Income of trust

This query is : Resolved

CA Vandana Rathi (Querist)
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05 August 2015 Please guide me in following case
- Trust registered under sec 12A w.e.f. 01/04/2007.
- Trust is running primary & secondary school.
- Trust's receipts are grant and student fees.
- Trust has incurred deficit during the year.

Query:

1) Whether it is mandatory to file the return of income?
2) Whether deficit to be shown in income from other sources.
3) Whether student fees to be treated as voluntary contribution as income from other sources?

Please reply as soon as possible

CS,CA F,Numrologi TusharSampat

CS,CA F,Numrologi TusharSampat (Expert)
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05 August 2015 1. yes
The charitable trust in India gets exemption as per section 11 and section 12 of the Income Tax Act.The various conditions including registration procedure is given in section 12AA and section 13 of the I.T.Act. Various rules are also prescribed in I.T Rule . One of the condition for claiming exemption is [ as per Rule 17 B ] is that audit report in Form 10B has to be filed along with return of income. It must be noted that the return of a charitable trust is filed in paper form and attaching audit report is required as per Rule 12 of I.T.Rule.

The issue however is whether failure of attaching the statutory audit report along with return of charitable trust , the claim of exemption can be denied forever. In other words , whether attaching the audit report with the income tax return is mandatory.

2. its not income from other sources

3.no

CA Vandana Rathi

CA Vandana Rathi (Querist)
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06 August 2015 1) What if trust is not taking any exemption under section 11 and 12 of Income Tax Act?

2)if it is not "Income from other sources", than under which head it should be show?

3)If student fees not to be treated as voluntary contribution under the head income from other sources, than under which head we should show it?

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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31 July 2024 When dealing with a trust registered under Section 12A of the Income Tax Act, which is running educational institutions and facing deficits, it’s crucial to understand the proper treatment of income and expenses in the context of tax filings. Here’s a detailed response to your queries:

### **1. Filing of Income Tax Return**

**1.1. ** **Mandatory Filing:**
- **Yes, Filing is Mandatory:** Even if a trust is registered under Section 12A and is running a school with deficits, it is mandatory to file an income tax return. This is required to ensure compliance with tax laws and to report the trust’s income and expenditure.

**1.2. ** **Form to be Used:**
- **ITR-7:** Trusts registered under Section 12A should file their returns using ITR-7. This form is specifically designed for trusts, institutions, and other organizations claiming exemption under Section 11 and 12.

### **2. Treatment of Deficit**

**2.1. ** **Deficit Reporting:**
- **Deficit Not Shown Under Income from Other Sources:** The deficit incurred by the trust should not be shown under "Income from Other Sources." Instead, it should be reported as part of the trust’s income and expenditure statement in the ITR-7.
- **Nature of Deficit:** The deficit is simply the result of expenditure exceeding income and does not need a separate heading in the return.

### **3. Treatment of Student Fees**

**3.1. ** **Student Fees:**
- **Not Voluntary Contribution:** Student fees should not be treated as voluntary contributions. They are considered part of the operational income of the trust.
- **Income Head:** Student fees should be reported under the head **"Income from Business or Profession"** if the trust is engaged in running an educational institution as its primary activity. The fees are part of the trust's receipts from its core educational activities.

### **4. Exemption Under Section 11 and 12**

**4.1. ** **If Exemption Under Section 11 and 12 is Not Claimed:**
- **Taxation of Income:** If the trust decides not to claim exemption under Section 11 and 12, the income would be taxable under the appropriate head of income. However, this is not the typical scenario for educational trusts, as they usually claim exemptions.
- **Income Head:** The income, including student fees, would then be taxed under **“Income from Business or Profession”** as the trust is carrying out educational activities which generate fees and other income.

### **5. Summary**

1. **Mandatory Filing:** It is mandatory for the trust to file its income tax return using ITR-7, regardless of deficits.
2. **Deficit Handling:** The deficit is reported in the income and expenditure statement and does not need to be shown separately under "Income from Other Sources."
3. **Student Fees:** Student fees should be reported under "Income from Business or Profession" and not as voluntary contributions.
4. **Exemption Claim:** If exemptions under Section 11 and 12 are not claimed, income from student fees and other receipts should be reported under "Income from Business or Profession."

**Note:** Even if a trust has deficits or is not claiming exemptions, it must still comply with filing requirements and correctly categorize its income and expenses. Consulting with a tax professional or chartered accountant can provide specific guidance tailored to the trust’s circumstances.