01 November 2013
If a society is carrying on charitable activities of education institutions and is approved u/c 10(23C) and the following defects are found in the return after the scrutiny u/s 142 started:
1) On some expenses TDS was not deducted 2) Payments were made which were ineligible as deduction due to 40(A)(3) dis allowance.
Since, the entire income is exempt under section 10(23C), will any tax be leviable on these amounts or not?
01 November 2013
Which kind of payment you are talking about.
Under section 10(23C)(iv) and (v) of the Income-tax Act, income received by certain charitable and religious funds, trusts and institutions is exempt from tax if the conditions specified for this purpose are satisfied. One such condition, as laid down in the third proviso to section 10(23C), is that the fund, trust or institution applies its income, or accumulates it for application, wholly and exclusively to the object for which it is established and it does not invest or deposit its funds (other than voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette specify) for any period during the previous year otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 of the Income-tax Act. For expenses disallowances go to the following link:
01 November 2013
As per my understanding, it is required to deduct TDS from salary paid, because it is taxable under the person who is getting salary. It will not be considered as charitable activities.
So TDS will be considered by such society at the time of making payment of salary.
01 November 2013
Sir, the case has now opened up in scrutiny u/s 142 and we want to offer Rs.840000 on account of non compliance of TDS provisions and disallowance u/s 40(A)(3).
My query is that:
Since the entire amount earned by the aop is exempt u/s 10(23C), will any tax be liable to be paid on this offer?
01 November 2013
I will give a letter about disallownace of expenses to the tune of Rs. 840000. I know that if I do so in a case of co., firm or Individual, I will have to pay tax including interest.
I want to know that if the same action is done by an AOP having exemption u/s 10(23C), will the AOP have to pay any tax.....?
Since, even if the AOP had not claimed any expense against the its gross receipts while filing return of income, its entire income would have been exempt.
What will be the case if we offer to disallow the expenses now or revise the return with these changes? Will any tax be payable?
I have read the provisions as stated by you but sir in the above case the expenses are meant for the staff of the society only and hence there is no question of exemption being revoked.....my query is if these amounts are diallowed due to non compliance of provisions of section 40(A)(3) and TDS provisions, then will any tax be payable? in light of the fact that exemption u/s 10(23C) is available.
I have read the provisions as stated by you but sir in the above case the expenses are meant for the staff of the society only and hence there is no question of exemption being revoked.....my query is if these amounts are diallowed due to non compliance of provisions of section 40(A)(3) and TDS provisions, then will any tax be payable? in light of the fact that exemption u/s 10(23C) is available.
You may refer George Educational, Medical & vs Assistant Director Of Income Tax on 23 April, 2001
Wherein it was stated that
"We find no justification for the above rejection of the construction cost. The provisions of Section 40A(3) are to be invoked only in the computation of the income under the head 'business'. The assessee-trust has not carried on any business activity. We see no reason for invoking the said section in the computation of the income of the society."
01 November 2013
the logic is that the Section 11 and 10 come in the chapter of income not included in the total income. The conditions for any income to be excluded from total income is also provided therein.
For 40A(3) to apply it is required that the income is under the head business or profession. The argument offered for inapplicability of 40A(3) to section 11/10(23c) is that only.
Now even if 40(a)(ia) is invoked, check whether you get covered under second proviso.
With regards to this AOP thing? Under what sub-section of 10(23c) are you getting covered?
once you park income in "income from other sources, 40 or 40a cannot apply.
02 November 2013
1) Sir, there is one problem......while filing income tax return.....the income was shown in Computation under the head Business Income wrongly as follows:
Business income Rs. 40 lacs (-) Exempt u/s 10(23C) Rs. 40 lacs
Net Income Nil
2) Regarding the 40(a)(ia): No such TDS is there which was deducted but not paid but there were payments under 194C and 194J on which TDS was not deducted.
3) As far as 10(23C) is concerned, the exemption is u/s sub-clause:
10(23C)(vi)** Educational Institution other than those mentioned in sub-clauses (iiiab) & (iiiad) and approved by prescribed Authority
02 November 2013
Since the income is declared under the head'profits and gains of business or profession', 1st proviso to section 2(15) gets attracted leading the AO to invoke 3rd proviso to section 143(3) meaning thereby disallowance in assessment is warranted.
What if I revise the return now since the a.y. year under scrutiny is 2011-12 or file a rectification u/s 154 in this regard, since no show cause notice has been issued as yet and the defects are not yet identified by the AO?
where do I stand if I revise the return now since the a.y. under scrutiny is 2011-12 or file a rectification u/s 154 in this regard, since no show cause notice has been issued as yet and the defects are not yet identified by the AO?
02 November 2013
the question is how this proviso would apply if your purpose is not advance of any other object of general utility? Aren't you running educational society??
In a litigation, you don't have to concede grounds so easily specially if you are on a strong footing.
02 November 2013
My point regarding proviso to 2(15) is that it is not applicable to charitable educational society. Nevertheless, you may rectify any mistake that you. It may put you in safe corner.
02 November 2013
Sushant, i know about it. But thats what I am saying.
To quote from the article you referred to, "With effect from 01.04.2009 (i.e., from assessment year 2009-10 onwards), however, the “advancement of any other object of general public utility” shall not qualify as a “charitable purpose” if the same involves the carrying on of any activity in the nature of trade, commerce or business, or rendering of any service in relation to any trade, commerce or business, for a consideration. This new restriction applies irrespective of the nature of use or application of the income arising from such activity. However, the rigour of this amendment has been reduced somewhat by a subsequent amendment brought in by the Finance Act, 2010 (with retrospective effect from 1-4-2009) to the effect that the said restriction shall not apply if the aggregate value of receipts from such activity during the given financial year does not exceed Rs. 10,00,000"
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