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Exemption Under Section 11 to 13 in case of Public Trusts for Charitable or Religious Purposes

The income derived from a property held under charitable or religious trusts is exempt from tax under section 11 subject to the fulfillment of certain conditions. However, any profit or gain of a business carried on by such trust shall not be exempt unless the business is incidental to the attainment of the objectives of the trust/institution and separate books of account are maintained by such trust! institutions in respect of such business.

The word Trust as used in the context of sections 11 to 13 of the Income-tax Act, includes in addition to the trust "any other legal obligation".

1.   Conditions to be satisfied for claiming exemption under section 11 in case of Public Trusts :

Subject to the provisions of sections 60 to 63, certain incomes of a charitable? religious trust or institution are not included in its total income to the extent and subject to the conditions specified in the Act.

For claiming exemption under section 11, the following conditions must be satisfied:

(a)        Trust must have been created for any lawful purpose;

(b)        Such trust/institution must be for charitable or religious purposes.

According to section 2(15), charitable purpose includes relief of the poor, education, yoga, medical relief, preservation of environment (including water sheds forests and wild life) and preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility.

Trust / institution covered under advancement of any other object of general public utility can do commercial activities up to 20% of its total receipts

The advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless.—

(i)         such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and

(ii)        the aggregate receipts from such activity or activities, during the previous year, do not exceed 20% of the total receipts, of the trust or institution undertaking such activity or activities, for the previous year.

(c)        The Property from which income is derived should be held under trust by such charitable or religious trust/institution.

(d)        The accounts of the trust/institution should be audited for such accounting year in which the total income, before giving effect to provisions of section 11 or 12, exceeds the maximum amount which is not chargeable to lax and the person in receipt of the income should obtain an audit report in Form No. 10B [Rule 17B] and furnish the same along with the return of income.

(e)        The trust must get itself registered with the Commissioner of Income-tax within the
prescribed time.

(f)         Where the "property held under a trust" includes a business undertaking, the provisions of sections 11(4) shall be applicable.

On the other hand, if the trust wishes to carry on business, the profits or gains earned from such business shall not be exempt under section 11, unless the business is incidental to the attainment of the objectives of the trust/institution and separate books of account are maintained by such trust and institution in respect of such business.

(g)        The charitable trust created on or after 1.4.1962 should satisfy the following further conditions:

(i)         it should not be created for the benefit of any particular religious community or caste;

(ii)        no part of the income of such charitable trust or institutions should ensure directly or indirectly for the benefit of the settlor or other specified persons: and

(iii)       the property should be held wholly for charitable purposes.

(h)        The funds of the trust should be invested or deposited in the permissible forms and modes prescribed in section 11(5).

2.   Exempted Incomes U/s 11 in case of Public Trusts

Subject to the provisions of sections 60 to 63, the following incomes of a religious or charitable trust or institution are not included in its total income, provided the conditions mentioned above in para-1 are satisfied :

(a) Income from property held under trust wholly for charitable or religious purposes [Section 11(1)(a)] :

Income derived from property held under trust, wholly for charitable and religious purposes. shall be exempt—

(i)         to the extent such income is applied in India for such purposes; and

(ii)        where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of 15% of the income from such property.

(b) Income from property held under trust which is applied in part only for charitable or religious purposes [Section 11(1)(b)]:

Income derived from property held under Trust in part only for such purpose, shall be exempt:

(i)         to the extent such income is applied in India for such purposes, provided, the trust in question is created before the commencement of Income-tax Act, 1961 i.e. before 1.4.1962; and

(ii)        where any such income is finally set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of 15% of the income from such property.

(c) Income from property held under trust which is applied for charitable purposes outside India [Section 11(1)(c)]:

(i)         Income derived from property held under trust, created on or after
1.4.1952 for charitable purpose which tends to promote international welfare in which India is interested, shall be exempt to the extent to which such income is applied to such purpose outside India. Religious trusts are not covered here.

(ii)        Income derived from property held under a trust for charitable or religious purposes, created before 1.4.1952, shall be exempt to the extent to which such income is applied to such purposes outside India.

In the above two cases, it is necessary that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income.

(d) Voluntary Contributions forming part of Corpus [Section 11(1)(d)] :

Income in the form of voluntary contributions made with a specific direction. that they shall form part of the corpus of the trust or institution, shall be fully exempt. The condition that at least 85% of the income should be applied during the previous year in which it is earned is not applicable in this case.

'Where assessee received corpus donation on which it earned interest, in view of specific direction of donors that said interest would also form part of corpus, assessee's claim for exemption under section 11 in respect of interest so earned was to be allowed.

It is not sufficient that the property is indirectly responsible for the income; it is necessary that the income must directly and substantially arise from the property held under trust. The property must be the effective source from which the income arises.

3.   Summarised Table of Exempt income in case of Charitable or Religious Trust

SL. Nature of income
NO.

To what extent
exemption
allowed

conditions
applicable

Relevant
provisions

Remarks
if any

(a) Income derived from property held under trust wholly for charitable or religious purposes

To the extent such income is applied in India for such
purposes

Accumulation allowed up to 15% of such income
Accumulation in excess of 15% allowed subject to certain conditions being satisfied

Section 11(1)(a)

Section
11(2)

Accumulation treated as applied for such purposes

----do---

(b) Income derived from property held under trust which is applied in part only for charitable or religious purposes

—do——

(i) —do——

(ii) Trust should have been created before 1.4.1962

Section 11(1)(b)

—do—

(c) Income derived from property held under trust—

(i) Created on or after 1.4.1952 for charitable purposes to be used for charitable purposes
outside India (Religious trust not covered)

To the extent such income is applied to such purposes outside India

The purpose of the trust is to promote
international welfare in which India is interested. Further General or special order of Board for exemption is necessary
No accumulation allowed

Section 11(1)(c)(i)

Accumulation not exempt

(ii) Created before 1.4. 1952 for charitable or religious purpose to be used for such purposes outside India

To the extent such income is applied outside India for such purposes

No condition applicable but General or special order of Board for exemption is necessary

Section 11(1)(c)(ii)

Accumulation not exempt

(d) Voluntary contribution forming part of corpus

100% exempt with no condition of application or accumulation

There should be specific direction that such contribution to from part of corpus of the trust or institution

Section 11(1)(d)

 

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