Socio Research & Reform Foundation

Dear Dialogue Members,

I share bellow a case of one NGO being pulled up by ESI.

Miracle Foundation India partners with one NGO in a small town in Tamil Nadu, the NGO runs a children’s home which cares for approximately 130 children and has a staff of 16-18 persons. We have been associated with this NGO for the past three year and consider them to be one the most transparent and honest organization. Their work with the children is outstanding

About a year & half back, an inspector of ESI office visited this children’s home and demanded documents which was dutifully shared. He told them that they have defaulted by not registering with ESI. The management tried its best to convince that they do not qualify for ESI, but he was unwilling to consider it.

Later the organization received notice form ESI to comply with requirement and pay the amount stipulated in their letter. The organiation made a representation to the local ESI head and requested him to look into the case; nothing happened.

Now after a long gap, the organization received a letter from ESI that they have withdrawn Rs.89,000/- (approx) form the bank. This NGO has now filed a case in the Madurai court and is awaiting their hearing, which they are not sure when it would take place.

My questions are:
Are NGOs, who are running children’s homes and take care of orphans (and are not manufacturing units) covered under ESI?
Why should ESI withdraw such amount without any notice?
What can be done in this case?
I look forward to a dialogue on this

—
Thank you & regards,

Nivedita DasGupta
India Country Head
Miracle Foundation India
A-149, Second Floor
New Delhi, 110017

Following major changes have taken place which will impact the NGO Sector:

1. Yoga has been added as one of the activity under S. 2(15). Earlier Yoga was covered under ‘General Public Utility Clause’ thus providing major income tax benefits to all organisations which are undertaking Yoga as a major activity. Thus now any income generating activity undertaken by such organisations is likely to be tax exempt.
2. A lot of confusion and disputes use to arise in interpreting income being generated by organisations registered under the ‘General Public Utility Clause’. It was impacting income generation of a number of charitable organisations. Much sought after clarity has been provided. It has been clarified that any activity in the nature of trade, commerce or business or any activity of rendering any service for fees, cess, etc. Would be allowed only if:
   • Such activity is undertaken in the course of actual carrying out of such advancement of object of general public utility; and
   • The aggregate receipts from all such activities during the previous year do not exceed 20% of the total receipts of the Trust or institution. [earlier limit was Rs 25 lakhs]
3. Under S. 80G, following two will get 100% deduction, as long as they are not part of CSR funds.
   • Clean Ganga Fund and
   • Swachh Bharat Kosh

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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 Sir

ARS Education Trust was established on 13-12-2013. We applied for 12A & 80G to the Income Tax Commissioner (Exemption) of Hyderabad. She rejected our application asking us to limit the objects in our Trust Deed. She also directed us to include the IT Provisions in the Deed as an amendment. However the local Sub Registrar did not agree to make amendments to the Deed. Will you please clarify what is to be done to get the approval for 12A & 80 G in this situation?

Purna Rao
ARS Education Trust

Dear members,

I would like to know, Is there a restriction in the maximum number of trustees in a trust? If yes, what is the maximum number of trustees a trust can have?

Thanks,
Satya Prakash Mishra

Based on data available at FCRA site, SRRF has undertaken an analysis of FCRA returns. This shows following state-wise position of Foreign Contribution received. Total contribution received is Rs 12,930 crores for FY 2013-14. This compares to Rs 11,066 crores for FY 12-13, indicating an increase of 16.8%.

State-wise data of FCRA funds received for FY 2013-14 and FY 2012-13 with data for number of organisations who have not filed their annual return. Key findings are:

• Top 5 states constitute around 66% of overall FCRA funds rec’d during FY 2013-14. Details and comparison with previous year are as follows:
  • Delhi : Rs 2828 crores (22% of total FCRA funds rec’d during FY 2013-14), Increase in funds over FY 2012-13 : 25%.
  • Tamilnadu : Rs 1752 crores (13.5%), increase in funds rec’d during FY 2012-13 : 6.6%
  • Andhra Pradesh (undivided) : Rs 1338 crores (10.3%), increase over FY 2012-13 : 15%
  • Karnataka : Rs 1323 crores (10.2%), increase over FY 2012-13: 17%
  • Maharashtra : Rs 1293 crores (10.0%), increase over FY 2012-13: 22.6%
• However what is a matter of concern that a large number of NGOs are still not filing annual return. It is observed that of 39087 entities registered with the FCRA Dept only 16868 NGOs have filed their annual return (FC6) with the Dept, in other words almost 57% have not filed the annual returns.
• This is really serious since this could result in further tightening by the FCRA Dept. putting a number of genuine organisations who otherwise follow the procedures at backfoot too.
• It may be noted that the above analysis is for only those organisations which are registered with FCRA Dept and does not cover organisations which have prior permission. Thus it is quite likely that the amount of FCRA funds received could increase further.

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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

A series on Impact on Taxation of NPOs due to hardening of tax authorities’ attitude …..(2)

Facts
In today’s series we bring out a case where Varanasi Catholic Education Society’s registration under S. 12AA was cancelled on the ground that its S. 10(23C) application has been rejected. The Order of the Commissioner tax while cancelling S. 12AA registration stated that the activities of the Society are not entirely charitable in nature and that the same was not in accordance with the aim and objects of the Society. However no material for arriving at this conclusion was made available in the order.

Decision
The Society appealed to Tribunal against the cancellation of S.12AA who decided against the Commissioner’s order and set it aside. Tax authorities appealed to the High Court against the Tribunal Order. High Court agreed with the Tribunal order and rejected tax authorities’ appeal.

Reasoning by High Court
Reason that some activities being undertaken were not solely for charitable purpose may not be a ground for cancelling the S.12AA registration, although it may be a ground for rejection for the registration under S.10(23C). It observed that the Commissioner has not recorded any reason if the charitable activities being undertaken by the Society are not genuine or if the Society’s activities are not in accordance with its objects. The Order stated that the Commissioner has solely relied on the order of the Chief Commissioner of Income Tax passed under Section 10(23C) (vi) of the Act while cancelling exemption under S.12AA.

[citation: 2014 (6) TMI 48 – Allahabad HC: CIT Vs Varanasi Catholic Education Society]

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