Most of us are aware that charitable institutions functioning under the remainder clause (i.e. advancement of objects of General Public Utility) are always worried that their income from sources which could be treated as from commerce, trade or business should not cross the lakshman rekha of 20% of total income (earlier this was a fixed monetary limit of Rs 25 lakh). If they crossed this limit, Income Tax officers generally would move application to cancel the registration under S. 12AA of such an entity.
CBDT has now issued instructions to all Income Tax Officers vide a circular[1] that in case a charitable institute crosses this limit, then while its income for that year would not be treated as charitable and would be subjected to taxation, however its registration for that year will not be cancelled. Therefore in case, the next year, the income remains within the permissible limit, the entity will be treated as charitable for that year.
The circular also states that above is important so that such one-time taxation of a charitable institution should not result in unintended taxation on accreted income under S. 115TD[2], which could result in additional tax liabilities.
___________
Socio Research & Reform Foundation (NGO)
512 A, Deepshikha, 8 Rajendra Place, New Delhi – 110008
e-mail: socio-research@sma.net.in; website: http://www.srr-foundation.org