FORFEITURE OF EXEMPTION UNDER SECTION 13 AN OVERVIEW
 
OUTLINE OF SECTION 13

01 Section 13 of the Act, specifies the circumstances under which the benefits under section 11 would not be available to an organisation. Section 13 has been enacted as an exception to section 11, thereby, the benefits which are otherwise available under sections 11 and 12, will not be available under the circumstances stated in section 13. An organisation, under the following circumstances,may risk losing its exemptions under section 11 :

(i) If the income is not applied for the benefit of the public [section 13(1)(a)].

(ii) If the income is applied for the benefit of any particular religious community or caste [section 13(1)(b)].

(iii) If the income or property of the Trust or Institution is applied/used for the benefit of the persons specified in section 13(3) who may be the founders, trustees, managers, chief functionaries, major donors, relatives of the founders or persons who have a substantial interest in the organisation [section 13(1)(c) read with sections 13(2) and 13(3) ].

(iv) If the funds are applied in modes other than those specified in section 11(5) or shares of companies other than a government company are held (not being a part of the corpus as on 1-6-1973). [section 13(1)(d)].

02 The provisions of section 13 specify complete withdrawal of the exemptions available under section 11, in respect of various incomes. In other words violations as specified under section 13 will have the effect of forfeiting exemptions on incomes which are otherwise available under section 11(1). Sub-section (1) of section 13 specifies various circumstances where the organization will lose exemption if the income is applied in the manner specified under section 13(1).

SCOPE OF SECTION 13

03 Section 13 is over and above the conditions and provisions provided for exemption under section 11 and 12. The income of a charitable or religious organisation will be forfeited if any of the provisions of section 13 are violated even if other conditions of section 11 and 12 are complied with. In M. A. Namazie Endowment v. CIT [1988] 174 ITR 58 (Mad.), the Madras High Court held that Section 13 is only an exception to section 11 of the Act If a trust is covered by the provisions of section 11 of the Act, the income thereof will not be exempt from liability to tax under the circumstances set out in section 13 of the Income-tax Act. Section 13 begins with the words “nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year ……”. The implication of the section is that incomes which are otherwise exempted under section 11 or section 12 will not be exempted if the provisions of section 13 are contravened. The applicability of section 13 arises only when an organisation is eligible for exemption provided under section 11. Therefore, only those organisation which are claiming exemption under section 11 are subject to the provisions of section 13.