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 andSUN]

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

Charitable trusts can receive equity shares as donations without violating section 11(5) investment restrictions since no consideration paid A charitable trust registered under section 12AB can receive and hold equity shares as donations in kind without violating investment restrictions under section 11(5), since donated shares are not considered 'investments' requiring consideration. Upon sale of such donated shares, capital gains are computed with nil cost of acquisition per section 49(4), and the gains qualify for exemption under section 11 if proceeds are applied for charitable purposes or properly accumulated. The trust must disclose these transactions in its income tax return, showing the donation received, any capital gains on transfer, and application of proceeds, with proper documentation in books of accounts and audit reports.