Section 11(4A) of the Income Tax Act
The decision most relied on for Section 11(4A) is Asstt. CIT v. Thanthi Trust (247 ITR 785), cited in 98 of the 75 judgments on BharatTax that turn on this section.
Leading authorities on Section 11(4A)
A charitable trust can earn income from business activities under Section 11(4A), including incidental businesses, and still claim exemption under Section 11, provided the income is applied towards its charitable objects. Generating a surplus from such activities does not automatically negate the charitable purpose.
The 15% exemption available to charitable trusts under Section 11(1)(a) is absolute and is not curtailed by the provisions of Section 11(2) regarding accumulation of income. Voluntary contributions received towards the corpus of a trust are excluded from the scope of income for Section 11(1)(a) exemption purposes.
Reassessment under Section 148 is valid and does not constitute a mere change of opinion if the original assessment order demonstrates no application of mind to a specific issue, such as the assessability of capital gains or casual income. In such cases, the Assessing Officer is justified in issuing a notice under Section 148 to address the unexamined income escapement.
An institution carrying out charitable objects, such as education or advancement of general public utility, does not lose its Section 11 exemption merely by collecting fees for activities like campus placements or educational guidance, as this does not constitute carrying on a business.
For charitable or religious trusts, income for exemption under Sections 11 and 12 must be computed on a commercial basis, not head-wise as per Section 14, treating expenditure as a charge against income. The net income, along with non-corpus donations, forms the eligible base for determining the application of funds and the permissible accumulation under Section 11(1)(a).
The Supreme Court clarifies the legal position regarding the conditions for educational institutions to claim income tax exemption under the Income-tax Act, 1961. This ruling specifically concerns the definition of 'charitable purpose' and how the institution's activities impact its eligibility for exemption.
For an activity to be considered 'business' under income tax law, it must occupy time, attention, and labour with a normal object of making profit. Profit motive is an important factor, and the activity should involve a continuous course of dealings between two or more persons.
For the purpose of accumulation of income under section 11(1)(a), the calculation is to be made on the gross receipts of the trust before deducting any expenses. This interpretation is based on the plain language of section 11(1)(a) and is supported by Supreme Court decisions.
An assessment for an earlier year can be reopened based on a finding of fact made from fresh material discovered during the assessment for a subsequent year. This is permissible even if the earlier assessment involved a full and true disclosure.
An entity's claim for charitable status is assessed based on its specific activities and the application of its income, not solely on its classification as a development authority. Decisions involving similar authorities are often distinguished based on factual differences, particularly concerning the commercial nature of operations.
Judgments on Section 11(4A)
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