Registration, the proviso to s.2(15), application of income, the s.11(5) modes, and the condonation machinery for a form that missed the portal. 92 entries, strongest first, with what each one decided in a sentence. Read down the list, then open the entry that fits your facts. The Charitable Trusts & Exemption hub cross-lists everything that touches this area, including entries filed under another subject.
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.
Our society runs a college but also earns from hostels and events. Can we get 10(23C)(vi) approval? Only if education is your sole object. 'Solely' means to the exclusion of all others, and the older predominant object test was rejected. Business receipts stay exempt only where the business is incidental to the educational object and separate books are kept, so letting hostels to non-students or hosting outside conferences falls outside that.
The Commissioner has cancelled my trust's registration because some corpus donations are said to be bogus — can he do that when the money was actually spent on the trust's objects? Yes. The Supreme Court held on 2 August 2021 that a trust which takes donations by cheque and returns the money in cash is misusing its section 12AA status and cannot keep it. The Managing Trustee had admitted in a survey that a major part of the corpus donations were accommodation entries, that part of each donation went back to the donors through named intermediaries by RTGS, and that those payments were booked as building capital expenditure. On that material the Commissioner and the Tribunal were right to cancel registration under section 12AA(3) and the consequent 80G approval, and the Calcutta High Court should not have interfered under section 260A.
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.
We treated a building's full cost as application of income. Can we also claim depreciation on it? Yes on the law as it stood, but read the editor's note before using this for a current year. The Court held that treating the whole acquisition cost as application under s.11(1)(a) does not bar a s.32 depreciation claim on the same asset, rejected the double benefit objection, and allowed the depreciation to be carried forward.
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. Read subject to a date, though: on 19 October 2022 the Supreme Court in New Noble Educational Society v Chief CIT disapproved the reasoning of this judgment and of American Hotel and Lodging so far as it pertains to the interpretation of 'solely', and held instead that all the objects of the institution must relate to imparting education, so the predominant-object test stated here is no longer the test for that word. New Noble para 78 directs that the law it declares operate prospectively.
The department says our family trust is really a specific trust because the settlor used to show its income in his own return. The trustees have retained the income. Can it be taxed in the beneficiary's hands? No, not on those facts. Where the trust deed leaves distribution to the trustees' discretion and the income was in fact retained and not disbursed, the trust remains a discretionary trust and the income is not assessable in the beneficiary's hands. The failure of the settlor or his successor to appoint the persons who were to exercise the discretion does not convert a discretionary trust into a specific trust.
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.
My trust already has registration under section 12A. Can the Assessing Officer go behind it and re-examine whether the objects are charitable? The Supreme Court dismissed the Revenue's appeals against a Gujarat High Court order that answered no, but it did so on a narrow ground. The Tribunal had held that the club's objects fell within general public utility under section 2(15) and that registration under section 12A was a fait accompli preventing the Assessing Officer from probing the objects further. The High Court dismissed the Revenue's appeals in limine as covered by Hiralal Bhagwati v. CIT. The Supreme Court found that both questions were concluded by that decision, which the Revenue had never challenged and which had attained finality. The appeals were therefore dismissed with no costs.
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.
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.
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.
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).
My society runs a college and ended the year with a surplus. Does that surplus mean we no longer exist solely for educational purposes and not for profit? No. The Supreme Court held that if a surplus results incidentally, after meeting expenditure, from an activity lawfully carried on by an educational institution, the institution does not cease to exist solely for educational purposes, because its object is not to make profit. The decisive test is whether, on an overall view, the object is to make profit. The Court also held that a society or trust running an educational institution solely for educational purposes and not for profit is itself an other educational institution, and rejected as unreal and hyper-technical the argument that such a body is merely a financing body.
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.
A discretionary trust distributed income to me during the year and the trustees have already been assessed on it. Can the Assessing Officer also assess me? Yes — the Revenue has an option, and it can assess either the trustees or the beneficiary, but only in respect of income actually distributed to and received by the beneficiary during the accounting year. Section 164 is not a code in itself; it fixes only how tax is charged, while the liability to be assessed comes from s.161, and s.5 read with s.4 lets the beneficiary be taxed directly on what he actually received.
My father's foreign trust can only be unwound if the settlor and the trustee act together. Does that still make it a revocable transfer taxable in his hands? Yes. The Supreme Court held that section 63 does not require the power of revocation to be absolute or unconditional. Where a deed lets the settlor, acting together with the trustee, direct payment of the income or corpus to family members, the settlor has a right to reassume power over the income or assets, and the transfer is revocable. The Court also held that where a trust is discretionary the Revenue has an option under section 166 to assess either the trustees or the beneficiaries, though not both on the same income. The appeals were dismissed.
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.
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.
The trustees of my settlement are being assessed on the trust income. The department has now also included the same income in my own assessment under s.64. Does s.161(2) stop it? No. Section 161(2) does not deny the Assessing Officer the option to assess the person represented instead of the representative assessee; it only requires that when the representative assessee is the one assessed, he is assessed under Chapter XV and not under any other provision. But the same income cannot be charged twice — the Court recorded that the assessments already made on the minor beneficiaries would be annulled and any tax recovered refunded.
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.
The CIT (Exemptions) refused our trust's registration under s.12AB because the trust deed has no irrevocability or dissolution clause, and treated our 'Yes' in Row 6 of Form 10AB as false information. Is that a lawful ground of refusal? No, on both counts. Section 12AB tells the Commissioner what to satisfy himself about — the objects, the genuineness of the activities, and compliance with other laws material to achieving the objects — and an express irrevocability clause is not among them and cannot be implied. A public charitable trust is irrevocable by operation of law unless the deed itself reserves a power of revocation. And an answer the Department's own e-filing utility compelled the applicant to give cannot be turned against it as 'false or incorrect information'. The Bombay High Court quashed the rejections before it and also quashed every other order rejecting renewal on the same grounds.
The Commissioner rejected my condonation application for late Form 9A for an old year. Was Form 9A even required then? Not before AY 2016-17. The Bombay High Court held that the requirement to file Form No. 9A to exercise the option under clause (2) of the Explanation to s.11(1) was introduced by the Finance Act 2015 with effect from 1 April 2016, so for AY 2015-16 there was no prescribed format and no delay capable of being condoned. Where the option had been exercised in time by stating it in the Form 10B audit report and in the return, the substantive requirement was met and the s.119(2)(b) rejection was quashed.
My trust filed Form 10 only after the scrutiny notice came — 338 days after the due date. The Commissioner refused to condone under s.119(2)(b). Is that the end of the accumulation claim? No. Where the substantive conditions of s.11(2) are met — the accumulation is disclosed in the return, the Board resolution and the Form 10B audit report before the s.139(1) due date, the money is invested in a s.11(5) mode and is actually applied within the permitted period — the Bombay High Court held that a liberal view must be taken and the delay in filing Form 10 condoned. The refusal order under s.119(2)(b) was quashed and the delay condoned by the Court itself.
Form 10 was 51 days late because our accountant left mid-year, but it was on the file before the return was processed. The Commissioner still refused to condone. What now? The Bombay High Court quashed the refusal and condoned the delay itself. Where the delay is short, unexplained by any wilful default, and the Form was on record when the return was processed, refusing condonation is a pedantic rather than a justice-oriented approach and produces genuine hardship within the meaning of s.119(2)(b).
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.
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.
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).
The Assessing Officer has reopened an old year saying my trust could not claim provisioned expenditure as application because s.11 requires the sum to be actually paid. Does that rule apply to years before AY 2022-23? The Delhi High Court, at the notice stage, said it was prima facie unable to sustain the assumption of jurisdiction under s.148 on that reasoning, because the Explanation requiring a sum to be treated as applied in the previous year in which it is actually paid was inserted only by the Finance Act 2022 and would not govern AY 2017-18. This is an interim order in a writ petition that is still pending; there is no final adjudication.
My Form 10AB was rejected before April 2024 because it was late or filed under the wrong section code. Is that rejection the end of the matter? No. The Calcutta High Court, dismissing the Revenue's appeal, recorded that clause 4.1 of CBDT Circular No. 7 of 2024 dated 25 April 2024 allows a trust whose Form 10AB was rejected on or before the issue of that circular solely because it was furnished after the due date or under the wrong section code to furnish a fresh Form 10AB within the extended time in paragraph 3(ii), namely 30 June 2024. The Court also approved the Tribunal's construction that a trust becomes eligible to apply for final registration only after the grant of provisional approval, so the clause (iii) time limit must be read in that light.
The department only uploaded the show cause notice on the e-filing portal and never emailed it to me, then passed an order when I did not reply. Is that valid service? No. The Punjab and Haryana High Court held that merely placing a notice on the department's e-portal is not service. Section 282(1) and rule 127 prescribe the ways a communication may be delivered or transmitted, and for electronic delivery rule 127(2)(b) requires it to go to one of the specified email addresses. Nothing in those provisions allows communication to be presumed from an upload. An individual or company is not expected to keep the department's portal open at all times. The order cancelling registration under section 12A(1)(ac)(iii) was quashed and a fresh hearing directed.
My Form 10AB under s.80G(5) was one day late and the Commissioner rejected it, saying he has no power to condone. Is a delay of one day really fatal? No. The Punjab and Haryana High Court set aside the rejection and remanded the matter for a fresh order to be passed without taking the delay into account, holding that a delay of one day in filing Form 10AB cannot in itself be made a ground to reject the application. The Court did not decide the Commissioner's contention that he has no power to condone delay at all — it held only that this delay could not justify the rejection.
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.
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.
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.
My institution advances an object of general public utility but charges fees and ends up with a surplus — does the proviso to section 2(15) knock out my exemption? Not by itself. The Delhi High Court upheld the constitutional validity of the first proviso to section 2(15) but read it down: it bites only where the dominant and prime objective of the institution is profit making, whether directly through trade, commerce or business or indirectly through rendering services in relation to them. Charging a fee, or generating a surplus, does not by itself make an institution non-charitable. Because the India Trade Promotion Organisation's driving force was promoting the nation's trade rather than earning profit, its exemption under section 10(23C)(iv) was restored and a mandamus issued to grant approval within six weeks.
My trust paid an advance to a company in which the trustees are interested, under an agreement to buy land, and the deal was later cancelled. Is that a s.13(1)(c) violation even though no money went out in the year in question? Yes, on these facts. The Delhi High Court held that where trust funds remain with a s.13(3) person without interest or security, that is a direct use of the funds for the benefit of a prohibited person, and s.13(2)(a) makes clear that it is enough that the money continues to be lent during the previous year — no fresh advance in that year is needed. The agreements to sell were treated as a device to take the payments out of the word 'lent', and exemption under s.11 was denied for both years.
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.
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.
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.
Our trust was assessed under section 161 on the beneficiaries' shares at the rate their shares alone attracted. Four years later the Assessing Officer rectified it under section 154 and applied each beneficiary's personal rate on his whole income. Could he do that in rectification? Yes. The Gujarat High Court held that it is settled from CIT v. Kamalini Khatau that section 161(1) permits the Income-tax Officer to assess either the representative assessee or the person represented — the latter by force of section 166 — and that where he assesses the trustee, the assessment must be made in the same status as the beneficiary and at the rate applicable to that beneficiary's TOTAL income, which includes his income from outside the trust. Applying the rate relatable only to the beneficiary's share of the trust income was therefore a mistake apparent from the record, and calling for the beneficiaries' own assessment orders in order to work out that rate was not a fresh inquiry that took the case outside section 154. The Court also rejected the trust's reliance on the Central Board of Direct Taxes' circular of 24 February 1967, but in doing so it stated the principle the circular lays down: once the choice has been made to tax either the trustee or the beneficiary, it is not open to the Department to go behind it and assess the other at the same time. That principle was held simply to have no application, because the beneficiaries had not been assessed again — only the rate on the trustee's assessment had been corrected.
My client's trust deed says that if the purpose fails after twenty years the fund reverts to the settlor. Does that clause alone make the trust revocable, so that the income is taxed in the settlor's hands from day one? No. A clause that operates only on the failure of the settlement, after a fixed period, does not make the trust revocable while the settlement is running. For the years in which the contingency has not arisen the deed must be read without that clause, and if during the operation of the settlement the settlor can neither enjoy the income nor reassume power over the income or assets, s.63 is not attracted and s.61 does not apply.
Our private trust has determinate beneficiaries and the deed lets the trustees carry on business. The Assessing Officer has assessed the whole business income as one unit in the status of AOP. Is that right? For years before assessment year 1985-86, no. Where the shares of the beneficiaries are known and determinate, s.164 has no application, the trustees must be assessed under s.161(1), each beneficiary's share is taxed as if it formed part of that beneficiary's income and the trustees' liability is the sum of those amounts — and this is so whatever the nature of the income, including business income. For assessment year 1985-86 onward this is displaced by s.161(1A), which charges the maximum marginal rate where the income consists of or includes profits and gains of business; the judgment expressly says at para 2 that it does not deal with that provision.
My trust gave interest-free or low-interest advances to entities connected with its trustees. The Assessing Officer has treated the interest not charged as a benefit to specified persons, disallowed it under s.40A(2)(a) and denied exemption on the whole income. Can he do that? Not on this record. Where the counterparties are themselves institutions registered under s.12A and s.80G and there is no material showing that any specified person derived a personal benefit, the transactions do not establish diversion of charitable funds for private benefit, and s.13(1)(c) is not attracted. Section 40A(2)(a) cannot be used at all: it disallows excessive or unreasonable expenditure paid to a related party in the course of business or profession, and does not authorise an addition for interest the trust failed to charge.
The CIT (Exemptions) has revised my AY 2022-23 assessment under s.263 because the Assessing Officer did not check whether the expenditure funded by the loan had already been claimed as application. Was he obliged to check? No. For AY 2022-23, Explanation 4(ii) to s.11(1) simply postponed recognition of the application from the year of expenditure to the year of repayment, and imposed no further condition requiring the Assessing Officer to revisit the end use of the borrowing or to verify whether it had already been claimed. The further provisos imposing those conditions were inserted only by the Finance Act 2023 with effect from 1 April 2023, so the s.263 order, which read them into AY 2022-23, was quashed and the assessment restored.
The PCIT cancelled my registration under s.12AB(4) for a specified violation resting entirely on an addition made in assessment. The Tribunal has since deleted that addition. Does the cancellation survive? No. Where the order under s.12AB(4) is founded entirely on the outcome of another proceeding, its fate depends on the sustainability of that foundational finding; once the Tribunal reversed the quantum findings on which the alleged specified violation rested, the cancellation could not survive independently. The Tribunal set aside the cancellation and directed restoration of the registration.
Our auditor filed Form 10BB when Form 10B was required for AY 2023-24, and CPC has taxed us under s.13(10). We filed the right form only in 2025 and the condonation application is still pending. What can the Tribunal do? The Tribunal remitted the matter to the Assessing Officer to pass an order in accordance with the outcome of the pending s.119(2)(b) condonation application before the CIT (Exemptions). It recorded that this was not a case of no audit report at all but of a report filed both belatedly and in the incorrect form, and that CBDT Circular No. 2/2024 did not rescue the trust because that circular only covered wrong-form reports furnished on or before 31 October 2023.
From AY 2022-23 my spending out of a bank loan is not application, and I claim it when I repay. The officer says that is a double deduction. How do I prove it is not? By showing that you reduced the application of income in the year you took the loan by the amount borrowed, and claimed nothing then. On that evidence the Bangalore Tribunal deleted the disallowance of Rs.1,63,86,245 of loan repayment: the trust had claimed application only on repayment and not when the borrowed funds were spent, so there was no double deduction, and the lower authorities had ignored the computations and accounts filed and proceeded on a presumption.
The Assessing Officer has re-characterised my Category II AIF's interest, gains and processing fees as business income and denied the section 10(23FBA) exemption on the whole lot. What is the answer? The Chennai Tribunal dismissed the Revenue's appeals. Income of a Category I or Category II AIF becomes business income only where the nature of the activities shows a systematic and organised commercial venture undertaken with the dominant intention of earning trading profits rather than making investments, tested by the ordinary badges — frequency and volume, holding period, intention at acquisition, treatment in the books, infrastructure and manner of execution — and here the re-characterisation had been made with no enquiry, no rejection of books, no show-cause notice on that head, and on the further erroneous footing that the assessee was a venture capital fund governed by section 10(23FB) and section 115U.
The Assessing Officer says my statutory authority's port charges and lease rentals are trade or business, so the proviso to s.2(15) denies exemption. How is that tested after Ahmedabad Urban Development Authority? The size of the receipts and of the surplus is not the test. Applying the Supreme Court's framework in Ahmedabad Urban Development Authority, the Tribunal held that what matters is the statutory setting in which the receipts arise, the nature of the functions discharged, the manner in which the charges are fixed and regulated, and the destination of the surplus — and on that footing the Board continued to fall within 'advancement of any other object of general public utility' and remained entitled to exemption under ss.11 and 12.
CPC denied my s.11(2) accumulation because Form 10 was filed after the s.139(1) due date, and the CIT(A) said s.13(9) settles it. Can the Tribunal still help me? Yes. Following the jurisdictional High Court in CIT v Sakal Relief Fund, the Mumbai Tribunal held that filing Form No. 10 before completion of assessment satisfies s.11(2), so a s.143(1) denial founded only on the s.139(1) due date cannot stand. The matter was restored to the Assessing Officer for the limited purpose of checking that the stated purpose of accumulation matches the objects and is backed by a trustees' resolution, with an express direction not to deny exemption on merely technical grounds.
My institution filed its audit report on time but in Form 10B when Form 10BB was the right form, and the CPC has denied the exemption and raised a demand on the gross receipts. Is filing the wrong audit form fatal? No. Where the accounts were in fact audited by a chartered accountant and an audit report was uploaded within time, the choice of the wrong form is a procedural lapse and not a failure of the substantive condition, and exemption cannot be denied on that ground alone. The Tribunal set aside the appellate order and directed the Assessing Officer to verify substantive compliance and, if satisfied, to condone the procedural lapse, allow the exemption and reduce the demand to nil.
CPC has taxed our AY 2017-18 accumulation in AY 2023-24 saying the Finance Act 2022 took away the sixth year. We spent the money in FY 2022-23. Is the amendment good against an old accumulation? No, on this Tribunal's view. Where the accumulation was made in AY 2017-18 under a law that allowed utilisation within five years and also in the immediately following year, the Finance Act 2022 amendment to s.11(3) — though applicable from AY 2023-24 — cannot be read so as to take away the vested right accrued at the time of accumulation. The addition of Rs.29,04,39,083 made in the s.143(1) intimation was deleted and the Revenue's appeal dismissed.
My Form 10 described the purpose of accumulation in the words of the trust's objects. The Assessing Officer says that is not a 'specific purpose'. Is he right? On these facts the Tribunal agreed with him: a purpose stated as 'hold seminars/workshops/conferences/buyers sellers meets/etc. to promote trade and develop knowledge' was not specified with the required clarity and precision, and the trust had not demonstrated the specific purpose for which the accumulated funds were to be used. But the Tribunal did not tax the accumulation — following the Gujarat High Court in Bochasanwasi Shri Akshar Purushottam it restored the matter to the Assessing Officer to verify how the money was actually spent within the five years.
The Assessing Officer says my AIF scheme has its own PAN but no SEBI registration of its own, so it is not an 'investment fund' and section 10(23FBA) is gone. Is that right? No, on these facts. The Mumbai Tribunal held that exemption under section 10(23FBA) cannot be denied solely because the scheme has a separate PAN while the SEBI registration stands in the name of the trust, where the scheme is floated under a SEBI-registered Category II Alternative Investment Fund trust — and it pointed to Explanation 1 to section 115UB, which itself recognises a 'scheme of the investment fund'. The consequential addition treating the book surplus in excess of the distributed income as business income was also deleted, because once the pass-through applies the premise for that addition disappears, and because the difference was only statutory indexation under section 48.
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.
My Form 10AB for final registration under s.12AB was rejected as time-barred because I missed the 30 June 2024 date in Circular 7/2024. Is anything left to me? Yes. From 1 October 2024 a proviso to s.12A(1)(ac) lets the Principal Commissioner or Commissioner condone a delay in filing the application where he considers there is reasonable cause, and the Tribunal restored the matter to the CIT(E) with liberty to the trust to make a condonation application. The delay itself was not in dispute; what saved the trust was that the rejection order recorded no defect in its objects, its activities or its documents, its bona fides were not questioned, and the delay did not prima facie appear deliberate.
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.
The CIT(E) refused my Form 10AB because the memorandum says the objects may be carried out in India 'and elsewhere'. Is a possible application of funds outside India a ground to refuse registration? No. What the Commissioner has to satisfy himself about at the registration stage under s.12AB(1)(b) is the objects of the trust, the genuineness of its activities and compliance with other laws material to achieving its objects. Whether income has actually been applied within or outside India is a question that arises only when exemption under s.11 is claimed, and refusing registration on that ground is premature.
My Form 10AB for final approval under s.80G was rejected for a delay of two days and the CIT(E) says he has no power to condone it for 80G. Is that right, and is there a way round? The CIT(E) is right that s.80G carries no condonation power — the proviso inserted in 2024 permitting condonation sits in s.12A(1)(ac) and governs registration, not 80G approval. The way round is clause (iv)(B) of the first proviso to s.80G(5) — a clause that is older than the 2024 amendment and was not inserted by it, but which the Finance (No. 2) Act 2024 opened up with effect from 1 October 2024 by omitting the words that had confined item (B) to an institution no part of whose income had been excluded under sub-clause (iv), (v), (vi) or (via) of s.10(23C) or under s.11 or s.12 for any previous year ending on or before the date of application — so that an institution whose activities have commenced may now apply at any time after commencement; the Tribunal directed the CIT(E) to treat the out-of-time clause (iii) application as one made under clause (iv)(B) and to decide it on the merits.
The CIT(E) has rejected my Form 10AB and cancelled my provisional registration on the ground that my objects benefit only one religious community. What is the Revenue's case and how does it succeed? It succeeds where the objects on their face are confined to one community and the trust files no evidence that it has not incurred expenditure on those objects. The Tribunal dismissed the appeal, finding no infirmity in an order which rejected the Form 10AB application under s.12A(1)(ac)(iii) and cancelled the provisional registration on the footing of a specified violation under clause (d) of the Explanation to s.12AB(4).
I did not file the Rule 17A documents in time and the CIT(E) rejected my Form 10AB, cancelled the provisional registration and directed computation of tax under s.115TD. Can a rejection for non-filing carry all that? Not without an inquiry into the merits. The Tribunal set the order aside and restored the matter for de novo consideration, holding that the CIT(E) had rejected the application solely for non-filing of documents, after only two notices at very short intervals, without any verification or inquiry, and that procedural lapses alone should not result in denial of substantial justice. It did not decide the s.115TD point, which was raised only in argument.
After a search the PCIT (Central) has cancelled my society's registration under s.12AB(4) for a 'specified violation', relying on loose sheets and statements. Does he have to prove one of the listed violations, or is a general finding of misuse enough? He has to prove one of the listed violations. Section 12AB(4) as amended by the Finance Act 2022 is not a general power to withdraw registration: cancellation can follow only on the occurrence of one or more of the 'specified violations' defined in the Explanation to that sub-section, and the onus of establishing that occurrence lies on the Department. Suspicion, however strong, will not do.
The CIT(E) rejected my Form 10AB as premature because the trust had not yet started activities or received donations. Can he do that? No — not on that ground alone. Section 12A(1)(ac)(iii) fixes only the outer date by which a provisionally registered trust must apply for regular registration; it contains no bar on applying earlier, and rejecting an application as premature because activities had not commenced by the date of filing is not in accordance with the legislative intent of that clause read with s.12AB(1)(b).
My trust filed Form 10BD for the whole financial year although its s.80G provisional approval began mid-year, so Forms 10BE were generated for pre-approval donations too. The CIT (Exemption) has refused final registration and approval on that ground. Is that a valid reason? Not on its own. The Indore Bench held that a wrong filing of information in Form 10BD does not mean the trust's activities are not genuine, and that the requirement was new from 1 April 2021 with sub-rule (3)(i) of Rule 18AB in terms speaking of all donations of the same nature paid during the financial year, so a trust could honestly have read it as covering the whole year. Because the trust filed fresh evidence — declarations from donors that they had never been given the Forms 10BE and had claimed no deduction — the matter was remanded for fresh consideration.
The PCIT cancelled our 12A registration after a survey. Was he even allowed to do that? No, on both counts here. Authority to grant or cancel registration under s.12AB lies with the CIT (Exemption), not the Principal Commissioner, and the 'specified violation' clause in s.12AB(4) took effect on 1 April 2022, so it cannot be applied to conduct in financial year 2020-21 or 2021-22.
The PCIT has cancelled our registration under s.12AB(4) for 'specified violations' said to have occurred in years going back to 2015-16. Can s.12AB(4) reach back that far? The Delhi Tribunal held it cannot. The concept of a 'specified violation' in the Explanation to s.12AB(4) was brought in with effect from 1 April 2022, so it cannot be applied to alleged violations of assessment years 2015-16 to 2021-22. The Tribunal also held that the cancellation was passed by the wrong officer: under the CBDT notifications constituting the Commissioner (Exemptions), it is that Commissioner and not the PCIT (Central) to whom the Assessing Officer is subordinate who deals with a trust's registration. The cancellation orders were quashed.
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.
I withdrew my Form 10AB before the CIT(E), he then passed an order recording the withdrawal and rejecting the form, and now the portal will not let me file a fresh one. Can I appeal against that order? No. Where the trust itself withdrew the application, no cause of action arises to prefer an appeal against the order that records the withdrawal and rejects the form, and the appeal is not maintainable. The Tribunal dismissed both the s.12AB and the s.80G appeals on that footing and gave no direction about the portal difficulty that had prompted them.
CPC charged surcharge at the top rate on my discretionary trust's small income. Is that right? No. The maximum marginal rate under s.164 takes the highest slab rate applicable to an individual, but surcharge is applied in a graded manner by reference to the trust's actual total income against the Finance Act thresholds. Below the first threshold, surcharge is nil.
The CPC has processed my trust's return at the maximum marginal rate, saying s.115TD applies. But the trust gave up its registration back in March 2015. Can s.115TD reach it at all? Not on those facts. Section 115TD was inserted by the Finance Act 2016; the order records it as taking effect from 1 June 2016 in one place and from assessment year 2016-17 in another. On either date, where the trust's registration had already ceased with effect from 20 March 2015 there was no registered trust for the section to bite on, and the total income had to be charged at the slab rates and not at the maximum marginal rate.
My trust's application in Form 10AB for final approval under s.80G(5) was rejected as time-barred. Do the CBDT circulars extending the date save it? Yes, on this decision. The Tribunal held that the application could not be rejected merely because it was not filed by 30 September 2023, that date having been arrived at through CBDT Circular No.6/2023 and then further extended to 30 June 2024 by CBDT Circular No.7/2024. The rejection was set aside and the matter restored to the CIT (Exemption) for de novo consideration on merits.
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.
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.
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.
Our trust stopped running its distributorship itself and let another concern run it for a monthly fee. Does the income still 'consist of or include profits and gains of business' for s.161(1A)? On these facts, yes. The Tribunal held that the distributorship agreement was a commercial asset, that letting it out temporarily did not take the income out of the business head, and that the income was business income attracting s.161(1A), which was inserted with effect from 1 April 1985 and which the Tribunal found to contain no ambiguity whatsoever. The appeals were dismissed and the assessment in the status of association of persons was upheld.
How long does registration under s.12AB now run, is the ten-year period for small trusts real, and is there still any way to save a late Form 10A or Form 10AB? Registration under s.12AB(1)(a) and under s.12AB(1)(b)(ii)(A) runs five years; provisional registration under s.12AB(1)(c) runs three years from the assessment year for which registration is sought. The ten-year period is real but narrower than it is usually described: a proviso to s.12AB(1) inserted by the Finance Act 2025 (Act No. 7 of 2025) with effect from 1 April 2025 substitutes ten years for five where the application is under sub-clauses (i) to (v) of s.12A(1)(ac) and the total income of the trust, without giving effect to ss.11 and 12, did not exceed rupees five crores in each of the two previous years preceding the previous year in which the application is made — it does not lengthen the three-year provisional registration under clause (c). Separately, a proviso to s.12A(1)(ac) inserted by Act No. 15 of 2024 with effect from 1 October 2024 empowers the Principal Commissioner or Commissioner to condone a delay in filing where he considers there is a reasonable cause, and the application is then deemed to have been filed within time.
Our Form 10B is years late. Who can condone the delay, and how long do I have to apply? Apply within three years from the end of the assessment year concerned. Delays up to 365 days are decided by the Principal Commissioner or Commissioner; delays beyond 365 days go to the Principal Chief Commissioner, Chief Commissioner or Director General. The circular covers Forms 9A, 10, 10B and 10BB for assessment year 2018-19 onwards.
Our Form 10AB was rejected for late filing. Does the CBDT let us apply again? Yes, but only within the window this circular opened. The due date for Form 10A and Form 10AB was extended to 30 June 2024, and entities whose Form 10AB was rejected solely for late filing or for filing under the wrong section code could file fresh applications within that extended time.
My client's InvIT distributes most of its payout as 'repayment of debt' and the annual statement shows it as a return of capital. Is that still tax-free? No, not for distributions falling in the previous year 2023-24 or later. The Finance Act 2023 inserted clause (xii) in section 56(2) with effect from 1 April 2024, so a 'specified sum' received by a unit holder from a business trust is chargeable as income from other sources, and the Explanation defines the specified sum by the formula A minus B minus C — the cumulative distributions to that unit which are neither income referred to in section 10(23FC) or 10(23FCA) nor chargeable under section 115UA(2), less the amount at which the unit was issued by the trust, less anything already taxed under the clause in an earlier year.
For AY 2023-24 my trust filed Form 10B when Form 10BB was the right form. Is there a CBDT relaxation, and what exactly does it cover? Yes, but it is narrow. By Circular No. 2/2024 dated 5 March 2024 the CBDT allowed trusts and institutions that had furnished an audit report on or before 31 October 2023 in Form No. 10B where Form No. 10BB was applicable, and vice versa, to furnish the audit report in the applicable form for AY 2023-24 on or before 31 March 2024. It covers only AY 2023-24, only a wrong-form filing that was itself made by 31 October 2023, and the window it gave has closed.
We simply missed the deadline for the fresh application under s.12A(1)(ac). We have not been cancelled and nobody has rejected anything. Can the exit tax under s.115TD really apply to us? Yes. Since the Finance Act 2022, s.115TD(3)(iii) deems a specified person to have been converted into a form not eligible for registration where it simply fails to make the application required by s.12A(1)(ac)(i), (ii) or (iii), or by the corresponding clauses of the first proviso to s.10(23C), within the period specified, where that period expires in the previous year. The consequence is tax on accreted income at the maximum marginal rate, payable within fourteen days of the end of that previous year, in addition to any income tax otherwise chargeable, with no credit and no deduction against it.
Our Category II AIF has a loss for the year. Can the investors set it off in their own returns, and what happens to the losses the fund accumulated before 2019? A business loss of the investment fund never passes through: section 115UB(2)(i) requires it to be carried forward and set off by the fund itself under Chapter VI and to be ignored for the purposes of sub-section (1). Any other loss passes through to the unit holder unless the unit was not held by him for at least twelve months, in which case section 115UB(2)(ii) requires it also to be ignored; and section 115UB(2A) deems non-business losses accumulated at fund level as on 31 March 2019 to be the loss of the unit holder who held the unit on that date, allowing him to carry it forward for the remaining period, with a proviso that the fund itself cannot use it on or after 1 April 2019.
My trust is surrendering registration or merging. What is the s.115TD tax on accreted income? An additional tax at the maximum marginal rate on accreted income — the fair market value of total assets less liabilities on the specified date — triggered by conversion into a non-charitable form, merger with a non-eligible entity, or failure on dissolution to transfer assets to another eligible institution within twelve months. It is a levy on the net asset position, not on the year's income.
My client has invested in an Alternative Investment Fund. Is the fund's income taxed in the fund's hands or in his, and does it matter which category the fund is? It matters more than anything else: section 115UB applies only to a fund granted a certificate of registration as a Category I or a Category II Alternative Investment Fund, so a Category III AIF is outside the section altogether and is taxed under the ordinary law applicable to its legal form. For a fund within the section, income accruing to a unit holder out of investments made in the fund is chargeable in his hands as if he had made the investments directly and retains its character, except income chargeable under the head profits and gains of business or profession, which is taxed in the fund's own hands — at Finance Act rates if the fund is a company or a firm, and at the maximum marginal rate in any other case.
My client holds units in a listed REIT. Which part of what the trust distributes is taxable in his hands, and what does the trust itself pay tax on? Section 115UA(1) makes the distributed income of a business trust retain, in the unit holder's hands, the same nature and proportion it had in the trust's, and section 115UA(3) charges to tax in the unit holder's hands the distributed income which is of the nature referred to in clause (23FC) or clause (23FCA) of section 10 — broadly, interest and dividend from the special purpose vehicle, and rent from directly held property. Everything else forming the trust's own total income is charged in the trust's hands at the maximum marginal rate under section 115UA(2), subject to sections 111A and 112; and since 1 April 2024 sub-section (3A) removes the character-retention rule altogether for a sum charged under section 56(2)(xii).
The Assessing Officer has issued a notice describing me as the 'representative assessee' of a family trust. Who can lawfully be made a representative assessee, and does being called one make me the assessee? Section 160(1) is an exhaustive list of five classes and nobody outside it can be made a representative assessee: (i) the agent of a non-resident, in respect of income of the non-resident specified in section 9(1), including a person treated as an agent under section 163; (ii) the guardian or manager of a minor, lunatic or idiot who is entitled to receive or is in receipt of the income on that person's behalf; (iii) the Court of Wards, the Administrator-General, the Official Trustee or any receiver or manager (including any person, whatever his designation, who in fact manages property on behalf of another) appointed by or under an order of a court; (iv) a trustee appointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise, including a wakf deed valid under the Mussalman Wakf Validating Act, 1913; and (v) a trustee appointed under an oral trust. Section 160(2) then says that every representative assessee shall be deemed to be an assessee for the purposes of the Act, so yes — you are an assessee, with an assessee's rights of appeal as well as an assessee's exposure.
The Assessing Officer has assessed our trust in one order on the whole of the trust income at slab rates of its own. The shares of the beneficiaries are fixed and known. Is that how section 161 works? No. Section 161(1) makes the representative assessee liable to assessment in his own name, but it deems that assessment to be made upon him in his representative capacity only, and it caps the charge: the tax 'shall, subject to the other provisions contained in this Chapter, be levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him'. Where the shares are determinate the measure of the trustee's liability is therefore the liability of each beneficiary separately, not a single composite charge on the trust. Section 161(2) is the other half of the protection: where a person is assessable under Chapter XV in the capacity of a representative assessee, he shall not, in respect of that income, be assessed under any other provision of the Act.
Our discretionary trust has been charged at the maximum marginal rate under section 164 because the beneficiaries' shares are not fixed. What exactly takes a trust out of that rate, and does it help that the trust was created by my father's will? Section 164(1) charges the relevant income at the maximum marginal rate where income for which a section 160(1)(iii) or (iv) representative is liable is not specifically receivable on behalf of any one person, or where the individual shares of the persons for whose benefit it is receivable are indeterminate or unknown. The FIRST PROVISO takes a case out of that rate — not into exemption, but into tax 'as if it were the total income of an association of persons' — in four situations, and only four: (i) none of the beneficiaries has any other income chargeable under the Act exceeding the maximum amount not chargeable to tax in the case of an association of persons, and none is a beneficiary under any other trust; (ii) the relevant income is receivable under a trust declared by any person by will and such trust is the only trust so declared by him; (iii) the relevant income is receivable under a trust created before 1 March 1970 by a non-testamentary instrument which the Assessing Officer is satisfied was created bona fide exclusively for the benefit of the settlor's relatives, or, where the settlor is a Hindu undivided family, of the members of that family, in circumstances where they were mainly dependent on the settlor for support and maintenance; or (iv) the relevant income is receivable by trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in that business or profession. The SECOND PROVISO then cuts all four down where there is business income: where the income of a section 160(1)(iv) trustee consists of, or includes, profits and gains of business, the first proviso applies only if those profits and gains are receivable under a trust declared by a person by will exclusively for the benefit of a relative dependent on him for support and maintenance, and that trust is the only trust so declared by him.
The Department has assessed our trustee under section 161 and has now issued a notice to me as beneficiary on the same income. Which section stops it doing both, and is it section 167? It is not section 167. Section 166 is the enabling provision: 'Nothing in the foregoing sections in this Chapter shall prevent either the direct assessment of the person on whose behalf or for whose benefit income therein referred to is receivable, or the recovery from such person of the tax payable in respect of such income.' Section 167 is headed 'Remedies against property in cases of representative assessees' and does something quite different: it gives the Assessing Officer the same remedies against all property of any kind vested in or under the control or management of a representative assessee as he would have against the property of any person liable to pay tax, and in as full and ample a manner, 'whether the demand is raised against the representative assessee or against the beneficiary direct'. It is a recovery-reach provision in the Revenue's favour, not a taxpayer protection. The bar on taxing the same income twice comes from elsewhere: from section 161(2), from the Central Board of Direct Taxes' own instruction of 24 February 1967, and from the case law on the exercise of the option.
Our family trust has determinate shares, mostly interest and rent, and a small share of profit from a partnership business. The Assessing Officer has charged the entire trust income at the maximum marginal rate. Can he, when the shares are fixed? Yes, and the fact that the shares are determinate is irrelevant. Section 161(1A) opens 'Notwithstanding anything contained in sub-section (1)', so the beneficiary-rate protection in section 161(1) is displaced entirely: where any income in respect of which a person mentioned in section 160(1)(iv) is liable as representative assessee 'consists of, or includes, profits and gains of business', tax is charged on the WHOLE of the income in respect of which he is so liable at the maximum marginal rate. The single proviso is narrow and cumulative — it disapplies the sub-section only where the profits and gains are receivable under a trust declared by a person BY WILL, exclusively for the benefit of a relative dependent on him for support and maintenance, and that trust is the ONLY trust so declared by him. Sub-section (1A) was inserted by the Finance Act, 1984 with effect from 1 April 1985.
A trust in our family was never reduced to writing. The Assessing Officer says section 164A applies and has charged the maximum marginal rate on everything. Is there any relief at all? Only one, and it has to have been taken in time. Section 164A provides that where a trustee receives or is entitled to receive any income on behalf or for the benefit of any person under an oral trust then, notwithstanding anything contained in any other provision of the Act, tax shall be charged on such income at the maximum marginal rate. There is no proviso — none of the escapes in section 164's first proviso, and not the will-trust proviso in section 161(1A), is available. The Explanation to section 164A gives 'oral trust' the meaning assigned to it in Explanation 2 below section 160(1), and that definition is residual: a trust not declared by a duly executed instrument in writing (including a valid wakf deed) AND not deemed under Explanation 1 to section 160(1) to be so declared. The only way out is therefore Explanation 1 — filing with the Assessing Officer a statement in writing signed by the trustees setting out the purposes of the trust, the particulars of the trustees, the beneficiaries and the trust property, within three months of the declaration of the trust (or, for a trust declared before 1 June 1981, within three months from that day).
Nothing here is written from memory. Every entry was found through a search, and the page for it links to where it was found, so you can check it rather than take our word for it. What has not happened yet is the part that matters most: nobody has read the certified copy of each judgment and signed off the summary against it. Until that is done, each page says Not yet CA-verified, and it means exactly what it says. Read the source before you rely on an entry in a reply to an Assessing Officer or in an appeal.