A) Section 10 exemption benefit not allowable to trust registered u/s 12AA –
Now, the trusts or charitable organisations registered under section 12AA or has obtained registration u/s 12A as has been there earlier, are not eligible to claim exemption u//s 10 except for income under section 10(1) and 10(23C).
Section 10 contains exemption of income of certain institutions or organisation such as income of local authority which is chargeable u/s 10(20), income of research institution u/s 10(21) and such other various institutions. When any dispute arises regarding exemption of such income u/s 10, such trusts or institutions get registered u/s 12AA of the Income Tax Act and claim exemption u/s 11 or section 12.
Now to amend the current position of law a new sub-section i.e. Sub-section 7 has been inserted to Section 11 through the Finance (No.2) Act, 2014 which provides that once such entity (trusts or charitable organisations) get registered under section 12AA and registration is in force, then exemption u/s 10 cannot be claimed.
However, this amendment is not applicable to income u/s 10(1) and 10(23C). Therefore, even if the trust is registered under section 12AA, agricultural income shall still not be taxable. Secondly, income of educational institutions and hospitals registered u/s 12AA shall continue to be eligible for exemption u/s 10(23C) on fulfilment of certain conditions specified therein.
Newly inserted sub-section 7 is as below –
“Where a trust or an institution has been granted registration under clause (b) of sub-section (1) of section 12Aa or has obtained registration at any time under section 12A as it stood before its amendment by the finance No. 2 Act, 1996 and the said registration is in force for any previous year, then, nothing contained in section 10 other than clause (1) and clause (23C) thereof shall operate to exclude any income derived from the property held under trust from the total income of the person in receipt thereof for that previous year.”
B) Depreciation claim not allowable if cost of acquisition of asset has been treated as application of income -
Existing provisions of section 11 and 10(23C) provides that if income of a trust is applied to acquire a capital asset the same is treated as application of income and depreciation can also be claimed by the assesse on the same capital asset. This interpretation has been held in various landmark judgements of various High Courts. Some of these cases are –
1. Held by Punjab and Haryana High Court in Commissioner of Income Tax vs. Market Committee, Pipli
2. Held by Delhi High Court in DIT vs. Vishwa Jagriti Mission (2013)
Such claiming of depreciation by a charitable organisation whose income is fully exempt, does not amount to claiming of double benefit.
Now, to plug out the flaws a sub-section 6 has been inserted to section 11 and 10(23C) which provides that –
“In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year.”
This amendment is to take effect from 01-04-2015. The amended position in Income Tax Law will stand as: Depreciation shall not be allowed in respect of any asset, the cost of acquisition of which has been claimed as an application of income in the same year or any other previous year.
Related amendment in section 10(23C) –
After the Seventeenth proviso, the following proviso and explanation shall be inserted w.e.f. 01st April, 2015 –
“Provided also that where the fund or institution referred to in sub-clause iv or the trust or institution referred to in sub-section v has been notified by the Central Government or approved by the prescribed authority, as the case may be or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via), has been approved by the prescribed authority and the notification or the approval is in force for any previous year, then, nothing contained in any other provision of this section (other than clause I thereof) shall operate to exclude any income received on behalf of such fund or trust or institution or university or other educational institution or hospital or other medical institution, as the case may be, from the total income of the person in receipt thereof for that previous year.
Explanation – In this clause, where any income is required to be applied or accumulated, then, for such purpose the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this clause in the same or any other previous year.”
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