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No Exemption to Charitable Trust in the year in which receipts from commercial activities in the nature of “advancement of any other object of general public utility” exceeds Rs. 25,00,000/.

Sections 11 and 12 of the Act exempt income of any charitable trust or institution, if such income is applied for charitable purposes in India and such institution is registered under section 12AA of the Act. Section 10(23C) of Income Tax Act also provides exemption in respect of approved charitable funds or institutions.

Section 2(15) of the Act provides definition of charitable purpose. It includes “advancement of any other object of general public utility” as charitable purpose provided that it does not involve carrying on of any activity in the nature of trade, commerce or business.

The 2nd proviso to said section provides that in case where the activity of any trust or institution is of the nature of advancement of any other object of general public utility, and it involves carrying on of any activity in the nature of trade, commerce or business; but the aggregate value of receipts from the commercial activities does not exceed Rs. 25,00,000/- in the previous year, then the purpose of such institution shall be considered as charitable, and accordingly, the benefits of exemption shall be available to it.

Thus, a charitable trust or institution pursuing advancement of object of general public utility may be a charitable trust in one year and not a charitable trust in another year depending on the aggregate value of receipts from commercial activities.

There is, therefore, need to expressly provide in law that no exemption would be available for a previous year, to a trust or institution to which first proviso of sub-section 2(15) become applicable for that particular previous year.

However, this temporary excess in one year may not be treated as altering the very nature of the trust or institution so as to lead to cancellation of registration or withdrawal of approval or rescinding of notification issued in respect of trust or institution.

Therefore, there is need to ensure that if the purpose of a trust or institution does not remain charitable due to application of first proviso on account of commercial receipt threshold provided in second proviso in a previous year. Then, such trust or institution would not be entitled to get benefit of exemption in respect of its income for that previous year for which such proviso is applicable. Such denial of exemption shall be mandatory by operation of law and would not be dependent on any withdrawal of approval or cancellation of registration or a notification being rescinded.

It is, therefore, proposed to amend section 10(23C), section 13 and section 143 of the Act to ensure that such organization does not get benefit of tax exemption in the year in which it’s receipts from commercial activities exceed the threshold whether or not the registration or approval granted or notification issued is cancelled, withdrawn or rescinded.

This amendment will take effect retrospectively from 1st April, 2009 and will, accordingly, apply in relation to the assessment year 2009-10 and subsequent assessment years.


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  1. saravanan says:

    Dear Raghav sir

    charitable organization received money from other institution and given that money to self help group & collect the money + interest & same repaid to institution. The institution given some money for loan issue and collect money + interest repayment service. this is commercial activity or charitable activity

  2. Ashit says:

    Right Mr. Raghav……But can you please tell me the definition of ‘activity carring in nature of trade, commerce or business’ that if trust is not said to be carring any such activity and will get the exemption u/s 11 and within the sec. 2(15)….Thank you..!!

  3. CA. Raghav Garg says:

    Sir, I thank you for posting aforesaid article on Charitable Trust,
    but i would like to object on your comment that trust will not be a charitable trust if its commercial business exceeds Rs. 25 Lacs.
    As per my belief, Fist Provisio to sec 2(15) interalia is as “provided that advancement of ANY OTHER OBJECT shall not be taxable, if it involves carrying on any activity in the nature of trade, commerce or business.”

    Therefore, as per my opinion, integrity and status of trust will continue to be trust and exemptions will be provided to the trust as allowed. However, no exemption for only Income from such OTHER OBJECT involving any activity in the nature of Trade, Commerce or business will be allowed and only expenses related to such business will be allowed. and for any other income from charitable purpose like donations of which 85% is appleid for charitable purposes by same institution will have to pay no tax on the such other activity of charitable purpose.

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May 2024