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Unit 4: Exemptions and Deductions - I

7. If any income or property of the trust or institution is diverted during the previous year in Notes
favour of any of the specified persons. However, if the total value of the income and/or
property so diverted does not exceed ` 1,000 in value, the trust will not forfeit the exemption
merely because any portion of the income or property of the trust is diverted for the
benefit of any of the specified persons; and
8. If any funds of the trust or the institution are, or continue to remain, invested for any
period during the accounting year in any concern in which any of the specified persons has
a substantial interest.
For purposes of disallowance of the exemption to a charitable trust or institution the specified
persons shall be deemed to have a substantial interest in a concern under the following
circumstances:
In case where the concern is a company: If its equity shares carrying not less than 20% of
the total voting power are, at any time during the previous year, owned beneficially by
such person or partly by such person and partly by one or more of the other specified
persons, or
In the case of any other concern: If such specified persons are entitled individually or
jointly to not less than 20% of the profits of such concern at any time during the relevant
accounting year.
Where the trust funds are invested in a concern in which any of the specified persons has a
substantial interest and the quantum of the investment does not exceed 5% of the capital of the
concern, the exemption shall not be allowed in respect of the income arising from such investment
and the remaining income will continue to enjoy exemption from tax.
Further for debentures of an Indian company or Corporation acquired by the trust or institution
after 28 February, 1983 but before 25th July, 1991, the exemption from tax under Section 11 or
Section 12 shall be allowed to the trust or institution in respect of interest on such debentures if
the trust or institution disinvests such debentures latest by 31st March, 1992.
Any charitable or religious trust or institution will forfeit exemption from tax if any funds of the
trust or institution are invested or deposited, after February 28, 1983, otherwise than in any one
or more of the modes specified in Section 11(5). Such trusts and institutions will also forfeit
exemption from tax if any part of their funds invested before March 1, 1983 otherwise than in
any one or more of the forms or modes specified in Section 11(5) continue to remain so invested
or deposited after November 30, 1983. Trusts or institutions which continue to hold any shares
in a company (other than a Government company or a statutory corporation) after the said date
will also forfeit exemption from income-tax.

The aforesaid provisions will, however, not apply in relation to assets which constituted the
original corpus of the trust or institution as on June 1, 1973 and any accretion to the assets being
shares of a company forming part of the corpus of the trust or institution as on June 1, 1973,
where such accretion arises by way of bonus shares.
The aforesaid provisions will also not apply in relation to assets (being debentures issued by a
company) acquired by the trust/institution before March 1, 1983. Further, it will not apply in
relation to any asset [other than an investment or deposit in the mode or form as specified in
Section 11(5)] which is held after the expiry of one year from the end of the previous year in
which such asset is acquired or the 31st Day of March, 1993 whichever is later in the mode and
form as specified in Section 11(5). Also, it will not apply in relation to any funds representing the
profits and gains of business relevant to the assessment year 1984-85 or any subsequent year.

Notwithstanding anything contained in Sub-section (1) or Sub-section (2), but without prejudice
to the provisions contained in Sub-section (2) of Section 12, in the case of a charitable or religious

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