The Finance Act 2017 has added two conditions for charitable organizations in order to avail benefit u/s 11 & 12.
One of the proposed conditions is that the charitable organization shall be required to file income tax returns before 30th September of the assessment year. In other words the Income Tax exemption for that particular year may not be available to a NGO if the Income Tax returns are filed after 30th September of the assessment year.
In this issue we discuss these amendments requiring charitable organizations to fulfil certain conditions in order to continue their exemption status granted under Sections 12A & 12AA.
For more information please read:
Trust - Changes under Section 12A & 12AA
INTRODUCTION
1.1 The Finance Bill 2017 has amended the section 12A and 12AA of the Income Tax Act. It may be noted that section 12A and 12AA are the sections under which a charitable organisation applies for registration as an exempt organisation. The proposed amendments provide that any organisation availing benefit of tax exemption under section 11 should be subjected to the following additional conditions (i) the organisation should inform the Commissioner of Income Tax within 30 days if there is any change in the object clause which changes the character of the organisation (ii) the organisation should file Income Tax returns under section 139(4A).
AMENDMENTS MADE BY FINANCE BILL, 2017
1.2 Clause 9 of the Bill seeks to amend section 12A of the Income-tax Act relating to conditions for applicability of sections 11 and 12. It is proposed to insert a new clause (ab) in sub-section (1) of said section so as to provide another condition for applicability of sections 11 and 12, where a trust or an institution has been granted registration under section 12AA or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996], and, subsequently, it has adopted or undertaken modification of the objects which do not conform to the conditions of registration, it shall be required to make an application for registration in the prescribed form and manner, within a period of thirty days from the date of such adoption or modification in the objects, and that it is registered under section 12AA. It is also proposed to insert a new clause (c) in sub-section (1) of the said section so as to provide that the person in receipt of the income shall furnish the return of income referred to in sub-section (4A) of section 139 within the time allowed under that section. These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to assessment year 2018-2019 and subsequent years. Clause 10 of the Bill seeks to amend section 12AA of the Income-tax Act relating to procedure for registration. It is proposed to amend sub-sections (1) and (2) of the said section so as to give reference of newly inserted clause (ab) in section 12A. The proposed amendment is consequential in nature. This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to assessment year 2018- 2019 and subsequent years.
RATIONALE AND CONTROVERSY
1.3 The proposed amendments will resolve certain existing controversies as under:
- There has been considerable amount of confusion with regard to the power of the CIT in case of amendment to the object clause of Trust Deed or Memorandum of Association. There are numerous were the CIT rejected the application for 12AA registration if the Trust Deed did not provide for a clause stating "any amendments shall be subject to prior approval of the CIT". This amendment should provide relief to organisations applying for 12AA registration, as it clarifies that any amendment to the Trust Deed is the prerogative of the organisation and the CIT has no authority to insist on a prior approval. However all such amendments should be informed within 30 days. If the organisation fails to inform within 30 days then such failure could be a reason for cancellation of registration. It may further be noted that these provisions will apply only if the organisation has made some amendments in the objects which do not conform to the conditions of registration, in the prescribed form and manner. In other words, if some amendments which do not violate the conditions are made then no coercive action can be taken even if such changes are not informed within 30 days.
- The second condition states that an organisation shall furnish the return of income referred to in sub-section (4A) of section 139 within the time allowed under that section. This is a positive amendment towards greater compliance. Ironically a 12AA registered organisation was not mandatorily required to file return unless its income exceeded the taxable limit. With the proposed amendments all 12AA registered organisation have to file returns under section 139(4A) otherwise non filing of return could be treated as a reason for cancellation of registration.
CONCLUSION
The proposed amendments are positive in nature; however, these issues could have been handled in a more holistic manner. For instance, it provides that if there is any change which does not confirm to the condition of 12AA registration then only it should be informed to the CIT. Ideally any change in the object clause should be informed to the CIT because a change which violates the conditions of registration would in any case invalidate the registration of the said organisation.
Other IT department information’s related to trusts:
http://www.incometaxindia.gov.in/booklets%20%20pamphlets/assessment-of-charitable-trust-and-institution.pdf
One of the proposed conditions is that the charitable organization shall be required to file income tax returns before 30th September of the assessment year. In other words the Income Tax exemption for that particular year may not be available to a NGO if the Income Tax returns are filed after 30th September of the assessment year.
In this issue we discuss these amendments requiring charitable organizations to fulfil certain conditions in order to continue their exemption status granted under Sections 12A & 12AA.
For more information please read:
Trust - Changes under Section 12A & 12AA
INTRODUCTION
1.1 The Finance Bill 2017 has amended the section 12A and 12AA of the Income Tax Act. It may be noted that section 12A and 12AA are the sections under which a charitable organisation applies for registration as an exempt organisation. The proposed amendments provide that any organisation availing benefit of tax exemption under section 11 should be subjected to the following additional conditions (i) the organisation should inform the Commissioner of Income Tax within 30 days if there is any change in the object clause which changes the character of the organisation (ii) the organisation should file Income Tax returns under section 139(4A).
AMENDMENTS MADE BY FINANCE BILL, 2017
1.2 Clause 9 of the Bill seeks to amend section 12A of the Income-tax Act relating to conditions for applicability of sections 11 and 12. It is proposed to insert a new clause (ab) in sub-section (1) of said section so as to provide another condition for applicability of sections 11 and 12, where a trust or an institution has been granted registration under section 12AA or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996], and, subsequently, it has adopted or undertaken modification of the objects which do not conform to the conditions of registration, it shall be required to make an application for registration in the prescribed form and manner, within a period of thirty days from the date of such adoption or modification in the objects, and that it is registered under section 12AA. It is also proposed to insert a new clause (c) in sub-section (1) of the said section so as to provide that the person in receipt of the income shall furnish the return of income referred to in sub-section (4A) of section 139 within the time allowed under that section. These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to assessment year 2018-2019 and subsequent years. Clause 10 of the Bill seeks to amend section 12AA of the Income-tax Act relating to procedure for registration. It is proposed to amend sub-sections (1) and (2) of the said section so as to give reference of newly inserted clause (ab) in section 12A. The proposed amendment is consequential in nature. This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to assessment year 2018- 2019 and subsequent years.
RATIONALE AND CONTROVERSY
1.3 The proposed amendments will resolve certain existing controversies as under:
- There has been considerable amount of confusion with regard to the power of the CIT in case of amendment to the object clause of Trust Deed or Memorandum of Association. There are numerous were the CIT rejected the application for 12AA registration if the Trust Deed did not provide for a clause stating "any amendments shall be subject to prior approval of the CIT". This amendment should provide relief to organisations applying for 12AA registration, as it clarifies that any amendment to the Trust Deed is the prerogative of the organisation and the CIT has no authority to insist on a prior approval. However all such amendments should be informed within 30 days. If the organisation fails to inform within 30 days then such failure could be a reason for cancellation of registration. It may further be noted that these provisions will apply only if the organisation has made some amendments in the objects which do not conform to the conditions of registration, in the prescribed form and manner. In other words, if some amendments which do not violate the conditions are made then no coercive action can be taken even if such changes are not informed within 30 days.
- The second condition states that an organisation shall furnish the return of income referred to in sub-section (4A) of section 139 within the time allowed under that section. This is a positive amendment towards greater compliance. Ironically a 12AA registered organisation was not mandatorily required to file return unless its income exceeded the taxable limit. With the proposed amendments all 12AA registered organisation have to file returns under section 139(4A) otherwise non filing of return could be treated as a reason for cancellation of registration.
CONCLUSION
The proposed amendments are positive in nature; however, these issues could have been handled in a more holistic manner. For instance, it provides that if there is any change which does not confirm to the condition of 12AA registration then only it should be informed to the CIT. Ideally any change in the object clause should be informed to the CIT because a change which violates the conditions of registration would in any case invalidate the registration of the said organisation.
Other IT department information’s related to trusts:
http://www.incometaxindia.gov.in/booklets%20%20pamphlets/assessment-of-charitable-trust-and-institution.pdf
