Requirements of section 13(1)(d) of the Income-tax Act, 1961, read with section 11(1)(a)--Clarification regarding - Income Tax - 335/1982

Requirements of section 13(1)(d) of the Income-tax Act, 1961, read with section 11(1)(a)--Clarification regarding Circular No. 335 Dated 13/4/1982 To All Commissioners of Income-tax. Sir, Subject : Requirements of section 13(1)(d) of the Income-tax Act, 1961, read with section 11(1)(a)--Clarification regarding. Section 11(1)(a) of the Income-tax Act, 1961, provides for grant of exemption from income-tax to income derived from property held under trust for charitable or religious purposes to the extent the income is applied for such purposes in India. Where any such income is accumulated or set apart for application to such purposes in India the extent to which the income is permitted to be accumulated or set apart is 25% of the income. Therefore, under section 11(1)(a) income derived from property held under trust enjoys exemption when at least 75% of the income is applied for charitable or religious purposes. 2. Section 13(1)(d) was introduced by the Taxation Laws (Amendment) Act, 1975. It provides for denial of exemption under section 11 for any assessment year commencing from 1982-83, if any funds of the trust or institution are invested or deposited or continue to remain invested or deposited for any period during any previous year commencing on or after 1-4-1981 in any form or mode other than those specified in section 13(5). The Finance Bill, 1982, contains a provision to extend this period to one year so that the requirements will be applicable from assessment year 1983-84, for the previous year commencing on or after 1-4-1982. 3. The effect of the insertion of section 13(1)(d) on section 11(1)(a) has been examined. The exemption under section 11(1)(a) will be available only if at least 75% of the income is applied for charitable or religious purposes in India during the year and the remaining amount is invested in the forms or modes specified under section 13(5). Thus, both the requirements will to have be fulfilled before the trust can claim and avail of the exemption under section 11(1)(a). An example to illustrate the position is given below: A trust derives income from property held for charitable purposes to the extent of Rs. 40,000 in an year. Under section 11(1)(a) it has to spend at least Rs. 30,000 on charitable purpose. The balance of Rs. 10,000 will have to be invested in the forms or modes prescribed under section 13(5). It is only then that the entire income of the trust will get exemption under section 11(1)(a). 4. It may, however, be clarified that in regard to the accumulation of income permitted under section 11(2), the provisions of section 13(6) make it clear that the requirements of section 13(1)(d) read with section 13(5) will not apply. This is because the mode of investing moneys allowed to be accumulated under section 11(2) is specified in that section itself. 5. The contents of this circular may be brought to the notice of all officers working in your charge and in particular to officers assessing trusts. Yours faithfully, (Sd.) V.B. Srinivasan, Secretary, Central Board of Direct Taxes.