09 January 2020
A friend has created a Trust with himself as settler and Trustee. His son and brother are other 2 trustees. The Trust is registered under Indian Trust Act wef 16/4/2018. Application was made for registration u/s 12A but was rejected on ground that it is controlled by family as there were no other trustees outside the family and was closely held. The settler 's initial contribution was Rs 50000/- and he further contributed Rs 2 lakhs in 4 instalments of Rs 50000/- each during 2018-19 to Corpus of the Trust. All are bank transfers out of his personal bank account from his savings/ pension on which tax is paid. There is no cash transactions. There are no other receipts from any source. During the year Rs 160000/- was paid as stipend to a person who worked on a project in Primary schools in Delhi for providing Yoga and Meditation to control manage and reduce anger, violence, stress in young children, which is one of the objectives of the Trust. It was free of charge for schools and students. No tax return has yet been filed for A/Y 2019-20 relevant to F/y 2018-19. Now the trust has following choices :- 1. No filing of Return as there is no income or expenditure. Contribution to Corpus which is capital receipt and payment of 160000/- is application of funds. Hence no income/ loss 2. File Return showing contribution as Corpus Fund of 2.5 lakh in B/S as capital receipt, and expense of Rs 160000/- as salaries in P &L with business loss of 160000/-. 3. File Return with no income under Business, No B/S or P & L as there was no business and there is no income/ loss from Business. Show Rs 2.5 lakhs received from Settler as exempt income under Income from other sources -Gift from blood relatives as all trustees are blood relations and there is no other money received from outside persons. Treat it in same way as HUF. The money gifted as Corpus is out of tax paid amount. 4. Show Rs 2.5 lakhs as income from other sources (under sec. 56(2)(x) ) and pay tax on it. But this will amount to double taxation as settler has already paid tax on it and considering all trustees are blood relations and there is no money received from third persons, tax on such amount is unjust. Kindly give your expert opinion as to which action should be followed.
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