Editorial
The recent amendments to the Income Tax Act carried out by
the Finance Act 2008 in relation to taxation of charitable trusts reflect very
poorly on the Government, and raise serious doubts as to its intentions. It
seems to be part of a disturbing trend to punish all for the transgressions of a
few.
On the face of it, the amendment seems innocuous. The
definition of charitable purpose has been amended to provide that one of the
limbs, any other object of general public utility, shall not include the
carrying on of any activity in the nature of trade, commerce or business, or any
activity of rendering any service in relation to any trade, commerce or
business, for a cess or fee or any other consideration, irrespective of the
nature of use or application or retention of the income from such activity.
The ostensible reason for such amendment given by the
Government is that it desires to deny the benefit of exemption to purely
commercial and business entities, which wear the mask of a charity. A very
plausible reason indeed !
However, the amendment goes far beyond the stated reason. It
not only covers such business activities, but also activities which are
rendering services in relation to trade, commerce or business. The term ‘in
relation to’ being a very broad term, would rope in various activities carried
out by charitable trusts genuinely to raise funds for their other charitable
activities.
To illustrate, some of the charitable activities which may be
impacted include activities such as micro-credit, sale of greeting cards with
designs painted by the handicapped, sale of products manufactured by handicapped
persons, issue of certificates of origin by chambers of commerce, organising of
seminars, trade fairs and exhibitions, etc. These are all activities, which are
part of the objects, but are subservient to the main object. Carrying on any
such activity could result in complete loss of the exemption. Fortunately, pure
fund-raising activities may not be impacted.
Today, charity is not restricted to traditional activities of
education, medical relief or relief of poverty. Most NGOs carry on activities in
different spheres, which help improve the life of the general public. Be it
protection of the environment, eradication of corruption and promotion of
transparency in Government, improving the lot of tribals or other disadvantaged
groups, promotion of art and culture — all these are equally charitable
activities, though there may be some involvement of business for fund-raising,
assistance, etc.
No less a person than the former Prime Minister Rajiv Gandhi,
as well as his son (and heir-apparent?) Rahul Gandhi, have acknowledged that
only a fraction of funds spent by the Government for welfare of the downtrodden
actually reach the intended beneficiaries, and that NGOs can provide a far
superior delivery mechanism. In such circumstances, should the Government not be
promoting the activities of NGOs, rather than seeking to transfer funds from
NGOs to itself ? Ultimately, Government is supposed to exist for the people.
Should the need of and benefit to the general public not be the paramount
guiding factor in such matters ?
The Finance Minister has gone on record to clarify that
genuine charitable organisations will not in any way be affected, and that the
activities of Chambers of Commerce and similar organisations rendering services
to their members would continue to be regarded as “advancement of any other
object of general public utility”. If that indeed was the intention, what
prevented the Government from reflecting such intention in the provisions of the
law itself ? Are we to believe that the Government is incapable of expressing
its intention through precise wording of the law ? And that too when we have an
eminent lawyer at the helm of the Finance Ministry ?
We are further told that the CBDT, as usual, will come out
with an explanatory circular containing guidelines for determining whether an
entity is carrying on any activity in the nature of trade, commerce or business
or any activity of rendering any service in relation to any trade, commerce or
business. Of late, it is noticed that such circulars do not provide any guidance
on debatable issues, but merely parrot the provisions of the section. One hopes
that at least this time the circular will really be explanatory !
Such circulars explaining provisions of the Finance Act are
generally issued by the CBDT only in December. Do charitable trusts have to keep
their activities on hold till December to find out whether their activities are
permissible or not, or to know whether they are liable to pay advance tax or
not ? One hopes that one is proved wrong for once, and at least on this aspect,
a circular is issued immediately. Not to do so is to do grave injustice to
charity and cause a severe loss to the general public !
Gautam Nayak
