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AccountAid Capsules 2008 (262-…) |
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266:
FC-3 to be filed by 31 DeC 264:
Open Letter to PM on FCRA Bill 263:
Charitable Purpose – For Whom the Bell Tolls… 262:
No trading for Charities – Budget 2008 |
(7-May-08) The last date for filing FC-3 used to be 31st July of each year. By a recent notification, this has been revised. The last date for filing the FC-3 is now 31st December, each year. This amendment comes into effect from Financial Year 2007-08 itself. [References: ·
Rule 4 of FCRA Rules, 1976 ·
Foreign Contribution (Regulation) Amendment Rules, 2008, Notification
No. G.S.R. 83(E), DATED 8-Feb-2008 http://www.icai.org/icairoot/announcements/announ1404.html
·
Special thanks to Sh. Martin Pinto, FCA, Delhi for drawing our
attention to this notification. – Ed. (28-Apr-08) Recently there has been an important legislative proposal in India, which will effectively bar all unconventional charities from any business-like activities. This will be done by taking away their income tax exemption. Now the curious part is that the Government of India does not at all want to do this. However, it is finding it difficult to keep business groups out of the bounds of tax-exemption for charities. During discussions, the Government representatives have expressed helplessness, as it is difficult to think up a legal definition of philanthropy which allows for the vast diversity of the sector, and yet ensures that business groups are not able to crash in. It appears that this is symptomatic of the ‘coming closer’ of not-for-profit and for-profit sectors, in some ways at least. There is an increasing borrowing of management terminology, there is sharing of strategies, and sometimes the two work in partnership to bring innovative products and services to deprived. In some sense, charities are becoming more business-like, while at the same time, some corporations are becoming more charitable. However, this also creates a legislative challenge. How will the tax authorities ensure that the tax shelter for charities doesn’t get crowded with businesses masquaerading as charities? As this has enormous revenue implications, the tax people may find it difficult to continue to be charitable to charities. And this may mean a more complicated existence for charities with economic activities. [References: ·
AccountAid Capsule 263 at www.AccountAid.net ·
Proposed change in Sec. 2(15) of Income Tax Act,
1961 ·
Charities Definition Inquiry, Australia (Chapter 27: Commercial
Purposes and Commercial Activity) http://www.cdi.gov.au/report/cdi_chap27.htm
·
Europe - Survey of the Treatment of Economic Activities of Nonprofit Organizations
in Europe (2007) available through online library at www.ICNL.org ·
Special thanks for the exceptionally useful resources provided by
Prof. Douglas Rutzen at ICNL, and the invaluable help and ideas generously
shared by Prof. Mark Sidel at University of Iowa. – Ed. (10-Apr-08) Several
legal luminaries and NGOs have written to the Prime Minister, urging him to
reconsider the FCRA Bill 2006. The
signatories include Commonwealth Human Rights Initiative, Centre for Youth
and Social Development, Development Alternatives, Centre for Policy Research,
Voluntary Health Association of India, Centre for Science and Environment,
Centre for Media Studies, M. S. Swaminathan Research Foundation and
Transparency International India, apart from the former Attorney General of
India, Sh. Soli S. Sorabjee, the former Supreme Court judge, Ms. Ruma Pal,
and Sh. Fali S. Nariman. The basic
argument offered against FCRA Bill 2006 is that it runs counter to the spirit
of the National Policy on Voluntary Sector. The signatories believe that it
may lead to curtailment of civil society activities, as the Bill provides
scope for subjective action by the executive. The
signatories suggest that the present framework of UAPA 1967, FCRA 1976, FEMA
1999, and PMLA 2002 is sufficient to regulate the sector. The cap of 50% on
administrative expenses is seen as ‘unwarranted interference’ in the internal
affairs of the NGOs. [References: ·
FCRA Bill 2006 www.AccountAid.net
·
The Hindu, 10th April 2008. http://www.hindu.com/2008/04/10/stories/2008041055741200.htm
·
AccountAble 122-128 at www.AccountAid.net
(9-Apr-08) The
proposed change in definition of ‘Charitable Purpose’ will directly affect a
large number of organisations. This will happen if any part of their income
is related to any business, trade or commerce, and they are receiving fees,
cess or other income from it. Following
is a partial list of the type of organisations that are at risk of losing
their tax exemption (sec. 12A) and incentives (sec.80G). 1. All chambers of commerce and
industry, federations, registered societies and trade associations
established with the object of promoting trade, commerce and industry. 2. All companies incorporated
without a profit motive, for maintaining and running a stock exchange or for
promoting road safety. 3. All societies incorporated
without a profit motive, for any of the following objects: a. For the improvement and promotion
of agriculture and agriculturists. b. For the improvement and
advancement of scheduled castes and tribes (tribals). c. For the welfare of the members of
the police force and their families. d. For imparting technical
education, setting up model industries and reducing unemployment in poor
village folk. e. For developing various kinds of plants
that restored environmental balance and also helped in the conservation of
various plants in the State of Tamil Nadu. f. For organizing seminars,
conferences and workshops to educate people on commercial laws, tax laws,
auditing, accounting, direct and indirect taxes. 4. Trusts for promoting cottage /
village industries, handicraftsmen and teaching unemployed men arts,
handicrafts, etc. 5. Trusts to promote artistic
principles, literature, fine arts, music, dance, etc. 6. Trusts owning auditoriums, memorial
halls for cultural activities, ‘wadis’, dharamshalas, gaushalas and
sanitorium which are let out for rent while their primary objects are
charitable. 7. State Road Transport Corporation
formed to provide transport services to the public without the object of
earning any profit. 8. Foundations for the development
of botanical gardens etc. and for carrying on literary and cultural
activities like setting up and maintenance of museum, library, etc. 9. Trusts for Research Stations. 10. Trusts for preservation of places of
historic interest or natural beauty. 11. Trusts for feeding travellers and
promoting unity amongst the members of any community and developing all the
aspects of their life. 12. Trusts for promotion of cricket or
other sports amongst the public. 13. Trusts for bringing about closer
understanding between two countries and for improving international
relations. 14. Trusts for the benefit of returned
soldiers or for the promotion of the armed and police forces. [References: ·
Union Budget 2008 ·
Sec. 2(15) of Income Tax Act, 1961 ·
Above list of trusts at risk compiled from a useful publication titled
‘Taxation of Charitable Trusts’, by SSh. Arvind H. Dalal, Gautam S. Nayak,
and Shariq M. Contractor (Chartered Accountants), published by Bombay Chartered
Accountants’ Society, edition January 2007, pg. 33 to 36. www.bcasonline.org ·
‘…send not to know for whom the bell tolls, it tolls for thee.’ from
‘No Man is an Island’ by John Donne (c.1572-1631) (3-Mar-08) The 2008
budget has proposed changing the definition of ‘charitable purpose’. This
will mean that certain charitable organizations, which have business-like
activities, will be denied tax exemption from the coming financial year. This move
will not affect schools or hospitals, or organizations which work for relief
of the poor. However, other charitable organizations will be hit hard, if
they have any business-like activities, or charge any fees or consideration
from others. This could even cover cases where an NGO publishes a magazine
and charges subscription fees or accepts advertisements for money. This may
include the following kind of organizations: 1. Training organizations 2.
Resource
organizations 3.
Human
Rights organizations 4.
Micro-credit
organizations 5.
Environmental
organizations 6.
Advocacy
organizations 7.
Research
organizations 8.
Chambers
of Commerce 9.
Professional
associations 10.
Fund-raising
organisations 11. Networking organizations, etc. If the
amendment goes through, there will be two options for such organisations: 1. Give up any activities which can be seen
as trade, business or commercial, or 2. Show that they are only working for relief
of poor or are only running schools or hospitals If they
can not do either of the above, they may have to prepare to pay income tax
from the coming financial year. [References: ·
Union Budget 2008 ·
Sec. 2(15) of Income Tax Act, 1961 ·
Text of proposed definition of charitable
purpose: ‘“charitable purpose” includes
relief of the poor, education, medical relief, and the advancement of any
other object of general public utility: Provided that the 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 a cess or fee or any other
consideration, irrespective of the nature of use or application, or
retention, of the income from such activity;’] |
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