Rationalisation of definition of charitable purpose in the Income-tax Act
The primary condition for grant of exemption to a trust or institution under section 11 of the Act is that the income derived from property held under trust should be applied for charitable purposes in India. ‘Charitable purpose’ is defined in section 2(15) of the Act. The section, inter alia, provides that 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, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. However, this restriction shall not apply if the aggregate value of the receipts from the activities referred above is twenty five lakh rupees or less in the previous year.
The institutions which, as part of genuine charitable activities, undertake activities like publishing books or holding program on yoga or other programs as part of actual carrying out of the objects which are of charitable nature are being put to hardship due to first and second proviso to section 2(15).
The activity of Yoga has been one of the focus areas in the present times and international recognition has also been granted to it by the United Nations. Therefore, it is proposed to include ‘yoga’ as a specific category in the definition of charitable purpose on the lines of education.
In so far as the advancement of any other object of general public utility is concerned, there is a need is to ensure appropriate balance being drawn between the object of preventing business activity in the garb of charity and at the same time protecting the activities undertaken by the genuine organization as part of actual carrying out of the primary purpose of the trust or institution.
It is, therefore, proposed to amend the definition of charitable purpose to provide 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, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless,-
- such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and
- the aggregate receipts from such activity or activities, during the previous year, do not exceed twenty percent. of the total receipts, of the trust or institution undertaking such activity or activities, for the previous year .
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.
Note On Relevant Clauses of Finance Bill 2015
Clause 3 of the Bill seeks to amend section 2 of the Income-tax Act relating to definitions.
Definition of Business Trust
It is proposed to substitute clause (13A) of the said section in order to define a “business trust” to mean a trust registered as,–
It is proposed to amend clause (15) of the aforesaid section to provide that the definition of charitable purpose shall include “yoga” as a separate category on the lines of education and medical relief.It is further proposed to amend the said clause (15) to provide 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, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee 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 the course of actual carrying out of such advancement of any other object of general public utility; and
(ii) the aggregate receipts from 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.
Extract of Relevant Clauses from Finance Bill 2015 proposing amendment to Income tax Act, 1961
3. Amendment of section 2.
In section 2 of the Income-tax Act, with effect from the 1st day of April, 2016,—
(a) for clause (13A), the following clause shall be substituted, namely:—
‘(13A) “business trust” means a trust registered as,—
(i) an Infrastructure Investment Trust under the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992; or
(ii) a Real Estate Investment Trust under the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992, and or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee 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 the course of actual carrying out of such advancement of any other object of general public utility; and
(ii) the aggregate receipts from 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;”;
(b) in clause (15),—
(i) after the word “education,”, the word “yoga,” shall be inserted;
(ii) for the first and the second provisos, the following proviso shall be substituted, namely:—
“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, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee 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 the course of actual carrying out of such advancement of any other object of general public utility; and
(ii) the aggregate receipts from 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;”;
( Compiled by CA Ankit Banka & Taxguru Team)
What is the status of Approved gratuity Fund ?The income is exempted under sec 10(25)(iv).should it required to submit return under sec 139 and if son under which sub section and in which form.In mu opinion it is not required to submit return as the income is exempted under sec 10(25)(iv) and not covered by any of the provisions of sec 139.but the problem arises when TDs is deducted and claim for refund is made.