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Whether Surplus From This Activity Is Liable to tax In Case of Charitable Trust?

QUERY: Section 2(15) of Income-tax Act, 1961 which defines “Charitable Purpose”, has a provisos which say.

“Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity.”

“Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty-five lakh rupees or less in the year.” Limit of "twenty-five lakh rupees" is applicable from assessment year 2010-13.

Now it is an admitted fact, that most of the old Charitable Trusts who have been enjoying all the benefits are having places like Dharamshala-inns-guest houses at Pilgrims Places like Badrikeshwar, etc. and allow the Yatris to occupy these places during the course of their journey at very nominal charges to meet the expenses.

Similarly there are Marriage Halls – Wadis – Community Halls available for marriages and other social and religious places which are given to middle class families at nominal charges for performing marriages and for the accommodation of guests – coming to city for marriage. Further several drama halls are also owned by Trusts.

Now the query is –

Say the total receipt during and financial year exceeds the minimum prescribed limit, then what shall be consequences under the following circumstances:–

1) Whether sections 80G-12-12A facilities available at present shall be cancelled.

2) If total receipts from the above activities is less than the expenses incurred on the Maintenance of Dharmashala, etc., then what shall be position of Income Tax liability

3) If there is clear profit in the above income and the surplus is utilized for the other Objects of the Trust like granting scholarship – distribution of books to poor students OR financial aid to widow, etc. then ‘Whether surplus from this activity is liable to tax and if so what rate?’
ANSWER: Click here to read the full answer of the expert
SECTION(S): , , , , ,

On these points, the Central Board Direct Taxes vide Circular No. 11/2008 dated December 11, 2008 has clarified as under:

“1) Section 2(15) of the Income-tax Act, 1961 (‘Act’) defines “Charitable purpose” to include the following:-

i) Relief of the poor

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