Opinion Of Eminent Legal Luminaries On Controversial Issues

Denial of exemption-Trust or institution-Investment restrictions -Taxability of Charitable Trust in case exemption is forfeited.

QUERY: In case of violation of Section 13(1)(c) or 13(1)(d) what are the repercussions and how the tax is calculated in above situations as there is some confusion in that?
ANSWER: Section 164(2) of the Income-tax Act, 1961 provides that in case of relevant income which is derived from property held under trust wholly for charitable or religious purposes, tax shall be charged on so much of the relevant income as is not exempt under Section 11, as if the relevant income not so exempt were the income of an association of persons.
Proviso to the said sub-section provides that in case where the whole or any part of the relevant is not exempt under section 11 by virtue the provisions contained in clause (c) or clause (d) of Section 13(1), tax shall be charged on the relevant income or part of the relevant income at the maximum marginal rate.
The CBDT vide circular No. 387 dated July 06, 1984 has clarified the legal position as regards the taxability of the income of a charitable or religious trust forfeiting exemption by virtue of the investments made not in conformity with the prescribed pattern under Section 13(1)(d) or the income being spent on any of the persons excluded under Section 13(1)(c) of the Income tax Act. The CBDT has interpreted the proviso to Section 164(2) and Section 164(3) to mean that, in the case of trusts contravening the provisions of Section 13(1)(c) and (d) "the maximum rate of income tax will apply to that part of the income of which has forfeited the exemption under the said provisions."

Posted in Income-tax

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