Please Help: FDR Intt. to be Included in the Limit for Trust
Posted Date : 03-Nov-2011 , 12:01:46 am | Posted By Rohit Garg
While going through the definition of Charitable Purpose, in case of trust, for claiming the exemption from tax for the AY 2012-13, the Total Receipts from any activity in nature of trade, commerce or business, or any activity of rendering service in relation to any trade, commerce or business should not exceed Rs 25 lacs i.e. from AY 2012-13 (earlier 10 lacs). Whether FDR intt. to be included in total receipts or not? if FDR(s) are from the funds of business.
Category : Income Tax | Answers : 2 | Comments : 2 | Hits : 350
Answers
Answer By: Ashish Karundia
Dear Rohit,
One can be hit by first proviso to Section 2(15) only if “it involves the carrying out of any activity in the nature of trade, commerce or business". The words 'any activity in the nature of trade, commerce or business' has not been defined under the Income Tax Act. However, Section 2 (13) of the Act defines "business" as to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture (Please click on the following link to understand the meaning of business, trade http://incometaxindiapr.gov.in/incometaxindiacr/contents/DTL2011/wpsec2(13).htm). The interest income earned from the funds of business is taxable as 'Income from other sources' and not under 'Profits & Gains from Business and Profession'. IT IS WORTHWHILE NOTING THAT THE SECOND PROVISO TO SECTION 2(15) TALKS ABOUT ANY RECEIPTS FROM ACTIVITIES REFERRED IN FIRST PROVISO.
In the given case, the interest income is not from 'any activity in the nature of trade, commerce or business' but from the surplus 'FUNDS OF BUSINESS'. However, if a view is taken that the above interest income will be included in total receipt, it may be noted that in the case of Himachal Pradesh Environment vs. CIT, ITAT Chandigarh has held that "The Proviso to s. 2(15) does not mean that in case an assessee receives any payment for anything done for trade, commerce or business, it will be hit by the said proviso. In accordance with the CBDT Circular, the Proviso applies only where the object of general public activity is a mask or device to hide the true purpose of trade, business or commerce, or rendering of any service in relation thereto. It does not apply to cases where the services rendered are purely incidental to or subservient to the main objective of ‘general public utility".
Thus, in the light of above as per my opinion the said FDR interest income should not be included in TOTAL RECEIPTS. However, views of other members/experts solicited.
One can be hit by first proviso to Section 2(15) only if “it involves the carrying out of any activity in the nature of trade, commerce or business". The words 'any activity in the nature of trade, commerce or business' has not been defined under the Income Tax Act. However, Section 2 (13) of the Act defines "business" as to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture (Please click on the following link to understand the meaning of business, trade http://incometaxindiapr.gov.in/incometaxindiacr/contents/DTL2011/wpsec2(13).htm). The interest income earned from the funds of business is taxable as 'Income from other sources' and not under 'Profits & Gains from Business and Profession'. IT IS WORTHWHILE NOTING THAT THE SECOND PROVISO TO SECTION 2(15) TALKS ABOUT ANY RECEIPTS FROM ACTIVITIES REFERRED IN FIRST PROVISO.
In the given case, the interest income is not from 'any activity in the nature of trade, commerce or business' but from the surplus 'FUNDS OF BUSINESS'. However, if a view is taken that the above interest income will be included in total receipt, it may be noted that in the case of Himachal Pradesh Environment vs. CIT, ITAT Chandigarh has held that "The Proviso to s. 2(15) does not mean that in case an assessee receives any payment for anything done for trade, commerce or business, it will be hit by the said proviso. In accordance with the CBDT Circular, the Proviso applies only where the object of general public activity is a mask or device to hide the true purpose of trade, business or commerce, or rendering of any service in relation thereto. It does not apply to cases where the services rendered are purely incidental to or subservient to the main objective of ‘general public utility".
Thus, in the light of above as per my opinion the said FDR interest income should not be included in TOTAL RECEIPTS. However, views of other members/experts solicited.
Answer By: Ashish Karundia
Dear Rohit,
I havent come across any such notification. If you have access to the same, please share. Further, you can read the following judgments i.e. CIT Vs. LOK HOLDINGS 2009 -TMI – 32351 / [2009] 308 ITR 356 (Bom.) and CIT Vs. K.K.Doshi & Co to understand, when the interest income can be treated as 'Income from other sources' and when can it be treated as 'Business income'.
Hope the same suffice.
I havent come across any such notification. If you have access to the same, please share. Further, you can read the following judgments i.e. CIT Vs. LOK HOLDINGS 2009 -TMI – 32351 / [2009] 308 ITR 356 (Bom.) and CIT Vs. K.K.Doshi & Co to understand, when the interest income can be treated as 'Income from other sources' and when can it be treated as 'Business income'.
Hope the same suffice.
Comments
Rohit Garg
04-Nov-2011 , 10:51:22 pmDear Sir, I come to that there is a notification that, if FDR is from funds of business then interest earned on FDR to be taken as business income. I have not read the notification but i have heard about it from my friends. So this is why I am confused that if we go through notification then that Intt. is to be included in business income but as the defination of Charitable Purpose mentions only about receipts from any activity in nature of trade.
Rohit Garg
06-Nov-2011 , 05:32:57 amOkay thank you sir...:)