Page 89 - DHC Budget Book 2021-22 Final

7.18
Rationalisation of the provision of Charitable Trust and Institutions to eliminate possibility of double deduction while calculating application or accumulation of Income [Sec. 11 & 10(23C)] [w.e.f. AY 2022-23]
— Hitherto Sec. 11(1)(d) & Explanation to third proviso to Sec.10(23C) provides that voluntary contribution received with a specific direction to form part of corpus by eligible trusts, institutions, funds are exempt.
— It is proposed to amend the above provisions to provide that such voluntary contributions shall be exempt only if it is invested or deposited in one or more of the forms or modes specified
in Sec. 11(5) maintained specifically for such corpus.
— Further, it is proposed to insert Explanation 4 of Sec.11(1) & Explanation 2 to third proviso of Sec.10(23C) to provide that –
ƒ Application out of voluntary contributions for corpus shall not be considered as application of income for charitable or religious purpose. However, if the above corpus specific contribution is replenished out of income
in subsequent year by way of investment
or deposit in modes specified in Sec.11(5) maintained specifically for such corpus, it shall be treated to be application for that year to the extent of investment or deposit.
ƒ Application out of any loans or borrowings shall not be considered as application of income for charitable or religious purpose. However, amount not treated as application of income above, shall be treated as application in the year of repayment of such loan or borrowing if such repayment is made out of income of that year, to extent of repayment.
— Further, it is proposed to insert Explanation 5 to Sec.11(1) & Explanation 2 to 20th proviso of Sec.10(23C) to provide that for calculation of income to be applied or accumulated in a year,
no set off of any excess application in preceding previous years shall be allowed.
Comments
— The above amendment has been made to
plug the loophole in case of charitable trusts
and institutions where corpus donations
were considered to be exempt and at the
same time its application was claimed as application towards mandatory 85% application/ accumulation of non-corpus income. Further, there were instances where loans or borrowings utilised for charitable and religious purposes was considered as application and at the same time its repayment was again claimed as application. This resulted in unintended double deduction.
— Both these situations, at times, also resulted in loss which was claimed by the assessee as carry forward resulting in unintended short application (less than 85%) in following years.
— The above amendment in relation to voluntary contribution towards corpus aims to provide certainty of possible utilisation of corpus donations. Hon’ble Karnataka HC in CIT–vs.- Sri Durga Nimishamba Trust (2012) 205 Taxmann 59 (Kar) agreed to the finding of ITAT that contribution made towards corpus fund cannot be treated as income for the purpose of levying of tax even if that corpus fund is misused. Hence, any misuse of Corpus donations are proposed to be circumvented.
— Further, amendment allowing repayment of loans and borrowings as application of income fortifies the principle laid down in DIT(Exemption) –vs.- Span Foundation (2009) 178 Taxman 436 (Delhi) & DIT(Exemption) –vs.- Govindu Naicker Estate (2009) 315 ITR 237 (Mad).
Content
Others Direct Tax 87