SECTION 13 – DENIAL OF EXEMPTION
173. Requirements in sections 11(1)(a) and 13(1)(d) to be complied with before exemption can be availed under section 11
1. Section 11(1)(a ) provides for grant of exemption from income-tax to income derived from property held under trust for charitable or religious purposes to the extent the income is applied for such purposes in India. Where any such income is accumulated or set apart for application to such purposes in India the extent to which the income is permitted to be accumulated or set apart is 25 per cent of the income. Therefore, under section 11(1)(a ) income derived from property held under trust enjoys exemption when at least 75 per cent of the income is applied for charitable or religious purposes.
2. Section 13(1)(d ) was introduced by the Taxation Laws (Amendment) Act, 1975. It provides for denial of exemption under section 11 for any assessment year commencing from 1982-83 if any funds of the trust or institution are invested or deposited or continue to remain invested or deposited for any period during any previous year commencing on or after April 1, 1981 in any form or mode other than those specified in section 13(5). The Finance Bill, 1982 contains a provision to extend this period to one year so that the requirements will be applicable from the assessment year 1983-84 for the previous year commencing on or after April 1, 1982.
3. The effect of the insertion of section 13(1)(d) or section 11(1)(a) has been examined. The exemption under section 11(1)(a) will be available only if at least 75 per cent of the income is applied for charitable or religious purposes in India during the year and the remaining amount is invested in the forms or modes specified under section 13(5). Thus, both the requirements will have to be fulfilled before the trust can claim and avail of the exemption under section 11(1)(a). An example to illustrate the position is given below :
A trust derives income from property held for charitable purposes to the extent of Rs. 40,000 in a year. Under section 11(1)(a) it has to spend at least Rs. 30,000 on charitable purpose. The balance of Rs. 10,000 will have to be invested in the forms or modes prescribed under section 13(5). It is only then that the entire income of the trust will get exemption under section 11(1)(a).
4. It may, however, be clarified that in regard to the accumulation of income permitted under section 11(2), the provisions of section 13(6) make it clear that the requirements of section l3(1)(d ) read with section l3(5) will not apply. This is because the mode of investing moneys allowed to be accumulated under section 11(2) is specified in that section itself.
Circular : No. 335 [F. No. 180/9/81-IT(A-I)], dated 13-4-1982.