Sir,
A Society with FCRA Registration for EDUCATION PURPOSES wants to create Education infrastructure with its own / FCRA funds and manage and run Education Institutions thro’ No FCRA Registration – Charitable Organisation. No transfer of assets. Is it permissible ?
Malladi Ravi Prasad
Finance Bill has now empowered Income Tax authorities to not grant 12A registration of a Charitable Entity or cancel the same, if already granted, in case it transpires that the entity has not complied with any specific law which is considered material for it to achieve its objective. There is certain perceptible anxiety among the non-profit organizations that the law can be misused to harass genuine charitable entities, which is understandable in the current environment where FCRA has been selectively used for this purpose only.
However let us understand actual provision and the genesis of the same.
Before this amendment, the relevant clause limited the officer concerned to call for such documents or information from a Trust as he thinks necessary in order to satisfy himself about the genuineness of activities of the Trust or Institution, for which he was also empowered to make such inquiries as he may deem necessary in this behalf.
However the amendment in S.12AA (1) now requires him in addition to above to satisfy himself about–
(ii) the compliance of such requirements of any other law for the time being in force by the
Trust or Institution as are material for the purpose of achieving its objects,
Similarly the amendment in sub-section (4) of S.12AA requires, if the officer is satisfied that such non-compliance as referred to above has taken place and is not disputed or has reached finality, then the Pr. Commissioner / Commissioner may cancel the registration of the charitable entity.
Genesis of such amendment lies in various judicial precedents, which may have compelled Govt to make law more rigorous. A couple of recent decisions, which may have contributed to such changes in the law are shared in this post.
First one (Indian Medical Trust vs. Principal Commissioner of Income Tax (Central) Jaipur 2018) relates to denial of registration on grounds of non-availability of land required for setting up of a college faculty. The Applicant was found to be violating certain necessary provisions of Rajasthan Universities Act, under which the applicant Trust was falling and was proposing to carry on medical courses. The Applicant Trust did not have enough piece of land which was necessary to establish a medical college. CIT (Exemption) did not grant the applicant Trust 12AA registration. During the appeal, ITAT remanded back the case to CIT (Exemption) on the ground that the CIT’s powers are limited under the provision to ‘only ensure that activities of the Trust are charitable in nature and genuine’.
The Govt has now amended the Act to empower the Pr CIT / CIT to examine & enquire into such compliances, before granting 12AA exemption.
The other one relates to a judgement in case of CIT, Kolkatta vs Jagannath Gupta Family Trust (SC ) 2019. In this case, it was established that a Kolkata based charitable Trust was found to be involved in money laundering i.e. taking cheques in donation and refunding the amount in cash. The Case went thru a number of stages of judicial machinery and High Court of Kolkata finally upheld that one transaction is not enough to prove that the appellant Trust is not genuine and held that such money laundering transaction did not amount to sufficient ground of cancellation of Trust registration u/s 12A. Finally, Apex court was approached by IT department and SC made critical remarks against the High Court judgement and held that money laundering transaction is enough ground to invoke cancellation action.
Government has now amended the law to ensure that during assessment, Income Tax authorities have sufficient power to enquire into compliance with various laws. And if once so established, Principal Commissioner / Commissioner has sufficient power to cancel the registration of such entity.
Will this power to tax officials lead to unwarranted actions against non-profit entities? This is a major risk that charitable entities fear, knowing fully well that if the officials decide to use such vast discretionary powers, it could result in harassments of the entities. However while examining the amendment, one key phrase ‘material enough for achievement of its objects’ seems key to deciding if any cancellation that a tax official initiates is warranted. There is sufficient ground for courts to interpret this law as not just of compliance but more for the purpose of achievement of its objects. Thus FCRA non-compliance or delayed filing of returns may not be sufficient ground for cancellation. In the given case it was non-acquiring of stipulated land, without which medical college cannot be established, seem to be sufficient reason for cancellation of the S.12AA registration. However it is not clear, what happens, if the Trust subsequently complies with the requirement.
Giving such vast powers in the hands of officers does seem out of proportion, however let’s hope that the courts will again provide checks & balances to any unbridled and unreasonable execution of powers by the income tax officials.
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Socio Research & Reform Foundation (NGO)
512 A, Deepshikha, 8 Rajendra Place, New Delhi – 110008
The Government of India has taken a historic decision to reduce the rate of contribution under the ESI Act from 6.5% (4.75% +1.75%) to 4% (3.25%+0.75%). Employers’ contribution being reduced from 4.75% to 3.25% and employees’ contribution being reduced from 1.75% to 0.75%. Reduced rates will be effective from 01.07.2019. This would benefit 3.6 crore employees and 12.85 lakh employers.
The reduced rate of contribution will bring about a substantial relief to workers and it will facilitate further enrollment of workers under the ESI scheme and bring more and more workforce into the formal sector. Similarly, reduction in the share of contribution of employers will reduce the financial liability of the establishments leading to improved viability of these establishments. This shall also lead to enhanced Ease of Doing Business. It is also expected that reduction in rate of ESI contribution shall lead to improved compliance of law.
The Employees’ State Insurance Act 1948 (the ESI Act) provides for medical, cash, maternity, disability and dependent benefits to the Insured Persons under the Act. The ESI Act is administered by Employees’ State Insurance Corporation (ESIC). Benefits provided under the ESI Act are funded by the contributions made by the employers and the employees.
Under the ESI Act, employers and employees both contribute their shares respectively. The Government of India through Ministry of Labour and Employment decides the rate of contribution under the ESI Act.
The Government of India in its pursuit of expanding the Social Security Coverage to more and more people started a programme of special registration of employers and employees from December, 2016 to June, 2017 and also decided to extend the coverage of the scheme to all the districts in the country in a phased manner. The wage ceiling of coverage was also enhanced from Rs. 15,000/- per month to Rs. 21,000/- from 01.01.2017.
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Socio Research & Reform Foundation (NGO)
512 A, Deepshikha, 8 Rajendra Place, New Delhi – 110008
Dear Friends,
FCRA allows FDI NOT FOR PROFIT.
Foreign fund through NGOs is FDI for poverty alleviation through development and jobs without profit motive.Hence FCRA rules and regulations should enhance ease of doing development work aimed at alleviating poverty. Related laws of the land should be strictly enforced to prevent and detect punishable practices without draconian elements. But the new powers conferred on Income Tax Commissioners drastically reduces ease of alleviating poverty and adds draconian dimension to monitoring of NGOs, vide the News Papers : https://timesofindia.indiatimes.com
Udayashankar
Dear Member,
My company is desirous to open a trust / foundation.
The main objective will be to procure and pass on grants/donations to women who are engaged in the manufacture of carpets.
This foundation will then procure those carpets and sell them to my parent company.
My question is:
Please clarify my doubts
Thanking You
Anuradha Grewal
Finance Minister promises to introduce Social Stock Exchanges in the country.
As part of the presentation of the Union Budget 2019, Finance Minister Nirmala Sitharaman announced a plan to create a social stock exchange for social enterprises and voluntary organisations. This is a new concept for India, though such stock exchanges already exist in several countries. Hence SRRF Dialogue will look into the concept of Social Stock Exchanges, how they function and how voluntary sector could benefit from the same. In a series of posts, SRRF Dialogue will also look into how these exchanges have been functioning in other countries.
Finance Minister in her Budget speech stated that it is time to take capital markets closer to the market and meet various social welfare objectives related to inclusive growth and financial inclusion. She proposed to initiate steps towards creating an Electronic Fundraising Platform – a social stock exchange – under the regulatory ambit of SEBI for listing social enterprises and voluntary organizations working for the realization of social welfare objectives so that they can raise capital as equity, debt or as units like a mutual fund.
This is a useful and important concept for enhancing financial viability of social organizations. It could require a fundamental change in legislative and regulatory frameworks of these organizations. Currently we have non-profits, which cannot undertake trade, commerce or business while undertaking charitable activities, any hint of profits and tax authorities would like to cancel their charitable registrations. Proviso in case of S. 2(15) officially limits this being upto 20% of income (read turnover), provided it is in the course of advancement of a non-profit’s charitable objects, in other words incidental to the charitable objects. Non-profits under other limbs of S.2(15) can undertake trade, commerce or business.
Thus to start recognizing social enterprise is essential but have different characteristics from that of a non-profit or for-profit. To start with necessary legislation will need to be put in place to identify such characteristics and what benefits will be available both to such enterprises by listing on such stock exchange and to investors. Govt could initiate the process both by setting up such an exchange and providing some tax benefits. How CSR funds could impact business modeling of such stock exchanges is also yet another question that Govt could look into. In fact considering Govt tightening noose around institutions receiving FCRA funds, could this be the harbinger of new method of funding the voluntary sector.
Idea of social stock exchanges is that it allows such social enterprises to be listed on one platform giving them greater visibility and if this platform is used by investors to make investments, then these enterprises can also raise capital from such investors. The exchange sets disclosure requirements for such enterprises and vets any proposal that they put on such exchanges for raising funds.
In future posts we will cover how stock exchanges work in other countries and understand their positives & negatives.
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Socio Research & Reform
Foundation (NGO)
512 A,
Deepshikha, 8 Rajendra Place, New Delhi – 110008
As many of you know that FCRA Dept has come out with a public notice requiring all NGOs who are registered under FCRA or have prior permission to update details of its office bearers/key functionaries online by 7th July 2019. While earlier this updation was required only when more than 50% of the Board was changed, however latest Notice requires that it should be updated within 15 days of the change. While many NGOs tried to update the same, however it was found that the NGOs could not update it, if the change was less than 50%.
However you have to now be a bit more innovative or should we say jugadu, that famous Indian characteristic to get inside the Form FC6. First all go to FCRA Home Page and select Online Forms. Or you could directly click on the link https://fcraonline.nic.in/Home/fcra_onlineform.aspx to reach online Forms. Choose Form 6E. Question will be asked is change more than 50%, lie a bit and say No, choose option Yes (even if not applicable in your case), otherwise you cannot enter Form 6E. Once you say yes, Bingo, you will be able to access the Form 6E.
Once you enter Form 6E after login, the very first screen appears will be of Existing Key Members. This screen shows the registration details along with current key members list, alongwith their particulars. Scroll down to the page till the question “is there change in original key members” and select option “Yes”. Also fill up the communication details and click on Update Data. Now you able to navigate to the next screen i.e. Change of Key Members. Here you have to update member details.
If the member listed is no longer on your Board, choose DELETE Option. If the person concerned’s particulars are to be changed, use EDIT option. If a new member is to be added, choose ADD option.
Once the Form is updated, verify and authorize the Form by attaching signature File of authorized signatory. Normally authorized signatory would be Chief Functionary. Also attach the file of firm’s seal.
In case of any problems, you must write to FCRA Dept at fcra-support@nic.in, explaining why you are not able to submit the details.
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Socio Research & Reform Foundation (NGO)
512 A, Deepshikha, 8 Rajendra Place, New Delhi – 110008
Our organization is a trust registered under Foreign Contribution (Regulation) Act 2010.
We received funding from an organization outside India for a specific project. Actual expenditure was less than projected, and the said organization outside India requires that all unutilised fund needs to be returned by us to that organization in USD. We have the entire project account Audited by an External Auditor.
We approached our Banker for the refund, but they advised us to seek prior approval from the Ministry of Home Affairs (MHA).
Our query here is that we are refunding unutilized amount of foreign remittance to the same organization from which we have received it, in this case do we need to seek special approval from MHA. What can be the best way to process this earliest possible as per applicable laws.
Best
Amit
Amit K. Tripathi
Director
Ananta Aspen Centre
Dear Friends,
Prior permission letters specify number of and amount of each instalment to which Bank Managers decide to stick. Project holders seek funds based on action plan dictated by the seasons and community preparedness and convergence possibilities Bank’s insistence on instalments as defined in the prior permission letter.
What is the NGO supposed to do!
Udayashankar
MHA has now brought separate Forms FC6 for different aspects. These are FC-6A (Change of Name & Address), FC-6C (Changes in Designated bank account), FC-6D (Addition / Changes in Utilisation bank account) & FC-6E (Changes in Trustees / key functionaries). No Form has come out for changes in Objects of Trust. Earlier there used to be a consolidated Form FC-6, which one had to use for all these functions however now separate forms have been given for each of the functions. One practical advantage of this is that earlier, if one filled up one aspect of the form then one could not update any further change till the same was updated on the FCRA portal. Sometime this non-accessibility of the Form extended to months. However with separate form for each function, it will ease things a bit.
However problem in the updation still continues. As the Form FC6E, which is meant for changes in Trustees still does not allow changes of less than 50%, thus defeating the purpose of the Notification that the FCRA Dept has come up with.
So the wait continues for most organisations to update the changes in the Trustees to comply with FCRA Dept’s own Notice, hopefully it would not be too long.
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Socio Research
& Reform Foundation (NGO)
512 A, Deepshikha, 8 Rajendra Place, New Delhi
– 110008
