Trust under a contract

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

30 September 2012 if a trust enter into a contract with a builder to construct a temple in the land owned by the trust against which the builder is allowed to build a residential block in a part of that land. Trust will also have ownership on some flats of such block. If trust want to sell those flats whether it will attract tax or not

Amol S Joglekar

Amol S Joglekar (Expert)
Follow

30 September 2012 definitely it will attract income tax. So mush so, the trust needs to take prior permission of charity commissioneer of proper jurisdiction.

Querist : Anonymous

Querist : Anonymous (Querist)

01 October 2012 kindly reply:-
what will happan if a trust take permission, whether that will save the trust from the tax net?
Secondly, if trust spend such incoming for the object of the trust why it will be taxed.

Amol S Joglekar

Amol S Joglekar (Expert)
Follow

01 October 2012 Trusts are not exempt from capital gains.

Querist : Anonymous

Querist : Anonymous (Querist)

02 October 2012 here i want to specify that As per section 11 (1A) if the sale proceeds of capital assets are utilised for acquiring another capital asset then the capital gain shall be deemed to be applied for the object of the trust and hence exempt.

Amol S Joglekar

Amol S Joglekar (Expert)
Follow

02 October 2012 Absolutely correct. The key is CAPITAL ASSET. Spending on the object of trust, in general, may not qualify for exemption, but in capital asset, does qualify for exemption.

Querist : Anonymous

Querist : Anonymous (Querist)

05 October 2012 sir sorry for late replying or you can say asking.
So you mean that a trust can enter into a contract for selling flats if those incomings will be used in capital assets again.

Now sir please reply:-
1. whether depositing in Fds are capital investment.
2. Will these transaction will have any effects on 80G of trust or Sec 11 expemtion of the trust.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
Follow

02 August 2025 Great questions! Let me clarify the tax implications for a trust involved in such transactions based on the Income Tax Act provisions, especially Sections 11 and 11(1A):

---

### Context Recap:

* Your trust owns land.
* Enters into a contract with a builder who constructs flats on part of the land.
* Trust owns some flats in the building.
* Trust wants to sell these flats.
* Question: Will this sale attract tax? What about exemption if proceeds are used for trust objects?

---

## 1. **Does selling the flats attract income tax?**

* **Yes, it can attract income tax** because:

* Sale of flats by trust is considered **transfer of capital asset**.
* Gains from such sale may be taxable as **capital gains**.
* Also, if the activity of sale becomes **business in nature** (e.g., regular sales), the income may be treated as **business income**.

---

## 2. **Does permission from Charity Commissioner save trust from tax?**

* Permission from Charity Commissioner is a **legal/formal requirement** for a trust to carry out certain transactions (like sale of immovable property).
* But **permission alone does NOT exempt income from tax**.
* Tax exemption depends on **usage of income** and **nature of transaction** under the Income Tax Act.

---

## 3. **What about exemption under Section 11(1A)?**

* **Section 11(1A) says:**
If the **capital gains** arising from sale of a capital asset are **utilized to acquire another capital asset** (within a specified period), then these capital gains are deemed to be applied for the charitable purposes and **exempt from tax**.

* So, **if sale proceeds of flats are used to buy another capital asset for the trust's charitable purposes, exemption is available**.

* If the proceeds are **not used to acquire another capital asset**, the gains become taxable.

---

## 4. **Are Fixed Deposits (FDs) considered capital investment under Section 11(1A)?**

* **No, Fixed Deposits are not capital assets.**
* Money parked in FDs is considered **income or cash balances**, not a capital asset.
* So, **depositing sale proceeds in FDs will NOT qualify as application towards capital asset acquisition under Section 11(1A).**
* Hence, capital gains exemption under 11(1A) will **not apply** just because you put money in FDs.

---

## 5. **Effect on 80G and Section 11 exemption?**

* **80G exemption** is related to **donations received** by the trust; selling flats is unrelated.
* If the sale proceeds are **applied properly as per Section 11** (used for charitable purposes), the trust can claim exemption on other income.
* But **capital gains exemption depends on Section 11(1A) conditions**, i.e., reinvestment in capital assets.
* Improper use of sale proceeds may lead to **loss of exemption benefits under Section 11** for that amount.

---

## Summary Table

| Question | Answer |
| ------------------------------------------------------------ | ---------------------------------------------------------------------- |
| Will sale of flats attract tax? | Yes, capital gains tax or business income tax may apply |
| Does permission from Charity Commissioner exempt tax? | No, permission is separate from tax exemption |
| When is capital gains tax exempt under Sec 11(1A)? | When sale proceeds reinvested in capital assets for charitable purpose |
| Are Fixed Deposits capital assets? | No |
| Does depositing sale proceeds in FDs qualify for Sec 11(1A)? | No |
| Effect on 80G exemption? | No direct effect; 80G is for donations, not income from sales |

---

If you want, I can help draft a plan to structure such transactions for minimum tax impact and compliance with charitable purposes. Would you like that?

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now