30 October 2013
Income of societies/trust is exempt to the extent of 15%. But if the actual expenditure is less than 15%, then what amount will be exempted, either the expenditure amount or the 15% amount??? Plzzz reply...
1. A trust or society under section 11 is required to spend atleast 85%. As long as 85% is spent for the stated purpose of the trust or the society, the remaining 15% is not included in the taxable income.
2. Even where the expenditure is less than 85%, even then the shortfall may not be taxed where:
1. Income is accumulated up to 5 years (10 years if income is accumulated before 1-4-2001) and the purpose of accumulation is specified to the AO in Form No. 10. If accumulated amount could not be applied due to order/ injunction of the court, such period will be excluded. The time limit for filing Form No. 10 is the same as time limit for filing return u/s 139(1) (Rule 17). However in the case of CIT vs. Nagpur Hotel Owners Association [247 ITR 201 SC] the Hon’ble Supreme Court has held that in the absence of reference to time limit in the section itself, such form can be submitted any time before the completion of assessment.
2. The income accumulated must be applied for the specified purpose within the period of accumulation as per application in Form 10. Till the accumulated amount is applied, it must be invested as specified in Section 11(5). This requirement of Section 11(5) is applicable also to those trusts who are claiming exemption under clauses (iv), (v), (vi) and (via) of Section 10(23C).
If due to any other reason, income is not applied during the previous year, such income can be applied in the following previous year. However intimation in writing must be sent to AO before the expiry of time allowed u/s. 139(1) for furnishing the return. If such income is not applied, it shall be deemed to be the income of previous year immediately following the year in which such income was derived [Explanation 2 to Section 11(1)].
Thus, where expense falls short of the 85% mark and the provisions to claim relief are not invoked, then the said unapplied income shall be taxed.
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