Any profit or gain arising from the transfer of capital asset being property held under trust shall be treated as capital gain. Since such capital gain, whether short-term or long-term, is also part of the income as per section 2(24)(vi), to claim exemption under section 11 the Charitable Trust should also apply income from such capital gain for charitable purposes during the previous year like any other income. It means that trust shall have to apply atleast 85% of the income from such capital gain for charitable purposes during the previous year as per paras 19.2a and 19.2b given above subject to exception given under section 11(2).
1. Cases where income from Capital Gain shall be Deemed to have been applied for Charitable Purposes [Section 11(1A)]:
Section 11(1A) deals with two situations namely:
(A) Transfer of capital asset held under trust wholly for charitable or religious purposes.
(B) Transfer of capital asset held under trust in part only for charitable or religious purposes.
(A) Transfer of Capital Asset held under Trust Wholly for Charitable or Religious Purposes Section 11(1A)(a):
Where any capital asset being property held under trust wholly for charitable or religious purposes is transferred, and
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the whole of the net consideration is utilised for acquiring another capital asset; or
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part of the net consideration is utilised for acquiring another capital asset.
then, the capital gain arising from such transfer shall be deemed to have been applied to charitable purposes to the extent specified hereunder:
Amount of net consideration utilized |
Amount deemed to be applied |
(i) Where the whole of the net consideration of such asset is utilized in acquiring a new capital asset |
the whole of the capital gain. |
(ii) Where only a part of the net consideration is utilized for acquiring the new capital asset |
so much of such capital gain as is equal to the amount, if any, by which the amount so utilized exceeds the cost of the transferred asset i.e. amount invested minus cost of the transferred asset. |
(B). Transfer of Capital Asset held under Trust in Part only for Charitable or Religious Purposes [Section 11(1A)(b)]:
As already discussed, such trusts are eligible for exemption under section 11 only when they have been created before the commencement of the Income-tax Act, 1961.
Where capital assets being a property held under trust in part only for such purposes is transferred, the treatment of capital gains shall be as under:
Amount of net consideration utilized |
Amount deemed to be applied |
(i) Where the whole of the net consideration of such asset is utilized in acquiring a new capital asset |
the appropriate fraction of the capital gain arising from the transfer of the capital asset |
(ii) in any other case |
the exemption shall be limited to so much of the appropriate fraction of the capital gain as is equal to the amount, if any, by which the appropriate fraction of the amount utilized for acquiring the new capital assets, exceeds the appropriate fraction of the cost of the transferred asset. |
Appropriate fraction :
means the fraction which represents the extent to which the income derived from the capital asset transferred was immediately before such transfer applicable to charitable or religious purposes;
Cost of the transferred asset :
means the aggregate of the cost of acquisition (as ascertained for the purposes of section 48 and 49) of the capital asset which is the subject of the transfer and the cost of any improvement thereto within the meaning assigned to that expression in section 55(1)(b);
Net consideration :
means the full value of the consideration received or accruing as result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. |
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