The Budget 2022 has proposed the Provision relating to Rationalisation of the provision of Charitable Trust and Institutions.
Income of any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 or any trust or institution registered u/s 12AA or 12AB of the Act is exempt subject to the fulfillment of the conditions provided under various sections.
The exemption to these trusts or institutions is available under the two regimes.
The regime for any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 and the regime for the trusts registered under section 12AA/12AB.
In the Finance Bill, it is proposed to rationalise the provisions of both the exemption regimes by ensuring their effective monitoring and implementation; bringing consistency in the provisions of the two exemption regimes; and providing clarity on taxation in certain circumstances.
With the objective of Ensuring effective monitoring and Implementation of two exemption regimes Books of account to be maintained by the trusts or institutions under both the regimes, Penalty for passing on unreasonable benefits to the trustee or specified persons, Reference to the Principal Commissioner or Commissioner (PCIT/CIT) for the cancellation of registration/approval. Bringing consistency in the provisions of two exemptions the regimes. Bringing consistency in the provisions relating to payment to the specified person
The provisions of section 115TD apply to any trust or institution under the first regime. Chapter XII-EB was introduced by the Finance Act, 2016. It provides for the taxation of accreted income of the trust in certain cases. A society or a company or a trust or an institution carrying on a charitable activity may voluntarily wind up its activities and dissolve or may also merge with any other charitable or non-charitable institution, or it may convert into a non-charitable organization. In order to ensure that the intended purpose of exemption availed by trust or institution is achieved, a specific provision in the Act was brought about for imposing a levy in the nature of an exit tax which is attracted when the organisation is converted into a non-charitable organisation or gets merged with a non-charitable organisation or a charitable organisation with dissimilar objects or does not transfer the assets to another charitable organisation. Accordingly, a new Chapter XII-EB consisting of Sections 115TD, 115TE, and 115TF was inserted in the Act.
In order to provide clarity, it is proposed to insert Explanation 3A in sub-section (1) of section 11 of the Act to provide that where the property held under a trust or institution includes any temple, mosque, gurdwara, church or other place notified under clause (b) of sub-section (2) of section 80G, any sum received by such trust or institution as a voluntary contribution for the purpose of renovation or repair of such temple, mosque, gurdwara, church or other places, may, at its option, be treated by such trust or institution as forming part of the corpus of the trust or the institution, subject to the condition that the trust or the institution, applies such corpus only for the purpose for which the voluntary contribution was made; does not apply such corpus for making contribution or donation to any person, and maintains such corpus as separately identifiable; invests or deposits such corpus in the forms and modes specified under sub-section (5) of section 11.
Trust or institutions under both regimes are required to apply 85% of their income for the purposes specified. As is evident from the word “ application”, it means actually paid. This is the position that has been held by different courts also. Accordingly, it is being clarified by inserting Explanations “[Explanation 3 to clause (23C) of section 10 and Explanation to section 11] to provide that any sum payable by any trust under the first or second regime shall be considered as the application of income in the previous year in which such sum is actually paid by it irrespective of the previous year in which the liability to pay such sum was incurred by such trust according to the method of accounting regularly employed by it. It is further proposed to insert a proviso to the proposed Explanations [Explanation 3 to clause (23C) of section 10 and Explanation to section 11] to provide that where during any previous year, any sum has been claimed to have been applied by such trust, such sum shall not be allowed as application in any subsequent previous year.
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