Socio Research & Reform Foundation

Annual audited FCRA accounts
Rule 13 (a): Earlier NGOs receiving more than Rs 1 crore were required to put up a summary of receipts & payments on their website, however the amended rule requires that all NGOs to display audited FCRA accounts including Balance Sheet, Income & Expenditure & Receipts & Payments account for a financial year within 9 months of the year-end. Considering 9 month period ended on 31^st December and the rules have been amended effective 14^th Dec 2015, there is a school of thought which states that NGOs should display their FCRA accounts on their website by 31^st December 2015.

Quarterly donor receipts
Rule 13 (b): All NGOs receiving Foreign Contribution are required to disclose on quarterly basis following information:

• Donor-wise details of FC amounts received in its Designated account as well as the date of receipt.

The above information is to be disclosed within 15 days of the quarter-end. Considering these rules were notified on 14^th Dec 2015, this information is will become due for 31^st December quarter and should be on the website by 15^th January 2016.

In view of the above amendments, we urge all NGOs receiving FC to display the above information on their official websites, at the earliest. Please do note the above amendments are applicable to all NGOs registered under FCRA or having prior permission, irrespective of the amount received.

Credit for the above information being brought to our notice goes to Account Aid Team.
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Socio Research & Reform Foundation (NGO)
512 A, Deepshikha, 8 Rajendra Place, New Delhi – 110008

We summaries below some important decisions taken by Banglore ITAT in the case of Dy Dir of IT (Exempt.), Circle 17(2), Banglore vs Ohio University Christ College, Academy for Management Education [2015(12) TMI 42- ITAT Banglore].

Academy for Management Education whose objects are provision of higher studies, offers MBA courses in Banglore. It has entered into an arrangement with Ohio University, USA, under which Ohio university sends its faculty for teaching Academy’s students in India for which the Academy pays fees to the Ohio University. Tax authorities raised several objections during the assessment.

• Payments made outside India

Payment made to Ohio University, being outside India cannot be considered as application for charitable purposes in India. Tribunal held that even if payments are made outside India, as long as the benefit of those payments is for the charitable purpose in India, it would be treated application in India. It relied on several judgments, including Nasscom v DDIT [130 TTJ 377 (Del)]. It stated that S. 11(1)(a) of the Act clearly shows that the words used are ‘is applied to such purpose in India’. The words are not ‘is applied in India’. The fact that the legislature has put the words “to such purpose” between ‘is applied’ and ‘in India’ shows that the application of the Income need not be in India, but the application of funds should result and should be for the purpose of charitable and religious purpose in India.

• Specific CBDT approval required for application of Income outside India

Tax authorities also had made an argument that the Trust should apply for specific approval if it wanted to apply funds outside India. Although the Tribunal allowed application of income outside India as long as it was for the charitable purposes in India, however it went on to state that specifc exemption from CBDT is ‘..specified only for those trusts that have as its objects, the promotion of international welfare….’ [lesson learnt, all those trusts which aspire to work outside India, please include an appropriate clause in your memorandums, so that you can work outside India as be objects of trust]

• Liabilities not paid within the year are not application

Tax authorities disallowed liabilities debited to Income & Expenditure account as not an application for charitable purposes, since these are merely credit entries. Tribunal disagreed with authorities contention. In their argument they relied on AP High Court’s decision HEH Nizam’s Charitable Trust, quoting ‘……We agree with the Tribunal that it is not correct to equate the word ‘applied’ with the word ‘spent’. If the legislature intended that the amounts should actually be spent, there was nothing preventing it from using that word.…..The Tribunal was right in holding that the actual payment is irrelevant for purposes of finding out whether there has been an application of the funds…’

It further added ‘Even where income has been earmarked and allocated for the purpose of carrying out the objects of the institution, it might be deemed to be applied for that purpose.’ [CIT v Radhaswami Satsang Sabha, CIT v Thanthi Trust]

• Loss on account of foreign exchange fluctuation

Loss on account of foreign exchange fluctuation arises on account of amount to be agreed to be paid in USD to Ohio University. Since the Tribunal already considered such expenditure to be treated as application any related cost on account of the said expenditure also needs to be treated as application. Accordingly loss on account of foreign exchange fluctuation was allowed by Tribunal to be treated as application of income.

• Proper reasons not given for accumulation of Income

Assessing Officer disallowed accumulation of Income as Form 10 did not give specific reasons for accumulation. Trust had stated the purpose of accumulation of income in Form No. 10, as purchase of fixed assets and fulfillment of the objects of the trust. Karnataka High Court in a case [DIT v Envisions (2015)] held that as long as the objects of trust are charitable in character and purposes mentioned in Form No. 10 are for achieving the objects of the Trust, merely because the details about plan of such expenditure has not been given, it would not be sufficient ground to deny the benefit.

It is hoped that the above decision of Banglore Tribunal will be of utility to the SRRF Dialogue members, who may be facing similar situations.
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Socio Research & Reform Foundation (NGO)
512 A, Deepshikha, 8 Rajendra Place, New Delhi – 110008

Dear Members

Warm greetings from New Delhi!

As per the new FC-4 Return, following is to be shown:

“Total number of foreigners working (salaried/honorary capacity)”

Who all are to be included in the term “foreigners”?

NRI or PIO holding Foreign Passport to be included in the term “foreigners”?

NRI or PIO holding dual Citizenship/Passport to be included in the term “foreigners”?

You are requested to guide us with the acceptable definition of foreigners for the purpose of FC-4 Return with reference to any circulars, if any.

Warm Regards
Anutam

Dear Members

Warm greetings from New Delhi!

As per the new FC-4 Return, following is to be shown separately:

“Foreign Contribution received during the financial year:
(i) Directly from a foreign source
(ii) as transfer from a local source”

Earlier the FCRA Rules were requiring disclosure of Name, Address, Purpose etc. of both Direct Foreign Contribution as well as FC through an Indian entity (deemed FC).

Our query is regarding the deemed FC. Whether the same should be shown in FC-4 under:
(i) Directly from a foreign source or
(ii) as transfer from a local source

If FC is received through an Indian entity & has an Indian address, as per the “deemed FC” concept, such contribution should be shown under “as transfer from a local source”. However, when we enter details as per purpose-wise contribution, it takes only the contributions received “Directly from a foreign source”.

It means one of the following:
(i) FCRA does not require Donor particulars of “deemed FC”
(ii) Even “deemed FC” should be shown as “Directly from a foreign source” which may be considered as not correct presentation
(iii) FCRA new software has to be amended to accommodate this problem

You are requested to guide us with the correct presentation for contributions received from donor with Indian address considering the above mentioned limitation

Warm Regards
Anutam

Proposed Changes in definition of Foreign Source
Comments invited by 20^th January 2016

Comments being asked for changes in definition of Foreign Source, which would take out all those companies registered in India with more than 50% share capital held by sources listed as foreign sources in definition of Foreign Source (S2(j)(vi)).

It is now being proposed that such companies would not be treated as foreign source, as long as their share of nominal capital is within the limit prescribed under FDI. While this will certainly bring a lot of relief to many NGOs as well as companies who after this change would no longer need to have FCRA permission to transfer CSR funds to NGOs.

But wonder what is the real intent for bringing this amendment. Do not know how many of us remember that that the Delhi High Court took a decision that Vedanta subsidiaries (Sesa & Sterlite) funding BJP & Congress, was against provisions of FCRA. While the two political parties argued that since Anil Aggarwal & his family held more than 50% shares in subsidiaries of Vedanta, these were not foreign companies but Delhi HC has taken a call deciding that these two companies did indeed fell under the definition of foreign companies and hence BJP & Congress have violated the Act. So the major beneficiaries of this change are the political parties and it is not a sop for NGOs or companies ‘per se’.

It may be noted that even Election Commission has asked Ministry of Home Affairs to take action against these political parties. Perhaps this is the action ‘finding a way to let them off the hook’.

The Govt has moved cleverly, since the amendment provides some succor to NGOs, who now need not worry about FCRA when receiving funds from several such Indian registered companies, it would also provide major relief to political parties. However the Sector perhaps could ask that the amendment should be prospective rather than being retrospective.

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Socio Research & Reform Foundation (NGO)
512 A, Deepshikha, 8 Rajendra Place, New Delhi – 110008

Dear Sir,

I am a frequent visitor of your blog SRRF. It is a great source of resources. Couple of times I interacted with you through emails and even posted some questions and answered for others’ queries too.

In the light of new form FC4 for filing annual returns introduced by FCRA in the place of F6 which is being focused on Administrative Expenses apart from other distinguished features, we need some clarification with regard to it.

Say an organization has Informal Literacy Program. And the structure of human resource involved in it is in this manner –

1. Adult Learners (the beneficiaries who gets basic reading writing skills)
2. Adult Education Teacher (a volunteer who teaches in a center with 20 Learners and gets monthly honorarium)
3. Project Manager (a volunteer who oversees 5 centers and gets monthly honorarium)
4. Field Coordinator (a staff working full time with the organization, collecting reports and training 40 centers as and when required and gets monthly salary)
5. Head Office work force (staff on full time basis paid salaries regularly)

Now, my question is among the above 5 whose costs are considered as administrative expenses?

• As per rule 5 (ii) of FCRA whether 4 & 5 costs are considered as Administrative Expenses? Or
• As per rule 5 (ii) of FCRA whether 3, 4 & 5 costs are considered as Administrative Expenses? Or
• As per rule 5 under provision 1st Para which talks about “training or collection”, only Sl. No.5 costs need to be considered as administrative expenses?

Looking forward for kind and expert opinion.

With thanks and regards,

Prasanna Kumar

FEEDBACK REPORT
Legal Compliance Workshop for NGOs
[Thursday, 17th December 2015, India International Centre (Annexe), 40 Max Mueller Marg, N. Delhi – 3]

Dear Friends with a special Hello to all the Participants who attended the workshop.

We thank all the participants who attended the workshop which was one of the most interactive workshop organized by SRRF so far. Credit for this goes to all the participants, who engaged the faculty and remained focused throughout the day. Through this communication we share your feedback and other details that we promised during the workshop.

The Feedback forms have been compiled and collated. There were 60 participants, 63% of whom have given their feedback. Feedback required scoring for each session as well as for overall workshop. The feedback gives score of 85% for the overall workshop. A chart of session-wise results is given below.

Some participants have also given suggestions to organize this workshop at various places and enhancing the duration as well as covering several other topics. We will consider all your suggestions to further improve.

We have also uploaded the presentations of the workshop at our website including snaps. Please visit SRRF website to get access to the same. http://www.srr-foundation.org

We have also uploaded the snaps of the participants on SRRF facebook page. https://www.facebook.com/srr.foundation/.

Once again I thank you on behalf of SRRF, on being part of a wonderful and learning ‘Legal Compliance for NGOs’ workshop.

With warm regards

Ramanuj Maurya
Coordinator
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Socio Research & Reform Foundation (NGO)
512 A, Deepshikha, 8 Rajendra Place, New Delhi – 110008
e-mail: socio-research@sma.net.in; website: http://www.srr-foundation.org

Annual Return filing date extended to 15th March 2016
Vide a notice of 22nd December 2015, FCRA Dept has extended filling date of Annual Return (now under FC4) to 15th March 2016.

This has been done to allow FCRA users to become used to new rules as well as to allow time to stabilise to new online website. (click for related circular)

Changes in online FC4 Form (Annual Return)
In addition, it is observed that now Investment in Fixed Deposit has been disabled under Utilisation column. So investment in FDs would not be treated as Utilisation. This was pointed by several persons that how one could treat investment in FDs as Utilisation, and was causing a lot of confusion.

This indicates that the form is currently being debugged and possibly the reason for extending the annual return filing date.
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Socio Research & Reform Foundation (NGO)
512 A, Deepshikha, 8 Rajendra Place, New Delhi – 110008
e-mail: socio-research@sma.net.in

Dear Memebrs,

I wish to have a clarification on the following:

We have a FCRA account with UCO Bank, Abids Circle Branch, Hyderabad. But the branch does not deal with Foreign exchange. UCO Bank, Banjara Hills branch deals with foreign exchange and transfers to our account get routed through it.

Due to core banking, our account number will remain the same even if we get our account transferred to Banjara Hills branch. Can we get the account shifted to Banjara Hills branch without the formal approval of Ministry of Home affairs or do we require its approval?

Regards,
Ramamohan Rao Kakani
Secretary
BREAD Society,

Dear Sir,

Can you please clarify if service tax is applicable on assessments that are being provided by the various organisations to the schools for assessing their students?

The latest circular states :

(i) Education:
At present, all services provided by educational institutions [providing educational services specified in the negative list] to their students, faculty and staff are exempted [section 66 D (l) of the Finance Act, 1994]; this will continue. However, in respect of services received by such educational institutions, presently, exemption is being operated through the concept of „auxiliary educational services‟ [Sl.No.9]. Doubts have been raised and clarifications have been sought regarding the scope and meaning of „auxiliary educational services‟. To bring clarity, it is proposed to omit the concept of „auxiliary educational services‟ and specify in the notification, the services which will be exempt when received by the eligible educational institutions. Accordingly, the following services received by eligible educational institutions are exempted from service tax: (i) transportation of students, faculty and staff of the eligible educational institution; (ii) catering service including any mid-day meals scheme sponsored by the Government; (iii) security or cleaning or house-keeping services in such educational institution; (iv) services relating to admission to such institution or conduct of examination. Further, for the purposes of this exemption, „educational institution‟ is being defined in the exemption notification 25/2012-ST as institutions providing educational services specified in the negative list.

It may be noted that the scope of exemption remains the same as earlier in the case of services provided by eligible educational institutions; in the case of services received by the eligible educational institutions, exemption will be available only in respect of the services specified as above.

Thanks
Ratna