Section 12

Section 12 — the law in short

What the courts have decided on section 12, 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.
• 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.
• 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.
• 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.
• 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.

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.