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AccountAid Capsules 2008 (262-274) |
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273:
FCRA Statistics for 2006-07 272:
Foreign Contribution in 2006-07 271:
Standing Committee’s Report on FCRA Bill 2006 270:
Fraudulent Invitation to Child Abuse Conference 269:
online FCRA Prior-permission now Compulsory 268:
Tax Exempt NGOs have no business … 267:
Politics and Charities in USA 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 |
274:
CBDT on Sec. 2(15)
(29-Dec-08) Government of India has come out with a clarification on loss of charitable status if an NGO is conducting any business activities (modified definition of ‘Charitable Purpose’ under section 2(15) of the Income Tax Act, 1961). The clarification (which unfortunately does not add much to one’s clarity), says: “… whether the assessee has for its object ‘the advancement of any other object of general public utility’ is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of ‘general public utility’ will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim that their object is ‘charitable purpose’ within the meaning of Section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business.” The clarification that ‘each case would… be decided on its own facts and no generalization is possible’ is especially worrisome. This would mean that the Assessing Officers would need to examine each case, and decide the matter on the facts. If this comes to pass, then NGOs in the fourth category may want to either gird up for a lot of appeals and court cases, or avoid taking up any activities which appear to be business-like. [References: ·
Sec. 2(15) of
Income Tax Act, 1961, as modified by Finance Act, 2008 ·
Circular No.
11/2008, New Delhi, the 19th December, 2008; F. No.134/34/2008-TPL,
Government of India, Ministry of Finance, Department of Revenue, Central
Board of Direct Taxes, (Tax Policy & Legislation Division) ·
AccountAid
Capsules 262, 263, 265 and 268 ·
AccountAble 141:
Charitable Purpose and Income Tax We thank CA Atul J Trivedi, Ahmedabad for bringing the above circular to our
attention. – Ed.] (29-Dec-08) As on 31st March 2007, as many as 33,937 associations had valid FCRA registration. However, for 2006-07, only 19,011 out of these (56%) have filed their form FC-3. Of these organizations: · 147 associations received more than Rs. 10 crores · 169 associations received between Rs. 5 - 10 crores · 1,343 associations received between Rs. 1 - 5 crores · 7,430 associations received no funds and filed a nil return · Balance 9,922 associations received various amounts upto Rs. 1 crore [References: Source: FCRA Annual Report 2006-07 (http://www.mha.nic.in/fcra.htm)] (20-Dec-08) In 2006-07, a total of Rs.123 arab (12,289.63 crores, ~ US $249.3 million) was received by Indian NPOs from foreign sources. This is a relatively large jump (56%) over the previous year's inflow of Rs.78.78 arab. In 2004-05, foreign contribution stood at Rs. 62.5 arab (~US $126.9 million). Thus, it appears to have doubled in just two years, even though the Rupee remained quite stable over this period. [References: Source: FCRA Annual Report
2006-07 (http://www.mha.nic.in/fcra.htm)] (5-Dec-08) The Parliamentary Standing Committee on Home Affairs has submitted its report on the FCRA Bill 2006 recently. The recommendations of the Committee include the following: 1. Indian companies with foreign shareholders of 50% or more should not be classified as ‘foreign source’. 2. Scholarships or stipend for academic pursuits should not be treated as ‘foreign contribution’. 3. Introduce time-limit for a decision after an organisation is declared as being of political nature, and provide for an appeal mechanism. 4. Distinguish between foreign hospitality accepted during an official visit and on a personal visit. 5. Allow ‘mother NGO’ to obtain prior-permission on behalf of small NGOs getting FCRA funds from it. 6. ‘Administrative Expenditure’ should be defined in the Bill to remove confusion; the limit of 50% is otherwise considered reasonable by the Committee. 7. Introduce time limit of 3 months for dealing with application for FCRA registration. 8. Simplify the requirement of ‘meaningful project for ... people’ when granting prior-permission. FCRA should not get into the subjective question of whether a project is ‘meaningful’ or not. 9. Requirement of renewal of FCRA registration every five years can be retained – however, the Department should grant the renewal within three months. 10. Banks need to report only bigger remittances (above Rs. 10 lakhs) to the Government. 11. Municipal councils and Panchayati Raj Institutions should also be included in the definition of ‘legislature’. This will place some restrictions on work being done with Panchayat members and candidates for Panchayat elections. 12. Some minor changes are also suggested with regard to imprisonment, fines, and prohibition etc. [References: ·
FCRA Bill 2006 ·
134th Report on the Foreign
Contribution (Regulation) Bill, 2006, by the Parliamentary Standing Committee
on Home Affairs; presented in Rajya Sabha on
21-Oct-2008 (available on the Rajya Sabha web-site
at http://164.100.47.5:8080/committeereports/reports/EnglishCommittees/Committee%20on%20Home%20Affairs/134%20report.htm) We acknowledge with thank the support provided by Sri Anil Goel,
CA in pointing us to above link. – Ed. (19-July-08) The following conference invitation is fake. There is no such organisation. Its web-site has been shut down for sending out fake invitations to a conference in USA. Later they will get you to transfer money for the hotel booking in Dakar, Senegal. After which you will never hear from them again. If you want to know more about how this kind of fraud works, please visit www.vitalsecurity.org/labels/conference.html Please circulate this warning to your friends as a goodwill gesture and help keep internet fraud down. -------------------------------------------------- Conference Invitation : Dear Sir/Madam We are cordially Inviting Interested individuals to a
Combined Conferences against Racism and Child Abuse that will be held from
the 16th - 20th of August 2008 In Anaheim California and from the 25TH -28TH
of August 2008 in Dakar Senegal. You may
contact the Secretariat of the Organizing Committee for details and
information. You are to also inform them that you were invited to participate
by ( Miss Petelyn Wright ), Who is a member of the American Youths
for Peace and a staff of ( World Youths Conference Organization ). Registration is Free and the Benevolent Donors of the
Organizing Committee will provide round trip air tickets and accommodation
for the period of participants Stay in the U.S to all registered
participants. You will only be responsible for your own hotel booking in
Dakar where the second phase of the conference will be held. If you are a
holder of a Passport that may require visa to enter the United States you may
inform the Conference Secretariat at the time of Application
,as the organizing committee is responsible asist
for all visa arrangements and travel assistances. WORLD YOUTH ORGANIZATION FOR WELFARE TEL: +1 ( 516 ) 3030022 or +1 ( 516 ) 3030020 FAX +1 ( 760 ) 284-5664 Email:
conference_wyohw2008@usa.com registrationdesk@worldyouthsorganization.org Sincerely, Petelyn Wright p.wright@worldyouthsorganization.org (4-July-08) With effect from 1st August 2008, all prior-permission applications must be filled up and filed online. After that a printout should be taken, signed and sent to FCRA Department by registered post. All relevant documents should be sent with this. The FCRA online service for prior-permission is available at MHA’s web-site: http://www.mha.nic.in/fcraweb/fc_login.aspx. Help in filling the form is available at http://www.mha.nic.in/fcraweb/fc1A_help.htm For filing the online application, you have to first create a login ID (Username and password). Then you can log in for filing application FC-1A for prior-permission. The above has been notified by FCRA-III section on the MHA web-site. The related amendment to the rules has apparently not yet been notified. [References: ·
Undated, un-numbered notice for FCRA-Online service for
prior-permission application (http://www.mha.nic.in/fcra.htm) ·
http://www.mha.nic.in/fcraweb/fc_login.aspx ·
http://www.mha.nic.in/fcraweb/fc1A_help.htm] (3-June-08) … to do business. That’s what the Government in India now says, taking us back to the pre-’84 position. With the passing of the Finance Act 2008, the definition of charitable purpose under section 2(15) has changed. Tax exempt NGOs are no longer allowed to take up any business activities. This bar has gone into effect from 1-Apr-2008 (Assessment Year 2009-10). This bar does not apply to religious organizations or to those engaged in traditional modes of charity, such as education, health or relief of poor. However, even some traditional charities such as those offering food, shelter or water to passersby may be affected. Remember, even a very small bit of business will lead to taxing of the entire income. While the Government has promised a circular to help clarify the matter, this is still awaited. In the meantime people are worried about their tax status. One solution may be to segregate the business activities and conduct these in a separate organization. Therefore, if you are a modern NGO and carry on any business activity, please discuss this with your tax advisers. If need be, please feel free to call our office. [References: ·
AccountAble 141 at www.AccountAid.net ·
AccountAid Capsules 262, 263 and 265 ·
Sec. 2(15) of the Income Tax Act, 1961. Applicable in India] (2-June-08) Tax exempt charities, including religious organizations, in USA are not allowed to participate in election campaigns or endorse a particular candidate. If they do so, they may lose their tax exemption. This has led to the launch the ‘Pulpit Freedom Sunday Initiative’ by an organization called Alliance Defence Fund (ADF). The initiative encourages pastors to preach about politicians in such a manner so as to invite an investigation by the Inland Revenue Service (IRS). ADF hopes that this may lead to a court challenge to the present ban. On the other hand, Americans United for Separation of Church and State (AU) monitor the activities of the priests and file complaints where they find a violation. One such investigation centred around the United Church of Christ inviting Senator Barrack Obama to address its general meeting. Another involved a priest belonging to First Southern Baptist Church endorsing a Mr. Mike Huckabee. In both cases, the IRS found no violation. In India, a similar rule is found in Foreign Contribution Regulation Act, 1976 (FCRA). Organisations registered under FCRA are not allowed to engage in any political activities. However, there is not much clarity on what constitutes political activity. [References: ·
‘IRS Drops Investigations of United Church of Christ and First
Southern Baptist’ May 28, 2008 Vol. 9, No. 11, OMB Watch at http://www.ombwatch.org/article/articleview/4261/1/538
·
IRS guidance and ruling on political activities at http://www.irs.gov/pub/irs-drop/rr-07-41.pdf
·
Sections 4, 5, and 6 of FCRA 1976 at http://mywebpage.netscape.com/aahandbooks/FCRA/FCRA_Act_1976.pdf
] (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 masquerading 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
sanatorium which are let out for rent while their primary objects are
charitable. 7. State Road Transport Corporations
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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