The cancellation of registration of six Tata Trusts by the Income Tax Department is just the latest in its efforts to ensure that only genuine charitable institutions get benefits.

Tax experts claimed though the Tata Trusts had offered to surrender the registration, in most other cases, complying with the various provisions governing charitable trusts is becoming tougher.

Over the last few years, the Central Board of Direct Taxes (CBDT) made a number of changes for these trusts to claim tax exemption in a transparent manner.

For instance, the new norms for cancellation of registration of such trusts announced in the Budget this year and the new income-tax return forms for assessment year 2019-20 that require a lot more disclosures.

Similarly, last year, the CBDT had directed field officials to closely monitor donations made to trusts, after it recently found a bogus donation racket of a research institute with offices in Mumbai and Puducherry.

Fresh registration

Previously, the Finance Act 2017 had proposed amendments to Rule 17A and Form 10 A and made it mandatory for a trust, having any tax exemption, to inform the Commissioner of Income Tax (CIT) and seek fresh registration if there was any change in its charitable purpose from what was originally intended. Trusts formed for charitable or religious purposes, which are not involved in commercial activities, get tax benefits under the Income Tax Act, 1961. These trusts have to be registered under Section12 (A) of the Income Tax Act.

“To ensure that the charitable trusts do not deviate from their objects, the government announced sweeping changes in this year’s Budget from September 1, 2019 for cancellation of registration of trusts on non-compliance of other laws having material impact on the objects of the trust,” said Sanjoli Maheshwari, Director (Direct Tax), Nangia Andersen Consulting.

She noted that empowering the Commissioner (Income Tax) to ascertain whether a trust is compliant with all laws for the purpose of cancellation of registration could prove to be a challenge. The new return forms for charitable trusts require disclosures to be reported for the source of funds for revenue and capital expenditures incurred during the year, along with separate disclosure for disallowance of expenditures.

On October 31, the I-T Department cancelled the registration of six Tata trusts: Jamsetji Tata Trust, RD Tata Trust, Tata Education Trust, Tata Social Welfare Trust, Sarvajanik Seva Trust and Navajbai Ratan Tata Trust.

Voluntary cancellation

Amit Maheshwari, Partner, Ashok Maheshwary and Associates, said: “Yes, trusts have come under increased scrutiny both from the tax department as well as the Ministry of Home Affairs. Tata Trusts has been the most high-profile matter. This matter is, though, different. Tata Trusts had themselves applied for cancellation in 2015.”

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