The question before us is: What constitutes "Income" of the trust u/s 11 for the purposes of examining whether 85% of it has been applied to charitable activities? There's nothing arcane, esoteric or mysterious about the word "Income" used in Section 11. Scores of decided laws have laid down that what constitutes "Income" in terms of Section 11 has to be determined in a commonsensical manner, according to the normal rules of accountancy. By Income here we mean nothing more than what a layman would understand it to be. So it is fair to say that in case of donations and other receipts in connection with which we do not incur any expenses, we would need to calculate the figure that we have to spend by applying the percentage of 85 to the total amount of Cash Inflow the trust has had during the year. But in case of business or other receipts, to know what's our "income" we'd have to look at the figure of Surplus, 85 per cent of which we shall be liable to spend on charitable activities. The emphasis in case laws, of whom there are numerous, has been on the Real Income. Real Income means the income that's actually been received, and not simply that's accrued to us. The expenses like salary and general administration incurred in connection with keeping the trust going aren't application of income and so they will have to be deducted to arrive at "income" that needs to be applied for charitable purposes. This has been held in the case of CIT v. Birla Janahit Trust [1994] 208 ITR 372/73 Taxman 465 (Cal.).Depreciation is an allowable expenditure. In CIT v. Sheth Manilal Ranchhoddas Vishram Bhavan Trust [1992] 198 ITR 598/[1993] 70 Taxman 228 (Guj.) it was said depreciation as per normal rules of accountancy should be allowed while computing income, as the income of the trust is not to be computed in accordance with the provisions of the Act but in a commercial manner. It may be noted that tax-free income like Agricultural income does not form part of total income for the purpose of computing the percentage to be applied or accumulated for future application. CIT v. Nabhinandan Digamber Jain [2002] 257 ITR 91/[2003] 128 Taxman 779 (MP).As far as the application of income is concerned, all sorts of layouts, whether on capital or revenue account, would qualify as having been applied towards the charitable ends. Thanks,CA Sanjeev BediMy query is : We need to apply at least 85% of the income of charitable trust for charitable purpose. Now the question is what is the meaning of income over here. Is it the "Gross Receipt" or is it the "Surplus", that we need to apply during the year. In my opinion We need to apply 85 % of the surplus and not the gross receipts, in case if we are having business income. And in the case of donation income or income from House property etc. it would be the gross income, out of which we need to apply the 85 %. Suppose in the case of an educational society, society is running a college and is also having donations. In the case of donations 85 % of the gross donation should be applied for educational (charitable) purpose and in the case of college fees received by the society, 85% of the surplus must be applied for the charitable purpose because all the expenses claimed for having the surplus are actually not the application of income, they are merely the expenses incurred for earning the gross receipts. I need to know, whether my view for the same is correct, and if yes, which case laws are in favour of my opinion. Waiting for your views. Regards CA. Abhishek Agarwal
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