Section 336 is in Chapter XVII — Special Provisions Relating to Certain Persons, which runs from section 302 to section 355.
The section fixes the taxable regular income of a registered non-profit organisation for a tax year in two cases. Under clause (a) it is nil, where 85% or more of the regular income of that tax year has been applied as per section 341 or accumulated under section 342 for charitable or religious purposes in that tax year, as per the provisions of the Part. Under clause (b), in any other case, it is 85% of the regular income for that tax year as reduced by its application for charitable or religious purposes under section 341 or its accumulation under section 342 in that tax year, as per the provisions of the Part.
The exemption a registered non-profit organisation enjoys is conditional on the money actually being used for its purposes, and this section states the condition arithmetically. It sets the required level at 85% of regular income and taxes only the shortfall against that level, so the charge falls on what the organisation failed to apply or accumulate rather than on its receipts.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Application or accumulation at which taxable regular income is nil | 85% or more of the regular income of the tax year | Applied as per section 341 or accumulated under section 342 for charitable or religious purposes in that tax year | Clause (a) |
| Taxable regular income in any other case | 85% of the regular income of the tax year, as reduced by the application under section 341 or accumulation under section 342 in that tax year | Applies where less than 85% has been applied or accumulated | Clause (b) |
The base for the charge is not the whole regular income but 85% of it, reduced by what was actually applied or accumulated — so an organisation that applies 60% of its regular income is taxed on the 25 percentage point shortfall, not on the 40% it retained. Application under section 341 and accumulation under section 342 count alike, and both must occur in the same tax year as the income. Once the 85% mark is reached, clause (a) makes the taxable regular income nil rather than merely reduced.
A registered non-profit organisation has regular income of Rs. 2 crore in a tax year and applies Rs. 1.1 crore under section 341, with no accumulation under section 342. It has applied 55%, below the 85% mark, so clause (b) applies: taxable regular income is 85% of Rs. 2 crore, that is Rs. 1.7 crore, reduced by the Rs. 1.1 crore applied, leaving Rs. 60 lakh. Had it applied or accumulated Rs. 1.7 crore or more, clause (a) would have made the taxable regular income nil.
It is the computation the organisation makes in its own return, and the figure an Assessing Officer recomputes when testing whether the 85% application and accumulation condition was met for the year.
nil, where 85% or more of the regular income of such tax year has been applied as per provisions of section 341 or accumulated under section 342 for charitable or religious purposes, in such tax year