Denial of exemption
It is imperative to know whether a violation of Section 13(1) or 13(2) would result in the rejection of a partial or full exemption under Sections 11 and 12 which has been debated for a long time with regards to Section 13. This problem occurs because the phrase used in Section 13 might be interpreted in one of two ways: either the exemption should be refused entirely or simply the exemption for the specific income that violates Section 13's rules should be disallowed.
A change has been made in Section 13(1)(c) to overcome with the problems with regards to the aforementioned issue. According to the aforementioned change, only the portion of the money that has been used in contravention of Section 13's rules is subject to inclusion in total income. It is important to note that the aforementioned modification will take effect from 1st April, 2023.
Know more about section 12a of income tax act.
As a result, the aforementioned modification will be effective from the starting of the assessment year 2023–24. Moreover, the Finance Act of 2022 added Section 115BBI which would also be effective from 1st April, 2023 and tax revenue that violates Section 13 at special rates.
Considering the aforementioned revisions, it is no longer relevant to ask what the situation would be for the assessment years before 1st April 2023 (i.e., AY 2023–24) or for times before the amendment became officially applicable.
The Memorandum of Finance Act, 2022, which states very clearly that denying the whole exemption for a trust because a minor amount of money was used in violation causes problems for the trusts and institutions. It should be consulted by a professional.
Because of this, even though the helpful amendment to Section 13(1)(c)/(d) will not take effect until 1st April 2023, the author believes that denying the entire exemption for a single infraction may be too harsh on trusts that are operated for charitable or religious purposes for assessment years before AY 2023–2024.
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