The farce of voluntary contributions

The Income-Tax Act, 1961 beckons one to enact a farce at several places. Trusts engaged wholly in charitable and religious activities state that the devotees' offering voluntarily invariably go to the corpus of the trust, lest they fall foul of Section 12 of the Income-Tax Act.

According to the Act, voluntary contributions other than to the corpus of a trust would be treated as income of the trust, thus come under the rigour of strict application and investment norms. It is not as if heavens will fall if this subterfuge is not resorted to because if they are voluntary contributions without swelling the corpus, all that happens is such contributions become the income of the trust and at least 85 per cent of them have to be applied for religious activities in the same year with the remaining 15 per cent being allowed to be accumulated for eventual application for the proclaimed activities within the next five years.

Directing the deluge of voluntary contributions to the corpus frees the trusts of the bother of having to utilise at least 85 per cent pronto. Corpus and accretions to corpus remain immune to taxation in perpetuity. The trust can work leisurely and unhurriedly without being heckled by the taxman. The devotees are not really bothered whether their contributions go the corpus or for financing the humdrum of day-to-day activities but shouldn't the government stop the farce?

Say no to driblets

The best way to stop the farce is to prescribe a minimum threshold for making the grade to the corpus. Dropping of a five-rupee coin belies the notion of corpus contribution. Indeed, corpus contributions envision sizeable amounts. Accordingly, the government must forthwith amend the income-tax law to say that all voluntary corpus contributions must be made through account payee cheques or drafts and should be for a minimum of say Rs 10,000.

An analogy drawn from the rarefied world of corporates is in order. Corpus contributions to companies are never in driblets. To be sure, in the depositories regime one can even acquire a single share from market or in a private deal but the company itself is never a party to such deals. That is, subscribers to share capital cannot just subscribe to a single share unless of course they happen to be subscribers to the memorandum of association.

It is not small contributions are being decried or dubbed as sham. It is the act of vesting them willy-nilly with the character of corpus contribution that is farcical. The proposed new order would exact a modicum of responsibility from trustees without belittling or hurting the sensibilities of the devotees.

(The author is a Delhi-based chartered accountant.)

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