Socio Research & Reform Foundation

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.

Printing of books held as incidental business activity thus allowed being exempt from Tax

In a recent ruling in case of Bhartiya Vidyapeeth (Pune) decided by Income Tax Tribunal in Jan 2012, it was held that when a Trust is found to be engaged in imparting degree courses to lakhs of students all over India, printing of books through its own printing press is an incidental business activity and shall be exempt from Income Tax under Section 11 of the Income Tax Act 1961. This ruling will be very relevant for a large number of NGOs, who are presently receiving notices from the Income Tax Dept. questioning several cases of activities which generate income for the NGOs.

Rental Income cannot be taxed just because volume of such income is very high

This decision also dealt with the matter of the charitable trust earning large amount of income from house property. In the impugned case, Income Tax Dept. (DIT (E)) did not give exemption benefit under Section 11 on the ground that the Trust’s rental income is very high and may not go well with its charitable status and on this basis sought to tax it under Income from House property or as Income from Business / profession. The Income Tax Tribunal held that such contention of the Dept. is wrong and further held that such income should be exempted from tax as per provisions of Section 11.

To read complete case, please click the link   http://www.srr-foundation.org/itat_orders.pdf

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Socio Research & Reform Foundation
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