Section 13 of ITA, 1961 : Section 13: Section 11 Not To Apply In Certain Cases

Explanation using Example

Imagine a trust, called 'Green Earth', was established in 2010 with the aim of promoting environmental awareness. Green Earth owns a property that generates rental income. As per the Income-tax Act, Green Earth would normally enjoy tax exemption on this income under sections 11 and 12, as it is a trust working for charitable purposes.

However, one of the clauses in Green Earth's trust deed specifies that a certain percentage of the income must be used to fund the education of the founder's grandchildren. This clause violates section 13(1)(c)(ii) of the Income-tax Act, as it directs the trust's income for personal benefits, which is not allowed for a charitable trust to enjoy tax exemptions.

As a result, the income used for the founder's grandchildren's education will not be eligible for tax exemption and must be included in Green Earth's total taxable income for that year. The rest of the income that is used strictly for environmental awareness as per the trust's objectives will continue to enjoy tax exemption, provided it complies with all other relevant provisions of the Income-tax Act.