Law on Associations

Case Notes: South Asia

The International Journal
of Not-for-Profit Law

Volume 2, Issue 4, June 2000


Payout Requirement Under Indian Tax Law

Indian tax law requires charities to apply 75% of their income towards their stated purposes in the year of receipt or within a maximum period of 10 years. For this purpose income can be applied directly to the charitable objects or indirectly via donations to another charity. This case concerned a charity that had applied its funds indirectly by means of book entries in its accounting records without any actual transfer of funds to the other charity. The Madras High Court held that the book entries, which were accepted as genuine, created a legal obligation which amounted to an application of income. This decision was upheld on appeal by the Supreme Court.

(CIT v Thanti Trust [1999] 239 ITR 502)

In another case concerning the minimum distribution requirement, the Madras Hogh Court held that the requirement was satisfied by a donation to another charitable trust, and that an excess application in the previous year could be set off against a deficiency of applications in the current year.

(CIT v Matriseva Trust, [2000] 242 ITR 20)