Mr. Dindayal Dhandaria (Chartered Accountant) extensively discusses the amendments proposed by Finance Bill, 2022 meant to rationalize the provisions u/s 10(23C) and 12A/12AA. He analyses the amendments from the perspective of computation of taxable income, maintenance of books, audit, penalty, cancellation of registration, specific violations, furnishing of return, etc. He also points out inconsistent provisions between two regimes which are not addressed by the proposed amendments. Discussing the proposed procedure for re-registration of existing trusts, he highlights that the PCIT/CIT imposed as many as 18 conditions in Form 10AC as conditions subject to which registration was granted, which were not there in Sections 10 and 11 to 13. He illustrates the impact of non-compliance of any of the conditions by a Trust in a flow chart and exclaims, “The consequences of failure are devastating…”. He finds the proposed amendments to be whimsical, confiscatory and unconstitutional.

“No Trust on Trusts” 

INTRODUCTION

The applicability of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (hereinafter referred to as “the TOLA”) was deferred from time to time due to situation created by COVID-19 pandemic and it finally came into effect from 1-4-2021. By this Act, sweeping changes were made in the process of registration and/or renewal of various charitable institutions (e.g., charitable or religious trusts, medical and educational institutions), which, inter alia, provided that a Charitable Institution could not enjoy dual exemption under both the sections 10(23C) and 12A of the Income Tax Act, 1961 (“the Act”) and it was required to opt for any one of them. This necessitated comparison of the pros and cons of the said two provisions. The charity institutions could have been spared this exercise if the changes now proposed by the Finance Bill, 2022 (hereinafter referred to as “the Bill”) were made then. 

TWO SETS OF AMENDMENTS

The Bill proposes amendments to remove the differences between the trusts or institutions exempt u/s. 10 and 11, without merging the two. Moreover, amendments now proposed for trusts covered by section 11 are made applicable to trusts covered by section 10 also. In this way, we find two sets of similar proposed amendments. For this purpose, the Bill describes the trusts and institutions into two regimes as follows: 

a) Regime for any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 (hereinafter referred to as trust or institution under first regime); and

b) Regime for the trusts registered under section 12AA/12AB (hereinafter referred to as trust or institution under the second regime).

OBJECT OF THE AMENDMENTS

The Bill proposes to rationalise the provisions of both the exemption regimes by-

ensuring their effective monitoring and

bringing consistency in the provisions of the two exemption regimes; and

providing clarity on taxation in certain

OVERVIEW OF THE PROPOSED AMENDMENTS

1. Maintenance of Books of accounts

Although the trusts or institutions under both the regimes are required to get their accounts audited if their total income exceeds the prescribed limit, there is no specific provision under the Act providing for the books of accounts to be maintained by them, except in relation to incidental business carried out a trust. The Bill provides that  such trust or institution (under both the regimes) shall keep and maintain books of account and other documents in such form and manner and at such place, as may be prescribed. It is implicit that for getting their accounts audited, the trusts or institutions maintain such books of accounts as enables an Auditor to report thereon. But now, the trusts or institutions would be required to maintain such books of accounts and other records as may be prescribed. It is likely that such prescribed accounts would enable gathering of information relevant for the purposes of the Act, (e.g. details of voluntary contributions received, investment of corpus funds/ accumulated funds, and so on).

No monetary penalty is muted for failure to maintain the prescribed books of accounts as is provided in section 271A of the Act in other cases. But this is no cause for rejoice, as penal consequences are harsher. The maintenance of the prescribed books of accounts is a necessary condition for availing exemption by trusts under both the regimes and the failure to do so will be tantamount to specified violation, resulting into cancellation of the registration and therefore, the provisions relating to accredited income contained in section 115TD would become applicable.

2. Audit

Under the existing law, the trusts under both the regimes are required to get their accounts audited if their gross receipts exceed the specified sum and are required to furnish the audit report within the due date. But, now this requirement is proposed to be converted into a condition for availing exemption which will be subjected to penal consequences as stated in the preceding paragraph relating to maintenance of accounts.

3. Amendments relating to benefits to specified persons

Existing law: In case of trusts under second regime, section 13(1)(c) provides that no exemption under section 11 or 12 will be available if any part of the income or property of the trust or the institution is during the previous year used or applied, directly or indirectly for the benefit of any trustee or specified person. However, sub-section (6) of section 13 provides an exception in respect of educational or medical facilities to them. There was no such provision in case of trusts under the first regime.

Proposed: The Bill proposes to insert twenty-first proviso to clause (23C) of section 10 to provide that if the trusts of first regime apply directly or indirectly the income or part of income or its property for the benefit of specified persons, such income or part of income or property shall be deemed to be the income of such person of the previous year in which it is so applied.  [The amendment does not provide for denial of exemption].  

Under the existing law, the registration of trusts under the first regime was liable to cancellation upon provision of benefits to specified persons. But there was no clarity as to what could be the amount of income subject to penal taxation for such violation. 

The bill provides that the benefits provided to related persons under both the regimes will be  treated as “specified income” and will be subjected to following consequences:

• Such income will be taxed at the rate of 30% without any deduction under the newly inserted section 115BBI.

• Such specified income will be liable to penalty u/s. 271AAE. [Section 271AAE is discussed later in detail].

• The application of income for purposes other than objects is considered as an instance of “specified violation”, for which registration can be cancelled the provisions of section 115TD become applicable.

4. Penalty U/s. 271AAE

In order to discourage such misuse of the funds of the trust or institution by specified persons, it is proposed to insert a new section 271AAE in the Act to provide for penalty on trusts or institution under both the regimes which is equal to amount of income applied by such trust or institution for the benefit of specified person where the violation is noticed for the first time during any previous year and twice the amount of such income where the violation is notice again in any subsequent year. The proposed section seeks to operate without prejudice to any other provision of chapter XXI. Thus, if any penalty is leviable under any of the other provisions of this chapter, in addition to the proposed penalty, that penalty would also be applicable.

5. Reference to PCIT/CIT for cancellation of registration/approval

The TOLA provided for grant of provisional registration/approval in an automated manner.  It is now felt that non-genuine trusts or institutions do not get exemption provided by these provisions. Moreover, in the existing law, the provisions relating to reference for cancellation of trusts were different under both the regimes and there was no time limit to decide on references for the withdrawal by the PCIT/CIT.

In order to address the above issues, the Bill lays down the following circumstances when the registration/approval of a trust or institution can be cancelled:

• Occurrence of one or more “specified violations” during any previous year. [The “specified violations” are described hereinafter].

• Reference from the Assessing Officer under the second proviso to section 143(3); and

• Selection of the case under the risk management strategy of CBDT.

6. Specified violations

In case of the second regime, the term “specified violation” is proposed to be defined by inserting an Explanation to sub-section (4) of section 12AB of the Act to mean the following violation :-

1. Income is applied for purposes other than its objects. [Granting of unreasonable benefits to related persons may be deemed as application of income for other purposes].

2. Income from profits and gains of business which is not incidental to the attainment of its

3. Separate books of account are not maintained by it in respect of such non-incidental business.

4. the trust or the institution under the second regime has applied any part of its income from the property held under a trust for private religious purposes which does not enure for the benefit of the public; or

5. Application of any part of its income for the benefit of any particular religious community or caste;

6. Activities caried are not genuine.

7. Activities are not being carried out in accordance with all or any of the conditions subject to which it was

8. Non-compliance with the requirement of any other law, as referred to in item (B) of sub-clause (i) of clause (b) of sub-section (1) of section 12AB, and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained

In case of the first regime, the term “specified violation” is proposed to be defined in the same manner except that the violations stated at serial numbers 4 and 5 hereinabove are not applicable to them.

7. Time limit for passing order for cancellation

For both the regimes, the Bill provides that order for cancellation of registration/approval by PCIT/CIT shall be passed before expiry of the period of six months, calculated from the end of the quarter in which the first notice is issued by the Principal Commissioner or Commissioner, on or after the 1st day of April, 2022, calling for any document or information, or for making any inquiry.

It is also clarified that where reference for cancellation of registration or approval is made on or before the 31st March, 2022 by the Assessing Officer such references shall be dealt with in the manner provided under the existing law.

8. Procedure to be followed for cancellation

The Bill proposes that in case of both the regimes, the Principal Commissioner or Commissioner shall—

• call for such documents or information from the fund or trust or institution or any university or other educational institution or any hospital or other medical institution or make such inquiry as he thinks necessary in order to satisfy himself about the occurrence of any specified violation.

• pass an order in writing cancelling the approval of such fund or trust or institution or any university or other educational institution or any hospital or other medical institution, on or before the specified date, after affording a reasonable opportunity of being heard, for such previous year and all subsequent previous years if he is satisfied that one or more specified violation has taken

• pass an order in writing refusing to cancel the approval of such fund or trust or institution or any university or other educational institution or any hospital or other medical institution, on or before the specified date, if he is not satisfied about the occurrence of one or more specified violations.

• forward a copy of the order under clause (ii) or (iii), as the case may be, to the Assessing Officer and such fund or trust or institution or any university or other educational institution or any hospital or other medical

8. Consequential amendments relating to cancellation of registration

The Bill proposes that if the Assessing Officer is satisfied that the trusts under any of the regimes has committed any specified violation, he shall send a reference to the PCIT/CIT to withdraw the approval or to cancel the registration, as the case may be and he shall not make an assessment of the total income or loss of such fund or institution without giving effect to the order passed by the PCIT/CIT on such reference.

Another consequential amendment is proposed in section 153 to provide that the period commencing from the date on which the Assessing Officer makes a reference to the PCIT/CIT and ending with the date on which the copy of the order is received by the Assessing Officer shall be excluded in computing the period of limitation.

These amendments are applicable to both the regimes.

9. Circumstances when registration of trust can be cancelled

As per the proposed amendments, trusts under both the regimes may be denied exemption and their registration/approval is liable to cancellation if they violate any of the following conditions:

• Commtting one or more of the “specified violations”

• Reference from the Assessing Officer under the proviso to section 143(3).

• If the ciase has been selected in accordance with the Risk Management Strategy of CBDT.

10. Bringing consistency in the provisions of the two regimes

The following provisions will take effect from the 1^st April 2023 and will accordingly apply in relation to the assessment year 2023-24 and subsequent years:

a) Furnishing of Return of Income

At present, the trusts in the first and second regimes are required to furnish their return of income under sections 139(4C) and 139(4A) respectively.  But whereas in case of the trusts under the second regime, the furnishing of a return of income is a necessary condition for availing exemption under section 12A, there is no such condition in the case of the first regime. 

The Bill now proposes to insert twentieth proviso to clause (23C) of section 10 of the Act to provide that any trust or institution under the first regime will be required to furnish the return of income for the previous year as a condition for availing exemption.

b) Prohibition regarding benefits to specified persons extended to first regime

Under section 13 of the Act, trusts or institutions under the second regime are required not to pass on any unreasonable benefit to the trustee or any other specified person. It is proposed to insert twenty first proviso in clause (23C) of section 10 of the Act to provide that where the income or part of income or property of any trust or institution under the first regime, has been applied directly or indirectly for the benefit of any person referred to in sub-section (3) of section 13, such income or part of income or property shall be deemed to be the income of such person of the previous year in which it is so applied. The provisions of sub-section (2), (4) and (6) of section 13 of the Act shall also apply to trust or institution under the first regime.

c) Accumulation Provisions

Presently the following differences persist in the two regimes:

a) If there is shortfall in application of income, the Trusts under the second regime are allowed to accumulate the same subject to fulfilment of certain conditions, e.g. (i) furnishing of Form no. 10 within the due date; (ii) specifying the purpose and period of the proposed accumulation’ (iii) investing or depositing the money accumulated in the forms and modes specified in sub-section (5) of section 11. There is no similar provision in case of the first regime.

b) If there is shortfall in application of income, the Trusts under the second regime have the option of applying the same in the immediate next year subject to fulfilment of certain conditions, e.g. furnishing of Form no. 9A within the due date and specifying the reason for shortfall in application of income. There is no similar provision in case of the first regime.

c) In case of second regime, it is provided that if the income accumulated as per para a) above is not applied within 5 years, it shall be taxed in 6^th There is no such specific provision in the case of first regime and so, it is taxed in the 5^th year itself.

Out of above three differences, the Bill proposes to remove two differences covered by para a) and c) above by proposing as follows:

• The trusts under the first regime will also be allowed to accumulate the unspent amount upon the similar conditions as are appliable in case of the trusts under the second regime.

• The year of taxability of unspent accumulated amount in case of the second regime is advanced from 6^th year to 5^th

However, the Bill does not remove the difference stated in para b) hereinabove.

In case of the trusts of second regime, in computing the period of five years referred to in sub-clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, is excluded.  Similar provision is proposed in case of trusts of first regime. 

d) Tax on accredited income i.e. Exit Tax applied to trusts under first regime also

Chapter XII-EB, consisting of sections 115TD, 115TE and 115TF was introduced by the Finance Act, 2016. It provides for the taxation of accreted income of the trust falling in second regime, in certain cases. If a trust dissolves or merges with another charitable institution, no exit tax is payable by it.  But if it converts into a non-charitable organization or gets merged with a non-charitable organisation or a charitable organisation with dissimilar objects or does not transfer the assets to another charitable organisation, it is subjected to exit tax. There is no similar provision in case of the first regime. 

Hence, it is proposed to amend the provisions of section 115TD, 115TE and 115TF of the Act to make them applicable to any trust or institution under the first regime as well.

e) Assessing Officer’s power to allow application of income for other purposes

Where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited cannot be applied for the purpose for which it was accumulated or set apart, the Assessing Officer may, on an application made to him in this behalf, allow such person to apply such income for such other purpose in India as is specified in the application by that person and as is in conformity with the objects of the trust except for inter-trust payments. Presently, this power is available to the Assessing Officer in case of trusts under the second regime only. The Bill proposes to grant similar powers to the Assessing Officer in case of trusts under the first regime, as well.

11. Computation of taxable income

Presently, the trusts under both the regimes are governed by the provisions of sections 10, 11 to 13 of the Act and so long they enjoy exemption and their income is computed under these provisions.  The five heads of income (i.e. sections 14 to 59) are not applicable to it. But there is no clarity as to how their income would be taxed in the event of denial of exemption or cancellation of registration.    Upon denial of exemption pursuant to cancellation of registration, the trust’s income is taxed under the five heads of income and if a trust is not carrying any commercial activity or does not own a business undertaking, its income is taxed under residual head of “Income from other sources”  under sections 56 and 57 of the Act. While allowing deductions under clause (iii) of section 57, controversy arises as the application of income by a trust is not considered as an expenditure incurred wholly and exclusively for the purpose of making or earning such income.

Further, there is no uniformity between the provisions for cancellation of registration and taxation of the two regimes.

According to the proposed amendments, a trust’s income, under both the regimes, may have to be computed under either or more of the following circumstances:

• Taxation of specified income at special rate

• When it is denied exemption pursuant to cancellation of registration.

• When it has made specified violations

• Exit tax i.e. tax on accredited income

Otherwise i.e. when it is neither denied exemption nor it has made specified violations.

The law relating to computation under the above circumstances is stated hereinafter. But before proceeding to do so, it is pointed out that “application of Income” would be recognized on cash basis only.  See discussion under para 11 hereinafter also.

a) Taxation of “specified income” at “special rate”

Presently, a trust, under both the regimes, may be denied exemption if it grants a small amount of unreasonable benefit to related persons, or it fails to keep a small amount of the trust funds in specified modes. But, as stated earlier, there is no clarity how the income will be taxed. The Bill proposes that in addition to denial of exemption, such income would be treated as “specified income” and will be subjected to a special rate of tax.

The following amounts will be treated as “specified income” in case of both the regimes:

• Only that part of income which is applied for benefit to specified person.

• Only that part of income which has not been invested in specified modes.

• If 85% of income is not applied and no application is made for its accumulation, the amount of shortfall in application.

• That part of the accumulated income:

a) which is applied for purposes other than charitable or religious purposes.

b) which ceases to remain invested or deposited in any of the specified forms or modes.

c) is not utilised for the purpose for which it was accumulated.

d) Is credited or paid any other trust or institution

In case of a trust under the second regime, in addition to that part of the income which is applied for the benefit of a particular religious community or caste is also treated as “specified income”.  This is not applicable to trusts under the first regime.

A Trust under the first regime is granted the option to apply its income in the next year by following the prescribed conditions.  If it fails to do so, the shortfall  will be treated as “specified income”.  No such option is available to a trust under the first regime.

Special Rate of tax

All the above specified income are also required to be taxed at special rate. Hence, it is proposed to insert new section 115BBI in the Act providing that where the total income of any assessee being a trust under the first or second regime, includes any income by way of any specified income, the income-tax payable shall be the aggregate of—

i) the amount of income-tax calculated at the rate of thirty per cent on the aggregate of specified income; and

ii) the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the aggregate of specified income referred to in clause (i).

Further, no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provision of the Act in computing the specified income.

Under the existing law, if any part of the income or any property of the trust is used or applied during the previous year, directly or indirectly, for the benefit of specified categories of persons or the trust funds are invested in contravention of the specified modes, the trust was chargeable at the maximum marginal rate i.e. 42.44% for the assessment years 2021-22 and 2022-23.  The Bill proposes to reduce the rates to 30% and also makes it applicable to only that part of the income which is so used for the benefit of the specified persons and is not invested in the prescribed manner.

b) Computation of income when a trust is denied exemption pursuant to cancellation of registration

The Bill further provides that in the event of cancellation of registration the income of the trusts chargeable to tax, under both the regimes, shall be computed after  allowing deduction for the expenditure (other than capital expenditure) incurred in India, for the objects of the trust or institution, subject to fulfilment of the following conditions :-

(i) such expenditure is not from the corpus standing to the credit of such trust or institution as on the last day of the financial year immediately preceding the previous year relevant to the assessment year for which the income is being computed;

(ii) such expenditure is not from any loan or borrowing;

claim of depreciation is not in respect of an asset, acquisition of which has been claimed as application of income in the same or any other previous year; and

(iii) such expenditure is not in the form of any contribution or donation to any

(v) Disallowance will be made for cash payment and non deduction of TDS as provided in sections 40(a)(ia), 40A(3) and 40A(3A).

(vi) No set off of loss of earlier year(s).

It is important to note that no deduction is allowed for capital expenditure.

Specified income and anonymous donations are taxed at rates specifically provided for them.  Presently, non-exempt income is taxed as an A.O.P. under section 164(2) of the Act, i.e. on slab rates of tax.  After the proposed amendments, it is controversial whether the provisions of section 164(2) will continue to apply or the non-exempt income will be taxed at special rate of 30%.  See sub-para (e) hereinafter also.

c) Computation when there is a “specified violation”

In case of specified violation by a trust under any of the regimes, apart from imposition of tax at special rates, the Assessing Officer may direct that such person shall pay by way of penalty––

a) a sum equal to the aggregate amount of income of such person applied, directly or indirectly, by such person, for the benefit of any person referred to in sub-section (3) of section 12, where the violation is noticed for the first time during any previous year; and

b) a sum equal to two hundred per cent, of the aggregate amount of income of such person applied, directly or indirectly, by such person, for the benefit of any person referred to in sub-section (3) of section 12, where the violation is noticed again in any subsequent year.

d) Tax on accredited income i.e. Exit tax

in addition to the income-tax chargeable in respect of the total income of such specified person, the accreted income of the specified person as on the specified date shall be charged to tax and such specified person shall be liable to pay additional income-tax (herein referred to as tax on accreted income) at the maximum marginal rate @ 42.744% on the accreted income.

The “accredited income” means the amount by which the aggregate fair market value of the total assets of the trust or institution, as on the specified date, exceeds the total liability of such trust or institution computed in accordance with the method of valuation as may be prescribed. 

It should be noted that clause (i) of sub-section (3) of section 115TD (after proposed amendment) provides that if the registration of a trust under any of the regimes is cancelled, it shall be deemed, for the purposes of sub-section (1), to have converted into any form not eligible for registration.  Clause (a) of sub-section (1) of section 115TD provides that if a trust has converted into any form which is not eligible for grant of registration, then the trust, in addition to the income-tax chargeable in respect of its total income, its accredited income will be liable to additional income tax  at maximum marginal rate of tax as provided in the sub-section. This provision had far-reaching and adverse consequences. 

e) Computation of income in other cases

Presently, when a trust fails to apply or accumulate 85% of its gross receipts, the shortfall is subjected to tax at normal rates on slab rate basis u/s. 164(2) of the Act. The Bill proposes to provide for mechanism for computation of income within the corners of four sections, viz. 10 and 11 to 13.  Any shortfall in computation of income is treated as violation of the conditions of registration and is likely to attract the special rates of tax.  However, no consequential amendment is made in the provisions of section 164(2) and so, a controversy is likely to arise. 

12. Option to notified temples, mosques, gurudwaras, churches, etc. to treat voluntary contributions as corpus of the trust

As per the provisions of section 11(1)(d) of the Act, a voluntary contribution can be treated as a corpus donation if there is a specific direction to this effect from the donor. Although the notified places of worship mentioned above receive voluntary contributions from donors whose intention is to donate the sums towards corpus, the specific direction from them is not available, in many cases and so, the said notified places of worship are unable to satisfy the condition for treating a voluntary contribution as corpus. 

With a view to tackling the problem stated hereinabove, the Finance Bill 2022 proposes to grant an option to the trusts or institutions referred to in section 10(23C)(v) and 11 to treat the voluntary contributions as corpus donations subject to the prescribed conditions.  The Bill further provides for consequences if the conditions are violated.

For further details on this topic, refer to the Author’s another article published under the heading “Option to treat voluntary contributions as corpus donations sans specific direction from the donors”.

13. Clarification that application will be allowed only when it is actually paid

Trust or institution under both the regimes are required to apply 85% of their income for the purposes specified. As is evident from the word “ application”, it means actually paid. This is the position which has been held by different courts also. Accordingly it is being clarified by inserting Explanations “[Explanation 3 to clause (23C) of section 10 and Explanation to section 11] to provide that any sum payable by any trust under      the first or second regime shall be considered as application of income in the previous year in which such sum is actually paid by it irrespective of the previous year in which  the liability to pay such sum was incurred by such trust according to the method of accounting regularly employed by it. It is further proposed to insert proviso to the proposed Explanations [Explanation 3 to clause (23C) of section 10 and Explanation to section 11] to provide that where during any previous year, any sum has been claimed to have been applied by such trust, such sum shall not be allowed as application in any subsequent previous year.

14. APPLICABLE DATES OF THE PROPOSED AMENDMENTS

All the proposed amendments will take effect from 1^st April, 2023 and will accordingly apply to the assessment year 2023-24 and subsequent assessment years, except the following:

• The provisions relating to reference to the PCIT/CIT for the cancellation of registration which will take effect from 1^st April, 2022.

•The provisions granting option to treat the voluntary contributions as corpus by notified pl aces of worship which will take effect retrospectively from 1^st April 2021 and will accordingly apply in relation to the assessment year 2021-22 and subsequent years.

15. INCONSISTENT PROVISIONS BETWEEN TWO REGIMES – NOT TACKLED BY AMENDMENTS

Although the Bill proposes to do away with the differences in the provisions relating to the trusts under the two regimes, some differences remain between the two. For example, in case of a trust under the second regime, capital gain on transfer of a capital asset is not included in its income if the net consideration is applied in the manner stated in sub-section (1A) of Section 11.   Moreover, when a registration is granted to a trust under the second regime, then the provisions of sections 11 and 12 apply in respect of any income derived from property held under trust of any assessment year for which assessment proceedings are pending.  Such provisions are not applicable to a trust under the first regime.

16. SUMMARY

The Bill describes the various trusts and institution entitled to exemption under sections 10 and 11 to 13 into two regimes and attempts to provide similarity between the terms and conditions applicable to the two regimes.  Certain conditions were applicable to trusts under the second regime only.  They have been proposed to be made applicable to the trusts under the first regime also. Few new amendments proposed for trusts of the second regime have been made applicable to the trusts under first regime also.  Although there is greater similarity between the two, the separate identity of the two regimes is retained and so, there are two sets of amendments in the Bill.

The Bill seeks to provide clarity in the matter of computation of income of trusts under both the regimes and chargeability of tax upon them. 

The concepts of “specified income”, “special rate of tax”, “specified violations” and the circumstances under which a registration can be cancelled are well-defined. 

Option is granted to certain notified places of worship to treat the voluntary contributions received by it as corpus donations subject to certain conditions. 

17. CONCLUSION - TRAILER OF A HORROR STORY

At the time of granting re-registration to the existing trusts and allotting URN (unique registration number) under the new procedure effective from 1-4-2021, the PCIT/CIT imposed as many as 18 conditions in Form 10AC as conditions subject to which registration was granted. Many of such conditions are not there in sections 10 and 11 to 13, by virtue of which exemption is granted to a trust.  Obviously, while imposing various conditions through Form 10AC, the PCIT/CIT exceeded his authority.  The Bill now provides for some of the conditions which have been laid down in Form 10AC.  Such ratification operates prospectively. There are still a few conditions which have not yet been imposed by the Bill also.

For example, the 12^th condition of Form 10AC mandates that no asset shall be transferred without the knowledge of jurisdictional Commissioner of Income Tax to anyone, including to any Trust/Society/Non Profit Company etc.  There is no prescribed form for intimation to jurisdictional Commissioner of Income Tax.  The consequences of failure are devastating and are illustrated by the following chart.

 THE END – WHIMSICAL, CONFISCATORY AND UNCONSTITUTIONAL SHOW