Regarding Exemption U/S 10(23)(vi)

This query is : Resolved

RISHI KESH BHARDWAJ (Querist)
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11 March 2008 A trust who is registered U/S 12AA is running Educational Institution and whose gross receipts is more than One Crore is compulsorily required to apply for exemption U/S 10(23)(vi) or the trust has option to get exemption U/S 11 of the Income-Tax act, 1961.

CA RK Bhardwaj

CA. Amit Daga

CA. Amit Daga (Expert)
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17 March 2008 Clarifications on section 11(1)(a) and 11(2) - Under section 11(1)(a), a trust claiming exemption is allowed to accumulate 25 per cent of its income or Rs. 10,000, whichever is higher. Thus, if a trust accumulates a larger income than the limits prescribed for exemption, what would be chargeable to tax is the excess over the exempted limit, and not the entire accumulation including the exempted portion.

Section 11(2), however, provides that if the conditions laid down in the sub-section are satisfied, restrictions as regards accumulation or setting apart of income shall not apply for the period during which the conditions prescribed therein remains satisfied. To avoid taxation under section 11(1)(a), investment in Government securities as prescribed in section 11(2), has to be made, not only in respect of excess amount which is chargeable under section 11(1)(a) but of the entire unspent balance including the exempted portion.

Subsequently, if it is found that the provisions of section 11(2) have been violated and the income has been applied to purposes other than charitable or religious, or the amounts cease to be accumulated or set apart, the entire accumulation covered by section 11(2) will be subjected to tax under section 11(3).

Thus, while under section 11(1)(a), the tax will be levied in the year to which the income relates, under section 11(3) the income would be chargeable in the year in which the amounts cease to be accumulated for the specific purpose mentioned. Thus, when the amounts are taxed under section 11(3), the benefit which would have been available to a trust in respect of 25 per cent of its income or Rs. 10,000 under section 11(1)(a) would also be lost - Circular : No. 29, dated 23-8-1968.