Taxation of Charitable Trusts Not Registered Under Income Tax Act, 1961

Summary: The taxation of charitable trusts not registered under the Income Tax Act, 1961, is governed by specific provisions, particularly Sections 11 and 12. These sections provide exemptions for income applied to charitable or religious purposes, subject to conditions like accumulation limits and mandatory registration under Section 12AB. Unregistered trusts lose exemptions but may claim deductions for expenses incurred, following principles of commercial accounting. Corpus donations, being capital receipts, may still be exempt if directed for specific purposes. Tax rates for unregistered public trusts may vary, with cases imposing maximum marginal rates or individual rates, depending on the trust’s beneficiary structure. Judicial precedents underline the need for compliance with procedural and substantive conditions to optimize tax outcomes.

1. Exemption under section 11/12

Section 11 provides that subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income—

(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property;

(b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of the Income Tax Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of fifteen per cent of the income from such property;

(c) income derived from property held under trust—

(i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and

(ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India:

The CBDT , by general or special order, may direct that  in either case that it shall not be included in the total income of the person in receipt of such income;

(d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution , subject to the condition that such voluntary contributions are invested or deposited in one or more of the forms or modes specified in section 11 (5) maintained specifically for such corpus.

There are certain conditions attached to such exemption which need be fulfilled.

Similarly section 12 provides for exemption to any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly.

2. Requirement of registration

One of the conditions for exemption under section 11 and 12 is registration under section 12AB. Section 12A(1)(ac) provides that the provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the person in receipt of the income has made an application to the Principal Commissioner or Commissioner, for registration of the trust or institution.

Registration provisions operate as under:

(a) Where the trust or institution is registered under section 12AB and the period of the said registration is due to expire, then the trust or institution shall make an application for registration at least six months prior to expiry of the said period.

(b) Where the trust or institution has been provisionally registered under section 12AB then the trust or institution shall make an application for registration at least six months prior to expiry of period of the provisional registration or within six months of commencement of its activities, whichever is earlier.

(c) Where registration of the trust or institution has become inoperative due to the first proviso to sub-section (7) of section 11, then such trust or institution has to make an application for registration, at least six months prior to the commencement of the assessment year from which the said registration is sought to be made operative.

(d) Where the trust or institution has adopted or undertaken modifications of the objects which do not conform to the conditions of registration, then it has to make an application for registration within a period of thirty days from the date of the said adoption or modification.

(e) In any other case:

3. Registered versus unregistered trusts

For the purposes of taxation the trusts are categorised as registered trusts and unregistered trusts.

Registered trusts are eligible for exemption under section 11 and 12 provided that they fulfil the other conditions mentioned therein.

Many a trusts are not registered under the Income Tax Act. It is usually claimed that in this case it is net surplus that can be made subject to tax.

 Is it so. The answer is No.

As per section 2(24)(iia) any voluntary contribution received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes,  or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v)  or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via)] of clause (23C), of section 10 or by an electoral trust shall be treated as income.

For the purposes of this sub-clause, trust includes any other legal obligation.

Therefore, any voluntary contribution received by any trust, registered or unregistered, is treated as income in its hands. Such contribution may be capital or revenue in nature.

In case the trust is registered under the Income Tax Act then the amount applied towards objects of the trust is treated as exempt and so far as corpus donation is concerned it is treated as exempt under section 11(1)(d). All these exemptions are subject to many strict conditions.

In case of unregistered trusts this exemption is not available and in their case only so much of the expenditure as is incurred in collection the donation is allowed to be deducted.

4. Computation of income of unregistered trust

The ld. CIT(E) held that since exemption under section 11 is not to be allowed to the assessee as per thedecision of the Hon’ble Delhi High Court in appellant’s own case, the said income has to be taxed under thehead “Income from other sources”. Further, while computing income under the head “Income from other sources” any expenditure (not been in the nature of capital expenditure) laid out or expended for the purposeof making or earning such income is to be allowed as deduction as per the provisions of section 57(iii). It is seen that no income has been earned for some of the expenses incurred. Hence, expenditure incurred on these counts cannot be allowed in computing income from other sources. Further, since income from agricultural activity is exempt from tax, expenditure incurred on such activity is also not be allowed as expenditure From the details it is also seen that the appellant has received donation of Rs. 89,528/- against which expenses amounting to Rs.20,15,171/- on account of donation paid have been shown. Since donation is a voluntary contribution, no expenditure can be allowed for earning such income. However, in case of donations paid, the said amount is to be allowed as deduction u/s 80G in case donations paid are to entities which are approved for the purpose of section 80G.. Accordingly, the assessing officer was directed to —

(i) assess the income of the assessee with respect to activities categorized as charitable activities in the assessment order as income from other sources after verifying the expenditure incurred;

(ii) no expenditure is to be allowed with respect to items where  no income has been earned as per of section 57(iii);

(iii) allow deduction tinder section 80G for donations paid amounting to ` 20,15,171 after verifying that the entities to whom donations have been given are approved for the purpose of section 80G and to the extent ofdonations paid to entities approved under section 80G as per the relevant provisions of the Income Tax Act.

(iv) not allow expenditure on agricultural activity since the said income is exempt from tax; and

(v) allow set off of business income with loss computed under the held “Income from sources” after examining the applicability of the same as per the provisions of the Income Tax Act.

Revenue authorities have duly allowed the depreciation and other expenses as directed to be considered by the Hon’ble High Court. The revenue authorities have also allowed to set off of the business income with loss computed under the head “income from other sources” which is in tune with the provisions of the Income Tax Act. Since, exemption under section 11 is not to be allowed as per the orders of the Hon’ble High Court, the expenditure on which is unrelated to the earning of the income only has been disallowed.—Vide ITO v. Mehta Charitable Prajanalaya Trust ITA No. 6285/Del/2018, dt. 23-2-2023 (Del-Trib).

It would appear that in the return the assessee claimed its entire income to be exempt under Section 11 of the Act but the same was denied on the ground that the assessee did not get itself registered under Section 12A of the Act. Accordingly, the amount of Rs.1,52,62,956/- received by the assessee as grants from various oil companies was brought to tax under the head “income from other sources”; an estimated expenditure of Rs.1,20,000/- was deducted from the aforesaid amount as expenditure incurred in collecting the grant and the balance of Rs.1,51,42,990/- was assessed to tax. Similar assessments were made for the other two assessment years. The assessee preferred an appeal before the CIT (Appeals) for all the three assessment years. In the appeals the assessee challenged the jurisdiction of the assessing officer to reopen the assessment under Section 148 of the Act and the restriction of the allowance of expenses to Rs.1,20,000/- for all the years. It was submitted that the assessee was a society formed for the promotion of sports and was registered under the Societies Registration Act, that registration under Section 12A has been granted w. e. f. assessment year 2006-07, that the entire expenditure incurred by the assessee was for the purpose of promotion of sports and should have been, therefore, deducted in full while computing its income and that at any rate the society having been notified by the CBDT under Section 10(23C) of the Act up to the assessment year 2002-03, there was no justification for completing the assessments in the manner done by the assessing officer.

CIT(A) held that the appellant is entitled for claim of legitimate expenses incurred for sports activities and accordingly, the Assessing Officer is directed to allow the expenditure for the following years as per details given below and balance income can be taxed at the rate as applicable.

The revenue challenged the aforesaid order of the CIT (Appeals) before the Tribunal. The Tribunal passed a consolidated order, recording the following findings: –

(a) The assessing officer has not brought out any adverse material to show that the expenditure claimed to have been incurred by the assessee on the sports activities did not in fact relate to those activities or were not supported by documentary evidence;

(b) The full details of the expenditure showing their purpose were submitted before the AO and the books of accounts were also produced;

(c) Since the number of sports events organised by the assessee varies from year to year, the expenditure also varies every year;

(d) The CIT (Appeals) has not given the benefit of exemption under Section 11 to the assessee but has allowed the expenses incurred on sports activity considering their genuineness.

The learned standing counsel for the revenue submitted that the order of the Tribunal is untenable since it indirectly confers the benefit of Section 11 upon the assessee. We are, however, not inclined to accept the contention. The CIT (Appeals) has actually not held so. He never examined the question whether the assessee was eligible for the exemption under Section 11 since there was no ground before him, taken by the assessee, to that effect. All that the assessee claimed before the CIT (Appeals) was that the entire expenditure should be allowed as a deduction since it was incurred for the very objects for which the assessee was established in 1979 i.e. promotion of sports and, therefore, the assessing officer was not justified in restricting the allowance of expenditure to Rs.1,20,000/- only for all the three years. It was this claim that was accepted by the CIT (Appeals). The objection of the learned standing counsel for the revenue that since the grants were assessed under the residual head, there was no scope for allowing the expenditure incurred on the promotion of the sports activities is not acceptable since even under Section 57(iii), any expenditure incurred for the purpose of making or earning the income is allowable as a deduction. It is open to the income-tax authorities to deny the exemption under Section 11 of the Act in the absence of registration under Section 12A and if they do so, then the assessment has to be completed in accordance with the provisions of the Income Tax Act; if the income is assessed under the residual head full play must be allowed to Section 57(iii). Though prima facie it would appear that the phraseology employed in Section 57(iii) is different from Section 37(1), it has been held by the Supreme Court in CIT vs. Rajendra Prasad Moody, 115 ITR 519 that Section 57(iii) must be construed broadly and the somewhat wider language of Section 37(i) should not affect the interpretation of Section 57(iii). The assessee in the present case was created in 1979 with the object of promoting sports; there was no other object and all its constituents were giving grants/ funds only for that purpose. In truth and reality the assessee was merely acting as a custodian or conduit to the constituents for the purpose of promoting sports activity inside and outside the country. The expenditure incurred by the assessee is only for the purpose of promoting the sports events and activities and in this respect there is no challenge to the finding of fact recorded by the Tribunal. If such expenditure is not allowed, it may amount to taxing the gross receipts of the assessee and not the income, which is not permissible under the income tax law. Moreover, upto the assessment year 2002-03 the assessee was exempt from tax under Section 10(23C); from the assessment year 2006-07 it has been granted registration or a charitable institution under Section 12A making it eligible for the exemption under Section 11.

For the aforesaid reasons there was no infirmity or error of law in the decision of the Income Tax Appellate Tribunal.

See Decision in Deputy Director Of Income Tax (E) Inv. … vs Petroleum Sports Promotion Board on 3 March, 2014 (Delhi-HC).

5. Taxing gross income

In the case of Fathers House v. CIT (A) (Mum-Trib)  the assessee-trust though a charitable trust registered under Bombay Public Trust Act, had not been got itself registered under section 12A, however got itself registered under section 12A after completion of assessment proceedings. The assessee claimed deduction on account of certain expenses claimed to have incurred on objects of trust, which had been disallowed by AO on the sole ground that the assessee was not registered under section 12A. However,  the assessee had not brought on record any detail/evidences in support of its claim for expenses to be considered the same under normal provisions of Act when undisputedly the assessee was not a registered trust under section 12A. Even before Tribunal, the assessee trust had not presented despite service of notice to bring on record the documents/evidences in support of its claim. Hence, AO was held to be justified in disallowing the assessee’s claim of expenses incurred by it.

In Annadaneshwara Charitable Trust v. Income-tax Officer [2023] 156 taxmann.com 270 (Bangalore – Trib.) it was  held that in the absence of the registration under the relevant sections, there cannot be any application of income. However, the gross receipts cannot be taxed in the hands of the assessee trust. The income earned by the assessee and expenditure relatable to the earning of such income is to be allowed as a deduction. The AO was directed to examine the financials of the assessee and allow the expenditure which have been incurred for earning the income of the assessee. Since in the absence of registration under section 12AA of the Act, there is no question of any application of income.

The Bangalore Bench of the Tribunal in the case H M V Educational Cultural and Social Trust restored the matter to the AO with a direction to assess only the net income and not the gross. The relevant finding of the Bangalore Bench of the Tribunal reads as follows:

“7.3 The assessee has not raised the plea before the Income-tax Authorities that it has to be given deduction u/s 57 of the I.T. Act, in respect of expenditure for earning the interest income. However, inspite of such plea not being raised before the lower authorities, we are of the view that since the fundamental principle under Income-tax Act being that only net income has to be taxed (i.e., gross receipt minus allowable expenditure), this plea of the assessee has to be necessarily entertained, especially in the light of the judgment of the Hon’ble jurisdictional High Court in the case of Totagars Sale Co-operative Society Limited v. ITO [2015] 58 taxmann.com 35 (Karnataka). Accordingly, the issue of deduction u/s 57 of the I.T.Act is restored to the files of the A.O. The A.O. is directed to examine whether assessee has incurred any expenditure for earning interest income, which is assessed under the head ‘income from other sources’. If so, the same shall be allowed as deduction u/s 57 of the I.T.Act. The assessee is directed to co-operate with the department and furnish the necessary evidence for expeditious disposal of the matter. It is ordered accordingly.”

In SAROJ GOPAL EDUCATIONAL SOCIETY VERSUS THE INCOME TAX OFFICER (EXEMPTION) WARD-2,RAIPUR (C.G.) 2023 (8) TMI 1108 – ITAT RAIPUR it was held that  declining of the assessee’s claim for exemption u/s. 11 & 12 of the Act, perse would not justify assessing its gross receipt as its income for the year under consideration. Even though the assessee society may not be entitled to exemption u/s. 11 & 12 of the Act, its income under any circumstance must be deduced per commercial principles, i.e., after considering its claim of expenses per extant law. The above view  is fortified by the order passed by the ITAT, “SMC” Bench,Raipur, in the case of Jain Shwetamber Murtipujak Sangh Vs. ITO (2023) 68 CCH 71 (Raipur), wherein involving identical facts, though declining of the assessee’s claim for exemption u/s. 11 & 12 of the Act for delayed filing of “Form 10” was upheld by the Tribunal but its alternative claim that the A.O was obligated to have considered its claim for deduction of expenses raised in the income and expenditure account was accepted. The matter was restored to the file of the A.O. to consider the assessee’s claim for deduction of expenses as debited in the income and expenditure account under the provisions of the Act. For the sake of clarity, the relevant observations of the Tribunal in the case above is culled out as under:

“15. Be that as it may, as the assessee-trust does not cumulatively satisfy the set of conditions specified in Para 4(i) of the CBDT Circular No.10 (supra), and also had not filed any application for condonation of delay u/s. 119(2)(b) of the Act as provided in Para 4(ii) of the said circular, therefore, there remains no occasion for condoning the delay involved in filing of Form 10B by the assessee beyond the stipulated time period. I, thus, on the basis of my aforesaid observations, find no infirmity in the view taken by the lower authorities who had rightly declined the assessee’s claim for exemption u/s. 11 of the Act. However, I may herein observe that the A.O after declining the assessee’s claim for exemption u/s.11 of the Act could not have summarily held its gross receipts of Rs. 24,83,562/- as its income. In sum and substance, the A.O after treating the assessee as an unregistered trust was obligated to have considered its claim for deduction of expenses as were raised in the income and expenditure account.

Accordingly, on the basis of my aforesaid deliberations, I though uphold the declining of the assessee’s claim for exemption u/s. 11 of the Act, but at the same time, restore the matter to the file of the A.O with a direction to consider the assessee’s claim for deduction of expenses as debited in the income and expenditure account, i.e. to the extent the same are allowable under the Act. Needless to say, the A.O shall grant a reasonable opportunity of being heard to the assessee in the course of set-aside proceedings.”

6. Corpus donations received by unregistered trusts.

Many judgments hold the view that even if assessee was not granted registration under section 12A for the relevant period, then also corpus funds could not be taxed in the hands of assessee in absence of such registration. It was held that Corpus fund meant for specific purpose to meet out capital expenditure could not be taxed being a capital receipt even if trust was not registered under section 12AA.

Reference in this regard may be made to Maa Saraswati Mandir Nyas v. ITO (E) (Del-Trib), ITO v. Serum Institute of India Research Foundation (Pune-Trib), dated 29-1-2018 ITA No. 621/PUN/2016, Sri Guru Singh Sabha v. Dy. CIT (2018) 68 ITR (Trib) 394 (Del ‘SMC’ Trib), DIT v. Basanti Devi and Chakhan Lal Garg Education Trust 2018 TaxPub(DT) 5502 (Del-HC). ,ITO v. Hosanna Ministries, 2020 (3) TMI 496 – ITAT,  Maa Sharda Educational Society v. ACIT, 2019 (12) TMI 1040 – ITAT Delhi, para 12, ,Pentafour Software Employees Welfare Foundation v. ACIT [IT Appeal Nos. 751 & 752 ( Mds .) of 2007], Shankar Bhagwan Estate v. ITO, (1997) 61 ITD 196 (Cal), para 7, Baba Gajja Ji Jain v. ITO(E), (2021) 125 taxmann.com 76 (Asr Trib), ITO v. Gaudiya Granth Anuved Trust (2013) 28 ITR (Trib) 161 (Agra-Trib). Also see Jain Swetamber Deharshar Upshraya Trust v. ACIT  (Mum-Trib), Bank of India Retired Employees Medical Assistance v. ITO  (Mum ‘B’-Trib), Credai Bengal v. ITO  (2019) 72 ITR (Trib) 672 (Kol-Trib),  Saket Education Society v. JCIT (Exemption) (Del-Trib) ,ITO (E) v. Hosanna Ministries  (Visakh-Trib). ,R. D. Foundation v. ITO (Del-Trib) And H.P. Nursing v. ACIT, ITA No.875/Chd/2014 dt. 20.01.17, para 6

CIT v. Indian National Congress (I)/All India Congress Committee, (2016) 383 ITR 99 (Del) (in the context of political parties) “It is true that income by way of voluntary contribution of a political party is not deemed to be income under section 2(24)(iia) of the Act. However that does not place it outside the purview of ‘income from other sources’ for the purposes of section 13A read with section 56(1) of the Act.” 

But as per section 2(24)(iia) income includes  voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution  referred to in sub-clause (iiiae) or sub-clause (via) of clause (23C) of section 10 or by an electoral trust.

For the purposes of section 2(24)(iia) , “trust” includes any other legal obligation.

In Gurukul vs. ITO”, ITA No.43&44/Pat/2020 it was held that a bare perusal of the above provisions would indicate that the expression “income” for the purpose of Income Tax, includes voluntary contribution received by a trust created wholly or partly for charitable or religious purposes or an institution established wholly or partly for such purposes.

Therefore, any donation received by any trust or institution has to be treated as income. However, the scheme of Income Tax u/s 11 to 13 of the Act provides a mechanism for assessment of income from property held by a charitable or religious trust. A perusal of Section 11(1)(d) of the Act would indicate that if any voluntary contribution is being received by a trust or institution with a specific direction that such contribution will be part of corpus then, it will be credited to a separate account meant for construction of building or any infrastructure. In other  words, it can be treated as a capital contribution towards the corpus of the trust. But perusal of Section 12A of the Act would indicate that before claiming any exemption from taxability of income u/s 11 or 12 of the Act, the assessee should be registered with the Income Tax Department u/s 12A of the Act. Further Section 12AA of the Act provides a procedure for grant of registration. Since the assessee is not having any registration, the grant/non-grant of such registration is not in dispute, therefore, there is no necessity to make reference to Section 12AA of the Act.

Again in I.T.A. No.03/Pat/2017 Assessment Year: 2011-12 Akshay Educational & Social Welfare Charitable Trust it was held that thus in section 2(24)(iia), as inserted vide Finance Act 1972 w.e.f. 01.04.1973, it was specifically provided that though voluntary contribution received by charitable trust will be part of the income but not being the contribution made with a specific directions that they shall form part of the corpus of the trust or institution. Thus, in view of the said provisions, the CBDT Circular No.108 dated 20.3.1973 was issued stating that any voluntary contribution received by charitable or religious trust or institution with a specific direction that it shall form part of the corpus of trust or institution was not includible as income of such trust or institution.

However, a very important development, which the ld. counsel missed and failed to bring before this Tribunal is that section 2(24(iia) has been further amended vide Direct Tax Laws (Amendment) Act 1987 further as amended by Direct Tax Laws (Amendment) Act, 1989, whereby, the words “not being contributions made with a specific direction that they shall form part of corpus of the trust or institution” were substituted/omitted. The CBDT Circular No.551 dated 23.01.1990 explains the position as under:

“Amendment to sub-section (1) of section 11 by the Amending Act, 1989 to exclude corpus donations from the total income of the  trust or institution and amendment of definition of income contained in section 2(24) by the Amending Act, 1987 4.2 The Amending Act, 1989 has inserted a new clause (d) in sub- section (1) of section 11 to provide that income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution shall be excluded from the total income of the trust or institution. For understanding the background of this amendment, it will be relevant to discuss the amendment made to the definition of the term income in section 2(24) by the Amending Act, 1987.

4.3 Under the old provisions of sub-clause (iia) of clause (24) of section 2, any voluntary contribution received by a charitable or religious trust or institution with a specific direction that it shall form part of the corpus of the trust or institution was not included in the income of such trust or institution. Since this provision was being widely used for tax avoidance by giving donations to a trust in the form of corpus donations so as to keep this amount out of the regulatory provisions of sections 11 to 13, the Amending Act, 1987 amended the said sub-clause (iia) of clause (24) of section 2 to secure that all donations received by a charitable or religious trust or institution, including corpus donations, were treated as income of such trust or institution. However, under the provisions of the new section 80F, also introduced by the Amending Act, 1987, such corpus donations, along with other income of the trust or institution would have been exempt if spent for charitable purposes or invested in specified assets mentioned in section 80F.

4.4 As already pointed out, the Amending Act, 1989 omitted the new section 80F introduced by the Amending Act, 1987 and revived the old section 11. Consequently, corpus donations to trusts, etc., would also be governed by the provisions of section Since stipulations in clauses (a) and (b) of sub-section (1) of section 11 that 75% of the income of the trust should be spent during the year and only 25% can be accumulated for application to its purposes in future could not have been made applicable to corpus donations, the Amending Act, 1989 has further amended section 11 to exclude corpus donations from the total income of the trust, as explained in para 4.2 above.

4.5 The effect of the amendment of definition of ‘income’ contained in section 2(24) by the Amending Act, 1987 and the amendment of sub- section (1) of section 11 by the Amending Act, 1989 is that although corpus donations would be treated as income in the hands of the recipient, in the case of trusts or institutions, which comply with the requirements for exemption under section 11, these will be excluded from their income. However, in case the trust or institution loses the exemption under section 11, either by not complying with the conditions laid down in section 12A or by falling within the mischief of section 13, corpus donations will be included in its income and taxed.”

As reproduced above, the present definition of income as provided u/s 2(24(iia), in no manner exclude voluntary contribution received with a specific direction that they shall form part of the corpus of the trust, rather the same are liable to be included into the income of the assessee, however, subject to the provisions of section 11 and 12 as quoted and discussed by Coordinate Patna Bench of the Tribunal in the case of ‘Gurukul vs. ITO’ (supra). Thus, all type of voluntary contributions received by a trust created wholly or partly for charitable or religious purpose or an institution established wholly or partly for such purposes are included in the income of such trust or institution. However, as per the provisions of section 11(1)(d) of the Act, if any, voluntary contribution is received by a trust or institution with a specific direction that such contribution will be part of the corpus then it will be invested or deposited as per the prescribed modes maintained specifically for such corpus fund then it will not be treated as income but capital contribution.

However, subject to the conditions as prescribed u/s 12A that before claiming any exemption from taxability of income u/s 11 or 12 of the Act, the assessee should be registered with the Income Tax Department u/s 12A of the Act. Admittedly, the assessee for the year under consideration has not been registered u/s 12A of the Act, therefore, the exemption from taxation as provided u/s 11 and 12 of the Act would not be available to the assessee for the year under consideration. The assessee cannot take benefit of the pre-amended section 2(24)(iia) at the time of its insertion from 1st April 1973. The said section has been amended first in the year 1987 and further by amended Act of 1989 and thereby, the prevalent law is that although, corpus donation would be treated as income in the hands of the recipient charitable trust or institution, however, if such trust or institution comply with the requirements of  exemptions u/s 11 and 12 and subject to registration u/s 12A, then such corpus donations will be excluded from their income. However, in case such trust or institution is not eligible for exemption u/s 11, either by not complying with the conditions laid down in section 12A or by falling within the mischief of section 13, corpus donation will be included in the income of such trust or institution. In view of this, the reliance of the ld. counsel in the aforesaid case laws is misplaced as in the aforesaid case laws, the original provision of section 2(24)(iia) as inserted w.e.f. 01.04.1973 and subsequent amendments as brought out by Direct Tax Laws (Amendment) Act, 1987 and Direct Tax Laws (Amendment) Act, 1989 have been missed out.

In Veeravel Trust v. ITO (2021) 129 taxmann.com 358 (Chenn-Trib), the Tribunal held that where assessee charitable trust was not registered under section 12A, voluntary donations received by it with a specific direction to be formed part of corpus of trust would fall within ambit of income of a trust derived from property held under trust and hence includible in total income of trust.

In Vidyananda Educational society v. DIT, (2012) 32 CCH 030 ( Hyd ), it has been held that corpus donations become taxable in view of the definition of income in section 2(24)( iia )

7. Tax rate applicable to unregistered public charitable trust

In Jain Sangh Parabdi Khayu Trustee in ITA Nos. 353-354/AHD/2021 for the A.Ys. 2016-17 & 2017-18 the controversy arose was whether the rate of an individual should be applied or the maximum marginal rate of tax in the manner as provided under the provisions of section 164 of the act. Admittedly, the return of income was filed in the representative capacity in the manner as provided under clause (iv) of section 160 of the Act. The trust on hand was a non-discretionary trust meaning thereby the beneficiaries of the trust were not known. In other words the trust being public trust was formed to carry out the charitable activities.

The ITAT Hyderabad Bench held that it is the admitted position that the members of the trust were not entitled to any share in the income of the association of persons. Accordingly, applying Circular Bearing No. 320  dated 11-1-1982 it was held that  the rate applicable as to an individual for charging the Income Tax after allowing the basic exemption limit, shall be applicable to the assessee on hand. See also Gopal Ashram v. Dy. CIT (Ahd-Trib)for similar view.

However, the Ahmedabad Bench of ITAT in the case of Gujarat Rohit Samaj Trust v. DCIT ITA No.2161/AHD/2018 (Ahmedabad-Trib) Dated : 27/04/2022 has held as under:

i. The assessee was not entitled for the benefit of exemption under section 11 of the Act for the year under consideration And

ii. The beneficiaries of the trust were not known. The exception clause provided under section 164(1) of the Act was not applicable to the assessee.

Thus the tax shall be charged on the income of the assessee at the maximum marginal rate in pursuance to the provisions of section 164(1) of the Act.

Sub-section (2) of section 164 of the Act provides to charge the tax on the part of income which is not exempt treating the same as income of the Association of persons. However, in the case on hand, the trust was not eligible for exemption under section 11 of the Act for the year under consideration. Therefore, the same cannot be treated as Association of persons in the manner as provided under subsection (2) of section 164 of the Act.

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CA Manoj Gupta, Jodhpur

The Author is a Fellow member of the Institute of Chartered Accountants of India and is in practice for more than 25 years in the areas relating to Direct taxes and GST handling assessment and appeal related work at all levels . He is an  active speaker on issues relating to Direct taxes and delivers lectures on such issues very often. He can be reached at [email protected] and 9828510543 (Whatsapp preferred).