Benefit of Accumulation of Income not available to charitable trusts / institutions if return not filed within due date of Filing Return of Income as specified under section 139 of the Income Tax Act, 1961, Act
Budget 2015-16 Rationalisation of provisions of section 11 relating to accumulation of Income by charitable trusts and institutions
Under the provisions of section 11 of the Act, the primary condition for grant of exemption to trust or institution in respect of income derived from property held under such trust is that the income derived from property held under trust should be applied for the charitable purposes in India. Where such income cannot be applied during the previous year, it has to be accumulated and applied for such purposes in accordance with various conditions provided in the section. While 15% of the income can be accumulated indefinitely by the trust or institution, 85% of income can only be accumulated for a period not exceeding 5 years subject to the conditions that such person submits the prescribed Form 10 to the assessing Officer in this regard and the money so accumulated or set apart is invested or deposited in the specified forms or modes. If the accumulated income is not applied in accordance with these conditions, then such income is deemed to be taxable income of the trust or institution.
In order to remove the ambiguity regarding the period within which the assessee is required to file Form 10, and to ensure due compliance of the above conditions within time, it is proposed to amend the Act to provide that the said Form shall be filed before the due date of filing return of income specified under section 139 of the Act for the fund or institution. In case the Form 10 is not submitted before this date, then the benefit of accumulation would not be available and such income would be taxable at the applicable rate. Further, the benefit of accumulation would also not be available if return of income is not furnished before the due date of filing return of income.
These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.
[Clauses 8 & 9]
Clause 8 of the Bill seeks to amend section 11 of the Income-tax Act relating to income from property held for charitable or religious purposes.
Sub-section (2) of the aforesaid section provides that where eighty-five per cent. of the income 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, for application to such purposes in India, then, such income accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income. However, the said exemption is subject to fulfilment of the following conditions that :
(i) such person specifies by notice in writing in Form 10, prescribed for such purpose, providing details of the purpose for which the income is being accumulated or set apart and that the period for which the income is to be accumulated or set apart does not exceed five years; and
(ii) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5) of section 11.
With a view to amend the conditions specified in sub-section (2) of the aforesaid section, it is proposed to insert a new clause to provide that the statement referred to in the said clause (a) is required to be furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year. It is also proposed to substitute the existing first and second provisos with a new proviso to provide that in computing the period of five years referred to in the said 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.
This amendment will take effect from 1st April, 2016 and accordingly apply in relation to the assessment year 2016-17 and subsequent years.
Clause 9 of the Bill seeks to amend section 13 of the Income-tax Act relating to section 11 not to apply in certain cases.
It is proposed to insert a new sub-section to provide that nothing contained in sub-section (2) of section 11 shall operate so as to exclude any income from the total income of the previous year of a person in receipt thereof, if––
(i) the statement referred to in clause (a) of the said sub-section in respect of such income, is not furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year; or
(ii) the return of income for the previous year is not furnished by such person on or before the due date specified under sub¬section (1) of section 139 for furnishing the return of income for the said previous year.
This amendment will take effect from 1st April, 2016 and accordingly apply in relation to the assessment year 2016-17 and subsequent years.
8. In section 11 of the Income-tax Act, with effect from the 1st day of April, 2016,—
(I) in sub-section (1), in Explanation, in clause (2), after sub-clause (b), in the long line, for the brackets and words “(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)”, the brackets and words “(such option to be excercised before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return of income, in such form and manner as may be prescribed)” shall be substituted;
(II) in sub-section (2), for clauses (a) and (b) and the first and second provisos, the following shall be substituted, namely:—
“(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 (5);
(c) the statement referred to in clause (a) is furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year:
Provided that 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.”.
Amendment of section 13.
9. In section 13 of the Income-tax Act, after sub-section (8) and before Explanation 1, the following sub-section shall be inserted with effect from the 1st day of April, 2016, namely:—“(9) Nothing contained in sub-section (2) of section 11 shall operate so as to exclude any income from the total income of the previous year of a person in receipt thereof, if—
(i) the statement referred to in clause (a) of the said sub-section in respect of such income is not furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year; or
(ii) the return of income for the previous year is not furnished by such person on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the said previous year.”.
SIR/MADAM
ONE CLARIFICATION NEEDED – IF CHARITABLE TRUST RETURNS ARE FILED AFTER DUE DATE OF RETURN AS PER SECTION 139(1) OF THE I.T.ACT, 1961 THEN WHAT ARE CONSEQUENCES FOR SECTION 11 CLAIMED. IE IF FILED AFTER DUE DATE THEN WHETHER SAME WOULD BE ALLOWED OR NOT IE 15% AND 11(2) AS PER INCOME TAX ACT
so it is possible to do audit after due date and avail exemption if that amount is used by trust for charitable purpose