| Question And Answer | |
|---|---|
| Subject: | charitable trust carrying on business |
| Category: | Income-Tax |
| Querist: | seetharaman |
| Answered by: | Advocate Shashi Ashok Bekal |
| Tags: | business, charitable trust |
| Date: | September 26, 2023 |
Respected team,
A charitable trust falling under general public utility, originally regd u/s 12A and now granted permanent registration u/s 12AB carried out commercial actitivity in the nature of business during F.Y. 2022-23 . however, it has not maintained seperate books of accounts for business activity. while computing tax liability, business activity and charitable activity to be computed seperately, if so, what is the tax rate for both activity ?
whether Tax audit report in form 10BB (as total income exceeds Rs. 5 cr) and also form 3cb,3cd is to be filed ?
The Assesse has to demonstrate that less than 20 per cent of its receipts are from business activity otherwise, the activities of the Assessee will not be considered to be for a “charitable purpose” according to section 2 (15) of the Income-tax Act, 1961.
The query , prima facie, makes for an illustration of the so called ‘jumping the gun’. < ? To know why so, look through the fundamentals the matter entails as smmed up, – https://indianlawlive.net/2022/03/23/business-by-charitable-trusts-institutions/
Back to the Inhouse Expert for his 'opinion'!
To ADD:
https://indiankanoon.org/doc/1859206/
<Supreme Court of India
Additional Commissioner Of … vs Surat Art Silk Cloth … on 19 November, 1979
Equivalent citations: 1980 AIR 387, 1980 SCR (2) 77
Author: P Bhagwati
Bench: Bhagwati, P.N., Untwalia, N.L., Tulzapurkar, V.D., Pathak, R.S., Sen, A.P. (J)
" 7. It would be clearly inconsistent to hold that if the
dominant or primary purpose was 'charity' it would be
permissible for such an object of general public utility to
augment its income by engaging in trading or commercial
activity. [131 F] "
If critically viewed,and insightfully analysed,the host of cited decisions, are in the same vein,identical in substance, in which courts have decided and upheld the claim for tax exemption on the FIRST PRINCIPLEs of "MUTUALITY"! For a DILATION of that other Topic , look through the material galore in Public domain!
TENTATIVE(in own firm conviction)(:
Regrettable that in choosing to provide his cryptic answer, the expert assigned to,it seems, has not given due consideration to,among others,the SC Judgment in re. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION, SURAT, in which almost all issues have been fully and finally settled/bindingly concluded.
By any reasoning,the newly inserted Proviso on the strength of which the Answer has been provided , if considered in-depth, cannot be rightly regarded to have the effect,even remotely, of discrediting or overiding the cited SC Judgment.
For an appreciation in proper light of all the attendant angles, suggest to go through inter alia the following material readily available in public domain :
1. https://itatonline.org/archives/cit-vs-ms-dawoodi-bohara-jamat-supreme-court-a-charitable-and-religious-trust-which-does-not-benefit-any-specific-religious-community-is-not-hit-by-s-131b-is-eligible-to-claim-exemption-us-11/
2.https://taxguru.in/income-tax/indian-trustssec215-income-tax-act-boon-public-charitable-trusts.html
To emphasise:The above referred Proviso seeking to deny tax exemption using an arbitrarily fixed norm of ’20 percent’of ‘total receipts’ is open to be forcefully challenged on more than one valid ground. Most importantly, in terms of the applicable provisions, the principal criterion for qualifying for tax-exemption is ‘application”income” ‘(the quantum, as computed, which is otherwise includible in ‘total income’- NOT GROSS RECEIPTS).Further, it ought to be borne in mind,that the tax exemption is permitted not only of ‘income’applied in the year one itself but also of income ‘accumulated or set apart for application’ and actually applied in a later year. Also for this reason the said Proviso , it is open to be challenged as patently ‘misconceived’and not amenable to being enforced !?
Even otherwise, the so faulted Proviso cannot be rightly taken to have an overriding effect on the SC judgments; to be specific,that handed down in Dawoodi Bohara Jamat’s case.
BaCk / Over to experts for an eminent review of the prima facie misleading opinion on hand !
courtesy