitable trust ( when such anonymous donations are made specifically for an educational/medical institution run by the trust). [Sec. 13(7) read with Sec. 115BBC] Anonymous Donation is +SC+EC .Further exemption is available up to 5% of the total donations or Rs. 1 Lakh whichever is higher.

Cessation /Conversion in to non-charitable trust
Section 11 and 12 provide for exemption to trusts or institution in respect of income derived from property held under trust and voluntary contributions, subject to various conditions contained in the said sections. A charitable trust may voluntarily wind up its activities and dissolve or may also merge with any other non–charitable institution, or to may convert into a non – charitable organisation. Moreover, it is always possible for charitable institutions to transfer assets to a non-charitable institution. In such cases, the existing law does not provide for an clarity as to how the assets of such a charitable institution shall be charged to tax. Section 115TD to 115TF have been inserted w.e.f This section provides for levy of additional income –tax in case of conversion into, or merger with, any non- charitable form or on transfer of assets of a charitable organisation on its dissolution to a non-charitable institution.

The elements of the regime are- Time of accreted income – The accretion in income (accreted income) of the trust or institution shall be taxable on- a) Conversion of trust or institution into a from not eligible for registration under section 12 AA ; or b) Merger into an entity not having similar objects and which is not registered under section 12 AA; OR c) non –distribution of assets on dissolution to any charitable institution registered under section 12AA or approved under section 10(23C) within a period of 12 months for dissolution. Deemed conversion – For the above purpose, a trust or institution shall be deemed to have been converted into any from (not eligible for registration under section 12AA ) in a previous year, if- a) The registration granted to it under section 12AA has been cancelled ; or b) It has modified its objects and not applied for fresh registration (or fresh registration application has been rejected).

Meaning of accreted income – Accreted income shall be amount of aggregate of fair market value of total assets as reduced by the liability as on the specified date (i.e., the date of conversion, merger or dissolution ) .Mode of valuation to be notified. What is excluded from accreted income – So much of the accreted income as is attributable to the following asset and liability, if any, related to such asset shall be ignored for the purpose of computation of accreted income – 1.Any asset which is established to have been directly acquired be the trust or institution out of agricultural income as is referred to in section 10 (1). 2. Any asset acquired by the trust/institution during the period beginning from the date of its creation and ending on the date from which the registration under section 12 AA became effective or deemed effective (however , this rule is valid only if the trust/ institution has not been allowed any benefit of sections 11 and 12 during the said period). “Deemed “ effective covers a case where due to first proviso to section 12 A (2) the benefit of section 11 and 12 have been allowed to the trust/ institution in respect of any previous year prior to the year of registration. Further, the asset and the liability of the charitable organisation, which have been transferred to another charitable organisation within specified time, will be excluded while calculation accreted income.

Tax liability – The taxation of accreted income shall be at the maximum marginal rate (i.e per cent for the assessment year ). The following points should be noted- 1. This levy shall be in addition to any income chargeable to tax in the hands of the entity. 2. This tax shall be final tax for which no credit can be taken by the trust or institution or any other person, and like any other additional tax, it shall be leviable even if the trust or institution does not have any other income chargeable to tax in the relevant previous year.

Amendments in Budget 2017 – Relating to Charitable Trusts
S. 10(23C) – Corpus Donations denied exemption as application of income for any fund or trust or institution or any university or any hospital or medical institution. S. 11(1)(a) – Similar restriction has been provided to treat such donation as income of the recipient trust S. 12A – Restriction to file return of income within the time allowed as per S. 139(4A) S. 56 – Amendment proposed to include receipt of sum of money or the property by any person without consideration or for inadequate consideration in excess of Rs. 50,000/- shall be chargeable to tax as ‘Income from Other Sources’. However, it shall not apply to any sum of money or any property received from or by any trust or institution under section 12A. S. 139(5) – Time limit for revision of return of income reduced up to the end of the relevant assessment year or before the completion of assessment whichever is earlier.

Amendments in Budget 2017 – Relating to Charitable Trusts
S. 40A(3) r.w. Rule 6DD Quantum of expenditure limit has been reduced from present Rs. 20,000/- to Rs. 10,000/-. Thus, an expenditure more than Rs. 10,000/- hereafter shall have to be made by NEFT/RTGS or through banking channel only. S. 43(1) – Capital Expenditure exceeding Rs. 10,000/- incurred otherwise than by account payee crossed cheque drawn on a bank or bank draft or use of electronic clearing system of the bank shall be ignored for the purpose of determination of ‘actual cost of capital asset’ and resultant depreciation claims. S. 80G (5) – Reduction of limit for cash donation from Rs. 10,000/- to Rs. 2,000/- and providing disallowance of tax concession to donor who violates the said condition.

Issues for discussion Can a Charitable Trust be denied registration u/s. 12A, if its objects contain carrying on activities abroad? Will following activities be considered as activities carried in foreign countries? Providing financial help to student going abroad Sending students abroad under students exchange programmes Arranging educational tours under students and/or providing financial assistance to students for such foreign educational tours. A trust established some five years ago got itself registered u/s. 12A in FY and there tax dues as per intimation u/s. 143(1) for AY and AY can this trust have benefit of amendment to Section 12(2)? If yes, what procedure should it follow? How to claim deductions u/s. 11 in earlier years? Whether Trust can claim depreciation despite claiming Capital Expenditure as Application of Income?

Charitable Trust & GST APPLICABILITY

GST and Charitable Trust
Looking to the present scenario of GST coverage and its applicability, it is proposed to find an answer to the question – Whether GST is applicable to Charitable Trusts or likewise institutions? The answer would lie in finding answer to the following questions – Whether activities carried out by them are included in exemptions of services included under GST? Whether the turnover crosses threshhold limit? Whether specific exemptions have been declared for Charitable Trusts?

Persons liable to register under GST
A ‘taxable person’ under GST, is a person who carries on any business at any place in India and who is registered or required to be registered under the GST Act. Any person who engages in economic activity including trade and commerce is treated as taxable person. ‘Person’ here includes individuals, HUF, company, firm, LLP, an AOP/BOI, any corporation or Government company, body corporate incorporated under laws of foreign country, co-operative society, local authority, government, trust, artificial juridical person.

‘business’ under GST (17) “business” includes––
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit; (b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a); (c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction; (d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business; (e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members; (f) admission, for a consideration, of persons to any premises; (g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation; (h) services provided by a race club by way of totalisator or a licence to book maker in such club ; and (i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;

GST Registration is mandatory for:-
Any business whose turnover in a financial year exceeds Rs 20 lakhs (Rs 10 lakhs for North Eastern and hill states). [Note: If your turnover is supply of only exempted goods/services which are exempt under GST, this clause does not apply.] Every person who is registered under an earlier law (i.e., Excise, VAT, Service Tax etc.) needs to register under GST, too. When a business which is registered has been transferred to someone/demerged, the transferee shall take registration with effect from the date of transfer. Anyone who drives inter-state supply of goods Casual taxable person Non-Resident taxable person Agents of a supplier Those paying tax under the reverse charge mechanism Input service distributor E-commerce operator or aggregator Person who supplies via e-commerce aggregator Person supplying online information and database access or retrieval services from a place outside India to a person in India, other than a registered taxable person

List of Exempt Services (Related only to Charitable Trust or institutions
GST Council has declared a List of Services exempt under GST from former Service Tax. Sr. No. 13: Services by an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) by way of charitable activities;[Charitable activities defined as presently in notification No 25/2012-ST.] Sr. No. 26: Service by an unincorporated body or a non- profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution – (a) as a trade union; (b) for the provision of carrying out any activity which is exempt from the levy of GST; or (c) up to an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex;

List of Exempt Services (Related only to Charitable Trust or institutions Contd. . .
Sr. No. 29: Services received from a provider of service located in a non- taxable territory by - (a) Government, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession; (b) an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) for the purposes of providing charitable activities; or (c) a person located in a non-taxable territory; Provided that the exemption shall not apply to – (i) online information and database access or retrieval services received by persons specified in clause (a)or clause (b); or (ii) services by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India received by persons specified in clause (c);

Sr. No. 61: Services by way of training or coaching in recreational activities relating to,- (i) arts or culture. or (ii) sports by charitable entities registered under section 12AA of Income tax Act, 1961; Sr. No. 73: Services by a person by way of- (a) conduct of any religious ceremony; (b) renting of precincts of a religious place meant for general public, owned or managed by an entity registered as a charitable or religious trust under section 12AA of the Income-tax Act, 1961 (hereinafter referred to as the Income-tax Act), or a trust or an institution registered under sub clause (v) of clause (23C) of section 10 of the Income-tax Act or a body or an authority coveredunder clause (23BBA) of section 10 of the Income-tax Act: Provided that nothing contained in (b) of this exemption shall apply to,- (i) renting of rooms where charges are Rs 1000/- or more per day; (ii) renting of premises, community halls, kalyanmandapam or open area, etc where charges are Rs 10,000/- or more per day; (iii) renting of shops or other spaces for business or commerce where charges are Rs 10,000/-or more per month.

Sr. No. 80: Services by way of right to admission to, - (i) circus, dance, or theatrical performance including drama or ballet; (ii) award function, concert, pageant, musical performance or any sporting event other than a recognized sporting event; (iii) recognised sporting event; where the consideration for admission is not more than Rs 250 per person in (i), (ii) and (iii) above.

Charitable Activities-Notification No: 25 of 2012
(k) "charitable activities" means activities relating to - (i) public health by way of - (a) care or counseling of (i) terminally ill persons or persons with severe physical or mental disability, (ii) persons afflicted with HIV or AIDS, or (iii) persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or (b) public awareness of preventive health, family planning or prevention of HIV infection; (ii) advancement of religion or spirituality; (iii) advancement of educational programmes or skill development relating to,- (a) abandoned, orphaned or homeless children; (b) physically or mentally abused and traumatized persons; (c) prisoners; or (d) persons over the age of 65 years residing in a rural area; (iv) preservation of environment including watershed, forests and wildlife; or (v) advancement of any other object of general public utility up to a value of,- (a) eighteen lakh and seventy five thousand rupees for the year subject to the condition that total value of such activities had not exceeded twenty five lakhs rupees during ; (b) twenty five lakh rupees in any other financial year subject to the condition that total value of such activities had not exceeded twenty five lakhs rupees during the preceding financial year;

Reverse Charge Mechanism (OR) Compulsory Registration???
Meaning of reverse charge: S. 2(98) of CGST Act- (98) “reverse charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub- section (4) of section 9, or under sub-section (3) or subsection (4) of section 5 of the Integrated Goods and Services Tax Act; Compulsory Registration : S. 24 of CGST Act- As per Section 24 of CGST Act, the following categories of persons shall be required to be registered compulsorily irrespective of the thershhold limit: (c) persons who are required to pay tax under reverse charge; Let us now look at services under reverse charge broadly dealt in by Charitable Trusts or institutions.

Reverse Charge Mechanism (OR) Compulsory Registration???
Situations where reverse charge will apply: Unregistered dealer selling to a registered dealer Services through an e-commerce operator Services provided by GTA (Goods Transport Agency) Legal Services availed by recipient-business entity Services provided by Director of a Company or Body Corporate (to be considered where institution happens to be S. 8 Company)

What is the meaning ‘aggregate turnover?
Meaning of aggregate turnover: S. 2(6) of CGST Act- (6) “aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess; Aggregate turnover includes aggregate value of all taxable supplies, exempted supplies, exports, interstate supplies. It is to be noted that aggregate turnover does not include taxes charged under GST acts.

Charitable Trust and GST Applicability
Having considered all the above provisions, one needs to look at fine print for deciding in the facts and circumstances of each such case as to whether GST shall be applicable and its consequential compliances.

Role of Professional It is seen that there are very few professionals in the area of charitable trusts. Though there are very few sections governing taxation of charitable trusts, this area has seen more litigations and disputes. Every professional also needs to look at this area as matter of social obligation and guide trustees in the matter of compliance as also represent before income tax authorities for proper application of income tax provisions. This is not to suggest that this area of practice is not attractive. In fact, at times, it is better practice area than conventional area of practice under income tax. Better understanding of applicable provisions and various judgments only shall pave the way for being a better professional. New enactment of GST shall keep Professionals busy BUT one should not overlook overall impact and compliances.

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