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Unit 4: Exemptions and Deductions - I

20. Voluntary contributions cannot be accumulated for future obligation for charitable Notes
purposes in the same manner as specified earlier.
21. The value of any services, being medical or educational services, made available by any
charitable or religious trust running a hospital or medical institution or an educational
institution, to any person referred shall be deemed to be income of such trust or institution
derived from property.

4.6 Income to be Included in Total Income

The exemption granted by Sections 11 or 12 of the Act would not, however, be available in the
following cases and circumstances:
1. Where any part of the income from property held under trust for private religious purposes
does not ensure for the benefit of the public;
2. In the case of a trust for charitable purposes or an institution created or established for
charitable purposes on or after 1.4.1962, any income of the trust will not qualify for tax
exemption if the trust or institution is created or established for benefit of any particular
religious community or caste. By virtue of explanation 2 to Section 13, any trust created for
the benefit of Scheduled Castes, backward classes, or Scheduled Tribes or women or
children would not be deemed to be a trust or institution created or established for the
benefit of any particular religious community or caste for purposes of this exemption.
Consequently, income derived by trusts or institutions established purely for the benefit
of scheduled castes or tribes or backward classes or women or children would qualify for
tax exemption even though the income is applied in reality for the benefit of a particular
community or caste.
3. In the case of a trust or institution established after 1.4.1962 or in the case of a trust,
whenever created or established, if the income of the trust or institution is applied during
the accounting year, directly or indirectly for benefit of any of the specified persons or if
under the terms of the trust or the rules governing that institution, any part of the income
of the trust ensures for the benefit of such specified persons, whether directly or indirectly,
the trust would not be given tax exemption under Section 11, with the exception that
(i) where such use or application is by way of compliance with a mandatory term of the
trust or a mandatory rule governing the institution, and (ii) where such use or application
relates to any period before the 1st day of June, 1970, the aforementioned provision shall
not apply.

4. Where any business is owned by a religious or charitable trust or institution, the income
of such business shall be determined by the Assessing Officer in the same way as the
assessment of business income of any other assessee. Consequently, any additions to the
business income shown in the accounts of the assessee made by the Assessing Officer is
deemed to be income applied by the trust for purposes other than charitable or religious.
Such additions, therefore, do not qualify for tax exemptions under Section 11(4).
However, in the case of a trust or institution established before 1.4.1962, the exemption would
not be forfeited merely on the ground that a part of the income or property of the trust or
institution is applied directly or indirectly for the benefit of the specified persons if such use or
application is for compliance with a mandatory term of the trust or a mandatory rule governing
the institution.

For purposes of the disallowance of exemption, the ‘specified persons’ are the following namely:
the author of the trust or the founder of the institution,

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