ICAI issues Exposure Draft for Audit of Public Charitable Institutions

The Institute of Chartered Accountants of India(ICAI) has issued Exposure Draft for issuing Guidance Note on Audit of Public Charitable Institutions under section 12A of Income Tax Act 1961 for Public Comments.

Introduction

Under section 11 of the Income-tax Act, 1961 certain incomes derived from property held under trust for charitable or religious purposes specified thereunder shall not be included in the total income of the previous year subject to the conditions prescribed by the Act

The person entitled to get exemption under section 11 of the Income-tax Act, 1961 may be a trust, society, company registered under section 8 of Companies Act, 2013 (earlier it was section 25 of the Companies Act, 1956) or any other legal obligation. For the purpose of brevity, in this Technical Guide such entities are referred to by the term “institution”, without going into the fine distinctions that may exist between a “trust” and an “institution”. The Institution, in order to qualify for exemption under section 11 of the

Income-tax Act, 1961 :-

I. Property of such institution should be held wholly for charitable or religious purpose and,

II. It should be registered with the Principal Commissioner of Income Tax (PCIT) or Commissioner of Income Tax (CIT) Certain old institutions created before Commencement of Income-tax Act, 1961 even if they are partly for charitable or religious purposes, they also qualify for exemption.

The term Charitable purpose has been defined under section 2(15) of the Income-tax Act, 1961. The definition reads as under :-

Includes-

(i) relief of the poor,

(ii) education,

(iii) yoga,

(iv) medical relief,

(v) preservation of environment (including watersheds, forests and wildlife) and

(vi) preservation of monuments or places or objects of artistic or historic interest, and

(vii) the advancement of any other object of general public utility.

Provided that 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, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless:-

i. such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and

ii. the aggregate receipts from such activity or activities during the previous year, do not exceed 20% of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;

The exemption under section 11 is also available for institution created for the public religious purpose.

Religious purpose includes the advancement, support or propagation of a religion and its tenets. A trust made for any of these purposes is said to be a religious trust. The creation of Religious Trust is governed by the personal laws of the religion. But in general connotation, it can be deemed as the Trusts which are involved in the activities of promoting religion or particular belief.

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