"Feed the People," a charitable trust registered under section 12AB of the Income-tax Act, merged with another entity on 1st April 2024, which is…
CA Final · Direct Tax Laws and International Taxation · MTP · May 2025
"Feed the People," a charitable trust registered under section 12AB of the Income-tax Act, merged with another entity on 1st April 2024, which is not eligible for section 12AB registration or section 10(23C) approval. As a result of the merger, all assets and liabilities of the original trust were transferred to the merged entity. The trust engaged a registered valuer to determine the value of its assets and liabilities. Based on the details below, compute the tax liability arising from the merger: (i) Stamp duty value of land held 15 lakhs. However, if this land is sold in the open market, it would ordinarily fetch 17 lakhs. The book value of the land is 20 lakhs. (ii) 75,000 equity shares in Ink Ltd. traded in Delhi Stock Exchange. The lowest price per share on 1.4.2024 was 75and the highest price on that day was - 85. The book value was 67 lakhs. (iii) 55,000 preference shares held in N Ltd. The shares will fetch 44 lakhs, if they are sold in the open market on 1.4.2024. Book value was 25 Lakhs. (iv) Corpus fund as on 1.4.202415 Lakhs. (v) Outside liabilities 90 lakhs (vi) Provision for taxation 5 lakhs. (vii) Liabilities in respect of payment of various utility bills 6 lakhs.
Suggested Answer and Working Notes:
As per section 115TD, the accreted income of “Feed the people”, a charitable trust, registered under section 12AA which merged with an entity not entitled for registration under section 12AB or approval under section 10(23C), would be chargeable to tax at maximum marginal rate @ 34.944% [30% plus surcharge @12% plus cess@4%]. Computation of accreted income and tax liability in the hands of the trust arising as a result of merger with the "not eligible" entity for A.Y. 2025-26 Particulars Amount (₹) Aggregate FMV of total assets as on 1.4.2024, being the specified date (date of merger) [See Working Note 1] 1,21,00,000 Less: Total liability computed in accordance with the prescribed method of valuation [See Working Note 2] 96,00,000 Accreted Income 25,00,000 Tax Liability @ 34.944% of 25,00,000 8,73,600 Working Notes: (1) Aggregate fair market value of total assets on the date of merger Land, being an immovable property [The fair market value of land would be higher of 17lakhs i.e., price that the land would ordinarily fetch if sold in the open market and 15lakhs, being stamp duty value as on the specified date]Quoted equity shares in Ink Ltd. [75,000 x 80 per share, being the average of the lowest (75) and highest price (85) of such shares on the date of merger]55,000 preference shares of N Ltd. [The fair market value which it would fetch if sold in the open market on the date of merger i.e., FMV on 1.4.2024] 17,00,000 60,00,000 44,00,000 1,21,00,000 (2) Total liability Outside liabilitiesCorpus Fund of 15lakhs [not includible]Provision for taxation 5 lakhs [not includible]Liabilities in respect of payment of various utility bills [since this liability is an ascertained liability] 90,00,000 6,00,000 96,00,000
Topics: Assessment of Trusts and Institutions, Political Parties and Other Special Entities
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