Circular under section 119 of the income tax act 1961
Circular No. 3/2024 was issued by the Central Board of Direct Taxes on 6 March 2024. Its subject is Circular under section 119 of the income tax act 1961.
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.
Deals with the Finance Act, 2023 change that cut back inter-charity donations as application of income. The extract sets out the framework: income of a fund, institution, trust, university, educational institution or hospital under sub-clauses (iv), (v), (vi) or (via) of section 10(23C) — the first regime — or of a trust registered under section 12AA or 12AB — the second regime — is exempt subject to conditions, including that at least 85 per cent of income is applied for charitable or religious purposes, that the application may be made directly or by donating to another trust with similar objects, and that such a donation must not be to corpus. From the Finance Act, 2023, an eligible donation by one trust to another is treated as application only to the extent of 85 per cent of the amount donated, by way of a new clause (iii) in Explanation 2 to the third proviso to section 10(23C) and a matching clause (iii) in Explanation 4 to section 11(1).
The stated object of the Finance Act, 2023 amendment is to ensure that money passed on between trusts is genuinely applied to charitable or religious purposes rather than parked; the Board is issuing directions under section 119 in that setting.
F. No.370142/S/2024-TPL
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
(TPL Division)
Circular No. 3 12024
Dated 06th March, 2024
Sub: Circular under section 119 of the Income-tax Act, 1961 - reg.
Income of any fund or institution or trust or any university or other educational
institution or any hospital or other medical institution referred to in sub-clause (iv) or subclause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 of the Incometax Act, 1961 (the Act) (hereinafter referred to as the first regime) or any trust or institution
registered u/s 12AA or 12AB of the Act (hereinafter referred to as the second regime) is
exempt, subject to the fulfilment of certain conditions provided for the two regimes in the
Act. These conditions inter-alia include the following for the entities (hereinafter referred to
as trust 1 institution in the two regimes):-
(a) at least 85% of income of the trust 1 institution should be applied during the year for
the charitable or religious purposes;
(b) Trusts or institutions are allowed to apply mandatory 85% of their income either
themselves or by making donations to the trusts with similar objectives; and
(c) If donated to other trust 1 institution, the donation should not be towards corpus to
ensure that the donations are applied by the donee trust 1 institution for charitable or
religious purposes.
2. In order to ensure intended application towards charitable or religious purposes,
Finance Act, 2023 has provided that eligible donations made by a trust 1 institution shall be
treated as application for chaJitable or religious purposes only to the extent of 85% of such
donations. Accordingly, Finance Act, 2023 has made the following amendments:-
(a) inserted clause (iii) in Explanation 2 to third proviso of clause (23C) of section 10 of
the Act;
(b) inserted clause (iii) in Explanation 4 to sub-section (1) of section 11 of the Act.
These amendments read as under:-
(a) clause (iii) in Explanation 2 to third proviso of clause (23C) of section 10
"any amount credited or paid out of the income of any fund or trust or institution or
any university or other educational institution or any hospital or other medical
institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or subclause (via), other than the amount referred to in the twelfth proviso, to any other
fund or trust or institution or any university or other educational institution or any
hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or
sub-clause (vi) or sub-clause (via), or trust or institution registered under section
12AB, as the case may be, shall be treated as application for charitable or religious
purposes only to the extent of eighty-five per cent of such amount credited or paid"
In the computation of application of income in the return and audit report of a trust, and in an assessment or a section 12AB proceeding where grants made to other trusts have been disallowed as application.
Source: the Income Tax Department’s own published text — its page for this instrument.