SECTION 12A REGISTRATION OF CHARITABLE TRUSTS & INSTITUTIONS

One of the key preconditions for charitable trusts and institutions seeking to claim exemption under Sections 11 and 12 of the Income Tax Act is registration under the Act. Section 12A enacts that the provisions of Section 11 and Section 12 which provide for exemption of income to such trusts and institutions, will not be applicable unless such trust or institution has made an application in the prescribed form 17 for registration to the Commissioner or Director, and it has been registered by the Commissioner or Director. Under the amended provisions of this Section which have come into effect from 01.06.2007, the earlier requirement of filing such an application within one year of creation of the trust (or establishment of the institution) has been removed. Similarly, the power of the Commissioner or Director to condone the delay in filing such application and to grant the benefit of exemption retrospectively from the date of creation of trust or establishment of the institution

has also been done away with. Under the amended provisions, where an application is filed on or after the 1st day of June, 2007, exemption under Sections 11 and 12 shall be available only on a prospective basis from the assessment year which immediately follows the financial year in which the application is made.

Section 12AA of the Income Tax Act and Rule 17A of the Income Tax Rules prescribe the procedure for registration of a trust where an application for registration under Section 12A has been received by the Commissioner or Director. The application for registration has to be made in Form No. 10A. It should be accompanied by the following documents:-

(i) Copy of the instrument by way of which the trust or institution etc. is created;

(ii) If it has been in existence in the years prior to the year in

which application is made, accounts of the prior years (not exceeding three years).

On receipt of the application, the CIT/DIT (E) has to pass an order either registering the trust or institution or rejecting the application. The registration may be rejected on the ground that the trust or its activities are not genuine. Under sub-Section (2) of Section 12A such an order registering or refusing registration has to be passed within a period of six months from the end of the month in which the application is made.

The conditions required for registration have been stated briefly and in simple language. It mandates that the Commissioner or Director should satisfy himself about:-

(i) the objects of the trust or institution, and

(ii) the genuineness of its activities.

It follows that the Commissioner or Director will enquire whether the object(s) of the trust or institution constitute religious or charitable purpose(s) within the meaning of Section 2(15).

Section 12A(b) prescribes another important condition for claiming exemption under Sections 11 and 12. It requires a trust or an institution whose income for the previous year before claiming the deduction contemplated under Sections 11 and 12 falls within the tax bracket (i.e., its income exceeds the maximum amount which is not chargeable to income-tax without giving effect to the provisions of Section 11 and Section 12), to get its accounts audited by an Accountant. The Accountant’s report in Form No.10B  has to be filed along with the return of income. A Chartered Accountant or other person mentioned in the Explanation to Section 288(2) of the Act is authorised to carry out such an audit.

The following points should ordinarily be kept in mind at the

time of making an application for registration:-

(i) there should be a legally existent entity which can be registered;

(ii) it should have a written instrument of creation or written document evidencing its creation;

(iii) all its objects should be charitable or religious in nature;

(iv) its income and assets should be made applicable exclusively towards the objects Mentioned in the object clauses, and the rules and by-laws;

(v) no part of its income should be distributable or distributed, directly or indirectly, to its members, directors or founders, related persons or relatives etc. claiming through them;

(vi) in case of dissolution, its net assets after meeting all its liabilities, should not be revertible or reverted to its founder, members, directors or donors etc., but used for the objects.

HUF - HINDU UNDIVIDED FAMILY - A PERSPECTIVE

1 .What is HUF?

            The income tax act, 1961 does not define the expression “HUF” the reason of this omission is that this expression has a well known connotation under the Hindu law.

            The HUF is a separate taxable entity under the I.T Act, as the term has not been defined any where by the said act, it should be construed in the sense in which it is understood under the Hindu law. A joint Hindu family consist of a persons lineally descended from a common ancestor and includes their wives and unmarried daughters. The daughter, on married, ceases to be a member of her father’s family and become a member of her Husband’s family.

2. Different schools of Hindu law?

Two types of joint family system prevail according to Hindu traditions:

(i)                 Mitakshara joint family system.

(ii)               Dayabhaga joint family system.

            In case of Mitakshara joint family – Father, sons, grandsons and grate grandsons all are considered as coparcener in the family.

            A female cannot be considered as coparcener in Mitakshara joint family system. It is very easy to create a new HUF file if a coparcenary exists e.g. father & son or two married brothers living jointly in the same house or ancestral house, because the normal state of a HUF is that, it is joint in food, worship and estate.

In case Dayabhaga joint family there is no coparcenary between father & sons. Here son will become coparcener on the death of their father. For example, if a person is having three sons (three brothers) will become coparcener in the family.

Notes: (i) A female can be a coparcener in dayabhaga joint family system.

(ii).Existence of one male member is essential in dayabhaga  joint family system.

(iii).Dhayabhaga school of law prevails in West Bengal and Assam. Both Mitakshara & Dayabhaga joint family system take in to account the relation up to four generations for the determination of coparcener.

For income tax purpose Mitakshara & Dhayabhaga HUF have the same effect in the eye of law. Mitakshara school of law applies to the whole of India except west Bengal and Assam.

3. JAIN AND SIKH FAMILIES

            Through jain and sick families are not governed by the Hindu law, such families are treated as Hindu Undivided families for the purpose of the Income Tax Act.

4. PERSONS TO WHOM THE HINDU LAW APPLIES.

Mulla’s principles of hindu law (14^th edition), states in that regard as under;

            “The word Hindu does not denote any particular religion or community. During the last hundred years and more it has been a nomenclature used to refer comprehensively to various categories of people for purposes of personal law. It has been applied to dissenter and non-conformists and even to those who have entirely repudiated Brahmanism. It has been applied to various religious sects and bodies which in various periods and in circumstances developed out of, or split off from, the Hindu system but whose members have nevertheless continued to live under the hindu law, and the courts have generally put a liberal construction upon enactments relating to the personal laws applicable to Hindus,”

LIST OF PERSONS TO WHOM THE HINDU LAW APPLIES

       I.      Not only to Hindus by religion, i.e., converts to Hinduism;

(i)                 To illegitimate children where both parents are Hindus;

(ii)               To illegitimate children where the father is a christian and the mother is a Hindu, and the children are brought up as Hindus.

(iii)             To Jains Buddhists in India, Sikhs and Nambudri Brahmins,

(iv)             To a hindu by birth who, having renounced Hinduism has reverted to it after performing the religious rites of expiation and repentance, or he was recognised as a Hindu by his community;

(v)               To brahmos; to Arya Samajist; and to santhals

(vi)             To hindus who make a declaration that they were not Hindus for the purpose of the special marriage Act, 1872.

5. WHAT IS A FAMILY

            As observed by their lordship of the supreme court in C Krishna Prasad vs Commissioner of Income – Tax, Bangalore (1974)97 ITR 493(SC) at page 496, the word “family” always signifies a group. Plurality of persons is essential attribute of the family. A single person male or female does not constitute a family. He or she would remain, what is inherent in the very nature of the things, an individual, lonely individual is a contradiction in terms. The same results also fallows from section 2(31) of the Act, which treats a Hindu undivided family as an entity different from an individual.

            It fallows there fore, that the assessment in the status of Hindu undivided family made only when there are two or more members to form a Hindu undivided family. A joint hindu family consist of persons lineally descended from a common ancestor and includes their wives and unmarried daughters. The daughter, on marriage, ceases to be a member of her father’s family and become a member of her husband’s family.

6. CONCEPT OF ANCESTRAL PROPERTY

            According Mitakshara joint family system property inherited from father, grandfather or grate grand father is known as ancestral property as a source will also be the HUF property. Any person can blend or through use of this ancestral property as a source will also be the HUF property. Any person can blend or throw his individual property in to the common funds of the family but for blending or throwing of one’s separate property in to the common funds of the family, it is existence of HUF which is essential.

7. WHY TO CREATE A H.U.F FILE?

HUF being a common feature in hindu society may yield fallowing tax benefit:-

            In case of an individual assessee, who is also a member of HUF property is not considered for deriving at the total income of that person as an individual, As HUF property. Total partition of HUF, expenses like remuneration, interest, commission etc. To the members there of for the service rendered and deductible. Total partition of HUF, is the best way to avoid income tax, capital gain tax, gift tax, wealth tax, stamp duty etc. because the property divided in the members through participation is not considered as transfer or disposition of the property.

We shall reach you again with the Process of Creation of HUF, and other nuances in our next post, you can reach us by submitting mail to get regular updates of Popular Posts.