The Hindu Business Line : For the welfare of charities

Following the enactment of this section, charitable institutions fall into three categories — wholly religious; partly religious and partly charitable; and wholly charitable.

ADs are not taxable in the first category. In the second category, ADs can be taxed only when these are received with a direction for use in any university, educational institution, hospital or medical institution run by the charitable institution.

The condition becomes meaningless as when the identity of the donor itself is not known, the authenticity of such directions cannot be checked.

Thus, in this case also, ADs will not be taxable. In the last category, tax on ADs are leviable at the highest rate of 30 per cent + SC + EC, that is, at 33.99 per cent.

AD has been defined in Section 115BBC(3) to mean voluntary donation where a person receiving such contribution does not maintain a record of the identity of the donor. According to CBDT’s Circular No.14, this section has been enacted to prevent channelisation of unaccounted money to wholly charitable institutions by way of ADs.

Misconceived provision

The new provision is apparently misconceived, and raises many questions:

Why ADs to wholly religious entities be exempt and not to wholly charitable ones?

Why should availability of funds in general category cases doing charitable work for the masses be curtailed by appropriating 33.99 per cent by way of tax?

General category charitable institutions serve the masses on a wider scale than wholly or partly religious bodies. In India, with no social security net, the general category charitable bodies are catering to various needs, such as safety and well being of oppressed and destitute persons, the treatment and care of terminally ill patients, and the care and protection of cattle and livestock.. Their activities in such areas would get curtailed if a third of the donations are taxed.

Committee’s observations

The Rajya Sabha Committee on Petitions had examined Section 115BBC, heard the Finance Ministry team headed by the Secretary (Revenue), considered the provisions of the I-T Act on charities, and came to the following conclusion:

The Finance Ministry’s explanations, supporting the section, are ‘not convincing and acceptable’.

Public resentment against the provision is evident from the fact that in response to the press release by the Committee, 1,13,540 memoranda were received opposing the provision.

General charitable bodies perform tasks which the Government has not been able to carry out to the desired extent. If donations are taxed at the highest rate, then the activities of these organisations would suffer a severe setback.

It is common practice for charitable organisations to keep donation boxes. It is in public knowledge that such boxes are opened following well-laid-down procedures. The proceeds are a good source of income for trusts.

It cannot be concluded that every AD is from unaccounted source.

Rather than tax such donations, the Government should monitor the end use of such money.

The Committee has, therefore, recommended that the relevant provision of the I-T Act be reviewed and exempt charitable organisations such as orphanages, old-age homes, etc.

The Constitution enjoins upon the state to secure social, economic and political justice and initiate measures for the welfare of the people.

Charitable organisations supplement the Government in performing these functions. Hence curbing their activities on the ground that it checks the use of unaccounted money is unfortunate. It is wrong to presume that ADs are always from unaccounted sources.

In many cases these are the hard-earned money of those keen to do their bit for the welfare of society. Hence, the Rajya Sabha Committee report should convince the Finance Ministry that Section 115BBC needs to be restructured to ensure that genuine charitable activities are given due recognition. Corrective action needs to be taken in the ensuing Budget.

(The author is a former chairman of CBDT.)