TMI BlogTaxability of income under sub-sections (1) and (2) - Legal position on issues pertaining thereto explainedX X X X Extracts X X X X X X X X Extracts X X X X ..... References are still being received from the public seeking clarifications regarding the taxability of income under the provisions of sections 11(1) and 11(2). 2. The legal position is clarified as under : - Under section 11(1)(a), a trust claiming exemption is allowed to accumulate 25 per cent of its income or Rs. 10,000, whichever is higher. Thus, if a trust accumulates a larger income than the limits prescribed for exemption, what would be chargeable to tax is the excess over the exempted limit, and not the entire accumulation including the exempted portion. - Section 11(2), however, provides that if the conditions laid down in the sub-section are satisfied, restrictions as regards accumulation or setting apart of income sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent of its income, only the excess over 25 per cent will be taxable under section 11(1). It is hereby clarified that the correct position in this regard is that if a trust desires to accumulate income in excess of the limits laid down in section 11(1), the conditions specified in section 11(2) have to be fulfilled in respect of the entire accumulation and not merely in respect of the accumulation in excess of 25 per cent of the income. Further, if the trust does not comply with the conditions laid down in section 12(2), the amount which becomes liable to assessment under section 11(3) is the entire income accumulated and not merely the income accumulated in excess of the limits specified in section 11(1). In other words, such an assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be deemed to have been applied to purposes other than charitable or religious, and hence it will be charged to tax under sub-section (3). As only the income disclosed in the account will be eligible for exemption under section 11(1), the permitted accumulation of 25 per cent will also be calculated with reference to this income. 4. Where the trust derives income from house property interest on securities, capital gains, or other sources, the word income should be understood in its commercial sense, i.e., book income, after adding back any appropriations or applications thereof towards the purposes of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the requirement of section 11(1)(a). Source : Relevant extracts from official minutes of twelfth meeting of Direct Taxes Advisory Committee (Central) held in New Delhi on 17-8-1968. clarification 5 1. There appears to be certain amount of misconception in the minds of some Income-tax Officers regarding the provisions against the accumulation of income in excess of 25 per cent, contained in section 11(1). It may be clarified that the provisions in section 11(1), prohibiting accumulation of income in excess of 25 per cent, apply only to the income derived from property held under trust, but such restrictions are not applicable to capital receipts. The donations received by a charitable trust from the members of the public, being c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery year. 3. It is hereby clarified that as far as proceedings for the assessment year 1962-63 are concerned, the first requirement referred to in the previous paragraph will be regarded as having been fulfilled if the accumulated money is invested in the specified securities before September 30, 1962. Similarly,the second requirement referred to in the previous paragraph shall be regarded as having been fulfilled if copies of the relevant accounts along with details of investment and utilisation of the accumulated money are furnished to the Income-tax Officer concerned before September 30, 1962. Circular : No. 17(LXX-4), dated 2-6-1962. - Circular - Trade Notice - Public Notice - Instructions - Office orders Tax Management India ..... X X X X Extracts X X X X X X X X Extracts X X X X
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