Denial of Exemption under section 11 & 12 - Section 13(1) - Income Tax - Ready Reckoner - Income Tax

Denial of Exemption u/s 11 12 Section 13(1) Exemption u/s 11 12 shall NOT be available in following cases: (a) Any part of income from the property held under a trust for private religious purposes which does not ensure for the benefit of the public However where the trust is for private religious purposes, the exclusion will not apply to that part of the income from property held under trust, which does not ensure for the benefit of the public. [Ganeshi Devi Rami Devi Charitable Trust vs CIT 1968 (7) TMI 6 - Calcutta High Court] (b) Income for the benefit of particular religious community Entire income of a charitable trust/institution created for the benefit of any particular religious community or caste is not eligible for exemption under section 11 or 12 . A trust or institution created or established for the benefit of Scheduled Castes, backward classes, Scheduled Tribes or women and children shall not be deemed to be trust or institution created or established for the benefit of a religious community or caste within the meaning of section 13(1)(b) . Held that if the objects of the trust clearly shows that the trust is religious trust created exclusively for the benefit of the person belonging to a particular community, i.e. Muslim Community, then the assessee trust is is clearly hit the provisions of section 13(1)(b) . [Ghulam Mohidin Trustv. CIT 2000 (11) TMI 99 - Jammu and Kashmir High Court ] (c) Income for the benefit of specified persons referred to in section 13(3) If any part of income of a religious/ charitable trust/ institution ensures directly or indirectly for the benefit of any person specified in section 13(3) or any property of the trust is during the previous year applied or used directly or indirectly for the benefit of any person referred to in section 13(3), then entire income of such trust is not eligible for exemption under section 11 or12. This is obviously intended to ensure that the income of such a trust or institution is not diverted to the benefit of persons who are closely connected with the creation, establishment and conduct of the affairs of the trust or institution. With effect from assessment year 2023-24 , only part of income which ensure or is used or applied (directly or indirectly) for the benefit of interest persons, shall not be excluded from the total income of the trust/institution. If any part of income or any property of a trust or an institution is directly or indirectly applied or used for the benefit of interested person, then the entire income of such trust/institution will be liable to tax. [CIT vs St. Joseph s Convent Chandannagar Educational Society 2018 (5) TMI 1277 - Calcutta High Court] Penalty is leviable on the amount of income provided as benefit to person referred in section 13(3). [ Section 271AAE ] if during any proceedings under this Act, it is found that a person, being any fund or institution referred to section 10(23C) (iv)/(v)/(vi)/(via), or any trust or institution referred to in section 11 has violated the provisions of the twenty-first proviso to clause (23C) of section 10, or section 13(1)(c), the Assessing Officer may direct that such person shall pay by way of penalty- (a) 100% of the aggregate amount of income applied, directly or indirectly, by such person, where the violation is noticed for the first time during any previous year; and (b) 200% of the aggregate amount of income of such person applied, where violation is noticed again in any subsequent previous year. Non-Applicability of relaxation u/s 56(2)(x) The provision of section 56(2)(x) are not attracted in the hands of the recipient who received any sum of money or property from a trust or institution approved u/s 10(23C) or registered u/s 12AA or 12AB. This relaxation is not available where sum money sum of money or property has been received by specified persons u/s 13(3) (d) Investment or deposit of the funds of the trust/institution in modes or forms other than those specified u/s 11(5) - Entire income of a trust/ institution is not eligible for exemption u/s 11 12, if its funds are invested/ deposited otherwise than as specified under section 11(5). any shares in a company, other than- (A) shares in a public sector company ; (B) shares prescribed as a form or mode of investment under clause (xii) of section 11(5). This restriction do not apply in respect of ( i ) any assets held by the trust or institution where such assets form part of the corpus of the trust or institution as on the 1st day of June, 1973 ; ( ia ) any accretion to the shares, forming part of the corpus mentioned in clause ( i ), by way of bonus shares allotted to the trust or institution ; ( ii ) any assets being debentures issued by, or on behalf of, any company or corporation acquired by the trust or institution before the 1st day of March, 1983; ( iia ) any asset, not being an investment or deposit in any of the forms or modes specified in section 11(5), where such asset is not held by the trust or institution, otherwise than in any of the forms or modes specified in section 11(5), after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1993, whichever is later ; ( iii ) any funds representing the profits and gains of business, being profits and gains of any previous year relevant to the assessment year commencing on the 1st day of April, 1984 or any subsequent assessment year. [CIT vs Bhai Mohan Singh Foundation 2017 (8) TMI 1404 - Delhi High Court] (iv) any asset referred to in sub-clauses (i), (ia) and (ii) of clause (b) of the third proviso to clause (23C) of section 10 or any accretion to the shares, forming part of the corpus mentioned in the said sub-clauses (i) and (ia) and voluntary contributions referred to in sub-clause (iv) of clause (b) of the said proviso. [ Inserted vide Finance (No. 2) Act, 2024 ]