Trusts having mixed activities eligible for exemption under Sec 11 and 12?

Last updated: 27 May 2020

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This article clarifies whether charitable trusts can still be eligible for income tax exemptions under Sections 11 and 12 of the Income Tax Act, even if they engage in business-like activities. For trusts focused on core charitable purposes like poverty relief, education, or medical aid, business activities are permitted if they are incidental to the trust's objectives and separate accounts are maintained. However, for trusts whose primary aim is general public utility, exceeding 20% of receipts from commercial activities can jeopardise their charitable status and exemption eligibility.

CHARITABLE PURPOSE DEFINED: Section 2(15)

"Charitable Purpose" Includes

Charitable Trusts and Business Activities: Exemption Under Sec 11/12

Relief to poor
education
yoga
medical relief
preservation of environment (including watershed, forest and wildlife)
preservation of monuments or place or object of artistic or historic interest, and
the advancement of any other object of general public utility

PROVISO TO SECTION 2(15)

THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY:-

Shall not be a charitable purpose
If it involves the carrying on of any activity in the nature of trade, Commerce or business
For fees or any other consideration,
Irrespective of the use or application of the income from such activity.

Trust Carrying activity of first six limbs such as Relief to poor , Education, Yoga, Medical Relief etc. Business activities carried on by the trust under these area are permitted subject to provision and condition mentioned under section 11(4) and section 11 (4A).

Section 11 (4): Property Held Under Trust Includes Business Undertaking

For the purpose of section 11 "property held under trust" includes a business undertaking so held. Income from business shall be treated as income from "property held under trust" and shall be eligible from exemption under section 11(1) & 11(2) provided the business is incidental to the attainment of the objective of the trust and separate books of accounts are maintained by such trust in respect of such business.

Trust Carrying out activity of last limb i.e The advancement of any other object of general public utility and business activity is being carried out by such trust following section will apply :-

Section 13 (8) : provides that if the trust has the object of the advancement of any other object of general public utility and the trust has been granted registration by Commissioner of Income tax as charitable trust under section 12AA and because of provisio to section 2 (15) i.e the receipt from commercial activities exceeds 20% of the total receipt, the trust cease to be a charitable trust , the exemption under sec 11 & 12 shall not be available to such trust for the previous year in wgich receipt exceeds 20% of total receipt.

In such case the cancellation of registration of trust under section 12AA by the Commissioner of Income tax is not required and even if commissioner of income tax has not cancelled the registration under section 12AA for such previous year, exemption under sec 11 & 12 shall not be allowed.

Disclaimer: Income Tax Act, 1961 has been referred while preparing this article. This article is meant for understanding purposes only and in no way be deemed to be an advice or solicit any marketing whatsoever.

The author can also be reached at cashubham19k@gmail.com