Section 11 l Income from Property Held for Charity
Circular No. 100 was issued by the Central Board of Direct Taxes on 24 January 1973. Its subject is Section 11 l Income from Property Held for Charity.
This grants an exemption or a relief under a provision that allows one. Read the conditions attached: an exemption notification is construed strictly, and a condition missed is the exemption lost.
Answers two questions on what counts as application of income by a charitable or religious trust under section 11, which requires the income to be applied for religious and charitable purposes for the exemption to run. First, repayment of a loan originally taken to fulfil one of the objects of the trust amounts to application of income for charitable and religious purposes. Second, on loans to students for higher studies, if the trust's only object is to give interest-bearing loans for higher studies that is carrying on a money-lending business; but if the object is the advancement of education and scholarship loans are only one of the activities in fulfilling it, granting the loans, even interest-bearing ones, is application of income. When such a loan comes back to the trust it is treated as income of the year of repayment.
The two questions on what amounts to application of income had been raised and were considered by the Board.
SECTION 11 l INCOME FROM PROPERTY HELD FOR CHARITY
162. Repayment of debt incurred for purposes of trust/loans advanced by educational trusts to students for higher studies - Whether amounts to application of income
1. Section 11 requires 100 per cent of the income of a charitable and religious trust to be applied for religious and charitable purposes to be entitled to the exemption under the said section. Two questions have been considered regarding the application of income :
1. Where a trust incurs a debt for the purposes of the trust, whether the repayment of the debt would amount to an application of the income for the purposes of the trust ; and
2. Whether loans advanced by an educational trust to students for higher studies would be treated as application of income for charitable purposes.
2. The Board has decided that repayment of the loan originally taken to fulfil one of the objects of the trust will amount to an application of the income for charitable and religious purposes. As regards the loans advanced for higher studies, if the only object of the trust is to give interest-bearing loans for higher studies, it will amount to carrying on of money-lending business. If, however, the object of the trust is advancement of education and granting of scholarship loans as only one of the activities carried on for the fulfilment of the objectives of the trust, granting of loans, even if interest-bearing, will amount to the application of income for charitable purposes. As and when the loan is returned to the trust, it will be treated as income of that year.
Circular : No. 100 [F. No. 195/1/72-IT(A-I)], dated 24-1-1973.
A section 11 computation in a trust's assessment where the officer has refused to count loan repayment, or student loans, as application of income.
Source: the Income Tax Department’s own published text — its page for this instrument.