Section 11(5) of the Income Tax Act deals with Forms and Mode of Investments by Charitable and Religious Organisations. Section 11(5) states that, any funds with Charities shall be invested only in the things mentioned in this section. The Purpose of introducing Section 11(5) into the Income Tax Act is to restrict charitable organisations misusing their funds. Black Money is one of the biggest problems in India, and to curb this, there have to be certain restrictions on the Charities. Section 11(5) of the Income Tax is also one of the controversial provisions, bringing in numerous case laws in the Indian courts.
Scope of Section 11(5) of Income Tax Act
The forms and modes for investing funds of charitable and religions trusts and institutions are given hereunder:
- investment in saving certificates as defined in clause (c) of Section 2 of the Government Savings Certificates Act, 1959 (46 of 1959), and any other securities or certificates issued by the Central Government under the Small Savings Schemes of that Government. Investments in Indira Vikas Patra and Kisan Vikas Patra also qualify for the purpose of this Section;
- deposit in any account with the Post Office Savings Bank;
- deposit in any account with a scheduled bank or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank);
- investment in units of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963);
- investment in any security for money created and issued by the Central Government or a State Government;
- investment in debentures issued by, or on behalf of, any company or corporation both the principal whereof and the interest whereon are fully and unconditionally guaranteed by the Central Government or by a State Government;
investment or deposit in any public sector company;Provided that where an investment or deposit in any public sector company has been made and such public sector company ceases to be a public sector company:
(A) such investment made in the shares of such company shall be deemed to be an investment made under this clause for a period of three years from the date on which such public sector company ceases to be a public sector company;Investment in debt instruments issued by and infrastructure Finance Company registered with RBI.
(B) such other investment or deposit shall be deemed to be an investment or deposit made under this clause for the period up to the date on which such investment or deposit becomes repayable by such company;
- deposits with or investment in any bonds issued by a financial corporation which is engaged in providing long-term finance for industrial development in India and which is eligible for deduction under clause (viii) of Sub-section (1) of Section 36;
- deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance or construction or purchase of houses in India for residential purposes and which is approved by the Central Government for the purposes of clause (viii) of Sub-section (1) of Section 36;
ix(a). deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for urban infrastructure in India.
Section 11(5) Explanation:
For the purpose of this clause:
(a) “long-term finance” means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years;
(b) “public company” shall have the meaning assigned to it in Section 3 of the Companies Act, 1956 (1 of 1956);
(c) “urban infrastructure” means a project for providing potable water supply, sanitation and sewerage, drainage, solid waste management, roads, bridges and flyovers or urban transport.
x. investment in immovable property
Section 11(5) Second Explanation: “Immovable property” does not include any machinery or plant (other than machinery or plant installed in a building for the convenient occupation of the building) even though attached to, or permanently fastened to, anything attached to the earth;
xi. deposits with the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 [(18 of 1964)];
xii. any other form or mode of investment or deposit as may be prescribed including investments in units of Mutual Fund and Transfer of Deposits to Public Account of India.