Joint venture with a developer by a public charitable trust

Querist : Anonymous (Querist) 26 March 2026 This query is : Resolved
WE RUN A SCHOOL UNDER A PUBLIC CHARITABLE TRUST AND SPEND MORE THAN 85 % BECAUSE OF SCHOLARSHIP TO POOR STUDENTS . WE NEED MORE INCOME FOR OTHER CHARITABLE ACTIVITIES . WE HAVE 8000 SQ.FT. VACANT SITE IN THE NAME OF THE TRUST. THE TRUST CONSTITTUION HAS PERMITTED TO AUGMENT THE INCOME BY LETTING OUT THE PROPERETIES FOR INCOME PURPOSE AND UTILISE IT FOR CHARITABLE ACTIVITIES. CAN WE ENTER INTO A JOINT VENTURE AGREEMENT WITH A DEVELOPER ON THE ABOVE SITE AND UTILISE THE RENT FROM OUR SHARE OF FIVE FLATS IN THE APARTMENT ? IS IT PERMISSIBLE UNDER THE INCOME TAX ACT AND HAVE LEGAL VALIDITY TO DO SO ?

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A public charitable trust running a school, with a vacant site, can enter into a joint venture agreement with a developer to generate income for charitable activities. The trust can receive rental income from its share of flats in the developed property. This is permissible under the Income Tax Act, provided the terms are at arm's length, no private benefit is derived, and ownership remains with the trust. While capital gains may be triggered, they can be exempt if the trust is registered under Section 12AB and the gains are reinvested for charitable purposes.

T. Kalaiselvan, Advocate (Expert) 26 March 2026
Under section 2 (15) of IT Act: If your trust is for education (running a school) → you are in the “charitable purpose” category, the Renting property is considered incidental, not business, therefore the Rental income from flats will not destroy exemption, provided it is not a commercial real estate business.
Section 13 – Avoid violation: It states that you must that no benefit to trustees / related parties, that the JV terms must be at arm’s length and that there is no undervaluation or undue benefit to developer.
In the proposed JV/JDA, the Land Ownership should remain with the trust. The Developer gets Development rights and a Share in constructed area.
In a typical agreement the Developer constructs building, the Trust gets 5 flats (your share) and the Developer sells their share. This is legally acceptable.
The agreement must by executed on a registered document.
Please be aware that entering into JDA may trigger capital gains under: Section 45 or possibly Section 45(5A) (in some cases). However if trust is registered under Section 12AB, capital gains are exempt if reinvested for charitable purposes. Using flats for rental is an acceptable application.
Though rental income is Taxable as Income from House Property, but exempt under Section 11 if applied for charity.
If land is part of school then you may ensure compliance with local education authority norms and land use regulations.

kavksatyanarayana (Expert) 26 March 2026
Yes. Very well elaborated by the prudent expert Sri T. Kalaiselvan, sir. The trust members shall pass a resolution regarding the JD agreement and to execute and register the JD agreement only in the name of the trust but not to use it by any trust member.

Dr. J C Vashista (Expert) 27 March 2026
Very well explained, opined and advised by learned senior experts, I concur it.
A charitable trust created for providing education "free of cost" to public and expecting "some" source of income out of its properties may pass appropriate resolution in its meeting and intimate authorities concerned.

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