Socio Research & Reform Foundation

1) No deductions shall be allowed under Section 80G & 80GGA in respect of donations of any sum exceeding ten thousand rupees paid in cash

2)  If your income has been charged to Income Tax in one year that does not mean it will become taxable for all times to come

Since AY2009-10, sec 2(15) definition has been changed whereby objects of general public utility shall not be charitable activities if business activities are carried out in connection therewith.

This change in definition has also affected provisions of Sec10 (23C) of IT Act1961. However, as the scrutiny of all such cases for AY2009-10 were completed in December 2011, issues were faced by IT authorities while dealing with those cases where Trust/ societies were found to be covered by first and second proviso of S.2(15) i.e. business activities were found to be carried out while engaged into objects of general public utility. There has not been any specific provision of how to deal with in such circumstances. There were confusions in the minds of IT Officers possibly that apart from taking steps of revoking Sec12AA registration, are they having enough legal support in case such income is added as taxable Income.

Now with this amendment, IT act1961 has made it explicit that in case any income becomes taxable due to provisions of Sec 2(15), such income shall become taxable in the hands of the trusts / societies.  This addition shall be taken irrespective of the fact that the ITO revokes/ rescinds/ withdraws the Tax exemption status.

While going thru the Memorandum to the bill, following comment is noteworthy.

However, this temporary excess in one year may not be treated as altering the very nature of the trust or institution so as to lead to cancellation of registration or withdrawal of approval or rescinding of notification issued in respect of trust or institution.

This may be interpreted as a relief to the Societies / Trusts that in case a Society proves that the business activities are not permanent but casual or temporary in nature, then the AO may not take steps to revoke the 12AA registration.

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For details see below:

[2011] 128 ITD 177 (Bang.)

IN THE ITAT BANGALORE BENCH ‘A’

i25 Rural Mobile Commerce Services

v.

Director of Income-tax (Exemptions)*

DR. O.K. NARAYANAN, VICE-PRESIDENT AND GEORGE GEORGE K., JUDICIAL MEMBER

IT APPEAL NO. 1120 (BANG.) OF 2009

[ASSESSMENT YEAR N.A.]

MAY 10, 2010

Section 2(15), read with section 12A, of the Income-tax Act, 1961 – Charitable/religious purpose – Assessee-trust was registered under section 25 of Companies Act, 1956 – Its object was to promote commerce, art and science for serving un-served people through facility management service – It filed an application for registration under section 12A – DIT(E) after examining activities of assessee held that it worked as an agent for banks and received remuneration for services rendered and said activity was hit by proviso to section 2(15) and, thus denied registration to assessee – Whether nature of activity of assessee nowhere suggested that it worked for giving relief to poor, instead it was carrying on business in nature of trade, commerce and, therefore, DIT(E) rightly denied registration to it – Held, yes

FACTS

The assessee-trust was registered under section 25 of the Companies Act, 1956. Its object was to promote commerce, art and science for serving the un-served people through facility management service. It filed an application for registration under section 12A. The DIT(E) after examining the activities of the assessee held that the trust worked as an agent for banks and received remuneration for the services rendered and the said activity was hit by the proviso to section 2(15), hence, the benefit of registration under section 12A was not available to the assessee.

On second appeal :

HELD

The newly inserted proviso to section 2(15 ) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute ‘charitable purpose’ even if it incidentally involves the carrying on of commercial activities. The proviso to section 2(15) will apply only to entities whose purpose is advancement of any other object of general public utility,i.e., the fourth limb of the definition of ‘charitable purpose’ contained in section 2(15 ). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) if they carry on commercial activity. [Para 6]

The assessee worked as business correspondent to various banks. It had entered into a Memorandum of Understanding (MoU) between various banks through its agents/representatives/associates at different villages, as per the requirement of bank. On verifying the MoU entered into between the assessee with the Corporation Bank and the Vijaya Bank, it was noticed that the Corporation Bank had offered a consolidated fees of Rs. 1,500 per month for the business correspondents for each location. Whereas the Vijaya Bank had offered a consolidated compensation of Rs. 2,600 per month per one sub-agent. The assessee merely asserted that the activity of the trust fell within the realm of the first limb of definition of charitable purpose under section 2(15). There had been no material on record to suggest that the assessee’s activity catered to the poor and could be termed as relief to the poor. [Para 7]

As rightly pointed out by the DIT(E), the assessee worked as an agent for the banks and received remuneration for the services rendered from the banks concerned. The said activity of the assessee, fell within the realm of advancement of objects of general public utility and was hit by the proviso to section 2(15 ). Looking into the nature, scope, extent and frequency of the activity it could be said that the assessee was carrying on the business in the nature of trade, commerce. Therefore, in the light of the aforesaid reasoning, the order of the DIT(E) was correct and in accordance with the law and no interference was to be called for. [Para 8]

In the result, the appeal filed by the assessee was to be dismissed.

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Socio Research & Reform Foundation
(A Non Government Organisation)
512 A, Deepshikha, 8 Rajendra Place, New Delhi – 110008
Tele/Fax: +91-11-25821088, 25817157, 25722044
e-mail: socio-research@sma.net.in

Whether income received from FCRA fund can be deposited in FCRA utilisation bank account?

Rajneesh

Dear SRRF members,

I would really appreciate if you can answer my queries.

– Does a foreign NGO require FCRA registration if they are only purchasing goods and services with foreign funds? (As per Sec2 (h) (iii) Explanation 3 of the definition of “foreign contribution.”) Does this definition also exclude payment of fee for consultancy services with foreign funds in India?

– Does a foreign NGO require FCRA registration if they are a liaison or branch office under FEMA, and ONLY receive funds from their parent organization? (We have heard that internal remittances do not fall under the purview of the FCRA, because they money is staying within the same organization.)

– Are all foreign NGOs required to register under FEMA? Do the capital requirements for liaison and branch offices under FEMA apply to non-profit or charity organizations as well? What if the foreign NGO cannot meet those capital requirements?

– Under what conditions can a liaison office under FEMA hold a training or workshop?

– What are the consequences for not obtaining FCRA? FEMA registration as a foreign NGO? Are penalties outlined in the rules?

Regards,

Debashish

Recently I was asked to comment on treatment of FC assets received in kind. Any assets received in kind are also to be treated as part of foreign contribution (till now govt. has not prescribed any financial limit so all articles rec’d should be covered). A return in the form FC-7 should be filed. No time limit has been specified however it is presumed that since this for a financial year, same time limit as prescribed for FC6 (i.e. upto 31st Dec) may be observed.

As stated earlier, the Receipt of articles need to be disclosed under FC-7. Wherever the articles have not been utilised during the year, these need to be carried forward. A CA’s certificate is to be given certifying that organisation maintains a proper record of the same, and these articles (contribution in kind) are with organisation and carried forward.

In case where, articles are utilised, i.e. transferred to another organisation or disposed off, then the same needs to be disclosed under Utilisation.  Funds rec’d from disposal need to be deposited in the FCRA account and also be disclosed under FC-7.