Opinion Of Eminent Legal Luminaries On Controversial Issues

Can Non-Claim Of Tax Refund By Charitable Institution Constitute Violation Of S. 13?

QUERY: (a) As we are charitable organisation / trust involved in education related activities. We are paying service tax on the fees collected from students. However, no CENVAT on input services is available while making payment of service tax as the head of organisation is of strong opinion that it will invite unnecessary audit queries and attention from the service tax department. The CENVAT credit for F.Y. 2012-13 works out to around Rs. 20,00,000/-. Section 13 of the Income- tax Act, 1961 provides for protection of property of the Trust and hence not claiming CENVAT of Rs. 20,00,000/- is a violation of the section?

(b) In charitable organisation, the trustees have given full authority to Director General and consequently Director General is also very vigilant in sanctioning any payments. Out of abandon caution and moral, ethical responsibility, Director General would like that payment made to him or his relative should be approved by the trustees. Whether his contention is right?

(c) A charitable trust involved in medical related facilities have received part income tax refund from department and that also without interest. The head of the organization is not in favour of writing a letter asking for part refund as well as interest on refund fearing any harassment from Income-tax Department. Whether such stand would invite section 13 of the Income tax Act, 1961?
ANSWER: (a) Section 13 of the Income-tax Act, 1961 provides for withdrawal of exemption granted to charitable trust granted under section 11 of the Act.

Section 13(1)(c) read with section 13(3) provides for withdrawal for exemption where a part of the income of a charitable or religious trust or institution enures or is used or applied directly or indirectly for the benefit of:

i) The author of the trust or the founder of the institution;

ii) Any person who has made a substantial contribution to the trust or institution i.e., any person whose total contribution up to the end of the relevant previous year exceeds Rs. 50,000/-

iii) Where such author, founder or person is a Hindu Undivided Family, a member of the family;

iv) Any trustee of the trust or manager (by whatever name called) of the institution;

v) Any relative of any such author, founder, person, member trustee or manager as aforesaid;

vi) Any concern in which any of the person referred to above has substantial interest.

Explanation 1 to section 13 states “relative” in relation to an individual and Explanation 3 to said section defines “substantial interest” in a concern.

In view of the above, if CENVAT credit of Rs. 20/- lakhs or part of the income tax refund or interest on the said refund not claimed by the Trust, the trustee/s would be liable under section 36A of the Bombay Public Trust Act, 1950 for not protecting the property of the trust. However, the trust can not lose the exemption under section 3 of the Act as the amount is receivable from the Government.

In fact Article 265 of the Constitution provides that “no tax shall be levied or collected except by authority of law’. Therefore, section 237 of the Income tax Act, 1961 specifically provides that if any person satisfies the AO that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of excess. Similarly, section 244 provides for interest on refund where no claim is needed.

Thus, it is a right of the assessee (trust) to claim refund as well as interest from Department and Department is bound to issue refund along with interest.

b) The contention of the Director General of the trust is correct as he is covered by section 13(3)(c)of the Act.

Posted in Income-tax

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