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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