In every country and every society there are people who wish to do something monetarily for the poor and needy people in various ways. For this purpose, instead of donation the amounts to the Government or semi Government organizations, they prefer to form Charitable Trusts or Organizations and do the charity through such trusts.
When anybody wish to form a charitable trust, it is necessary to know the meaning of charitable purpose. Charitable purpose has been defined u/s 2(15) of the Income Tax Act 1961 as well as under section 9 of Bombay Public Trust Act 1950. Unlike the word ‘ Charitable Purpose’, the word ‘Religious Purpose’ has not been define in any of the Acts. It would include the advancement, support or propagation of a religion of idols and performance of religious and its tenets. Thus trusts established for the worship of idols and performance of religious festivals would be exempt under section 11 of the Income Tax Act 1961, though they may be for the benefit of a particular religious, community or caste. It includes relief of poor, education, medical relief and the advancement of any other object of general public utility. Promotion of sports and games is considered to be a charitable purpose vide circular no 395 dated 24-09-1984. The words “not involving the carrying on of any activity for profit” have been omitted from the said definition of charitable purpose with effect from 1st April, 1984. The definition is an inclusive one and not an exclusive.
Therefore it is advisable not to form charitable trust for carrying on of any activity for profit. If it is formed accordingly, it will be liable to tax at maximum marginal rate.
Purpose behind Formation of Trust:
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