Section 11 of income tax act

PPT is on the basics of Section 11 of the Income Tax Act 1961

1. SECTION 11
OF INCOME TAX ACT 1961
INCOME CALCULATION AND TAXATION OF CHARITABLE
/ RELIGIOUS TRUSTS AND INSTITUTION
Presented by:-
Gunjan Sharma

2. •Charitable Trust:It is the Trusts which has an objective
ofCharitable Purposesand provides voluntarily help. They
are non-profit based and their main purpose is toward
activities which are for the benefit for the Societyat large.
•Religious Trust:Religious Trusts has not been defined
under the income tax act. The creation of Religious Trust is
governed by the personal laws of the religion. But in
general connotation, it can be deemed as the Trusts which
are involved in the activities of promoting religion or
particular belief.
•But in reality, most of the Religious Trusts also promote the
charitable causes as well e.g. education, medical facility,
WHAT IS CHARITABLE / RELIGIOUS TRUSTS OR INSTITUTES

3. DEFINITION OF CHARITABLE PURPOSE INCLUDES…..
•Reliefofpoor
•Education
•Yoga
•Medicalrelief
•Preservationofenvironment
•Preservationofmonumentsorplacesor
objectsofartisticsorhistoricinterest
•Advancementofanyotherobjectof
generalpublicutility

4. ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY
Meaning
•Advancement of any other object of general public utility shall not be a
charitable purpose, if it involves thecarrying 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 orfee 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 thecourse
of actual carrying out of
such advancement of any
other object of general
public utility; and
(ii)the aggregate receiptsfrom
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.

5. NEED TO EXEMPT INCOME OF CHARITABLE TRUSTS
•There are various Non-Governmental Organizations (NGOs) and
non-profit entitiesconstantly working on charitable activities by
raising fundsall over the world by forming either an institution
or trust.
•Efforts of such institutions play a significant role in promoting
economic development and social welfare objectives of
Government. Need for such organisations along with
Government’s efforts cannot be ruled out, not because
Government lacks funds but due to such institution’s outreach
and more localised approach which ensures identification of
needy in the nook and corner and extending a supporting hand.
•This calls for incentives to these institutions and more
specifically tax incentives to genuine charitable institutions
from tax administrations of any country whether developed or
developing to encourage such activities

6. How to get the benefit under the Income tax act?
•For having the benefit of exemptions under
theincome tax act, 1961Charitable or Religious
Trusts have to get themselves registered under the
income tax act u/s 12AA
•Also, Return must have been filed within due date.
•If Gross Receipts exceeds Rs. 2,50,000/-then the
accounts of Charitable or Religious trust must be
audited to get the tax benefit available to the Trusts
under the act.

7. SECTION 11(4A)….
•Thecharitabletrustengagedinbusinessactivitywillbeliabletoanytaxon
incomefromtheactivity.
•However,exemptionwouldbeavailabletotrustinrespectofincomeearned
fromsuchbusinessactivityif-
•Suchbusinessisincidentaltoattainmentofobjectofthetrust/institution;and
•Separatebooksofaccountsaremaintainedbysuchinstitutioninrespectof
suchbusiness.
TREATMENT OF BUISNESS INCOME OF THE TRUST

8. Propertyheldundertrustmayconsistofbusinessundertaking.ifthatbeso,thetrustees
mayclaimthattheincomeofsuchundertakingenjoysexemptionundersection11.
section11(4)providesfortwothings:-
•Theassessingofficershallhavethepowertodeterminetheincomeofthe
undertakinginaccordancewiththeprovisionofactrelatingtoassessment,and
•Wheretheincomedeterminedbytheassessingofficerisinexcessofthatshownin
booksofundertaking,suchexcessshallbedeemedtobeappliedtopurposesother
thancharitableorreligiouspurposesandaccordinglybedeemedtobetheincomeof
thepreviousyearinwhichithasbeendeemedtohavebeensoapplied.
SECTION 11(4)…..
TRUST PROPERTY CONSISTS OF BUSINESS UNDERTAKING

9. Section 11(1)
•Income from property held for charitable purpose
(1)The following income shall not be included in the total income of the
previous year of the person in receipt of the income—
(a)income derived from property held under trust wholly for charitable
or religious purposes, to the extent to which such income is applied to
such purposes in India; and, 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 fifteen per cent of
the income from such property;
(b)income in the form of voluntary contributions made with a specific
direction that they shall form part of the corpusof the trust or institution.

10. 23
[Explanation 1].—For the purposes of clauses (a) and (b),—
(1)in computing the fifteen per cent of the income which may be accumulated
or set apart, any such voluntary contributions not made with a specific
direction that they shall form part of the corpus of the trust shall be deemed to
be the part of the income ,
(2)if, in the previous year, the income applied to charitable or religious
purposes in India falls short of eighty-five per cent of the income derived
during that year from property held under trust, or, as the case may be, held
under trust in part, by any amount—
(i)for the reason that the whole or any part of the income has not been
received during that year, or
(ii)for any other reason,
Explanation 1 to section 11

11. if 85% of the income not applied
For the reason mention in explanation to the clause (a) in such
case such income shall deemed to be applied to such purposes in
India during the PY in which the income was derived provided -
In the case referred to sub-clause (i) such
income is applied:-
a.In the year of receipt , or
b. In the year following the year of receipt.
In the case referred to sub-clause (ii)
such income is applied:-
a. In the year following the PY
Given :-
1.Option is exercised before return of income
filling date as per section 139(1)
2.in such form and manner as prescribed

12. What is meaning of applied for charitable purpose?
The word “applied” is wider in sense then the word “ expenditure” . The following
amounts to application of income for charitable purpose :-
1.Application of amount can be for revenue or capital purpose. The amount
spent on construction of building owned by a religious trust which were let out
and the income for religious / charitable purpose
2.Expenditure on purchasing capital assetsfor religious/ charitable purpose.
3.Amount of donations to religious/ charitable trusts registeredunder section
12AA and referred in section 10(23C)
4.If the liability for an expenditurehas been incurred, the same would amount to
application of income

13. 5. Repayment of loan taken for construction of building or for the purpose of the
trust / institute , provided that the amount spent on construction of building or
expenditure incurred for which loans were taken was not treated as application of
income.
6.Interest bearing loans advanced by an educational trusts to student amount to
application of income , if the object is advancement of education and granting of
scholarship. As and when the loan is returned , it will be treated as income .

14. Gross receipt from properties held under trust for religious and charitable
purpose
50,00,000
Voluntary contribution forming part of corpus of trust 3,00,000
Expenditure on activities of religious nature 5,00,000
Receipt of loan given earlier for advancement of loan education 1,00,000
CASE1: if 10,00,000 has not been received by the assessee till 31.03.2019, and the
same has been received in PY 31.03.2020 and 300000 is spent in the year in PY
31.03.2020 and 600000 in the year ending 31.03.2021
CASE 2 : declaration given in the prescribed manner that the income not applied
shall be applied in PY 31.03.2020
Following is the detail of income & application of income for the PY 31.03.2019
Practical question on provision of section 11(1)

15. Solution -case1
Gross receipt from properties 50,00,000
Add: receipt of loan 1,00,000
Less: 15% accumulation (7,65,000)
Expenditure of religious nature (5,00,000)
Less: deemed application of income (10,00,000)
Total income 28,35,000
Rs.1,00,000 not applied shall deemed to be income of PY 31.03.2021
Solution –case2
Total income 38,35,000
Less : Application of income as per sub-clause (ii)of clause (2) of
explanation to section 11(1)
(38,35,000)
S
O
L
U
T
I
O
N

16. AMENDMENT BY FINANCE ACT , 2017
Any amount credited or paid , out of the income derived from the property held under trust, to any
other trust or institution registered under section 12AA or 10(23C) , being contribution of specific
direction that they shall form part of the corpus of the trust or institution , shall not be treated as
application of income for charitable or religious purposes.
Trust XYZ
Income in
PY 100 lakh
Rs.15 lakh –adhoc
deduction
Corpus donation of rs.85
lakh made to trust abc
Now-taxable in the
hands of xyz
Earlier-exempt in
the hands of xyz
Exempt in the
hands of abc
Has nullified the following tax planning

17. EXPLANATION 3 TO SECTION 11(1)
For the purpose of determining the amount of application under clause(a) of section 11(1),
the provision of section 40(a)(ia) , 40A(3) and 40A(3A) , shall mutatis mutandis , apply in
computing the income chargeable under “ profit and gains of business and profession”.
If a trust incurs revenue expenditure for which payment is made ta a resident and which TDS is
required to be deducted but has not been deducted, then 30% of such expense shall be
disallowed
•Whereas assesseeshall not be treated in default if payee has
-included such income in his return
-paid tax thereon
-furnished certificate to assessee
•If TDS is paid in subsequent year , then 30% of expenditure disallowed earlier shall be
allowed
Any revenue expenditure paid in mode other than account payee cheque or \banking
channels in excess of rs.10000 , then the whole expenditure shall be disallowed
if an expenditure has been allowed on accrual basis and in subsequent PY , payment for such is
made by cash >10000 in a day , therefore amount so paid in cash shall be treated as income in
subsequent PY under the head of B&P
40(a)(ia)
40A(3)
40A(3A)

18. ALLOWED OR NOT
APPLICATION OF INCOME CLAIMED BY A TRUST Rs. In lakhs
-Salaries paid (TDS not deducted) 5
-Donation to another trust registered u/s 12AA (TDS not deducted) 10
-Royalty paid to an NRI (TDS not deducted) 6
-Payment to contractor (but he filed ROI including such income by
30.9.2019 and furnidshedcertificate to the trust
20
-Donation to another trust notified u/s 10(23C) in cash4
-Repair expenditure (rs. 10000 cash paid on 10 different days)1
-Purchase of capital asset (paid in cash) 9
-purchase of food grains (payment in cash) 3
-amount paid to transporter (in cash) 3.5
Printing expense (paid in cash exceeding rs.10000 in a day)2.5

19. SECTION 11(1A)
CAPITAL GAINS DEEMED TO BE APPLIED FOR CHARITABLE / RELIGIOUS PURPOSE
where a capital asset under trust wholly for charitable/religious purpose , is transferred and
the whole or any part of the net consideration is utilised for another capital asset to be held ,
then the capital gain arising from the transfer shall be deemed to have been applied to
charitable or religious purposes to the extent, namely:-
When whole net
consideration is utilised for
the said purpose
Where only a part of net
consideration is utilised for
the said purpose
Amount of application of
income shall be = whole net
consideration
Amount of application of
income in such case shall be
=amount of investment in new
capital asset –cost of old asset

20. Practical question on section (1A)
A trust holds a capital asset, income of which is fully utilized for charitable
purpose . The capital asset is transferred on march 1,2019 and the amount
received on such transfer is rs.980000 and expense on transfer is rs.20000
Calculate amount exempt as the amount is applied for charitable purpose
in the following cases:-
Amount of investment in new
capital asset
Cost of old asset transferred
CASE1 960000 600000
CASE2 900000 600000
CASE3 700000 600000
CASE4 600000 600000
CASE5 500000 600000
Provision of indexation not available
Net consideration= full value of consideration received –expenditure in relation to such transfer

21. FOR EXAMPLE…
•Acapitalassetisbeingheldundertrust.twothirdoftheincomederivedfromsuch
capitalassetarebeingutilisedforcharitablepurposesofthetrust.theassetisbeing
transferred.
•Cost of the asset transfer- 20,00,000
•Net consideration- 25,00,000
SITUATION 1:-if cost of new asset acquired is 27,00,000
Theamountdeemedtohavebeenutilisedwillbe2/3
rd
of,00,000(i.e.27,00,000-20,00,000)
SITUATION 2:-if cost of new asset acquired is 22,40,000
Theamountdeemedtohavebeenutilisedwillbe(2/3
rd
of22,40,000)–(2/3
rd
of
20,00,000)=1,60,000

22. SECTION11(1B)
CONSEQUENCESIFINCOMENOTAPPLIEDFORSPECIFICPURPOSES
Where any income in respect of which an option is exercised under
clause (2) of theExplanationto sub-section (1) is not applied to
charitable or religious purposes in India during the period referred to in
sub-clause (a) or, as the case may be, sub-clause (b), of the said clause,
then, such income shall be deemed to be the income of the person in
receipt thereof—
(a)in the case referred to in
sub-clause (i) of the said clause,
of the previous year
immediately following the
previous year in which the
income was received; or
(b)in the case referred to in sub-
clause (ii) of the said clause, of the
previous year immediately
following the previous year in
which the income was derived.

23. Where eighty-five per cent of the income referred to in
clause (a) or clause (b) of sub-section (1) is not applied,
or is not deemed to have been applied, to charitable or
religious purposes in India during the previous year but is
accumulated or set apart, either in whole or in part, for
application to such purposes in India, such income so
accumulated or set apart shall not be included in the
total income of the previous year of the person in receipt
of the income.
SECTION 11(2)
EXEMPTION IF INCOME ACCUMULATED FOR SPECIFIED PURPOSE

24. (a)such person furnishes a
statement in the prescribed
form and in the prescribed
manner to the Assessing
Officer, 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, which shall in no
case exceed five years;
b)the money so accumulated
or set apart is invested or
deposited in the forms or
modes specified in sub-section
11(5)
c)the statement referred to in
clause (a) is furnished on or
before the due date specified
under sub-section (1)
ofsection 139for furnishing
the return of income for the
previous year:
Provided the following conditions are complied with, namely:—

25. EXPLANATION TO SECTION 11(2)
Providedthat in computing the period of five years referred to in clause (a),
the period during which the income could not be applied for the purpose for
which it is so accumulated or set apart,due to an order or injunction of any
court, shall be excluded.
Explanation.—Any amount credited or paid , which is accumulated as per as
per section 11(2), to any trust or institution registered undersection 12AAor
to any fund or institution or trust or any university or other educational
institution or any hospital or other medical institution referred to in sub-
clauses to 10(23C) , shall not be treated as application of income for
charitable or religious purposes, either during the period of accumulation or
thereafter.

26. SECTION 11(3)
EXEMPTION WITHDRAWN IF SPECIFIC CONDITIONS NOT SATISFIED
Any income referred to in
section 11(2)which -
Shall be deemed to be the income
of such person of the PY-
•Is applied for purpose other then
specified purposesand ceases to be
accumulated for application there to,
•Ceases to remain investedin forms
specified in 11(5)
•Or is not utilised for which it is
accumulated referred to in clause(a) of
section 11(2) or in the year immediately
following the expiry thereof,(BONUS YEAR)
•Donated to any trustregistered u/s
12AA or 10(23C)
•In which it is applied to purpose
other then specified or ceases to be
accumulated for application thereto
•In which it ceases to remain invested in
section 11(5)
•Immediately following the expiry of
the period for which was so
accumulated or set apart
•In which the amount is donated

27. •FROM THE JUDICIARY
DIT v. Bagri Foundation ( Delhi)
ISSUE:-can explanation to section 11(2) be applied w.r.t the accumulation up to 15%
set apart as referred in section 11(1)(a), to treat the donation made to another
charitable trust from the permissible accumulation up to 15% , as income of the trust?
HELD , THAT:-85% of the income which is accumulated can’t be donated . However ,
15% which is set apart isn’t subject to any condition . If any amount is donated to other
trust registered u/s 12AA out of 15% accumulated income , then the amount donated
can’t be said violation of 11(2) and shall not be deemed as income of the trust

28. SECTION 11(5)
Section 11( 5) specifies the modes of investing or depositing the money
referred in clause(b) of the sub section (2) , such as :-
i.Investment in Government Savings Certificates
ii.Deposit in any account of the Post Office Savings Bank
iii.Investment in the units of UTI
iv.Investment in immovable property
v.And in other modes as specified .

29. SECTION 11(6)
-Where an asset
-the cost of acquisition of which has been claimed as application of income u/s 11
for any PY
-Then no deduction by way of depreciation shall be allowed while computing the
income of any PY
-And such depreciation shall not be considered as application of income while
computing the income of any PY

30. SECTION 11(7)
-Where a trust has been granted registration u/s 12AA
-And registration is in forcein the PY
-Then the trust can’t claim any exemption under any provision of section
10 except u/s 10(1)and section 10(23C)for that PY
•Section 10(1) exempts agricultural income and trust can claim exemption u/s
10(1) along with section 11 and 12 .
•Exemption u/s 10(23C) is similar to exemption u/s 11& 12 and it is available to
certain big trust who are approved by central government .

31. SECTION 115BBC….
ANONYMOUS DONATIONS
•Anonymousdonationsreferstoanyvoluntarycontributionwhereaperson
receivingsuchdonationdoesnotmaintainarecordoftheidentityindicating
thenameandaddressofthepersonmakingsuchcontributionandsuchother
particularasmaybeprescribed.
•Exemptionofsection11&12isnotavailableincaseofanonymousdonations
i.e.taxispayableonanonymousdonationsaccordingtotheprovisionsof
section115BBC.

32. TAX ON ANONYMOUS DONATIONS:-
•Theamountofincometaxonanonymousdonationsiscalculatedattherateof
30%ontheanonymousdonationreceivedinexcessofthehigherofthefollowing
amount,namely:-
•5%ofthetotaldonationsreceivedbytheassessee.
•Rupees1,00,000.
•Howeveranonymousdonationreceivedisnottaxableifitisreceivedby:-
•Atrustestablishedwhollyforthereligiouspurposeliketemplesetc.such
donationshallbesubjectedtotheprovisionsofsection11&12;
•Atrustestablishedwhollyforthereligiousorcharitablepurpose.howeversuch
donationistaxableifitismadewithaspecificdirectionthatsuchdonationisfor
anyuniversity/school/educationinstitution/hospital/medicalinstitutionrunby
suchinstitution.

33. QUESTION ON 15BBC
•If a trust has received an anonymous donation of rupees 10 lacs and other donations of
rupees 20 lacs. the discuss the taxability of the same.
CASE 1:-Maximum limit upto which anonymous donation is not taxable ---1,50,000 tax payable
on anonymous donation will be 30% of (10,00,000-1,50,000) + 4% cess rest 21,50,000 shall be
subjected to the provisions of section 11 & 12
CASE 2: If it is a trust established wholly for religious purpose the whole of the donation
received i.e. 30 lacs shall be deal in section 11 & 12
CASE 3:-If it is a trust established wholly for religious and charitable purpose and anonymous
donation received is with specific direction that such donation is for any university/ school/
education institution/ hospital/ medical institution run by such institution . The taxability will be
same as case 1.

34. THANK YOU
“ CONCENTRATE ALL YOUR THOUGHTS UPON THE WORK IN
HAND .THE SUN’S RAYS DO NOT BURN UNTIL BROUGHT TO
THE FOCUS” –ALEXANDER GRAHAM BELL