Presentation by: Sanjiv Dutt, DIT (E), MUMBAI

Transcription

1 Presentation by: y Sanjiv Dutt, DIT (E), MUMBAI

2 DISCLAIMER The content of this presentation is meant for informational purposes only. The views expressed and the commentsor statements made herein are those of the presenter and do not necessarily reflect the views of the IT Department. Nothing contained herein is intended to create any liability or impose any obligationonthepresenter in discharge of his official duties or on the Department in regard to any matter forming part of this presentation.

3 BACKGROUND OF THIS MEETING I hope it is very supportive details with relevant papers.for better reference to solving your internal thoughtdoubts.i recommend that please read several Acts before creating your personal opinion i You are doing your task under unknown way which has not determine in any law?..(sic) [extracts from submissions made in a case of registration]. Even the police is not making such inquiryi in criminal i case. It seems you have ignorance how the hospital or school raise the fund. [extract from submissions made in a case for approval u/s 80G]. I wish to know your performance as the DIT(E), Mumbai [an application under RTI Act]. Abusive and aggressive bh behaviour of a trusteet with my office.

4 OBJECTIVES To establish a channel of communication. To educate myself through mutually beneficial discussionandi d dlib deliberation. i To foster a sense of better understanding and appreciation of each other s concerns. To remove misgivings/ misinformation. To devise ways and means for redressal of grievances.

5 THE INITIAL DILEMMA A person who claims an exemption has to prove his case. Truly speaking, liberall and strict construction of an exemption provision are to be invoked at different stages of interpreting it. When the question is whether a subject falls in the exemption clause, then it being in the nature of exception is to be construed strictly but once ambiguity or doubt about applicability is lifted then full play should be given to it and it calls for a wider and liberal construction [ 47 ELT 500 (SC)].

6 PROCESS OF REGISTRATION A condition precedent for exemption. A one time process. Once granted, valid in perpetuity unless cancelled/ withdrawn. ihd Importance of proper drafting of Trust Deed/MoA etc. Initial i careatapplication i stage: Approval under BPT Act wherever required. Avoid undue haste in application without PAN, Bank account etc. Undertaking of activity in furtherance of objects.

7 SCOPE OF ENQUIRY CIT/DIT to satisfy himself about: the objects of the trust and genuineness of its activities. Opportunity of being heard to be afforded before rejection of application. i Query letters issued within three months of making the application so that the applicant has sufficient time to furnish information/ clarifications and to produce original documents for verification.

8 EXAMINATION OF OBJECTS Charitable purpose defined in Section 2(15) includes: Relief of the poor Education Medical relief Preservation of environment (including watersheds, forests and wild life Preservation of monuments or places or objects of Artistic or Historic interest Advancement of any other object of general public utility. Analysis of objects a must before grant of registration, because the A.O. cannot subsequently make a probe into objects [ACIT v. Surat City Gymkhana 300 ITR 214 (SC)].

9 RELIEF OF THE POOR Encompasses a wide range of objects for welfare of economically and socially disadvantaged or needy. It will include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Exemption cannot be denied merely because relief flows not only to the poor but also the rich.

10 EDUCATION Systematic imparting of knowledge, training in preparation for the work of life. Every acquisition of further knowledge not included. Publishing newspapers is not education [101 ITR 234 (SC)]. Developing the knowledge, skill, mind and character of students by normal schooling. Coaching imparted for appearing in a particular competitive exam is not education [208 ITR 608 (Pat) & 273 ITR 139 (Guj)]

11 MEDICAL RELIEF It is not necessary to provide treatment free or on concessional basis to all. Therefore, income of a hospital cannot be treated as business income merely because it recovers some charges from the patients. Cross subsidization will not disentitle a hospital to exemption. Medical relief involves aid or assistance to the sick and the ailing.

12 GENERAL PUBLIC UTILITY Objects which promote welfare of general public. Public means body of people at large and includes a class of persons or awell dfi definedd section of the public. Benefit to whole mankind not perceived. Section of public Quality which binds a group of persons should not depend upon their relationship with a particular individual. Rather, this class of people p must be identifiable by some common quality of a public or impersonal nature.

13 PROVISOS TO SECTION 2(15) First proviso inserted w.e.f. A.Y has farreaching consequences. As per the first proviso, advancement of any other object of general public utility shall not be a charitable purpose if it involves the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for acessorfee or any other consideration, irrespective of the nature of use or application or retention of the income from such activity.

14 PROVISOS TO S. 2(15) CONTD. CBDT Circular No.11/2008 dated clarifies the effect of insertion of new proviso. Carrying on of business or commercial ilactivity ii not prohibited under other charitable purposes such as education, medical relief, relief of the poor etc., if it is incidental to the main objects [Section 11(4A)]. Second proviso inserted by the Finance Act, 2010 w.r.e.f. A.Y to mitigate the rigour of first proviso permits receipts from business up to Rs.10 lakhs (Rs.25 lakhs w.e.f. A.Y ). 13)

15 PROVISOS TO S.2(15) CONTD. Trusts and institutions hit by the first proviso mainly include: Sports Clubs/ Gymkhanas Chambers of Commerce Trade Associations viz., Automobile Association Associations promoting fine arts, literature and music Trusts promoting cottage industry, khadi, handicrafts etc. Institutions promoting films & TV serials for a social purpose. Trusts for promotion of Yoga training or preaching philosophy Institutions set up by the Government with the object of promotion of infrastructure.

16 INSTITUTIONS HELD TO BE NOT CHARITABLE A trade union [Section 10(24)] A race club [153 ITR 521 (AP)(FB) affirmed in 223 ITR 703(SC)]. A trade association for protecting business interests of the members/ a mutual association [106 ITR 725 (Guj) & 111 ITR 241 (Mad)]. An institution whose dominant object is political in character moving people to practical action to achieve governmental changes [140 ITR 748 (Del)]. Residents Welfare Associations

17 OBJECTS HELD AS NOT CHARITABLE Providing for welfare of employees of atrust[102itr 119 (Bom), 149 ITR 624 (Mad) and 225 ITR 270 (Kar)]. Encouraging/promoting scientific breeding and training of race horses [153 ITR 521 (AP)(FB) affirmed in223itr703(sc)]. Providing for constructing colonies for workmen in general and settlor company s workmen in particular [217 ITR 699 (SC)]. Promotion of social intercourse among the members and encouragement of entertainments [107 ITR 108 (Mad)].

18 OBJECTS HELD AS NOT CHARITABLE A trust formed for the benefit of poor members of the settlor s family not to be treated as a public charitable trust [21 ITR 231 (Bom) approved in 88 ITR 147 (SC), 160 ITR 3 (Cal) and 170 ITR 375 (Raj)]. A society formed for the welfare and well being of a particular community [49 ITR 74 (Cal) and 112 ITR 368 (All)]. Promotion of industries [114 ITR 463 (SC)]. Objects involving application of trust funds outside India [169 ITR 298 (Bom) and 345 ITR 362 (Del)]

19 OBJECTS HELD AS NOT CHARITABLE Opening, conducting or maintaining institutions whereworkatlivingwagescanbeprovidedtopoor and deserving people and also be conducive to the development of industries and benefit of the poor. Establishment of technical, industrial and commercial concerns, institutions etc. imparting any type of training or providing employment to persons [81 ITR 1 (Del) approved in 103 ITR 777 (SC) and 127 ITR 620 (Del)].

20 OBJECTS HELD AS NOT CHARITABLE To open health restaurants and health homes to supply instructions for wholesome nourishing foods. Toopendairiesandmilkcentresforthesupplyofpure milk and to provide cheap pure milk for school children and nursing mothers and to other needy people. p To establish small scale industries in towns and villages [Daulat Ram Public Trust 244 ITR 514 (Del)].

21 MIXED RELIGIOUS OBJECTS I.T. Act make a distinction between trusts for charitable purposes and those for religious purposes, though both are entitled to exemption u/s. 11. Apublicreligioustrustis exempt,butitlosesthebenefit of Section 80 G for its donors. Atrustcreatedformixedreligiousobjects(after ) is a religious trust created for benefit of persons belonging to a particular community and would be hit by Section 13(1)(b) / 13(1)(a) because whole of income from property held under trust does not enure for benefit of public [248 ITR 587(J &K), 231ITR 787 (SC) & 254 ITR 212 (SC)].

22 MIXED NON CHARITABLE OBJECTS The trust should be existing exclusively for charitable purposes. If the trust has several objects, some of which are charitable and others are non charitable and the trustees have unfettered discretion to apply the income to any of the objects, the whole claim for exemption would fail and no part of the income would be exempted from tax [65 ITR 611 (SC), 103 ITR 777 (SC) & 197 ITR 416(SC)].

23 ABSENCE OF ACTIVITIES Satisfaction of CIT/DIT about genuineness of activities is a pre condition of registration. No activity, no satisfaction. After insertion of Section 12AA w.e.f , CIT has power to make enquiry about the activity carried out by the applicant before granting registration it ti under Section 12A [93 ITD 546 (Del)].

24 ABSENCE OF ACTIVITIES To get registration u/s 12A/12AA, the conditions required to be fulfilled are, firstly, the trust/ institution must be created / established for charitable purposes p and secondly, the activities of the trust/ institution must be genuine [CIT v. Agricultural Produce & Market Committee (2007) 291ITR ( (Bom)]. Any other view would make Section 12AA(1) redundant and superfluous and we should avoid an interpretation which makes the provision or part thereof nugatory and otiose.

25 OTHER GROUNDS FOR NON REGISTRATION Absence of clause prohibiting distribution of surplus among trustees in case of dissolution or winding up etc. Property not held under trust. Activities at variance with objects. Schools/hospitals being run on commercial lines. No contribution by the trust to the school but vice versa. Charging of exorbitant tuition and other fees vis a vis aided schools. No free education to poor students and no fee concession to deserving ones. Involuntary/ forced contributions to Building Fund and donations by the students and their guardians. Absence of element of private gain not enough.

26 CHANGE IN OBJECTS EFFECT ON REGISTRATION In Form 10A, the applicant undertakes to communicate forthwith anyalterationinthetermsofthetrustorinthe Rule governing the institution made any time thereafter. Prior permission of CIT/DIT not necessary for amendment. Where there is wholesale alteration in objects after grant of registration u/s. 12A without intimating the CIT, registration would not survive [291 ITR 116 (All)]. CIT/DIT to consider whether hth change in objects is consistent with the definition of charitable purpose and in conformity with requirement of continuation of registration.

27 CANCELLATION OF REGISTRATION Power vested with the CIT/DIT under Section 12AA(3) w.e.f Grounds for cancellation Activities not genuine. Activities not carried out in accordance with objects. Provision of opportunity of being heard. Rejection not permissible on any other ground viz. proviso to Section 2(15). Provision constitutionally valid. CIT/DIT authorized to cancel registration granted at any time prior to amendment subject only to merits [343 ITR 23 (Bom)].

28 APPROVAL U/S.80G While granting approval, CIT/DIT to satisfy himself : That conditions laid down in clauses (i) to (v) of Section 80G(5) are fulfilled. That the activities of the institution are genuine. Order of approval to specify the A.Y. fromwhichthe approval is valid. Order of rejection to be passed after giving opportunity of bi being heard.

29 S.80G GROUNDS FOR REJECTION Objects mainly religious in nature/ trust engaged in construction of temple/ expenditure on religious objects more than 5% of total income. Carrying out commercial activity/ construction of commercial complex/ activities for furthering business interest. No expenditure on charitable objects of trust but money kept in FDs/ low expenditure on charitable activities out of donations received.

30 EXPECTATIONS FOR FUTURE Proper and careful drafting of Trust Deeds/ MoA predominant and ancillary objects, binding legal obligation etc. Educate clients in regard to the need for furnishing of correct rather than misleading information in applicationaswell i ll as submissions. i Greater care in filing returns, esp. columns relating to accumulation of income u/s 11(2). Quality of Audit and Audit Reports (Form 10B) nonreporting of transactions with persons specified in Section 13(3) etc.

31 THANK YOU!