Liability of tax - charitable institutions

[mahesh nandwani]

One of my clients is a charitable institution having activities like shcools, creches, clinics, old age home etc. Besides it has one masala centre where the spices are prepared by poor ladies.These spices are sold over the counter and some profit is also earned from the activity. Further some vacant space in the society premises is also given sometimes on rent to somebody doing commercial activities. Pl confirm whether these activites, in the light of latest I T amendments, make the society liable for income tax ?

[Surender Gupta]

The answer to the query may be referred to the proviso to the section 10(23C) of the Income Tax Act, 1961 which is read as, "Provided also that nothing contained in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall apply in relation to any income of the fund or trust or institution or any university or other educational institution or any hospital or other medical institution, being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business: ---- in view of this, you need to establish the whole nature and purpose of the activity and claim the benefit of exemption from income tax.

AI Summary

Business incidental to charitable objectives preserves tax exemption where separate books are maintained and activity's nature is established. Exemption under the proviso to section 10(23C) excludes profits and gains of business unless the business is incidental to the institution's objectives and separate books of account are maintained in respect of such business; therefore the institution must establish the nature and purpose of each commercial activity and maintain separate accounting to claim exemption.