1

1. Exemption Basics
2. Section 10(23)
3. Section 11 of Income TAX Act
4. Charitable Purpose
5. Wholly or Substantially Financed
6. Contemporary Issues
7. SIES : A Case Study
8. Transfer of Funds
9. BCCI : A Case Study
10. Accumulation U/S 11(1)(a)
11. Accumulation U/S 11(2)
12. TISS: A Case Study
13. Set Off Carry Forward Loss Deficit







2
Why Exemption??
3

Preamble enjoins upon the State/Government to ensure
and secure social, economic, political and social justice to
the citizen of the Nation.

The Constitution Makers provided in Part-IV of the
Constitution, the Directive principles as guidelines to the
State.

India is a Republic and also a Welfare state.

The constitution of India declare by its preamble stating
that WE, THE PEOPLE OF INDIA.
4

Government provides a public participation to ensure
above objectives.

To fill that gap, charitable institutions have been
instrumental in supplementing the efforts of the
Government.



Therefore Exemption !!!
5
Institutions engaged in carrying out philanthropic
activities which are charitable in nature, are
eligible to claim exemption, subject to the
fulfillment of conditions laid down in

1. Section 10(23C)
OR
2. Section 11 of the Income-tax Act, 1961.

WHO WILL GET EXEMPTION?
6



7
It grants exemption to certain types of trusts and
institutions



They are not liable to get registered with the
Commissioner or get their accounts audited under
section 12 AA(b).



SECTION (10)
8



9
The expression used is trust or institution.

Definition of Trust:
A trust is not defined in the income tax act.
Section 3 of the Indian Trusts Act 1882 defines Trust


The term institution will take in

a society registered under the Societies Registration Act 1860

a company incorporated without profit motive and registered
under Section 25 of the Companies Act 1956.

In Maharashtra, Bombay Public Trusts Act has been passed.
Societies registered under the Societies registration Act, are
required to be simultaneously registered with BPT.
(Gross Violation by BCCI)
.



SECTION (11)
10
It is possible that income of an association or
institution may be exempt under section 10 as well
as under section 11.


The Income Tax Act grants exemption to the
income from property held under trust or any
other legal obligation for religious or charitable
purposes, subject to the fulfillment of certain
conditions laid down under the act.
.



SECTION (11) (Continued)
11
The exemption to a trust under section 11 can be
granted only if
The source of its income is some property which is
held under trust.
Income of religious and charitable trusts was
completely exempt under Section 4(3) of the I. T
Act 1922.
Thus, the trust got the exemption, though the
objects of the trusts were not fulfilled.
law was very liberal till 1962
Charitable trusts were utilized as a device for
evasion or avoidance of Income Tax in many ways.
Provisions of section 11 to 13 in the Income Tax
Act, 1961 was introducedto grant exemption only
to the income actually applied to charitable
purposes in India.



SECTION (11)(Continued)
12



13

Charitable purpose is defined in the Income Tax
Act in a wide manner under section 2(15).

Charity for tax purposes is not confined to relief of
poverty.
It is more philanthropy than charity.

Charitable Purpose)
14





Scheme of Taxation of Charitable Trusts

Scheme of Taxation of Charitable Trusts

Section 2(15) defines Charitable purpose as follows;
charitable purpose includes
relief of the poor, education, medical relief,
preservation of environment (including
watersheds, forests and wildlife) and
preservation of monuments or places or
objects of artistic or historic interest, and
the advancement of any other object of
general public utility:

15





Scheme of Taxation of Charitable Trusts


Provided that the advancement of any other object
of general public utility shall not be a charitable
purpose,
if it involves the carrying on of any activity in the
nature of trade, irrespective of the nature of use :]


Provided further that the first proviso shall not
apply if the aggregate value of the receipts from
the activities referred to therein is ten lakh rupees
or less in the previous year

(25 lakhs w.e.f 1-4 -2012);




16





Scheme of Taxation of Charitable Trusts

Section 11(1)(a) & (b) grant exemption to income from property
held for religious or charitable purposes to the extent it is applied
for charitable or religious purposes during the year. They also
provide for exemption of income, accumulated up to the extent of
15% of the income of the trusts.

Section 11(1)(d) exempts donations received with a stipulation that
they shall form part of the corpus of the trust.

Section 11(1A) allows exemption of capital gains in the hands of a
charitable trust, to the extent such gains are utilised for the
acquisition of another capital asset.

Section 11(1)(4A) denies exemption to business income of trust,
subject to certain exceptions.

Section 11(5) prescribes prescribed in the modes of investments
for a charitable trust.

17





Scheme of Taxation of Charitable Trusts

Section 12(1) deems voluntary contributions received by a
charitable or religious trust to be income from property held for
charitable or religious purposes.
Section 12(2) deems the value of certain services provided by the
trust to specified persons to be the income of the trust from
property held under trust, which is chargeable to tax and
notwithstanding the provisions of section 11(1).

Section 12 A lays down the conditions of registration, audit and
publication of accounts in order to claim exemption under section
11 and 12, while section 12 AA lays down the procedure for
registration.

Section 13 provides for denial of exemption to charitable or
religious trusts under certain circumstances.


Section 2(24)(iia) provides that the term income includes voluntary
contributions received by wholly or partly religious or charitable
trusts, amongst other bodies.


18





Under section 80 G
Deductions for donations to institutions
which are primarily of a religious nature
are not allowed.

Donations in kind are not eligible for
deduction under section 80 G.

Deductions for donations are restricted to
10% of gross total income or to 50% of the
amount of donations



19


Provisions of clauses (iiiab) to (iiiae), (iv) to (via) of
Sec 10(23C) deals with educational institutions and
hospitals.

Newly introduced Sec 115BBC deals taxation of
anonymous donations.

The rate of tax applicable to a public is that
applicable to an association of persons







20







Section 10(23)(C) in the case of
Educational/Hospitals institutions:









Contemporary Issues
21





Section 10(23)(C) in the case of
Educational institutions:
There are three types of universities/educational institutions to which
the benefit of exemption is available u/s 10(23).

(1)Section 10(23C)(iiiab),
(2)Section 10(23C)(iiiad)
(3)Section 10(23C)(vi).


In all the aforesaid three provisions, the requirement that the
university or other educational institution should exist solely for
educational purposes and not for purposes of profit, is common.

22





Section 10(23)(C) in the case of
Universities/Hospitals
10(23C)(iiiab) for universities:::::::( 10(23C)(iiiac) for hospitals

The universities and educational institutions
Exist solely for educational purposes and not for purposes of
profit

AND

wholly or substantially financed by the Government.???
No audit to be carried out by the accountants as defined u/s
288 of the Income-tax Act.

Some of the institutions receiving govt. grants are TISS,
SIES, Somaiyya, Jai Hind etc.
.
23





Section 10(23C)(iiiad) for universities
Bodies whose gross annual receipts do not exceed
a specified amount ( Rs.1 crore vide rule 2BC).


No audit to be carried out either by the Government
or by the accountants as defined u/s 288 of the
Income-tax Act( small educational bodies).
.

24


the institution is notified by the prescribed
authority in the Official Gazette.

subject to audit by an accountant as defined u/s
288 of the Income-tax Act (Rule 16CC of the
Income-tax Rules)( non-governmental audit).

Section 10(23C)(vi) for educational Institutions
25




Proviso to Section 10(23)
3
rd
Proviso, Accumulation of amount exceeding 15% of income
shall in no case exceeds 5 yrs(w.e.f. 1-4-2003) and
investment should be as per modes specified in section 11(5).
Under 7
th
proviso, business should be incidental to attainment
of objectives and separate books of account should be
maintained.
Under 12th proviso, If an institution does not apply its income
during the year of receipt and accumulates it and makes
payment there from to any trust or institution registered under
section 12AA or to any trust such payment shall not be treated
as application of income.
Under 13th proviso, the circumstances under which the
prescribed authority is empowered to withdraw the approval
earlier granted.
Under 15
th
Proviso, anonymous donation referred in section
115 BBC shall be included in total income.


26




Controversies in Claim for exemption u/s
10(23C(iiiab):

The assessee must satisfy 2(two) conditions cumulatively
namely
Exist solely for educational purposes and not for purposes of
profit; AND
Is wholly or substantially financed by the Government.

The term substantially financed is not defined anywhere in
the I-T Act.
If the term wholly means cent per cent financing by the
Government, the term substantially financed has to
necessarily take its colour from the term wholly preceding it.
Under the doctrine of noscuntur a sociis, the meaning of a
doubtful word may be ascertained by reference words
associated with it.
27




Controversies in Claim for exemption u/s
10(23C(iiiab):

In all the three provisions namely 10(23C)(iiiab), section
10(23C)(iiiad), section 10(23C)(vi)
PhraseExist solely for educational purposes and not for
purposes of profit, is common.
However,
Section 10(23C)(iiiad)-No requirement to carry out any audit
by the Government or by the accountants as defined u/s 288
of the Income-tax Act.

Section 10(23C)(vi) are subject to audit by an accountant as
defined u/s 288 of the Income-tax Act (Rule 16CC of the
Income-tax Rules).

Section 10(23C)(iiiab), which are wholly or substantially
financed by the Government, are not subject to audit by an
accountant as defined u/s 288 of the Income-tax Act( non-
governmental audit).
28

Wholly or Substantially Financed??

The Government seeks to exercise control
over the utilization of finances by a private
body being wholly or substantially financed
by the Government

29
They are subject to audit by the C&AG u/s
14(1) of the Comptroller and Auditor-
Generals (Duties, Powers and Conditions of
Service) Act, 1971 since they are wholly or
substantially financed by the Government(
not subject to audit by Accountant).

Phrase substantially financed by the
Government in section 10(23C)(iiiab) and
Explanation to section 14(1) of the
Comptroller and Auditor-Generals Act,
1971 is identical.

Explanation to sub-section (1) of
section 14 of the CAG ACT is the only
provision in which legislative guidance is
available for phrase substantially
financed by the Government.







30


Section 14 of the Comptroller and Auditor-
Generals Act, 1971Act reads as under:
14 (1) Where any body or authority is
substantially financed by grants or loans from the
Consolidated Fund of India or of any State , the
Comptroller and Auditor General shall, audit all
receipts and expenditure of that body or authority
and to report on the receipts and expenditure
audited by him.
Explanation:- Where the grant or loan to a body or
authority from the Consolidated Fund of India or of
any State ..in a financial year is not less than
Rupees twenty-five lakhs and the amount of such
grant or loan is not less than seventy-five percent
of the total expenditure of that body or authority,
such body or authority shall be deemed, to be
substantially financed by such grants or loans
31


Deeming provisions in the Income-tax Act, e.g., are in the
context of determining substantial interest or substantially
interested .

They vary greatly.

While section 2(18)(a) regards holding of not less than 40% of
the shares of a company by the Reserve bank as substantial,

sub-section (22) of section 2, regards, beneficial entitlement
to not less than 20% of the income of a concern by a person
as substantial interest in that concern.
32





33



Perusal of Section 14(1) shows that it is the only
provision in a Central Act in which the meaning
and content of the phrase substantially financed
has been statutorily laid down.

75% of total expenditure of such bodies must be
financed by the Government.

The Government finances both revenue as well as
capital expenditure of private bodies and hence
both together will determine the total
expenditure.


34




35

CASE STUDY of South Indian
Education Society for A.Y. 07-08:

The assessee is engaged in running
various degree courses in Commerce and
Scienceincluding courses in Management
studies, technology, packaging etc.,

The society also conducts and maintains
a home for the senior citizens.

The assessee is a Government-aided
educational institution having received
grants from the Government.

36

:


The Government Grant is only towards
High Schools, Junior Colleges and Degree
Colleges.
majority income of the assessee is from
Engineering College and Management
Institute which are unaided???

The assessee also claimed to have received
voluntary contributions and claimed
exemption u/s 11(1)(d) (section 2(24)(iia)
income includes????

The assessee has credited various sums
towards various corpus funds in the
Balance Sheet directly.


37



More than 1600 contributors/donors whose
children were studying in the institutions

Payment in cash outside the banking channels.

Contributions on or around particular dates and
mostly at the time of admission.

At the time of receipt of money, temporary money
receipts were initially issued to Contributors.





Rejection of the claim for exemption u/s
11:

38



Surrender of temporary money receipts and
collection of permanent money receipts after 3-4
months.


These permanent money receipts did not contain
any direction by the contributors under their
signatures that their contributions would form part
of the corpus.





Rejection of the claim (continued)

39


Extra fees in the garb of voluntary contributions,
over and above the prescribed fees notified by the
Government is nothing but capitation fees and
involve an element of profiteering.

In earlier years also, the assessee has been denied
exemption u/s 11. The assessee has accepted that
position by not filing appeal.

Subsequently Search was conducted on the assessee
premises and proof of cash given in lieu of donation
taken in cheque was found and admitted.
Claim of Section 11 was denied. Consequently,
Section 11(2) ,11(1)(d), capital expenditure???





40


Scrutiny of the claim for exemption u/s
10(23C(iiiab):
Besides school and colleges, the assessee is also
running a Senior Citizen Home.

On being confronted with the aforesaid position, the
assessee claimed that the Senior citizen home is for
the retired teachers. It is seen from the Rules that
any senior citizen can apply for admission into the
home.

The surplus generated by the assessee constitutes
more than 20% of the gross receipts including extra
fees charged by the assessee.





41


In Sind Cooperative Housing Society v. ITO, the
Honble Bombay High Court has held:
At any rate if the society retains the amount in
excess of binding Government notification or the
bye-laws that amount will be exigible to tax as it
has an element of profiteering.
It was further observed that the government grant is
Rs. 7,77,89,619/- whereas the assessee has
expended Rs. 32,60,04,020/-. Thus the
Government has financed the assessee to the extent
of about 20% of its total expenditure.
SIES institution had submitted the I/E and B/S
pertaining to those units only which were receiving
Government Grant before the CAG(different from
the one submitted before Income Tax Authority)



42




43


Section 11(1) refers to Application Of Income.

The assessee Trusts have been setting apart funds
for specific purpose and claiming it as application of
funds.

Such funds cannot be treated as application of
income as the fund has only been earmarked and
allocated for a purpose but not applied or the
purpose.
44


Section 11(1) refers to Application Of Income.

Reliance is placed on the decision of Hon. Bombay
High Court in the case of Hanmantram Ramnath v.
CIT (1946) 14 ITR 716 (Bom) where there was only
declaration but not set apart or credited to the
account of any trust.

Similar view was taken by the Supreme Court in the
case of Nachimuthu Industrial Association v. CIT
(1999) 235 ITR 190 that mere setting apart may not
be enough.

45


Section 11(1)(a) as substituted by Taxation Laws
(Amendment) Act, 1975 with effect from 1.4.1976
makes a distinction between what is applied and
what is accumulated or set apart.

Example::
Income Rs. 20,90,91,973/-
Less: Fund transfer Rs. 1,75,00,000/-
Total Income Rs. 19,15,91,973/


46




47



It was noticed on perusal of various Schedules of
Balance Sheet that the assessee has been maintaining
various earmarked funds namely Benevolent Fund
Domestic and International.

There are accretions to the earmarked funds

The assessee had credited interest

The assessee had further claimed the interest on the
earmarked funds as Application of Income in
Computation of Income.

BCCI
48



The assessee further claimed an amount of
Rs.51,92,40,260/- as amount spent out of
accumulation made u/s 11(2) in earlier years, out of
which Rs.14,34,95,000/- was transfer to Platinum
Jubilee Benevolent fund and the same was considered
as amount spent out of accumulation made in earlier
years u/s.11(2).


Transfer to fund does not amount to application
therefore, transfer to Platinum Jubilee Benevolent fund
was not considered as amount spent out of
accumulation made u/s.11(2).


49





50



Gross Total Income Rs. 2,00,00,000/

Less: 15% Accumulation u/s.11(1((a) Rs. 30,00,000/-

Less: Expenditure on object of the trust
a) Establishment expenses Rs.2,00,000/-
b) Repairs & maintenance Rs.1,00,000/-

Rs.1,67,00,000/-
Less: Capital expenditure Rs. 1,97,00,000/-
Loss (-)30,00,000/- (C/F)



51



Assessee is claiming 15% accumulation u/s
11(1)(a) of the Act even when the entire income
has been expended towards object of the trust
and
there is no surplus left to be accumulated.

15% accumulation in cases where there is no
surplus is not permissible. Accumulation can
only be made when there is surplus.




52





53



Where 85% of the income could not be applied
Such amount can be accumulated U/s.11(2) either in
whole or in part ,
If the assessee specifies by
notice in writing given to the Assessing Officer
in the prescribed manner,(FORM 10 in Rule 17 of I.T.
Rules, 1962)
(iii)the purpose for which the income is being
accumulated or set apart and
(iv) the period for which the income is accumulated
which in any case
shall not exceed five years.
(v)The money so accumulated is invested or deposited
in the forms or modes specified in Section 11(5).

54



A critical examination of From No.10 reveals that the
assessee has many options. One of the options reads

such sum as is available at the end of the
previous year

Hence, the assessee wrongly enjoys the liberty to
accumulate the surplus determined by the Assessing
Officer and escape any tax liability which may arise
thereon.
55



Case Study:
Form No.10 was not filed with the Return of Income and
the same was produced by the assessee at the time of
appellate proceedings.
Form No.10 was not prepared before the date of filing of
Return of Income requirement as specified( Section
139(1) of the I.T. Act, 1961) in rule 17 of I T Rules 1962.
Section 11(2) inter alia reads as under:
Such option to be exercised in writing before the expiry
of the time allowed under sub section (1) of section 139
for furnishing the return of income.

Preparation of Form No. 10 before the due date for filing
of return of income (Section 139(1) of the I.T. Act, 61 is
a statutory requirement.







56



Audit Report in Form No. 10 B is a statutory
requirement u/s 12A.

If an assessee files audit report in Form 10BB or any
other statutory Form or if the Return of Income is not
accompanied by Audit Report in Form No. 10 B,
exemption u/s 11 is liable to be denied to the assessee.

The claim of an assessee that The object is achieved by
the audit report in FORM 10BB is very farfetched
argument.

In Form 10B , one of the column is verification by
Auditor of attraction of provisions of Section 13 which
is very essential for grant of exemption u/s 11





.







57




58



The assessee, a teaching and Research institution,
had claimed exemption u/s.10(23C)(iiiab).
The assessee was not filing its accounts before
the CAG under the provisions of Comptroller and
Auditor Generals (DPC) Act,1971 though it was
receiving Substantial Grant(UGC) from the
Government.

Thereby not subjecting their accounts to any Audit
escaping any kind of control either under
Government or under income Tax Act

59



The Indian Audit & Accounts Department vide letter
No. DGA/C&AB/Sec. 14-15/C-L dated 25/02/2010
has asked TISS, the assessee to submit copies of
their annual audited accounts since the year 2004-
05 to examine the applicability of section 14-15 of
the Comptroller and Auditor Generals(DPC)Act,1971


In the case of DDIT vs. Indian Institute of
Management, it was held that Indian Institute of
Management is set up by the Government and
managed by the Government.

In the case of ITO vs. Deeshiya Vidya Shala Samithi,
the AO opined that wholly or substantially financed
means 100%-90% whereas the institute was
receiving grants of 78.5 % from the Government.

60



In the case of Santosh Hazari vs. Purushottam Tiwari
the word used is merely substantial .

The assessee is also registered u/s 12A of the IT Act
but had filed Audit Report in Form 10BB.

The return of income was not accompanied by
Audit Report in the prescribed Form No. 10 B
which is a statutory requirement u/s 12A.
12A(1)
(b) The person ..furnishes along with the return
of income for the relevant assessment year the
report of such audit in the prescribed form duly
signed and verified by such accountant...
61




62



Trust compute deficit from excess Expenditure over
Income.

Excess expenditure is spent out of corpus fund or
other funds reflected in the Balance Sheet on which
exemption has already been claimed by virtue of
various provisions of section 11 of the Act.

Expenditure out of Accumulated fund u/s 11(2) is
generally not reduced from claim of expenditure by
the assessee.



63



Source of funding excess expenditure is exempt
income.

Claim of deficit amounts to claiming a double
deduction, as the Income/ fund expended has
already been allowed exemption under different
provisions of section 11 of the Income tax Act,1961.

In the case of CIT v/s Institute of Banking Personnel
Selection 264 ITR 110(Bom) this issue has been
decided in favour of the assessee on commercial
principles.
Department did not file SLP in Honble Supreme
Court on account of low Tax effect .
the ratio of judgement in the case of Escorts Ltd. v/s
Union of India 119 ITR 43 was not considered

64



wherein it was held that
Double deduction cannot be presumed if the
same is not specifically provided by Law in
addition to normal deduction.

Accumulated surplus of 15% u/s 11(1)(a) , Corpus
Donation u/s 11(1)(d), Accumulation u/s 11(2)
utilised for excess expenditure have already been
claimed as exempt income

Cases where such excess expenditure are allowed to
be carried forward to be set off against income of the
subsequent years amount to multiple benefits which
is against the legislative intention.
65



Depreciation:
This is a recurring issue in the assessment of almost
every trust.
Trust claim entire expenditure on the Capital Asset
as application of Income.
Further, claims depreciation on the said asset.
It amounts to claiming double decuction.

decision of the Honble Bomaby High Court in the
case of Commissioner of Income Tax Vs. Institute of
Banking andPersonnel (264 ITR 110) is in assessees
favour.

It isa fundamental axiom that no Legislature could
have at all intended a double deduction in regard to
the same business outgoing ; and, if it is intended, it
will be clearly expressed.


66




A.Y. 05-06
Exempt income(Rs. 100)
The entire corpus donation is exempt u/s 11(1)(d) of the
Income TaxAct,1961

A.Y06-07
Exempt income(Rs. 130)
the entire amount of Rs.100/- utilized for purchase of
capital asset and Rs.30/-
A.Y 07-08
Exempt income(Rs. 42)
It is evident from the above table that the total exemption
being enjoyed by the assessee is Rs.272/- for a donation
of merely Rs.100/- in the above three A.Y.

67




Amendment of objects:BCCI
Registration u/s 12A is granted by the Director of Income
Tax (Exemptions) on the basis of the Trust Deed
submitted at the time of the registration.
Several trust thereafter amend the objects of the trust
without the permission of the Director of Income Tax
(Exemptions).
Where the objects of the trust or institution, which were
the basis of grant of registration, are altered after such
grant of registration, the very foundation of the
registration having been removed by a voluntary act of
the assessee trust, the registration would not survive.
This view has been held by the Allahabad High Court in
its decision in the case of Allahabad Agricultural Institute
and Another v. Union of India and Others, reported in
291 ITR 116.

68




III Repayment of Loan:
Cases where assessee trust has received certain
secured/unsecured loans. The receipt of such loans
being capital in nature, is not declared as income

The utilization of such receipts from loans, on
acquisition of movable or immovable assets, is claimed
as Application ,

In addition to the same, even the repayment of such
loans, is claimed as deduction in the year of repayment
relying upon Circular No.100 of CBDT dated
24/01/1973, which permits the repayment of loans to be
claimed as Application, which amounts to claiming
double deduction.

69




Exemption U/s.10(33) on dividend and long term
capital gains:

It is seen that in various cases, the assessee trusts invest
their funds in mutual funds asProperty held under the
Trust.

It is further seen that the assesses have claimed income
from capital gains/dividend as exempt U/s.10(33) of the
I.T. Act and attempted to take this income out of the
purview of restrictive provisions relating to Application
or Accumulation as per Section 11 of the Income Tax Act
70




Case Study of BCCI:
The assessee institution is heavily banking on the
Boards Circular wherein Promotion of Sports is
Charitable object. Promotion of sports is certainly a
charitable purpose. However, the activities of the
trust need to be in conformity with the objects of the
trust. Thus the stated objects of the institution are not
determinative for deciding the issue in this case and it is
therefore necessary to examine the actual activities
carried out.

It was held that major income arises not from the
game of cricket but from the business of cricket.
71




Case Study of Media Research:

It was held that the assessee is making EXCESS
PAYMENT FOR SERVICES TO EXCLUDED
PERSONS(persons covered u/s 13(3) read with
Section 13(2)(c).

The assessee had also given huge sum of advance to the
said company.

The assessee had declared that income is from Business
activities incidental to charitable purposes. From A.Y. 09-
10 they are subject to tax if amount exceeds 10 lakhs.
72



Benefits to Trustee :Section 13 of the Income tax act :
Purchase Property in the name of the Trust but it is
actually meant for personal use of the trustee.
The trustee was running his office from the same
premises or other non educational purposes.
In one of the reputed trust hospital,the main trustee
was paid substantially higher salary as compared to
other doctors .
In the case of a renowned sports society,the
managing committee members had visited outside
India . There was no connection of the visit and
development of the particular sport
Important Case laws on this issue:
DIT v/s Bharat Diamond Bourse 126 taxman 365(SC)
CIT v/s Rattan Trust 227 ITR 356 (SC)
Ram Bhawan Dharamsala 258 ITR 725 (Raj)
73



Case Study of Symbiosis Society: the assessee was
exemption u/s.10(23C) (vi)

The assessee had transferred fund directly to the land and
building earmarking fund).
Surplus-Institute wise
Symbiosis Society was running 25 institutes.. The surplus
of each institution was transferred to the Symbiosis
Society.
The Surplus was generated mainly from the very high fee
structure ,
The surplus funds was being mainly used in purchase of
land and construction of buildings. The society was in turn
charging rental income from different institutes.


74



Article 20 of the Trust deed: Only the Permanent
Fund will be used for purchase or acquisition of
immovable properties. However in the balance
sheet, amount was directly transferred to land and
building fund out of the current fund.

In Trust deed, it was written that the properties
of the society shall vest in the Management
Committee. In the case of Ganpatrai Sagarmal
(Trustees) for Charity Fund Vs. CIT (1963), 47 ITR
625 the Calcatta High Court held that it was not
enough that the income form the property should be
held for religious or charitable purposes, but the
property itself should be held in trust .

75



profit motive is apparent from the surplus generated in last
5 years and the growth in assets of the society.

Corpus donation to SIEC
Symbiosis society advanced an amount of Rs.5 crores to
SIEC Symbiosis International Education Centre

As per proviso x of section 10(23C), donations out of
accumulated funds will not be considered as application of
income.
By vesting the properties in the Managing committee, the
indirect benefits are given to persons specified in section
13(3). The foreign visits by 6 directors including the joint
director and her husband also gives the indirect benefit to
the person specified in sub section (3) of section 13.

76



What is Education:

Honble Patna High Court in the case of Bihar
Institute of Mining and Mine Surveying Vs. CIT 208
ITR 608(Patna) held that coaching of student for
specific purpose to appear at some specified
examinations would not bring the petitioner within
the provisions of Sec.2(15) of the Act.
The Honble Supreme Court in the case of Lok
Shikshan Trust (Supra) held:
the sense in which the work education has been
used in section 2(15) is the systematic
instruction, schooling or training given to the
young in preparation for the work of life, What
education connotes in that clause is the process
and developing of knowledge, skill, mind and
character of students by normal schooling.
77



JITO Administrative Foundation Trust v. DIT
(Exemption) [2010] 7 TAXMANN.COM 83 (MUM -
ITAT.), Registration was refused to the assessee
u/s.12A of the Act. The main objects of the Trust as
given in the Trust deed was as under:-
to enable them to qualify for and make them fit and
proper for admission to the class I & II civil services
of Government of India and States ...

It was held that the assessee was merely refreshing
knowledge already possessed by the students and
not imparting any further education. It was pointed
out that the assessee was not engaged in educational
activities.
78



Profiteering in Hospital activity
Case Study 1
Issue of Incidental Business :
The assessee was running a pharmacy in the hospital
premises on the ground floor.
The medicines are sold at MRP i.e. maximum retail
price. Many of the items which are sold at pharmacy
are non medicinal items.

Assessee had not supplied the information regarding
Running Cafeteria, Gymnasium at the time of
obtaining approval.
Hospitals claim that Cafeteria, Pharmacy is
incidental activity. Similarly activity of running
gymnasium, Ayurvedic massage, etc can not be said
to be incidental activity.
79



Bogus Bills :
It was observed that to increase the expenses one
reputed Hospital was getting Bogus Bill for Medicines
and other Items.. The difference was siphoned to
trustee from the parties who issued bogus bills.
In one of the private Hospital the Surgeon had paid
Surgery assistance charges to his wife who was just
MBBS.
Maintainance of Separate Books of Accounts : The
Hospital has to maintain separate books of accounts
for the incidental business.(section 11(4A)of IT act.).
It will be observed that the same bill contain the
medicines and other items purchased from the
Pharmacy and caffeteria. This shows that there are
no separate books of accounts for the so called
incidental business.
80



Amendments:
The definition of income in S. 2(24)(iia) is changed
retrospectively from 1-4-1999 to provide for inclusion of any
voluntary contributions.

Section 12 has been amended by Finance act 2000 with effect
from 1.4.2001 providing that the value of any medical or
educational services, made available by a trust running a
hospital or an educational institution to trustees or related
persons would be deemed to be income of such trust and
chargeable to tax.

Also section 80G has been amended to provide that an
institution or fund which incurs expenditure during any
previous year, which is of a religious nature will not lose the
benefit of section 80 G if such expenditure does not exceed 5%
of its total income.


81



Further public trusts falling under section 11 cannot
accumulate their income for more than 5 years and a
similar limit has been introduced for the 1st time in
case of notified trusts of importance or medical or
educational institutions falling under section 10
(23C).

The amount which can be set aside is reduced from
25% to 15%.

The accumulation of section 11(2) cannot be credited
or paid to any other trust or institution registered
under section 12AA or to any educational or medical
institution under section 10 (23C).


82



Anonymous Donation:

The earlier liberal provision in the taxation law was
grossly misused by the charitable organizations.

The Government of India had imposed 30% tax on
anonymous donations in the Finance Bill of Budget
of 2006/07 w.e.f. 1.4.2007.

Anonymous donations received by wholly religious
organizations remain exempt from tax.



83



Anonymous donations received by partly religious
and partly charitable organizations also remain
exempt from tax except In the case of
Partly religious and partly charitable
organizations, anonymous donations received
towards a medical or educational institution
run by such organizations.
All other charitable organizations, anonymous
donations received
shall only be taxed to the extent they exceed:
5% of the total donations received by the
organizations, or
Rupees One lakh Whichever is higher.

84



Amendment in the Definition of Charitable
purpose vide Finance Bill, 2008.

After amendment, it is provided in the section that an
activity which involves the carrying on of any activity
in the nature of trade, will not be considered as
charitable purpose if the receipts from such activities
is more than Rs.10 lacs in the relevant accounting
year.
By an amendment of this section, w.e.f.A.Y.2012-13,
the above limit of Rs.10 lacs increased to Rs.25 lacs

85



Other Acts and laws Applicable :

As per the Bombay Public Trust Act, 1950, the trust
has to be apply for approval of Charity Commissioner
u/s 36A(3) in respect of raising loan or deposit.

Foreign Contribution Regulation Act:
Any Trust who regularly receives Foreign Donations
has to get it Registered. Prior registration is a must.
Rule 3A , is regarding Application for registration.An
application for registration is to be made in Form FC-
8.
Rule 8 : Maintenance of Accounts : A separate set of
Accounts and records shall be maintained exclusively
for foreign contribution and duly certified by
Chartered Accountant in Form FC 3.
86






Wealth Tax Act:


Exemption u/s 5(1)(i) of the Wealth Tax Act is
available only for the property held under trust for a
public purpose of charitable or religious nature in
India.
87
88