Prohibited use or application by the member of trust or institution - Section 13(2)/(4) - Income Tax - Ready Reckoner - Income Tax

Prohibited use or application by the member of trust or institution - Section 13(2) We have noted above that when any part of the income or any property of the trust whenever created, is, during the previous year, used or applied directly , for thee benefit of any person referred to in section 13(3), the denial of exemption operates, section 13(2) specifies a few particular instance where the income or the property is to be deemed to have been used for the benefit of a person referred to in section 13(3). it should be noted that those particular instance do not in any way restrict the general meaning of the expression used or applied for the befit of a person . The provisions of section 13(2) are as follows: The income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in section 13(3) in the following cases:- ( a ) Loan without adequate interest or adequate security - if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub-section (3) for any period during the previous year without either adequate security or adequate interest or both; ( b ) Allowing use of property without adequate rent - if any land, building or other property of the trust or institution is, or continues to be, made available for the use of any person referred to in section 13(3), for any period during the previous year without charging adequate rent or other compensation; ( c ) Excess payment for services - if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in section 13(3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; ( d ) Inadequate remuneration for services rendered - if the services of the trust or institution are made available to any person referred to in section 13(3) during the previous year without adequate remuneration or other compensation; ( e ) Excess payment for purchase of property - if any share, security or other property is purchased by or on behalf of the trust or institution from any person referred to in section 13(3) during the previous year for consideration which is more than adequate; ( f ) Inadequate consideration for the property sold - if any share, security or other property is sold by or on behalf of the trust or institution to any person referred to in section 13(3) during the previous year for consideration which is less than adequate; ( g ) Diversion of income or property exceeding ₹ 1,000 - if any income or property of the trust or institution is diverted during the previous year in favour of any person referred to in section 13(3), the aggregate of the income and the value of the property, so diverted does not exceed one thousand rupees. ( h ) Investment in substantial interest concerns - if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year (not being a period before the 1st day of January, 1971), in any concern in which any person referred to in section 13(3) has a substantial interest. where the aggregate of the funds of the trust or institution invested in a concern in which any person referred to in section 13(3) has a substantial interest, does not exceed 5% of the capital of that concern, the exemption under section 11 or section 12 shall not be denied in relation to any income other than the income arising to the trust or the institution from such investment, by reason only that the funds of the trust or the institution have been invested in a concern in which such person has a substantial interest. [ Section 13(4) ] Meaning of Substantial Interest Section 13(2)(h), section 13(4) refers to cases where a person has A person shall be deemed to have a substantial interest in a concern,- ( i ) in a case where the concern is a company - if its shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than 20% of the voting power are, at any time during the previous year, owned beneficially by such person or partly by such person and partly by one or more of the other persons referred to in section 13(3); ( ii ) in the case of any other concern - if such person is entitled, or such person and one or more of the other persons referred to in section 13(3) are entitled in the aggregate, at any time during the previous year, to not less than 20% of the profits of such concern.