Overview of amendments pertaining to charitable organisations
By Dr. Manoj Fogla, FCA
Suresh Kejriwal, FCA
I. Amendment to definition of 'Charitable Purpose'
The Finance Bill proposed to amend the definition of 'Charitable Purpose'. It has proposed two important changes, firstly, 'Yoga' has been included as an independent limb of 'Charitable Purpose' and, secondly, some clarity has been provided for the proviso pertaining tothe term 'business activity'.
A. Business Activity
For the first and the second provisos to Section 2(15), the following proviso shall be substituted, namely:
"Provided that the advancement of any other object of general public utility shall not be acharitable 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, unless—
(i) such activity is undertaken in the course of actual carrying out of such advancementof any other object of general public utility; and
(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;";
(1) It has been clarified that societies and trusts engaged in advancement of any other object of general public utility,can haveincidental business activities to the extent of 20% only. It will immensely help large organisations which were suffering because of the existing Rs. 25 lakhs limit.
(2) However, there is no clarity whether the total receipt shall also include the business receipts to determine 20% threshold limit.Further, this may impact small trusts which are presently taking the benefit of blanket limit of Rs.25 lacs irrespective of their total receipts.
(3) It has been clarified that societies and trusts engaged in advancement of any other object of general public utility, can have incidental business activities only if it pertains to advancement of their charitable objectives.It may be a litigatory matterassocieties and trusts engaged in advancement of any other object of general public utility, can have unrelated incidental business activities in the light of the Supreme Court decision in the case of Asstt. CIT v. Thanti Trust [2001] 247 ITR 785, wherein it was held that if the income generated from a business of publishing newspaper is being used completely for charitable purposes then such business should be considered as incidental.
B. 'Yoga' included as a limb of charitable purpose
The memorandum to the Finance Bill 2015 states "The activity of Yoga has been one of the focus areas in the present times and international recognition has also been granted to it by the United Nations. Therefore, it is proposed to include 'yoga' as a specific category in the definition of charitable purpose on the lines of education."
In the case of CIT v. Rajneesh Foundation [2006] 280 ITR 553 (Bom.), it was held that meditation, yoga and propagation of philosophy was charitable in nature and an object of general public utility. The Bombay High Court relied on the ruling of the Supreme Court in CST v. Sai Publication Fund [2002] 122 Taxman 437.
However, the major advantage of including Yoga in the first six limb of charitable purpose implies that, societies and trusts engaged in Yoga can now have incidental business activities without any financial limit.
Now, societies engaged in advancement of Yoga can have an income from even unrelated business activity as the proviso to section 2(15) which states that the business activity should be related to the objectives applies only to organisations engaged in the advancement of any other object of general public utility only.
II. Amendment of Accumulation related provisions
Currently, under section 11 a trust can accumulate its income for utilization in future years under the following two options:
(a) The trust can accumulate its income for utilization in next 12 months or when the income is actually received in future
(b) Accumulation for next five years.
Under the provisions of section 11 of the Act, the primary condition for grant of exemption to trust or institution in respect of income derived from property held under trust is that the income derived from property held under trust should be applied for the charitable purposes in India.
Where such income cannot be applied during the previous year, it has to be accumulated and applied for such purposes in accordance with various conditions provided in the section. While 15% of the income can be accumulated indefinitely by the trust or institution, 85% of income can only be accumulated for a period not exceeding 5 years subject to the conditions that such person submits the prescribed Form 10 to the assessing Officer in this regard and the money so accumulated or set apart is invested or deposited in the specified forms or modes. If the accumulated income is not applied in accordance with these conditions, then such income is deemed to be taxable income of the trust or institution.
There are radical changes in the provision relating to accumulation of income for utilisation in future. To exercise the above options the AO was required to be informed through filing of an intimation and Form 10 respectively. Though it was expected that the intimation and Form 10 were required to be filed along with the return under section 139(1), however, due to lack of clarity and judicial precedence assessee were allowed to file the intimation and Form 10 anytime before the completion of assessment under section 143(3).
The Finance Bill, 2015 proposes that intimation and Form 10 have to be filed within the time limit provided under section 139(1). Trust have to file return in time under section 139(1) and shall also file the intimation and Form 10 along with the return otherwise such accumulation will become taxable. In other words, organisation will lose benefit of accumulation and the entire amount of the relevant accumulation will become taxable, accordingly a new sub section (9) has been inserted to section 13.
III. Deduction under Section 80G
An amendment is proposed to section 80G which will provide deduction for donations made to 'Swachh Bharat Kosh' and'Clean Ganga Fund' as set up by Central Government.
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Prarthana Jalan
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