Can Listed Equity shares avail donation in kind by the Charitable Trust registered u/s. 12AB

[PRIYAM KHAMBHATA]

Respected Sir

Charitable Trust "A" who is registered under section 12AB of the Income Tax Act, 1961, Individual or Company want to donate Equity shares to the Charitable Trust “A".

My query is whether Charitable Trust can held Equity shares receive by way of donation in kind. Is there any violation of law, if any equity share hold by the Charitable Trust registered u/s. 12AB. If, answer is No, then what would be tax implication on sale of such Equity shares. How to disclose such transaction in the Return of Income and also to claim deduction u/s. 11

Please guide me

Thanking you

[YAGAY and SUN]

A charitable trust registered under Section 12AB of the Income-tax Act, 1961 is permitted to hold equity shares received by way of donation, provided such shares are not held in contravention of Section 11(5) read with Rule 17C of the Income-tax Rules. As per Section 11(5), a charitable trust is required to invest or deposit its funds only in the modes prescribed therein. However, shares received as a voluntary contribution in kind (i.e., without any consideration) do not fall within the ambit of “investment” or “deposit” as contemplated under Section 11(5), and hence, the mere receipt and holding of such donated equity shares does not amount to a violation of the said provision. However, the trust must not treat such shares as an “investment” of its funds, and must ensure that no consideration has been paid for acquisition.

Upon subsequent sale of such donated equity shares, the capital gains shall be computed under Section 48, where the cost of acquisition will be deemed to be nil as per Section 49(4) read with Section 56(2)(x), assuming the trust has claimed exemption on receipt. The resulting capital gains will form part of the income derived from property held under trust and will qualify for exemption under Section 11, provided the net sale proceeds are applied for charitable purposes in accordance with Section 11(1)(a) or (b), or the amount is set apart and invested as per Section 11(2). The transaction must be properly disclosed in the return of income, showing the voluntary contribution received in kind, capital gains on transfer (if any), and application or accumulation of the proceeds. Additionally, proper entries should be made in the books of account and the Audit Report in Form 10B.

AI Summary

Donation of equity shares to charitable trusts permitted; capital gains arise on sale and may be exempt if applied for charitable purposes.
A charitable trust registered under Section 12AB may receive and hold equity shares given as voluntary donations in kind provided they were not acquired for consideration and are not treated as an investment of trust funds in contravention of Section 11(5). On sale, capital gains are computed under the capital gains provisions with cost of acquisition deemed nil where applicable, and such gains may be exempt under Section 11 if the net proceeds are applied or accumulated for charitable purposes. The donation, sale, gains and application of proceeds must be disclosed in the return and books and reflected in the audit report.