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Income Tax Laws – I

Notes 4.3 Tax exemptions for Charitable Trusts and Institutions

Before the discussion of the provisions of the Income Tax Act in this connection, it is important
to note the meanings of some terms like ‘Trust’, ‘Institution’, and ‘Income’ from property,
charitable purpose and Religious purpose. These are discussed as under:
1. Trust: Section 3 of the Indian Trusts Act defines a trust to mean “an obligation annexed to
the ownership of property and arising out of a confidence reposed in and accepted by the
owner, or declared and accepted by him for the benefit of another and the owner”.

2. Institution: An organisation with a constitution composed of a President, Vice-President,
Secretary, Committee Members and ordinary members, is known as an Institution. The
activities of the institution and its office-holders are regulated by rules and bye-laws of
the institution. A university or a Chamber of Commerce is an Institution.

Did u know? Founded in 1925, Indian Chamber of Commerce (ICC) is the leading and only
National Chamber of Commerce operating from Kolkata, and one of the most proactive
and forward-looking Chambers in the country today. Its membership spans some of the
most prominent and major industrial groups in India.

3. Income from property: This includes income from movable or immovable property,
voluntary donations received and income from business undertaking(s) held by the trust.
4. Charitable purpose: The term ‘charitable purpose’ has been defined in this Act in a wider
sense than what is commonly understood. According to Section 2(15) of the Act, it includes
relief of the poor, education, medical relief, preservation of environment (including
watersheds, forests and wildlife) and preservation of monuments or places or objects of
artistic or historic interest and advancement of any other object of general public utility
not involving the carrying on of any activity for profit.
In order to qualify for tax exemptions the charity must be of a public character, and the trust or
institution should not be created or established for the benefit of any particular religious
community or caste, if the trust or institution is established for the benefit of the member of a
club or employees of a factory, it would not be a public charitable trust. Vide Circular No. 395
dated Sept. 24, 1984 promotion of sports and games is considered to be a charitable purpose
within the meaning of Section 2(15). Accordingly an association or institution, engaged in the
promotion of sports or games can claim exemption under Section 11, even if it is not approved
under Section 10(23).

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Caution If advancement of any other object of general public utility involves any activity
in the nature of trade, commerce or business or any activity of rendering any service in
relation to any trade, commerce for any fee shall not considered as charitable purpose
however this restriction shall be applicable only if total receipts from these activities
exceeds ` 25 lakh in a previous year.

Self Assessment

State whether the following statements are true or false:

10. Section 3 of the Indian Trusts Act defines a trust.
11. An organisation with a constitution composed of a President, Secretary, and Committee
Members is known as an Institution.

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