Section 24 - Insertion of new section 80F - Direct Tax Laws (Amendment) Act, 1987

24. Insertion of new section 80F. After section 80E of the Income-tax Act as so omitted, the following section shall be inserted, namely: - 80F. Deduction in respect of amounts applied for charitable or religious purposes, etc. (1) In computing the total income of an assessee, being - (a) a person in receipt of income derived from property held under trust wholly for charitable or religious purposes in India or by an institution established wholly for such purposes in India; or (b) a person in receipt of income derived from property held under trust in part only for charitable or religious purposes in India, the trust having been created before the commencement of this Act; or (c) a person in receipt of income derived from property held under a trust created on or after the 1st day of April, 1952, or by an institution established on or after that date, for a charitable purpose which is for the benefit of citizens of India abroad or which tends to promote international welfare in which India is interested; or (d) a trust or institution declared by the Board, by notification in the Official Gazette, to be a trust or institution of national importance, having regard to the objects set out in the instrument creating the trust or establishing the institution, the opinion of such experts in the respective fields of activity of the trust or institution as the Board may think fit to consult, and other relevant factors, there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified hereunder, namely :- (i) any amount applied in India by the person referred to in clause (a), or by the trust or institution referred to in clause (d), during the previous year wholly and exclusively to the purposes of the trust or institution; (ii) any amount applied in India by the person referred to in clause (b) during the previous year wholly and exclusively to the charitable or religious purposes of the trust; (iii) any amount applied outside India by the person referred to in clause (c) during the previous year wholly and exclusively for the benefit of citizens of India abroad or for promoting international welfare in which India is interested, where the Board has, by general or special order, directed such amount to be deducted: Provided that any such amount applied wholly and exclusively for the benefit of citizens of India abroad shall qualify for the deduction under this clause only if such amount is applied in accordance with a scheme framed by such person and approved by the Board and notified in the Official Gazette; (iv) any amount invested or deposited during the previous year in such form or mode, in such manner and for such period as may be prescribed, where such investment or deposit is held by such person or, as the case may be, trust or institution for a period of not less than six months ending with the due date for furnishing the return of income under sub-section (1) of section 139. (2) The deduction under sub-section (1) shall not be allowed unless the following conditions are fulfilled, namely :- (a) the person in receipt of the income or, as the case may be, the trust or institution has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner or any other authority prescribed in this behalf before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution: Provided that the Commissioner or the authority so prescribed may, in his or its discretion, admit an application for the registration of any trust or institution after the period aforesaid. Explanation.- Where an application for registration of the trust or institution has been made to the Commissioner in accordance with the provisions of section 12A as it stood immediately before the 1st day of April, 1989, the requirements of this clause shall be deemed to have been complied with; (b) where the gross total income of the trust or institution for the previous year exceeds fifty thousand rupees, the accounts of the trust or institution for the previous year have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed; (c) such other conditions as the Board may, having regard to the interests or quantum of the revenue, by general or special order, impose, and such conditions may include a condition that a nominee of the Board shall, notwithstanding anything contained in any other law for the time being in force or in any instrument constituting the trust or institution concerned or governing the working thereof, be appointed on the Board of trustees of the said trust or, as the case may be, the governing body of the institution. (3) The deduction under sub-section (1) shall not be allowed where - (a) any part of the property of the trust or institution is held for a private religious purpose which does not ensure for the benefit of the public or any part of the income from such property is applied to any such purpose as aforesaid; (b) in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, the trust or institution is created or established for the benefit of any particular religious community or caste; (c) (i) in the case of a trust or an institution created or established after the commencement of this Act, any part of the income of the trust or institution, under the terms of the trust or the rules governing the institution, ensures, or (ii) in the case of a trust or institution whenever created or established, any part of the income or any property of the trust or institution is, during the previous year, used or applied, in a manner which results directly or indirectly in conferring any benefit, amenity or perquisite (whether convertible into money or not) on any interested person; or (d) any funds of the trust or institution are invested or deposited, for any period during the previous year, otherwise than in any such form or mode, in such manner and for such period as is prescribed for the purposes of clause (iv) of sub-section (1): Provided that the Chief Commissioner or the Commissioner may, if he is satisfied, on an application by the trust or institution, that the application of the provisions of sub-clause (i) or sub-clause (ii) of clause (c) would result in grave hardship to the trust or institution, allow the deduction wholly or to such extent as he may deem fit having regard to the extent of the benefit, amenity or perquisite derived or enjoyed by the interested person: Provided further that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) of clause (c) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution in the manner specified in that clause, if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution. (4) Without prejudice to the generality of the provisions of clause (c) of sub-section (3), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied in a manner which results directly or indirectly in conferring any benefit, amenity or perquisite (whether convertible into money or not) on any interested person, if- (a) any part of the income or property of the trust or institution is, or continues to be, lent to any interested person for any period during the previous year without either adequate security or adequate interest or both; (b) any land, building or other property of the trust or institution is, or continues to be, made available for the use of any interested person for any period during the previous year without charging adequate rent or other compensation; (c) any amount is paid by way of salary, allowance of otherwise during the previous year to any interested person out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; (d) the services of the trust or institution are made available to any interested person during the previous year without adequate remuneration or other compensation; (e) any share, security or other property is purchased by or on behalf of the trust or institution from any interested person during the previous year for a consideration which is more than adequate; (f) any share, security or other property is sold by er om behalf of the trust or institution to any interested person during the previous year for a consideration which is less than adequate; (g) any income or property of the trust or institution is diverted during the previous year in favour of any interested person: Provided that this clause shall not apply where the income, or the value of the property or, as the case may be, the aggregate of the income and the value of the property so diverted does not exceed one thousand rupees; (h) any funds of the trust or institution are, or continue to remain, invested for any period during the previous year in any concern in which any interested person has a substantial interest: Provided that in a case where the aggregate of the funds of the trust or institution invested in a concern referred to in this clause does not exceed five per cent. of the capital of that concern, the deduction under sub-section (1) in respect of the amount referred to in clause (i) or clause (ii) of that sub-section shall not be denied in relation to the application of any income other than the income arising to the trust or institution from such investment, by reason only of this clause. (5) Where deduction has been allowed under sub-section (1) for any previous year with reference to any amount referred to in clause (iv) of that sub-section and in any subsequent previous year the whole or any part of the investment or deposit in which such amount is held is realised or converted into cash, the amount so realised or converted into cash shall, notwithstanding anything contained in any other provision of this Act, be deemed to be the income of the assessee of the previous year in which it is so realised or converted and shall be chargeable to tax accordingly. (6) The deduction under sub-section (1) shall not be allowable in a case where the whole or any part of the income of the person or, as the case may be, trust or institution referred to in that sub-section is chargeable to income-tax, by virtue of the provisions of sections 60 to 63, as the income of the author of the trust or founder of the institution or any other person who has made a transfer of any income or asset to the trust or institution. (7) Where the property referred to in clause (a) or clause (b) or clause (c) of sub-section (1) consists wholly or partly of a business undertaking, or any person, trust or institution referred to in clause (a) or clause (b) or clause (c) or clause (d) of that sub-section derives income from a business carried on by him or it, the foregoing provisions of this section shall apply subject to the following conditions and with the following modifications, namely :- (a) separate books of account are maintained by such person, trust or institution in respect of such business; suoh accounts are maintained on the cash system of accounting and are audited by an accountant as defined in the Explanation below sub-section (2) of section 288, and the person, trust or institution furnishes, along with the return of income for the relevant assessment year, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed; (b) in computing the profits and gains of such business, no deduction shall be allowed in respect of any expenditure which results directly or indirectly in the provision of any remuneration, perquisite, benefit or amenity to any interested person, whether for any services rendered or otherwise; (c) the provisions of sections 71 and 72 shall not be applicable in relation to any loss pertaining to such business; (d) any amount referred to in clause (i) or clause (ii) or clause (iii) of sub-section (1), in so far as such amount is applied out of the profits and gains of such business, shall qualify for the deduction under that sub-section, if- (i) such amount is so applied during the previous year; or (ii) such amount is so applied during the financial year next following the previous year and, until it is so applied, the amount is kept in deposit in a separate account in any scheduled bank and it is not utilised for any purpose which is not a purpose of the trust or institution, and any amount which is not so applied out of such deposit during the financial year aforesaid shall be chargeable to tax as the income under the head Profits and gains of business or profession of such person, trust or institution of the next following previous year and all the provisions of this Act shall apply accordingly; (e) any amount referred to in clause (iv) of sub-section (1) shall not be taken into account for the purpose of allowing the deduction under that sub-section, in so far as such amount relates to the profits and gains of such business; (f) without prejudice to the provisions of sub-section (3), the deduction under sub-section (1) shall not be allowed in a case where - (i) such business consists, wholly or partly, in- (A) the purchase and sale of any securities or shares; or (B) money-lending or financing in any form; or (C) speculation in securities or shares or any other commodities; or (D) engaging in the conduct of, or participating in, any lottery or crossword puzzle, races including horse races, card games or other games of any sort or gambling or betting of any form or nature whatsoever; or (E) such other activity as may be prescribed; or (ii) the person, trust or institution aforesaid engages in any business transaction with any interested person or with any concern in which any interested person has a substantial interest; or (iii) such person. trust or institution enters into any partnership or joint venture or forms any association of persons or a body of individuals with any interested person or with any concern in which any interested person has a substantial interest. (8) The Board may, by general or special order, direct that any power or authority conferred upon it under this section may, subject to such conditions and restrictions as it may think fit to impose, be exercised also by such officer not below the rank of a Commissioner as it may specify in the order. Explanation 1 .- For the purposes of this section,- (a) interested person means - (i) the author of the trust or the founder of the institution; (ii) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds twenty-five thousand rupees; (iii) where such author, founder or person is a Hindu undivided family, a member of the family or any relative of such member; (iv) any trustee of the trust or manager (by whatever name called) of the institution; (v) any relative of any such author, founder, person, member, trustee or manager as aforesaid; (vi) any concern in which any of the persons referred to in sub-clauses (i), (ii), (iii), (iv) and (v) has a substantial interest; (b) relative , in relation to an individual, means,- (i) spouse of the individual; (ii) brother or sister of the individual; (iii) brother or sister of the spouse of the individual; (iv) any lineal ascendant or descendant of the individual; (v) any lineal ascendant or descendant of the spouse of the individual; (vi) spouse of a person referred to in sub-clause (ii), sub-clause (iii), sub-clause (iv) or sub-clause (v); (vii) any lineal ascendant or descendant of a brother or sister of either the individual or of the spouse of the individual; (c) scheduled bank shall have the same meaning as in clause (ii) of the Explanation to clause (viia) of sub-section (1) of section 36; (d) trust includes any other legal obligation; (e) any reference to institution shall be construed as including also a reference to fund . Explanation 2 .- A trust or institution created or established for the benefit of scheduled castes, backward classes, scheduled tribes or women and children shall not be deemed to be a trust or institution created or established for the benefit of a religious community or caste within the meaning of clause (b) of sub-section (3). Explanation 3 .- For the purposes of this section, a person shall be deemed to have a substantial interest in a concern,- (i) in a case where the concern is a company, if its shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than twenty per cent. of the 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 persons referred to in clause (a) of Explanation 1; (ii) in the case of any other concern, if such person is entitled, or such person and one or more of the other persons referred to in clause (a) of Explanation 1 are entitled in the aggregate, at any time during the previous year, to not less than twenty per cent. of the profits of such concern. .