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CA Final · Direct Tax Laws & International Taxation · Assessment of Trusts and Institutions, Political Parties and Other Special Entities

Rashtriya Vikas Dal, a registered political party, received during the tax year voluntary contributions of ₹40,00,000 and interest income of ₹3,00,000. It complied with every Schedule VIII condition except that its accounts were not audited by an accountant. Under section 12, what is the position for the tax year?

Income of ₹43,00,000 is charged to tax. Under section 12(2), if the Schedule VIII conditions are not satisfied in a tax year, the enumerated income is taxed. Missing the audit condition defeats the exclusion for both the contributions and the interest.

  1. AOnly the contributions of ₹40,00,000 are taxed
  2. BIncome of ₹43,00,000 is charged to tax, because the unmet condition means the enumerated income is not excludedCorrect
  3. COnly the interest of ₹3,00,000 is taxed
  4. DNothing is taxed because the other conditions were fulfilled

Explanation

Section 12(2) states that where the conditions in Schedule VIII are not satisfied in a tax year, such income is charged to tax for that year. Audit by an accountant is one of the conditions, so the exclusion fails for the enumerated income. The contributions of ₹40,00,000 and interest of ₹3,00,000 are therefore both chargeable, totalling ₹43,00,000. Partial compliance does not save the exemption.

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