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Dear Professional Colleagues,
Background
There is a trust with an objective to provide relief to the poor. Apart from receiving donations from various Indian Donors, trust is also engaged in a business of making charitable movies and the proceeds of the film will be utilized for accomplishment of charitable objectives. Trustees of trust foresees that entire project of making a film would take approx.. 3 years and thus trust would start generating revenues after 3 years of its formation.
Queries
I have few queries in relation to tax exemptions available to a trust under Section 11 of Income Tax Act:
1. As per Section 11, a trust has to mandatorily apply at least 85% of its income for charitable objectives and maximum 15% can be accumulated. – As explained in background, trust would only be able to apply its voluntary contributions (not donations toward the corpus of trust) after three years of its formation, how can the trust satisfy the requirement of application of at least 85% of income or contributions from the first financial year?
2. Does Section 11(2) of Income Tax Act covers such situation? Can we accumulate the donations up to 3 years (till the time trust starts making revenues from film) by making an application in Form 10. Is it mandatory to invest the accumulations in specified investments of deposits as mentioned in Section 11(5).
Thanks for your time and patience and please share your views and comments supported by Legal text and case laws, if any.
Regards,
Raju Balodi
9871552114
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