Lotus Welfare Foundation, a charitable trust registered under section 12AB, derived income from property held under trust of 650 lakh during the…
CA Final · Direct Tax Laws and International Taxation · MTP · January 2026
Lotus Welfare Foundation, a charitable trust registered under section 12AB, derived income from property held under trust of 650 lakh during the P.Y. 2025-26. During the year, the trust decided to pay an amount of 80 lakh to another registered charitable trust, Harmony Educational Trust, which is also registered under section 12AB. How much of the amount paid by Lotus Welfare Foundation will be considered as application of income for charitable purposes, if such contribution is given— (i) with a direction that the amount shall be used for general charitable purposes and not as corpus; and (ii) with a specific direction that the amount shall form part of the corpus of Harmony Educational Trust. Also, examine the conditions that Harmony Educational Trust must satisfy for not including the amount received from Lotus Welfare Foundation (given with a specific direction to form part of its corpus) in its total income.
Suggested Answer and Working Notes:
(i) As per Explanation 4 (iii) to Section 11 (1) , only 85% of the amount paid to Harmony Educational Trust (other than for corpus) is considered as an application of income. Accordingly,68 lakh will be treated as an application of income for charitable purposes. (ii) As per Explanation 2 to Section 11 (1) , any contribution made by one trust to another trust or institution (even if registered under Section 12AB or Section 10(23C) (iv) / (v) / (vi) /(via)) with a direction that such amount shall form part of corpus is not considered as an application of income for charitable purposes. Therefore, the 80lakhs given for corpus will not be treated as an application of income for Lotus Welfare Foundation. As per section 11 (1) (d), an amount received by a fund/ trust/ institution etc. would not be included in the total income, if such amount is received with a specific direction that it shall form part of the corpus and the said corpus contribution is invested in any of the modes specified under section 11 (5) .
Topics: Assessment of Trusts and Institutions, Political Parties and Other Special Entities
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