Under Lok pal and Lokayaukta Act 2013, as per section 14(1)(g) the Lokpal shall inquire any allegation of corruption made in a complaint in respect of any person who is or has been a director, manager, secretary or other officer of every other society or association of persons or trust (whether registered under any law for the time being in force or not), by whatever name called, wholly or partly financed by the Government and the annual income of which exceeds such amount as the Central Government may, by notification, specify; It has been notified vide Notification dated 20-06-2016 issued by Ministry of Pesonnel, Public Grievances and Pensions that inquiry into allegations of corruption in above cases to be made only where grants or financial assistance given by the Central Government exceeds Rs. 1 crores. Income other than Central Government Grants not to be considered for conducting such inquiry. Even state government grant not covered. The moot point is whether Invocation of section 13(1)(c) of Income Tax Act i.e. use or application of any part of income or assets of the trust for the benefit of trustee etc. might invite such enquiry

Yet another Interesting legal issue of Inter Trust Charity between Sister Societies where both societies exchanged donations. AO and CIT A applied 13(3)(b) read with 13(1)(c).

Comments:

S. 13(3)(b) covers a person whose total contribution up to end of financial year is more than 50,000/-. Since both trusts exchanged more than Rs. 50,000/-, both stood covered by 13(3)(b). Further as per S.13(1)(c), if any part of income or property of the trust is used or applied for the benefit of person covered by 13(3), exemption u/s 11 is not available . Further as per 12AA(4) introduced by Finance Act 2014, registration may be cancelled and as per S.115TD introduced by Finance Act 2016, tax on MMR is payable on aggregate market value of assets less liabilities.

Held by ITAT that:

1.     Explanation below Section 11(2) only prohibits inter trust charity out of income accumulated u/s 11(2) and not out of current income

2.     As per 2^nd proviso to S.11(3A), payment or credit of money to trust registered u/s 12AA or Institution u/s 10(23C)(iv),(v),(vi),(via) is permitted in case of dissolution of the trust in the year in which trust or institution is dissolved.

3.     There is no apparent bar on payment or credit to such other organizations out of previous year's income subject to the provisions of section

4.     When the donation given by one trust to another trust out of current year's income is permitted in section 11 of the Act as an application of income, the same cannot be curtailed by another provision of the Act (i.e section 13(1)(c ) (ii) read with section 13(3) of the Act) as it would defeat the very purpose of such provision.

5.     It is not the case of the revenue that the funds of the trust have been applied /diverted for the private benefit of the trustees, settlors or any individuals /relatives. This is what is the true intention of section 13(1)(c ) of the Act.

6.     In the instant case, it is a case of simple donation by one public charitable trust to another public charitable trust, wherein no individual could hold any substantial interest.

7.     In view of the above findings, we hold that the payment of donation by assessee trust to another registered public charitable trust is not in violation of section 13(1)(c) of the Act as the said payment is not made for the benefit of any person either directly or indirectly referred to in section 13(3) of the Act.

[St. Joseph's Convent Chandannagar Educational Society [2016] 70 taxmann.com 21 (Kolkata - Trib.)

CBDT has clarified that the process for cancellation of registration is to be initiated strictly in accordance with section 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions. CBDT has also cautioned that since cancellation of registration of trust shall invite accereted income tax as per Finance Act 2016, authorities are, therefore, advised not to cancel the registration of a charitable institution granted u/s 12AA just because the proviso to section 2(15) comes into play. CBDT has sternly forbidden to cancel registration merely on the ground that the cut-off specified in the proviso to section 2(15) of the Act is exceeded in a particular year without there being any change in the nature of activities of the institution [Circular 21/2016, Dated: May 27, 2016]

Section 11(6) inserted by Finance Act 2014 wef AY 2015-16 disallowing deduction of depreciation of asset , the acquisition of which has been claimed as application is not retrospective in nature. Al- Ameen Charitable Fund Trust[2016] 67 taxmann.com 160 (Karnataka) FEBRUARY 22, 2016

Supreme Court has affirmed the decision of Allhabad High Court in Society for The Promotion of Education Adventure Sports on 16-02-2016 allowing deemed registration of trust after six months where registration not granted in six months. Earlier Allahabad High Court full bench in Muzafarnagar Development Authority on 05-02-2015 had reversed division bench decision in Society for The Promotion of Education Adventure Sports which now stands restored back . Earlier CBDT vide Instruction dated 06-11-2015 had also directed to follow the time limit of six months strictly.

Contribution received by assessee-trust towards corpus fund even if misused could not be treated as income for purpose of levying tax-Sri Durga Nimishamba Trust [2012] 18 taxmann.com 173 (Kar.)

SLP granted against order of High Court wherein it was held that since dominant objective of ICAI was to regulate profession of Chartered Accountancy in India, it was a charitable institution and conduction of coaching classes and campus placements for a fee by it could not be held to be business, trade or commerce Institute of Chartered Accountants of India[2016] 65 taxmann.com 63 (SC) MAY 1, 2015

Whether Trusts to provide information of previous accumulations older than five years also ?

New Rule 17 Inserted for Trust replacing old rule 17. As per New Rule 17, option form to apply trust income in the year of receipt or subsequent year without accumulating the income to filled in form 9A. Notice of accumulation u/s 11(2) for maximum five years in old Form 10 replaced by new Form 10. Both Form 9A and Form 10 to be filed electronically by Trust before due date u/s 139(1), either through digital signature or electronic verification code compulsorily. Form 10 to be used for 11(2) as well as for 10(21) i.e. research association.  Accumulation by educational institutions and medical institutions u/s 10(23C)(vi) though also limited to five years does not require any notice. It may further be noted that assessee trust is required in Form 9A to supply reasons for non application of income in cases where income derived has also actually been received but not applied. No such connotation is apparent from the provisions of the law. The law simply requires it to be applied next year in cases of actual receipt of income which is neither applied nor accumulated. Further new Form 10 allows one to provide different time limits of income accumulated for different purposes. Further while old Form 10 allowed period of six months from the end of previous year to invest in modes specified in 11(5), new form 10 requires investement/deposit in modes specified in 11(5) by the date of furnishing Form 10. However it may also be noted that as per clause (iia) to proviso to section 13(1)(d) period of one year from the end of previous year in which asset is acquired  is allowed for investment/ deposit in modes specified in 11(5). Further old Form 10 point no.3 required furnishing of accounts to provide information regarding utilization of accumulated funds, no such information required in new Form 10. However new Form10 also requires furnishing of information regarding all previous accumulations. Whether information older than five years also required is not clear ?. If so, it might prove a very onerous obligation cast especially on old trusts. – Notification dated 14-01-2016

Educational Institution providing advance to two organizations publishing magazine. Held that advance is incidental and ancillary to main objects. AP High Court quoted SC in Yogiraj Charity Trust 103 ITR 777 that if primary or dominant purpose is charitable , another object which may not be charitable but is incidental to primary object, would not prevent trust from being a valid trust Vijay Vani Education Trust (AP HC) 349 ITR 230

Assessee society providing citizen services to common people. Charging huge fees in addition to charges levied by State Government . Activities are not charitable. Sukhmani Society for Citizen Services (2012) 139 ITD 307 (ASR Trib.)

Marathon conducted in a commercial manner. Trust can not be said to be existing solely for charitable purpose. Hyderabad Runners Society (2012) 139 ITD 464 (HYD.)

When mutual concern provides goods and services to non members also and profit flows from said transaction, it is chargeable to tax. Societe International De Telecommunication 139 ITD 328 (Mum Trib)

Merely because educational institution has generated surplus income. it would not cease to exist for educational purposes Sanatan Dharam Shiksha Samiti (P&H) 253 ITR 518

A Trust predominantly engaged in ancilliary or incidental objects which are not related to any charitable purpose and does not carry on any activity relating to its main object of charitable nature (SCENTIFIC RESEARCH) is not entitled to exemption. Viswesvarya Indus R&D Centre (2012) 79 DTR387(BOM) HC

Capital gain applied for charitable purposes not by acquiring a new asset but for other charitable purpose Claim for exemption is allowed A1 Ameen Education Society (2012) 139 ITD 245 (Bang Trib)

Shares received towords corpus sold in compliance of cl (iia) of S.13(1)(a)(iii) requiring holding up to one year only. It is not violation of 11(1)(a) and assessee corpus donations can not be treated as general donations. Sera Foundation 79 DTR 210 (DEL Trib)

CIT/Director is not required to examine whether the trust has actually carried on charitable activities. Foundation of Ophthalmic and Optometry Research Education Centre [2012] 79 DTR 178 (DEL HC)

Objects altered without consent of department is not sufficient ground for invoking 12AA(3); Payment of commission for soliciting students for studying in Edu Institution can not be lead to conclusion that assessee was not imparting education Kirupanidhi Educational Trust (2012) 139ITR 228 (Bang Trib)

Registration of educational Institution can not be cancelled as surplus was utilized for educational purposes; it is no where provided that trust can not be constituited by family; it is also not provided that trust can not have number of units Rajasthan Vikas Sanstha 78 DTR 411 (Jodhpur Trib)

Scope and power of CIT u/s 12A/12AA favoring Assesse 1)Saint Kabir Education Trust (ITAT Asr)41 DTR 267 2)Dream Land Edu Trust (ITAT Asr)109 TTJ 850 3)DN Memorial Trust ITA 618/Asr/2011 4) Surya Educational Trust (P&H HC)15 TMC 123 5)Spring Dale Edu Society(P&H HC)16 TMC 285 6) Tishir Shiksha Prasar Samiti 217 TMC 525 7)Gagan Education society 145 TTJ 230 8)Divine Health Services ITA 417/2010