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defferment of application of income in case of trust

AJAY SIMHA (CMA - final) (190 Points)

27 April 2010

I have a doubt in case of assement of trust.

incase, if a trust is unable to apply its income during the PY then it can deffer the same upto 85% by writing a application to the appropriate assessing officer.

Now the question is how many years is this defferment allowed is it for 1 year or 5 years???

pls answer my question

reg]

AJAY

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2 Replies

DT Fundas - Tarun rustagi ( Author) (1150 Points)
Replied 27 April 2010

plz carefully read the provision of sec11(1).if the trust has not received the full amount then u can take benefit upto the year of receipt or the succesiding p/y.if it becauce of any other reason then u can take bebefit upto the previous year immediately following the previos year in which income is derived.

in short there is no fixed time limit.time allowed is according to the situations

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Section 11(2) : Accumulation of Income:

1) Rather than spending 85% of its current year’s income, a trust may decide to accumulate the income for spending it in future.

2) Such accumulated income, even if not spent towards the approved objects of the trust in the year of earning it, then also will be treated as application of 85% of its income and will be exempt accordingly.

3) In order to claim exemption u/s. 11 on accumulated income, trust has to inform about the accumulation to the concerned A.O. in writing, in a prescribed form i.e. Form No. 10, along with its Return of Income (ROI). Even if such ROI is filed belatedly, then also Form No. 10 shall be filed along with ROI only. Non-filing of form no. 10 will make the trust loose the benefit of exemption on accumulated part of its income.

4) Funds can be accumulated only for specified purposes, which shall be within the approved objects of the trust.

Funds can be accumulated for more than one purpose also i.e. for multiple purposes. But in any case all such purposes for which funds are accumulated, shall very clearly be indicated in form no. 10, mere reproduction of objects clause will not entitle the trust for exemption on accumulated part of its income.

-- D.I.T. (Exemption) v/s. Daulatram Education Society (2005) (Delhi – H.C.)

5) In any case funds can be accumulated for a maximum period of 5 yrs. In other words accumulated funds shall be spent for the specified purpose within a period of 5 years, failing which, it will be treated as the income of the 6^th year, to be spent in 6^th year itself, failing which, it can be spent in the 7^th year also, but in the 7^th year, it will have to be spent on or before the due date of filing ROI.

6) If trust finds itself unable to spend its accumulated income for the purpose specified in form no. 10, then accumulated funds can be spent for another purpose approved/permitted by A.O. provided such other purpose applied for by the trust is within the approved objects of the trust.

7) The details regarding the plan for which the funds are accumulated, need not be mentioned in form no. 10 – DIT (Exemption) V/s. Daulatram Education Society (2005) (Delhi)

8) In order to claim exemption u/s.11, out of current years income, trust may either spend or accumulate or contribute to another trust. In other words contribution to another trust out of current years income, will also be regarded as application of 85% of its income. However, once the trust decides to accumulate its income then contribution to another trust out of its accumulated income will not qualify for exemption.

However, in the year of dissolution of the trust, A.O may permit contribution to another trust or institution, out of accumulated income without having to loose exemption on such contribution.