Charitable trust
P.Parthasarathi
(Querist) 07 September 2012
This query is : Resolved
My client is a charitable trust having registered u/s 12A of It Act.Its only source of revenue is donations from various organisations and individuals. During the previous year relevant to asst. year 2010-11 it made some expenses in cash exceeding Rs.20,000/-. The AO questioned in scrutiny assessment why they are not to be disallowed in terms of sec. 40A(3). In my opinion, since the trust is not a business concern the income, even in the absence of 12A, is not be charged to tax u/s 28 --if at all it is to be charged it should be only under the head Other Sources in terms of sec. 56. In that case sec. 40A(3) is not applicable to this case. Kindly confirm and please quote any citations in this regard.
A V Vishal
(Expert) 08 September 2012
Section 40 is applicable only when deductions under Sections 30 to 38 are being made in computing the income chargeable under the head “profits and gains of business or profession” under Section 28. The exception in Section 40 is carved out, only for the purpose of Section 28 and not for computing the exemption of income of a charitable trust under Section 11. The disallowance made under Section 40(a) will only go to enhance the business profit of an assessee whose income is assessable under section 28 and not otherwise. Hence, provisions of section 40(a) are not applicable in case of charitable trust or institution where income and expenditure is computed in terms of section 11Refer Mahatma Gandhi Seva Mandir Vs.Deputy Director of Income-tax (E) 1(2), Mumbai
P.Parthasarathi
(Querist) 08 September 2012
I am so very thankful to you Mr. Vishal. This case law is very helpful to me.
P.Parthasarathi
(Querist) 13 September 2012
Sir,
Thank you so much Makkad Saab. Kindly give me the ITR No. and page in which this decision of Mahatma Gandhi Seva Mandir v. Deputy Director of Income-tax is reported. I shall be highly grateful to you.
P.Parthasarathi
(Querist) 14 September 2012
Sir,
My client is a contractor assessed to tax in the status of an Individual. During the previous year relevant to assessment year 2007-08 he made many cash payments in violation of sec. 40A(3) and huge additions of such payments were made by the AO in the assessment. The explanation given in this regard during the course of assessment proceedings was vague and thoughtless. Now in appeal stage, he became my client and I found that many good grounds are available for contesting the said additions as per the pre-amended sec. 40A(3) applicable upto assessment year 2007-08 (Proviso)like lack of banking facilities in the place of transaction ( purchase of material , insistence of the seller to make payment in cash and purchases made after closure of the banking hours ( confirmed by the dealers from whom the said purchases were made) and purchases made on Bank Holidays etc. My doubt is whether a different stand taken at the appeal stage is allowable or the appellant will be estopped to take a different stand from what he took before the AO. Kindly clarify with case laws, if any with ITR/Taxation Nos. Huge demand is involved in this case and hence I request for a suitable advise.
