Significance of Preposition under Service Tax

Services Provided “by” and “to” Charitable Trust – Part-II

In the First Part titled Services Provided ‘by’ and ‘to’ the Government we have analysed provisions relating to the services provided “by” and “to” the Government of India. (GoI) In this part, we shall examine the provisions relating to Charitable Trusts (CT).

Whether CT are liable to pay ST?

Yes. Refer to charging section i.e. Section 66B which reads as follow:

’66B. There shall be levied a tax …. provided ….. by one person to another…….

What is a “person”?

‘Person’ has been defined in Section 65 B. It includes following entities:

  ♦  an individual

  ♦  a Hindu undivided family

  ♦  a company

  ♦  a society

  ♦  a limited liability partnership

  ♦  a firm

  ♦  an association or body of individuals, whether incorporated or not

  ♦  Government

  ♦  a local authority, or

As can be seen, the term “person” is wide and includes Association of Persons whether incorporated or not.

Does it mean that CT will have to pay ST on services provided by it?

Yes. Section 66D containing Negative List (NL) is not having any specific reference to services provided by CT. Hence, services provided by CT are taxable.

If so, whether CT will have to pay ST on all the types of services provided by it?

No. For the purpose of determining tax liability, one will have to refer to Notification No. 25/2012 where under various types of services have been declared exempt.

Whether there are any exemptions for services provided by CT?

Yes. Clause No. 4 of Notification No. 25/2012 provides as follow:

Services by an entity registered under section 12AA of the Income tax Act, 1961(43 of 1961) by way of charitable activities;

As can be seen from above, exemption granted has two important conditions to be complied with viz. (i) CT should have been registered under section 12AA of Income Tax Act and (ii) the activities carried on should be charitable activities. Thus, all the activities carried on by the CT per se are not exempt. Exemption granted is restrictive.

What are “charitable activities”?

Clause 2(k) of Notification No. 25 / 2012 defines it as follow:

(k)  “charitable activities” means activities relating to –

 (i)  public health by way of –

(a)  care or counseling of (i) terminally ill persons or persons with severe physical or mental disability, (ii) persons afflicted with HIV or AIDS, or (iii) persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or

(b)  public awareness of preventive health, family planning or prevention of HIV infection;

 (ii) advancement of religion or spirituality;

(iii)  advancement of educational programmes or skill development relating to,-

(a)  abandoned, orphaned or homeless children;

(b)  physically or mentally abused and traumatized persons;

(c)  prisoners; or

(d)  persons over the age of 65 years residing in a rural area;

(iv)  preservation of environment including watershed, forests and wildlife; or

(v)  advancement of any other object of general public utility up to a value of,-

(a)  eighteen lakh and seventy five thousand rupees for the year 2012-13 subject to the condition that total value of such activities had not exceeded twenty five lakhs rupees during 2011-12;

(b) twenty five lakh rupees in any other financial year subject to the condition that total value of such activities had not exceeded twenty five lakhs rupees during the preceding financial year;

What will happen to various CTs which are Unregistered Organisations (UO)?

In India, there are large numbers of UO which are carrying on religious, charitable and social activities. These trusts / institutions are located at small towns and villages. In India there are thousands of castes. Each caste is having one or two or even more than that UO. These associations are not registered with the Income Tax Department. In fact, in many cases they are not even registered with local Government Authorities viz. Charity Commissioner. Therefore, a question will arise with reference to taxability of activities carried on by such organisations. Before determining taxability of such institutions, one will have to examine various clauses under NL and Mega Exemption Notification. Many of them are based on type of services provided. They are not dependent on nature of Service Provider (SP). In these cases, the question of payment of ST by such UR will not arise.

Activities covered under NL

Following are some of the activities which can be carried on by UO and not taxable.

Clause No. 66D(l)

(l)  services by way of—

  (i)  pre-school education and education up to higher secondary school or equivalent;

 (ii)  education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force;

(iii)  education as a part of an approved vocational education course;

Clause No 66D(q)

(q)  funeral, burial, crematorium or mortuary services including transportation of the deceased.

Hence, above activities carried on by UO will not be subject to ST.


There are various activities which are taxable but which have been declared exempt vide Notification No. 25/2012. As in the case of NL, it also contains various activities which are exempt. Exemption with respect to these activities is not based on nature of SP. Therefore, any person providing such services can claim the exemption. Following are some of the services provided by the UO can fall into exempt categories.

Clause No. 3

Services by a veterinary clinic in relation to health care of animals or birds;

Clause No. 5

Services by a person by way of —

 (a)  renting of precincts of a religious place meant for general public; or

 (b)  conduct of any religious ceremony;

Clause No 8

Services by way of training or coaching in recreational activities relating to arts, culture or sports;

Clause No 9

Services provided to or by an educational institution in respect of education exempted from service tax, by way of,-

(a)  auxiliary educational services; or

(b)  renting of immovable property;

Clause No 10

Services provided to a recognised sports body by-

(a) ……

(b)  another recognised sports body;

Clause No 18

Services by way of renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a unit of accommodation below rupees one thousand per day or equivalent

Clause No 19

Services provided in relation to serving of food ……….. by a mess, ………

Clause No 25

Services provided to Government, a local authority or a governmental authority by way of –

(a)  carrying out any activity in relation to any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation; or

Clause No 35

Services of public libraries by way of lending of books, publications or any other knowledge- enhancing content or material;

Clause No 38

Services by way of public conveniences such as provision of facilities of bathroom, washrooms, lavatories, urinal or toilets;

Services Provided “to” the CT

CT and UO can be SR as well. In the process of carrying out its activities, CT and UO receive services from various persons. It is the general perception that since CT and UO are not carrying on any business activities, there is no question of paying any ST for the services provided to them.  At times, SP find it difficult to convince the Trustees and Office Bearers that as a SP they are required to pay ST irrespective of the legal status of the SR. Neither the NL nor Exemption Notification contains any clause granting absolute exemption or tax-free status to CT and UO.

ST on RCM for Services provided “to” the CT and UO

Notification No. 30/2012 regarding RCM does not contain any specific clause granting any specific relief to CT and UO. However, majority of the clauses are applicable either to business entity or corporate body or partnership firm. Clause 65B (17) of the Finance Act defines the term “business entity” as follow:

(17)  “business entity” means any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession;.

As can be seen, the definition is too general and will become a matter of litigation.

In the concluding part of this series, we shall examine the provisions relating to the RBI and Foreign Diplomatic Mission.


CA. Pradip R Shah, e-mail: pradip@pradiprshah.com

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