Condition applied by doner for utlisation of fund by trust.

You are right. There will definitely be conflict as mentioned by you. Please explain this legal position to the Donor and to suitably alter the conditions. Being one of the Trustees, and being aware of the Legal position, probably he would agree to modify the conditions.

Further more, since he would be donating, immovable, movables and also shares - it needs to be made clear whether they have to be monitised and converted into FDs or when he says "Total fund which he has donated must be kept in form of fixed deposits", he only means those liquid assets like balance in SB Account to be converted into FD.

It should be be kept in mind that when he gives the immovable properties to the Trust, it should be done through Registered Gift Deed - which will involve payment of Stamp Duty. The best way would be to bequeath the immovable property to the Trust by way of Registered WILL.

KINDLY REFER TO THE FOLLOWING NOTES GIVEN BY ICAI regarding tax provisions made for TRUST.

Will this notes will solve my queries and allow us to accept donation with conditions pre attached?

Please reply and guide.

NOTES :

Corpus Donation fully Exempt [Sec 11(1)(d)]

Corpus donations refer to the donations made by a donor to a trust with a specific direction that they shall form part of the corpus of the recipient trust. The donor alone can give a specific direction that the donation made by him shall form part of the corpus of the trust. Trustees have no power to treat in their discretion any donation as 7

corpus donation. Such direction may preferably be given by the donor in writing by a letter addressed to the trust. If he has not done so, trustees may request him to give such directions in writing. If any contribution is made with a specific direction, that it shall be treated as the capital of the trust for carrying out a particular charitable activity, it satisfies the definition part of the corpus.

Corpus donations being capital receipt in the hands of the recipient trust are not income of the trust. Section 11(1)(d) expressly grants exemption to corpus donations to make the position clear beyond doubt. Contributions to corpus fund kept in fixed deposit cannot be taxed as income even if corpus fund is misused -CIT v Sri Durga Nimishambha Trust [2012] 205 Taxman 59 (Mag) (Kar).

The corpus would include funds of a capital nature, by whatever name called, such as Building Fund, as well as funds for capital expenditure of the trust. Any donation made for a capital purpose or with a direction that donation be kept intact and only the interest received on the investment of such donation be utilized for the objects of the trust, would be a donation towards the corpus of the trust.

Corpus donations may not be applied to charitable purposes and these may be retained as forming part of the corpus of the trust without attracting any tax liability in the matter. The trustees must however utilize the income accruing from the corpus for charitable purposes of the trust.

Note: Donations received by way of box collections and other anonymous donations, do not form part of the corpus of the trust, but are deemed to be income of the trust.

Income Applied to Charitable or Religious Purposes [Sec 11(1)]

In order to be eligible for claiming exemption, it is essential that the income of the trust is applied to such objects.

A charitable trust or institution will have to apply at least 85 % of the income to charitable or religious purposes. Voluntary contribution or donations (not being contributions made with a specific direction that they will form part of the the corpus) will be deemed to be a part of income derived from property held under trust. If the income spent on charitable or religious purposes, during the previous year, falls short of 85 % of the income derived during the year, such shortfall will be liable to tax.