The provisions of section 115TD to apply to any trust or institution under the first regime.
Trust exemption regimes are as follows:-
(1) Regime for any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 (hereinafter referred to as trust or institution under first regime); and
(1) Regime for the trusts registered under section 12AA/12AB (hereinafter referred to as trust or institution under the second regime).
i) Chapter XII-EB was introduced by the Finance Act, 2016. It provides for the taxation of accreted income of the trust in certain cases. A society or a company or a trust or an institution carrying on charitable activity may voluntarily wind up its activities and dissolve or may also merge with any other charitable or non-charitable institution, or it may convert into a non-charitable organization. In order to ensure that the intended purpose of exemption availed by trust or institution is achieved, a specific provision in the Act was brought about for imposing a levy in the nature of an exit tax which is attracted when the organisation is converted into a non-charitable organisation or gets merged with a non-charitable organisation or a charitable organisation with dissimilar objects or does not transfer the assets to another charitable organisation. Accordingly, a new Chapter XII-EB consisting of Sections 115TD, 115TE and 115TF was inserted in the Act.
ii) The provisions of the Chapter XII-EB have been made applicable to only the trusts or institutions under the second regime. However, the provisions are not applicable to any trust or institution under the first regime.
iii) Hence, it is proposed to amend the provisions of section 115TD, 115TE and 115TF of the Act to make them applicable to any trust or institution under the first regime as well.
iv) These amendments will take effect from 1st April, 2023 and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years.
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Note on Clauses 31, 32 and 33 of Finance Bill 2022
Clause 31 seeks to amend section 115TD of the Income-tax Act relating to tax on accreted income.
The said section, inter-alia, provides that where in any previous year, a trust or institution registered under section 12AA or section 12AB has converted into any form which is not eligible for grant of registration under said sections or merged with any entity other than an entity which is a trust or institution having objects similar to it and registered under said sections or failed to transfer upon dissolution all its assets to any other trust or institution registered under said sections or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), of clause (23C) of section 10, within a period of twelve months from the end of the month in which the dissolution takes place, then, in addition to the income-tax chargeable in respect of the total income of such trust or institution, the accreted income of the trust or the institution as on the specified date shall be charged to tax and such trust or institution, as the case may be, shall be liable to pay additional income-tax at the maximum marginal rate on the accreted income.
It is proposed to make consequential amendments in the said section so as to provide that the provisions of the said section shall also be applicable to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 of the Act.
These amendments will take effect from 1st April, 2023 and will, accordingly, apply in relation to the assessment year 2023-2024 and subsequent assessment years.
Clause 32 seeks to amend section 115TE of the Income-tax Act relating to interest payable for non-payment of tax by trust or institution.
The said section, inter alia, provides that where the principal officer or the trustee of the trust or the institution and the trust or the institution fails to pay the whole or any part of the tax on the accreted income referred to in sub-section (1) of section 115TD, within the time allowed under sub-section (5) of that section, he or it shall be liable to pay simple interest at the rate of one per cent. for every month or part thereof on the amount of such tax for the period beginning on the date immediately after the last date on which such tax was payable and ending with the date on which the tax is actually paid.
It is proposed to amend the said section so as to substitute the reference of the expression “trust or the institution” with the reference of “specified person”.
These amendments will take effect from 1st April, 2023 and will, accordingly, apply in relation to the assessment year 2023-2024 and subsequent assessment years.
Clause 33 seeks to amend section 115TF of the Income-tax Act relating to when trust or institution is deemed to be assessee in default.
The said section, inter-alia, provides that if any principal officer or the trustee of the trust or the institution and the trust or the institution does not pay tax on accreted income in accordance with the provisions of section 115TD, then, he or it shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it and all the provisions of the Act for the collection and recovery of income-tax shall apply.
It is proposed to amend the said section so as to substitute the reference of the expression “trust or the institution” with the reference of “specified person”.
This amendment will take effect from 1st April, 2023 and will, accordingly, apply in relation to the assessment year 2023-2024 and subsequent assessment years.
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Extract of Clauses 31, 32 and 33 of Finance Bill 2022
31. Amendment of section 115TD.
In section 115TD of the Income-tax Act, with effect from the 1st day of April, 2023,––
(a) for sub-sections (1), (2) and (3), the following shall be substituted, namely:––
“(1) Notwithstanding anything contained in this Act, where in any previous year, a specified person has—
(a) converted into any form which is not eligible for grant of registration under section 12AA or section 12AB, or approval under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 ;
(b)merged with any entity other than an entity which is a trust or institution having objects similar to it and registered under section 12AA or section 12AB or approved under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10; or
(c) failed to transfer upon dissolution all its assets to any other specified person within a period of twelve months from the end of the month in which the dissolution takes place, then, in addition to the income-tax chargeable in respect of the total income of such specified person, the accreted income of the specified person as on the specified date shall be charged to tax and such specified person shall be liable to pay additional income-tax (herein referred to as tax on accreted income) at the maximum marginal rate on the accreted income.
(2) The accreted income for the purposes of subsection (1) means the amount by which the aggregate fair market value of the total assets of the specified person, as on the specified date, exceeds the total liability of such specified person, computed in accordance with the method of valuation, as may be prescribed:
Provided that so much of the accreted income as is attributable to the following asset and liability, if any, related to such asset, shall be ignored for the purposes of sub-section (1), namely:—
(i) any asset which is established to have been directly acquired by the specified person out of its income of the nature referred to in clause (1) of section 10;
(ii) any asset acquired by the specified person during the period beginning from the date of its creation or establishment and ending on the date from which the registration under section 12AA or section 12AB or approval under clause (23C) of section 10 became effective, if the specified person has not been allowed any benefit of sections 11 and 12 or sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 during the said period:
Provided further that where due to the provisions of the first proviso or the second proviso to sub-section (2) of section 12A or the eighth proviso to clause (23C) of section 10, the benefit of sections 11 and 12, or sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 have been allowed to the specified person in respect of any previous year or years beginning prior to the date from which the registration under section 12AA or section 12AB or approval under clause (23C) of section 10 is effective, then, for the purposes of clause (ii) of the first proviso, the registration or approval shall be deemed to have become effective from the first day of the earliest previous year:
Provided also that while computing the accreted income in respect of a case referred to in clause (c) of sub-section (1), assets and liabilities, if any, related to such asset, which have been transferred to any other specified person within the period specified in the said clause, shall be ignored.
(3) For the purposes of sub-section (1), a specified person shall be deemed to have been converted into any form not eligible for registration under section 12AA or section 12AB or approval under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 in a previous year, if,—
(i) the registration or approval granted to it under section 12AA, or section 12AB, or sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, has been cancelled; or
(ii) it has adopted or undertaken modification of its objects which do not conform to the conditions of registration and it—
(a) has not applied for fresh registration under section 12AA, or section 12AB, or approval under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 in the said previous year; or
(b) has filed application for fresh registration under section 12AA or, section 12AB, or approval under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 but the said application has been rejected.”;
(c) in sub-sections (4), (5), (6) and (7), for the words “trust or the institution” and the words “trust or institution” wherever they occur, the words “specified person” shall be substituted;
(4) in the Explanation,––
(I) in clause (i), in sub-clause (a), for the word, figures and letters “section 12AB”, the words, figures, letters and brackets “section 12AB, or approval under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10” shall be substituted;
(II) after clause (ii), the following clause shall be inserted, namely:––
‘(iia) “specified person” means––
(a) any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10; or
(b) a trust or institution registered under section 12AA or section 12AB;’.
32. Amendment of section 115TE.
In section 115TE of the Income-tax Act, with effect from section 115TE. the 1st day of April, 2023,––
(a) in the marginal heading, for the words “trust or institution”, the words “specified person” shall be substituted;
(b) for the words “trust or the institution” at both the places where they occur, the words “specified person” shall be substituted;
(c) the following Explanation shall be inserted, namely:–
‘Explanation.—For the purposes of this section, “specified person” shall have the same meaning as assigned to in clause (iia) of the Explanation to section 115TD.’.
33. Amendment of section 115TF.
In section 115TF of the Income-tax Act, with effect from the 1st day of April, 2023,––
(a) in the marginal heading, for the words “trust or institution”, the words “specified person” shall be substituted;
(b) in sub-section (1), for the words “trust or the institution” at both the places where they occur, the words “specified person” shall be substituted;
(c) the following Explanation shall be inserted, namely:–
‘Explanation.—For the purposes of this section, “specified person” shall have the same meaning as assigned to in clause (iia) of the Explanation to section 115TD.’.
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RECOMMENDED BUDGET 2022 POSTS
