Section 11

Section 11 — the law in short

What the courts have decided on section 11, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• ACIT v Ahmedabad Urban Development Authority Supreme CourtCuts both ways
  We charge fees for our public utility work. Does that cost us charitable status under s.2(15)?
  Only if the fees are pitched above cost. Charging on a cost or nominal mark-up basis is not trade, commerce or business; charges noticeably higher than cost are. Even permissible commercial activity must be carried on in the actual course of achieving the general public utility object, and receipts from it must stay within 20 per cent of total receipts.
• Ananda Social and Educational Trust v CIT Supreme CourtHelps taxpayerValidity unconfirmed
  Our trust was formed weeks ago and has done nothing yet. Can registration be refused for that?
  No. Registration cannot be refused merely because a newly formed trust has not started activities. 'Activities' includes proposed activities, so at the registration stage the Commissioner looks at whether the objects are genuinely charitable and whether the proposed activities are genuine.
• Queen's Educational Society v CIT Supreme CourtHelps taxpayer
  My school makes a surplus every year and puts it back into buildings and equipment. Does that mean it no longer exists solely for education?
  No. The Supreme Court held that a surplus ploughed back into the institution does not destroy the exemption. What matters is the predominant object: if the institution exists solely for education and not for profit, the fact that receipts exceed expenditure is beside the point. The Court set aside the Uttarakhand High Court's contrary judgment in Queen's Educational Society, approved the Punjab and Haryana, Delhi and Bombay High Court decisions, and restored the Tribunal's view. It reaffirmed Surat Art Silk Cloth, Aditanar and American Hotel and Lodging as the governing tests, while stressing that the thirteenth proviso requires the authorities to monitor actual application of income year by year.
• CIT v Dawoodi Bohara Jamat Supreme CourtCuts both waysValidity unconfirmed
  The Commissioner has refused my trust registration under section 12AA because our objects are tied to one religious community — can he refuse registration on that ground?
  No, not at the registration stage on this reasoning. The Supreme Court held on 20 February 2014 that section 13 is an exception to sections 11 and 12, so whether it bites is examined when exemption is claimed, not when registration is decided. On the merits the Court corrected both sides. Section 13(1)(b) is not confined to trusts that are purely charitable; a composite religious and charitable trust is not outside it merely because it is composite. But on these objects — food served on community occasions, a madarsa, help to the needy — the benefit was not channelled to the Dawoodi Bohra community alone, so section 13(1)(b) was not attracted and the appeals were dismissed.
• ACIT v Saurashtra Kutch Stock Exchange Ltd Supreme CourtHelps taxpayer
  A binding decision that covers my point was never considered when my order was passed. Is that a mistake apparent from the record?
  Yes. The Supreme Court held that non-consideration of a decision of the jurisdictional High Court or of the Supreme Court can be a mistake apparent from the record, and upheld the Tribunal recalling its own order on that ground. The section actually applied was s.254(2); the same test - patent, manifest and self-evident - is the one used under s.154.
• CIT v Gujarat Maritime Board Supreme CourtHelps taxpayerValidity unconfirmed
  My body is a statutory authority, not a trust under any public trust law. Can it still be registered as a charitable institution under section 12A?
  Yes. The Supreme Court dismissed the Revenue's appeal and held that the Gujarat Maritime Board was entitled to registration under section 12A. Its predominant purpose is the development of minor ports in Gujarat, its management and control lie essentially with the State Government, and sections 73 to 75 of its own statute show it has no profit motive and must apply its income to that purpose. That is an object of general public utility within section 2(15). Section 10(20) and section 11 operate in different spheres, so ceasing to be a local authority after the 2002 amendment did not preclude the claim. The Court was concerned with registration, not application of income.
• ACIT v Thanthi Trust Supreme CourtCuts both ways
  Our trust runs a business and puts the profit into its objects. Does s.11(4A) still deny the exemption?
  No, on this decision. The Supreme Court read the substituted s.11(4A), in force from 1 April 1992, as more beneficial to a trust than the sub-section it replaced, and held that a business whose income is used by the trust to achieve its objectives is a business incidental to the attainment of those objectives. The trust ran a newspaper, applied the income to education and relief of the poor, and kept separate books, and was held entitled to s.11 from assessment year 1992-93 onwards. Read the disposal whole: for the earlier years, decided under s.11(4A) as it stood before that substitution, the exemption for the newspaper income was refused.
• CIT v Nagpur Hotel Owners Association Supreme CourtHelps department
  My trust never filed the accumulation notice for the year. Can I file it now, after the assessment was completed, and still get the exemption?
  No. The Supreme Court held that the notice under section 11(2) must reach the Assessing Officer before he completes the assessment. The requirement is mandatory, and without the particulars the officer cannot know what income is being accumulated or for what purpose, so he cannot exclude it. Even if no valid time limit had been prescribed by the rules, it is reasonable to presume that compliance must come at some point before the assessment proceedings end. Allowing the notice afterwards would mean reopening the assessment, which the Act does not contemplate.
• S.Rm.M.Ct.M. Tiruppani Trust v CIT Supreme CourtHelps taxpayer
  My trust filed Form 10 to accumulate income but then spent the money on a hospital building instead of buying government securities. Have I lost the exemption altogether?
  No. The Supreme Court held that a trust which fails the conditions of section 11(2) still keeps the whole of the exemption section 11(1)(a) gives it. Income actually applied to charitable purposes in India is exempt whether or not a declaration was filed, and buying a building to be used as a hospital is such an application. On top of that the trust may accumulate up to 25 per cent of its total income - the limit then in force - and claim exemption on that accumulation without investing it in government securities. Section 11(2) only lifts the ceiling; it does not cut down section 11(1).
• CIT v Kamla Town Trust Supreme CourtCuts both ways
  Our company trust builds quarters for our own workmen and staff. Is that a public charitable trust, and does a civil court decree rectifying the trust deed help for earlier years?
  It depends on the deed, and a rectification decree does not reach back. The Supreme Court held that under the 1945 rectified deed the trustees were obliged to build quarters in particular for the workmen, staff and other employees of the settlor company and its allied concerns, who may include the affluent. That made the reference to workmen in general illusory, so the object was not public charitable and the whole trust failed the wholly charitable test. Under the 1955 rectified deed the objects were wholly charitable. The second decree operated only from assessment year 1956-57. The assessing officer could not go behind the decree, but could construe the deed as rectified.
• Radhasoami Satsang v CIT Supreme CourtHelps taxpayer
  The department accepted your position for years and has now reversed it. Can it?
  Not without a material change. Res judicata does not strictly apply between years, but where a fundamental aspect running through several years has been found as a fact and allowed to stand, it should not be changed in a later year.
• Addl CIT v Surat Art Silk Cloth Manufacturers Association Supreme CourtHelps taxpayerSuperseded by amendment
  Our trade association promotes commerce in our industry, but the work it does throws up a surplus every year. Does the surplus stop it being charitable?
  No, not by itself. A five-judge Bench of the Supreme Court held that the test is whether the predominant object of the activity carried on in advancing an object of general public utility is to subserve the charitable purpose or to earn profit. Profit-making must be the end to which the activity is directed; it is not enough that the activity in fact results in profit. Where the dominant object is the charitable purpose, the character of the purpose is not lost merely because some profit arises. The exclusionary clause does not require the activity to be run so that it yields no surplus.
• Ahmedabad Rana Caste Association v CIT Supreme CourtHelps taxpayer
  Our trust benefits one caste. Can that be a charitable purpose at all?
  Yes. It is not necessary that the object benefit the whole of mankind or all persons in a country; it is enough that a section of the public, as distinguished from specified individuals, is intended to be benefited. The Supreme Court held that the members of the Rana caste of Ahmedabad — whether natives or admitted to the caste under custom or usage — are united by a quality that is impersonal, so they form a section of the public and the trust's objects were charitable.
• CIT v Andhra Chamber of Commerce Supreme CourtHelps taxpayer
  My trade association only helps its own trade and its members get a benefit from it — can it still be charitable?
  Yes. The Supreme Court held that promotion and protection of trade, commerce and industry is an object of general public utility and therefore a charitable purpose, even though the members of the chamber benefit incidentally. An object need not benefit all mankind; it is enough that a section of the public, defined by some common quality of a public or impersonal nature, is intended to be benefited. Rental income from the chamber's building, held under a legal obligation to apply it to those objects, was exempt. The Revenue's appeals were dismissed with costs.
• CIT (E) v IILM Foundation High CourtHelps taxpayerValidity unconfirmed
  Our trust pays a salary to its chairperson, who is a trustee. Does that cost us the s.11 exemption?
  No, provided the salary is no more than what the services are reasonably worth. Section 13(2)(c) is not a bar on paying a specified person at all: it deems a salary to be application for that person's benefit only to the extent it is in excess of what may reasonably be paid for the services, so a payment that is reasonable for the service is not caught by s.13(1)(c) at all. The Delhi High Court answered both questions of law against the revenue and dismissed its appeals. Note what was not in issue: the reasonableness of the Rs 16,20,000 salary had been found below and was not contested before the High Court, which recorded that there was no cavil about it, so the decision is on the legal point and not a finding on the facts of this trust's remuneration.
• Andhra Pradesh State Civil Supplies Corporation Ltd v ITO High CourtHelps taxpayer
  The trust held an investment that breaches s.11(5) read with s.13(1)(d). Does that cost us exemption on everything, or only on the income from that investment?
  Only on the income from that investment. The Telangana High Court read ss.11 and 13 together and held that the legislature did not intend the denial of s.11 to extend to the entire income; only the income from the investment made in violation of s.13(1)(d) is liable to tax. It agreed with the Bombay, Delhi and Karnataka High Courts, which had all taken that view.
• CIT (Exemptions) v Shree Sai Baba Sansthan Trust High CourtHelps taxpayer
  Our trust is religious and charitable and holds 80G approval. Can the officer tax our hundi collections under s.115BBC?
  No. Section 115BBC(2)(b) takes a trust created or established wholly for religious and charitable purposes out of the charge, except for a donation given with a specific direction that it is for a university or other educational institution or a hospital or other medical institution run by the trust. The Court held that whether the trust is religious and charitable is determined from the trust deed, and that s.80G registration is a separate and independent question which cannot be used to deny that character. Rs 159.12 crores of hundi collections out of Rs 228.25 crores of donations stayed outside s.115BBC(1).
• CIT (E) v Hamdard National Foundation (India) High CourtHelps taxpayer
  The officer says we let our building to a related party below market rent. Is that by itself a breach of s.13(2)(b)?
  No, not by itself. The burden of showing that the rent was inadequate is on the Department, and the market rate is not the only yardstick. Where the rent charged was higher than the valuation the municipal corporation had adopted for house tax, and the officer's only material was enquiries from estate agents and figures picked off the internet, the Delhi High Court held that s.13(2)(b) was not attracted and the s.11 exemption stood.
• Trust for Reaching the Unreached v CIT High CourtHelps taxpayer
  Our audit report was not e-filed with the return and exemption was denied. Can the delay be condoned?
  Yes. The requirement to furnish the audit report with the return is procedural and directory, so exemption under ss.11 and 12 cannot be refused merely for late filing. The Commissioner's refusal to condone was set aside because the s.119(2)(b) discretion must be exercised equitably and judiciously, not on an exclusively pro-revenue view.
• CIT (Exemptions) v Audyogik Shikshan Mandal High CourtHelps taxpayer
  Trust funds went to a trustee. Does the trust lose exemption on all its income or only that amount?
  Only that amount. Denial of exemption under s.11 is confined to the sum actually diverted in breach of s.13; s.13 withdraws the benefit in respect of the offending income or property, not for the trust as a whole.
• CIT v Fr. Mullers Charitable Institutions High CourtHelps taxpayer
  One deposit of ours breaks the s.11(5) modes. Will the department tax the trust's entire income?
  No. Only the income from the investment or deposit made in violation of s.11(5) is taxed; a breach of s.13(1)(d) does not take the trust's total income out of s.11. On that footing the s.263 revision was held unsustainable.
• Institute of Chartered Accountants of India v DGIT (Exemptions) High CourtHelps taxpayerValidity unconfirmed
  My institution is a statutory regulator that charges fees for coaching and placement and ends up with a surplus — does that make it a trade or business under the proviso to section 2(15)?
  No. The Delhi High Court held that a body incorporated to regulate a profession, which imparts education and training as part of that statutory function, is not carrying on trade, commerce or business merely because it charges fees and generates a surplus. Coaching classes and campus placement interviews were held to be activities in furtherance of the Institute's main object, so they are neither business nor services rendered in relation to any trade, commerce or business. The orders refusing exemption were set aside and the Director General was directed to recognise the Institute under section 10(23C)(iv) for assessment years 2006-07 to 2011-12.
• DIT (Exemption) v Keshav Social & Charitable Foundation High CourtHelps taxpayer
  My trust could not produce all its donors. Can the Assessing Officer treat the donations as cash credits under section 68 and deny exemption under section 11?
  No, on these facts. The Delhi High Court dismissed the Revenue's appeal, holding that no substantial question of law arose. Section 68 had no application because the trust had itself disclosed the Rs.18,24,200 of donations as its income, and every receipt other than a corpus donation is income in a trust's hands. There was therefore full disclosure. The trust had filed a list of donors, and the failure to file a complete list or to produce the donors does not by itself support an inference that unaccounted money was being introduced as donations - particularly where more than 75% of the donations had admittedly been applied to charitable purposes and the trust was registered under section 12A.
• Jhaverbhai Patel Research Centre v CIT (Exemptions) ITATHelps taxpayer
  Our Form 10AB went in 38 days after the Charity Commissioner's order instead of 30, and the CIT (Exemptions) rejected it on that ground and on how we had spent our money. Is there a way back?
  Yes, though what you get is a remand and not registration. The Mumbai Tribunal held that the delay should not be visited on the trust — the Charity Commissioner's order had reached it late, and measured from receipt the application was within thirty days — and that the authority must adopt a liberal and justice-oriented approach. It also rejected the second ground, holding that a scholarship paid in India, in rupees, to an Indian student who then studies abroad is not an application of income outside India. It did not itself pass an order condoning the delay: it set aside the CIT (Exemptions)'s order, restored the application to him to be decided on its merits, and allowed the appeal for statistical purposes.
• Infosys Green Forum v ITO (Exemptions) ITATHelps department
  We set up a section 8 company to hold a CSR asset that supplies its output back to the founder company. Will it get registration under s.12AB?
  On these facts, no. The Bangalore Tribunal accepted that running a solar power plant is preservation of the environment and so falls within s.2(15). But the plant's entire output went to the founder, at a rate below what the founder would otherwise have paid, with the founder keeping all the green benefits. There being no benefit to the public or to a section of the public, the dominant object was the founder's own, and registration under s.12AB and approval under s.80G were both refused.
• BK Educational and Welfare Society v ITO (Exemptions) ITATHelps taxpayer
  The Assessing Officer has added our cash donations under s.68 as unexplained credits. Is s.68 the right provision at all for a charitable trust's donations?
  Not where the donor is identified and confirms, and not under s.68 for the amount he cannot prove either. The Pune Tribunal deleted the addition for the donation whose donor had confirmed it on oath and stated his source, holding the burden had shifted to the Revenue. For the donation the trust could not prove, it did not sustain the s.68 addition; it treated the sum as an anonymous donation and applied s.115BBC, so that only the excess over the Rs 1 lakh limb of the threshold — Rs 10,000 out of Rs 1,10,000 — was taxable.
• ACIT v Shri Dadasaheb Gawai Charitable Trust ITATHelps taxpayer
  The Assessing Officer has taxed all our donations under s.115BBC because some donors did not turn up when summoned. What does the section actually require us to keep?
  A record of the identity of the donor showing name and address, and such other particulars as may be prescribed. The Nagpur Tribunal held that a trust which maintains names, addresses, PAN and Aadhaar details of its donors has discharged its burden, and that s.115BBC cannot be invoked merely because the Assessing Officer doubts the donors. Where summonses went unanswered or came back unserved, it was for the Assessing Officer to ask the trust to produce those donors before treating the whole of the donations as anonymous.
• South India Club v ITO ITATCuts both ways
  CPC denied my trust's section 11 exemption in a section 143(1) intimation for a late Form 10B, and a regular assessment has since been completed and separately appealed. What happens to my appeal against the intimation, and to the demand in it?
  It becomes infructuous. The Delhi Bench of the Tribunal held that when the return has been taken up in regular assessment the intimation loses its individuality and merges with the regular assessment, so the appeal against the intimation no longer serves any purpose. The first appellate authority was right to say so. But he was wrong to go further and record findings on the section 11 claim on merits when he knew an appeal against the regular assessment on the same issue was pending; the Tribunal said in terms that he should have stopped. The exemption question itself was not decided here.
• Versova Kokni Sunni Jamat Trust v CPC ITATHelps taxpayerValidity unconfirmed
  We have no 12A registration. Is a corpus donation given for buying property taxable in our hands?
  No. A voluntary contribution made with a specific direction that it form part of the corpus is a capital receipt, and that character does not depend on the trust holding registration under s.12A or s.12AA. The addition of Rs 8,99,811 was deleted.
• Educational Institute of American Hotel and Motel Association v CIT Advance RulingHelps taxpayerSuperseded by amendment
  A foreign non-profit runs hospitality courses in India through a branch and charges licence fees and course fees to Indian institutes. Is that income exempt as an educational institution, and does a surplus destroy the exemption?
  Yes, on the law as it then stood. The Authority ruled that the Educational Institute of American Hotel and Motel Association, a US non-profit working in India under a memorandum of understanding with the National Council of Hotel Management and Catering Technology, was entitled to exemption under s.10(22) on income from conducting courses and certification programmes, providing educational and training materials, conducting seminars and workshops, and training in-house faculty. Its objects barred any distribution of earnings to members or directors even on dissolution, and the activities under its licence agreements and memoranda were purely educational or ancillary to education. Because the first question was answered in the applicant's favour, the question on s.11 became academic. Section 10(22) has since been omitted from the Act.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.