The taxation of charitable trusts has been the subject matter of discussions among professionals, in various fora. Tax issues of charitable and religious trusts, which evoked limited interest earlier, have attained significant importance. In the past two or three decades, charitable trusts which were treated with indulgence by the administrators, and lenience by the judicial fora, are looked upon with a certain degree of suspicion. A major reason for this is the use of charitable trusts as vehicles of tax planning. This has resulted in a number of legislative amendments, both procedural and substantive, culminating with the two recent decisions of the Supreme Court in October 2022.
Income of charitable trusts enjoys exemption on the basis of application thereof, subject to various conditions enshrined in the law. Some of these conditions, particularly the one as regards application, do not apply to contributions received by such institutions as “Corpus.” It is for this reason that this term has been the subject matter of legislative and judicial examination.
This article intends to examine the provisions of the Income Tax Act (hereinafter referred to as the Act), in regard to various issues governing the receipt of contributions to the corpus, their investment, utilisation and the tax impact of various actions concerning these aspects.
MEANING OF THE TERM CORPUS/RELEVANT PROVISIONS IN THE ACT
The term is not defined in the act or any other tax statute. The word corpus is based on the Latin word “body”, indicating a degree of permanence or long-lasting form. In common parlance, the word corpus means a principal or capital sum as opposed to income or revenue.
The following provisions of the Act that are relevant in the context of “corpus” are discussed below:
(a) Section 2(24) (iia)
(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via) of clause (23C) of section 10