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Corpus received by unregistered trust

Himanshi (student) (33 Points)

23 October 2019

Case law : ABC company has an amount of 2 crs in the name of mutual funds in its balance sheet . the company transferred this amount by cheque to xyz trust which is unregistered as a corpus donation .

Query is : 1. whether corpus donation of the trust be exempt or taxable in its hands. and if yes which head ?

2. reasons for the same .

3. Trust shall file its return in itr form no . ?
please reply asap .

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8 Replies

Kapadia Pravin (17249 Points)
Replied 23 October 2019

1. taxable in the hands of trust under income from other sources.

2. Unregistered trusts do not qualify for any deductions or exemptions available to Registered Trusts.

There is 30% tax + 4% Surcharge on income of unregistered trust (including Corpus Donations) and such Trust is taxable as AOP

3. ITR 5

Himanshi (student) (33 Points)
Replied 24 October 2019

Sir ... Some ppl on internet are saying it's a capital receipt not taxable even if it is received by unregistered trust . I am really confused now

Kapadia Pravin (17249 Points)
Replied 24 October 2019

What type of Trust it is ?
What purpose Corpus is meant for ?
What connection has ABC Co to the Trust
Why it's not registered under iTax 12A
is it registered under any State Trust Act
What type of Trust constitution is there
Under which category PAN card is obtained
is it private Trust or a public Trust

Under the disguise of capital receipt, can't avoid deemed income of gift under 56

There are many factors which will be determining taxability. But generally it is taxed at MMR

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Himanshi (student) (33 Points)
Replied 24 October 2019

Thanks for replying .

1.Private trust

2.construction of building for trust members
3.most of the company directors are also the members of the trust
4. Because they don't want to disclose all their money transfer activities to the govt and Dept.
5.pan as private trust.

Kapadia Pravin (17249 Points)
Replied 25 October 2019

Ohh this is a private Trust for construction of trust building for trust members.

Basically this is AOP of members. I hope everybody contributed equally or fllat area wise.

This contribution is not donation at all but it is a contribution as one of the beneficiaries. In this way it's a capital receipt standing to his credit.

Himanshi (student) (33 Points)
Replied 25 October 2019

So what do you think now ... How should we treat this amount . ?

Kapadia Pravin (17249 Points)
Replied 25 October 2019

At the most it may be considered a joint venture for building project under the auspices of so called Trust.

The contribution by the member beneficiaries will be capital receipt (hopefully it will be equal)

If the shares of the beneficiaries are determinate then no tax in the hands of AoP.

but share of income If any say bank interest etc will be taxed in the hands of respective beneficiaries.

If shares of beneficiaries are indeterminate then income if any will be taxed in hands of AoP at MMR that is 30%+4% cess