Charitable institution means a public or private nonprofit, tax-exempt entity
organised for charitable or public welfare purpose. These organisation depends
on partly on donations and partly on business. The donations which are given in
these institutions represents the major form the corporate philanthropy. If the
institutions exempted from tax liability then the all the income derived from
the institutions should be used for public purpose. For example 1For example, in
many countries of the Commonwealth, charitable organisations must demonstrate
that they provide a public benefit.
It is essentially a way to setup your assets is to benefit you, your
beneficiaries and a charity.
Mainly there are two types of charitable trust
- Public trust and
- Private trust.
Public trust is an expressed trust made to benefit the body of public, in
private trust the beneficiaries are narrow and divided in to specific groups
e.g. the employees of the organisation.
Public charitable trust governs in India under the Charitable and Religious
trust act 1920, the religious endowment act 1863, The Charitable endowment act
1890 and the Bombay trust Act 1950. In the same, private charitable trust
governed by the Indian Trust Act 1882.
The expression charitable purpose
has been defined under Section 2(15) of the
Act to include:
- relief of the poor,
- medical relief,
- preservation of environment (including water sheds, forests and wild
- preservation of monuments or places or objects of artistic or historic
interest and (f) any other object of public utility
In India charitable trust's play a significant role in promoting economic
developments and the social welfare objectives of the government. Their outrage
and more localise approach helps to identify the needy and land a supporting
hand. For this reason Indian government has provided various tax incentives and
exemptions to charitable institutions.
What constitutes a valid trust.
In order to constitute a valid dedication for charitable purpose no registration
is necessary if the trust relates to movable property. But if the trust is
related to immovable property worth more than 100 rupees, the provision of
section 17(1) of Indian Registration Act 1908 read with section 123 of Transfer
of Property Act 1882
must be complied. The application of registration should in a manner which is
prescribed in FORM NO. 10A.
In the case of HANUMANTRAM RAMNATH VS. CIT3 Hon'ble Kania J. Observed these
three certainties :
A declaration sufficient to show an intention to create a trust by settlor; (the
declaration must be binding on him.)
Setting apart definite property and the settlor depriving himself of the
A statement of the object for which the property is thereafter to be held.
In the case of COURT RECEIVER VS CIT. The Bombay high court reiterated the
conditions which are necessary for creating the valid trust.
The said conditions
- Intention on the part of author of trust to create a trust;
- The trust property or the subject of the trust;
- Purpose or the object of the trust ; and
- Beneficiaries under the trust.
Thus, neither formal deed nor any other writing is necessary to constitute a
charitable or religious trust. It is indeed true, a trust may be created by any
language sufficient to show the intention and no technical words are necessary.
Charitable institutions be exempted from tax liability
In order to claim exemption from income tax under section 11 of the Act, a trust
or institution which has been validly created or established must satisfy
certain conditions which are enumerated in section 12A and 13 of the Income Tax
Act,1961. If the charitable institutions or trusts is established for charitable
or for religious purpose than the income derived from these institutions should
be exempt from tax liability in that manner which is defined under section 11 of
Income Tax Act 1961.
Section 11 of Income Tax Act defines that:
Income from property held for charitable or religious purposes.
- Subject to the provisions of sections 60 to 63, the following
income shall not be included in the total income of the previous year of the
in receipt of the income:
- income derived from property held under trust wholly for charitable or
religious purposes, to the extent to which such income is applied to such
purposes in India; and, where any such income is accumulated or set apart
for application to such purposes in India,
to the extent to which the income so accumulated or set apart is not
in excess of [fifteen] per cent of the income from such property;
- income derived from property held under trust in part only for such
purposes, the trust having been created before the commencement of this Act,
to the extent to which such income is applied to such purposes in India;
and, where any such income is finally set apart for application to such
purposes in India, to the extent to which the income so set apart is not in
excess of [fifteen] per cent of the income from such property;
- income [derived] from property held under trust:
- created on or after the 1st day of April, 1952, for a charitable purpose
which tends to promote international welfare in which India is interested,
to the extent to which such income is applied to such purposes outside
- for charitable or religious purposes, created before the1st day of
April, 1952, to the extent to which such income is applied to such purposes
Provided that the Board, by general or special order, has directed in either
case that it shall not be included in the total income of the person in receipt
of such income;
- Income in the form of voluntary contributions made with a specific
direction that they shall form part of the corpus of the trust or
[Explanation: For the purposes of clauses (a) and (b):
- In computing the [fifteen] per cent of the income which may be
accumulated or set apart, any such voluntary contributions as are referred
to in section 12 shall be deemed to be part of the income;
- if, in the previous year, the income applied to charitable or religious
purposes in India falls short of [eighty-five] per cent of the income
derived during that year from property held under trust, or, as the case may
be, held under trust in part, by any amount:
- for the reason that the whole or any part of the income has not been
received during that year, or
- for any other reason,
For the more clarity on the taxation scheme defined under section 11.
No exemption from tax liability if below mentioned conditions are not satisfied
The meaning of the word 'Specified person' which is used in above para is:
- If the entire income earned from the charitable institutions used for
their personal benefit not for the welfare of society
- If the income of charitable Trust or institution used for promoting particular
caste or community.
- The income derived from these institutions wholly or partly and the property is
used for the benefit of specified person.
- Income from these trusts or institutions not invested in the medical,
educational or religious purpose, they are running these institutions to a
- If these institutions running their separate business which not in
respect of societal or welfare purposes then they have to maintain separate
books of accounts
- Founder of the trust or charitable institution.
- If the founder of he trust or charitable institution is a person of Hindu
- Family, then the member of such Hindu Undivided Family.
- Manager or the trustee of the trust.
- Relative of the founder of trust or charitable institution who has given
in the institution.
The expression religious
purpose is not defined anywhere in the Act . It means
the activities which are necessarily associated with religion and includes the
advancement, and propagation of religion and its tenets. Income of these
institutions should be exempted from tax because it may be for the benefit of
particular community and society at large.
Charitable trust or the non profit organisations exempted from tax liability,
either it is sales tax or property tax these organisations are not paying any
taxes due to this these institutions are able to readily raise the money.
Individuals or group of individuals established the non-profit organisation of
charitable institution to reduce their tax liability. These charitable
institutions provide the relief for public advancement, and welfare of society
that's why the income of these institutions is exempted from tax liability.
But in most the cases the investors run their trust or charitable institutions
to avoid their tax liability and taking the advantage of loopholes. There are
many persons who are deriving huge income in the name of trust and charitable
institutions and tare not paying any taxes. Which causes loss to the government.
They government have to take steps to prevent these kind of activities. Those
persons who are doing these kind of activities, government have to take strict
by imposing fine and penalty against
them. By establishing these institutions, if the owner of the trust aims to hide
or falsely reporting the income to reduce their tax liability be called as tax
evasion. If the person is not paying any tax of paying less amount of tax
considered to be tax fraud. Tax evasion is illegal and punishable in India
several penalties or punishments also be imposed.
For example: 5BCCI (Board of Control for Cricket in India) was registered as a
charitable institution, which is no longer considered a charitable organisation
for assessing income, owes over Rs.371 crore as tax to the government.And this
figure could be even higher as the Income Tax Department is yet to assess the
income of one of world's richest sporting bodies for the last two fiscal.
For assessment year 2009-10, the BCCI's income stood at over Rs.964 crore on
which the IT Department demanded a tax of over Rs.413 crore.
Paid only Rs.41.91 crore
But the BCCI paid only Rs.41.91 crore. As a result, the BCCI still owes over
Rs.371.67 crore to the government as tax for 2009-10, reveals the information
gathered under the Right to Information by activist S.C. Aggarwal.
Notably, the department is still to assess the income and tax status of the BCCI
for the past two years (2010-11 and 2011-12).
In the assessment year 2007-08, the BCCI's total income stood at over Rs.274
crore on which it paid income tax worth Rs.118 crore.
But its income surged to Rs.608 crore in 2008-09, while the tax also increased
to Rs.257 crore.
Notably, the BCCI used to get income tax exemption as a charitable organisation
but now the government has withdrawn this exemption and the cricketing body's
earnings now come under the head business income.
The assessee (BCCI) used to claim exemption under Section 11 of the I-T Act
1961, available for charitable organisations. The department has withdrawn
registration under Section 12 of the IT Act 1961 and rejected assessee's claim
for exemption under Section 11 of the I-T Act 1961.
The department has assessed the BCCI's income under the head 'Business Income',
the department said in its reply.
As per the above discussion, a charitable trust may be created for the relief of
poverty, the advancement of education or religion, the promotion of health,
governmental or municipal purposes, or other purposes the achievement of which
is beneficial to the community. Government should have to promote such
institutions for the sake of mankind and uphold the values of constitution of
of constitution of India emphasise India, a socialist and republic country and
its objective is to provide social, economical and political justice. To achieve
such goals not only government but individuals or group of individuals have to
come forward, to make efforts for the charitable purpose. If the income derived
from these institutions not using for the societal welfare, then they should be
taxed and the penalty should also be imposed for not paying tax. Government
should have to exempt tax liability only from those institutions which are
genuine and reliable and working for the advancement of public and religious
- (1946(14) ITR 716,718 (BOMBAY) 4 INCOME TAX ACT, 1961