Opinion Of Eminent Legal Luminaries On Controversial Issues

Property held for charitable purposes

QUERY: What is the difference between the explanation given under Sections 11(2) and 11(3)?
ANSWER: Explanation below Section 11(2) provides that any amount paid or credited out of income from property held under wholly charitable trust or partly charitable trust which is not applied but accumulated or set apart to any trust or institution or to any fund either during the period of accumulation or thereafter shall not be treated as application of income for charitable or religious purposes. Thus, payment to other trusts and institutions out of income from property held under trust in the year of receipt will continue to be treated as application of income. However, any such payment out of accumulated income shall not be treated as application of income and will be taxed.
While Section 11(3) provides that if in any year the income which is accumulated for the specified purpose or purposes of the trust is applied to purposes other than charitable or religious purpose or ceases to be accumulated or set apart for such application to such purposes, it will become chargeable to tax as the income of that year. Further, if in any year, the accumulations cease to remain invested in Government securities or other approved securities or deposited in any account in the Post Office Savings Bank or with a banking company, co-operative bank etc.; or with a financial corporation, then also the income so accumulated will become chargeable to tax as income of that year. It further provides that if accumulations are not utilised for the specified purposes during the period of accumulation or in the year immediately following the expiry of that period, then, the accumulations to that extent they are not so utilised, shall be chargeable to tax as income of the previous year immediately following the expiry of that period.
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