“Section 13(1)(c)(d)”
The decision most relied on for Section 13(1)(c)(d) is CIT v. Fr. Mullers Charitable Institutions (363 ITR 230), cited in 117 judgments on BharatTax.
Leading authorities on Section 13(1)(c)(d)
For a charitable trust, a violation of Section 13(1)(d) does not lead to the denial of exemption under Section 11 on its total income. Instead, only income derived from investments or deposits made in violation of Section 11(5) or income diverted under Section 13(1)(c) or 13(1)(d) is taxable.
Charitable institutions are entitled to claim depreciation on assets even when the cost of acquisition has already been treated as an application of income for exemption purposes, as this does not constitute a double deduction.
Income of a trust that is taxable at the maximum marginal rate should be taxed accordingly, while other income is eligible for exemption under Section 11 of the Income-tax Act.
Charging fees, even when having regard to the economic status of beneficiaries, is permissible for the sustenance of charitable activities, provided it is necessary for operation and running expenses and does not amount to carrying on trade or commerce. This applies even after the introduction of the proviso to Section 2(15) of the Income Tax Act, 1961.
Income earned from investments or deposits made in violation of Section 13(1)(d) of the Income Tax Act is taxable, but only to the extent of the income so earned, not the entire corpus. Circular No. 387, dated 06.07.1994, supports this interpretation and binds the revenue authorities.
When an exemption is denied under Section 13(1)(c) or (d), the denial of exemption applies only to the portion of income that violates these provisions, not the entire income.
A trust is entitled to the benefit of Section 11(2) of the Act if the notice of accumulation is furnished before the completion of assessment.
The proviso to section 2(15) should not be invoked to deny exemption to a sports organization if its activities are not predominantly in the nature of trade, commerce, or business.
