Rethinking the EU-Med Partnership: Policy Innovation and the New Paradigm

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Annual conference exploring policy innovation and the transformative power of the EU in the EU-Med Partnership. Discusses the incentives, costs, and solutions in policy-making, highlighting the need for effective reforms and political commitment. Examines the core objectives, recent developments, and components of the new paradigm in the region and within the EU.

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Charitable & Religious Charitable & Religious Trust Trust Dr. Dr. Manoj Manoj Fogla CA. Suresh CA. Suresh Kejriwal (Assisted by CA. Tarun Kumar) (Assisted by CA. Tarun Kumar) Fogla Kejriwal Session No.5

Key Proposed Amendments Provisions for Cancellation of Registration or Approval Consistency in Two Exemption Regimes Benefit to Related Persons Computation of Income in certain situations Special Rate for Taxation of certain incomes Requirement to maintain Books of Accounts Application of Income on Payment Basis Certain Voluntary Contributions received by religious institutions February, 2022 | 02

1. Provisions 1. Provisions for Cancellation of for Cancellation of Registration or Registration or Approval Approval Dr. Manoj Fogla CA. Suresh Kejriwal (Assisted by CA. Tarun Kumar)

What will be considered as Specified Violations? Income applied for purpose other than objects. Income from Non-Incidental Business Separate books of Accounts not maintained for Incidental Business Applied income for benefit of any particular religious community or caste Activities carried are not genuine Activities are not according to the registration conditions Non-compliance with other laws February, 2022 | 4

Circumstances resulting in Cancellation Occurrence of one or more Specified Violations during any previous year. Reference from the Assessing Officer under the second proviso to Section 143(3). Case has been selected in accordance with the risk management strategy of CBDT. February, 2022 | 5

Issues & Controversies: Can AO make the reference for cancellation to PCIT/CIT before the completion of Assessment? February, 2022 | 6

Issues & Controversies: Can CIT impose additional conditions at the time of registration and can they become reason for cancellation? February, 2022 | 7

Issues & Controversies: Can selection of case basis of Risk Management Strategy be the reason for cancellation? February, 2022 | 8

Procedure to be followed by PCIT/CIT Pass an order in writing, cancelling the registration . A reasonable opportunity of being heard If not satisfied about the occurrence of one or more specified violations, pass an order in writing, refusing to cancel the registration Forward a copy of the cancellation order or order refusing to cancel the registration to the AO February, 2022 | 9

Time-limits to pass cancellation Order Cancellation order or order refusing to cancel the registration, as the case may be, shall be passed before the expiry of 6 months, calculated from the end of the quarter in which the first notice is issued by the PCIT or CIT, on or after the 01-04-2022, calling for any document or information, or for making any inquiry. February, 2022 | 10

2 2. Consistency in Two . Consistency in Two Exemption Regimes Exemption Regimes Dr. Manoj Fogla CA. Suresh Kejriwal (Assisted by CA. Tarun Kumar)

To bring Consistency in Two Regimes Requirement of furnishing to Income Tax Return as a condition. Requirement of uploading of Audit Report Restrictions on payment to specified person Accumulation provisions in line with Section 11(2) Aggregate tax under Section 115TD All the new proposed amendments for Section 12AB are also proposed to be made applicable for Section 10(23C). February, 2022 | 12

Differences in two regimes still remain Provisions for application of income outside India Option to spend in subsequent year Retrospective exemption in line with proviso to Section 12AB We understand this a move towards one regime from the existing two regimes , otherwise, there is no point to have two exemption regimes with the similar provisions February, 2022 | 13

Issues & Controversies How to choose between existing two regimes ? February, 2022 | 14

3. Benefit to related persons 3. Benefit to related persons Dr. Manoj Fogla CA. Suresh Kejriwal (Assisted by CA. Tarun Kumar)

Benefit to Specified Persons Amount subject to tax: Section 13(1)(c) deals with the implication of providing unreasonable benefit to specified person. Earlier providing unreasonable benefit has resulting into withdrawal of applicability of section 11 & 12 but there was no clarity of what shall be the amount on income subject to for penal taxation for such violation. The proposed amendment has brought certainty by providing the amount applied as un-reasonable benefit shall be the deemed income. Tax Rate: Such income shall be charged to tax @ 30% as per the newly inserted Section 115BBI February, 2022 | 16

Benefit to Specified Persons Penalty Such unreasonable benefit shall also be subjected to penalty under the newly inserted Section 271AAE Possibility of Cancellation The proposed amended provision of 12AB(4) one of the conditions for cancellation of registration includes: Where income derived for property has been applied other than for the object of the trust / institution Similar amendment proposed under section 10(23C) February, 2022 | 16

Issues & Controversies What is the meaning of Benefit to related persons? February, 2022 | 18

Issues & Controversies What is the possibility of cancellation on extending benefits to specified persons? February, 2022 | 19

Issues & Controversies: Can passing on the benefit even for a small amount be the reason for cancellation? February, 2022 | 20

4. Computation of Income in 4. Computation of Income in certain Situations certain Situations Dr. Manoj Fogla CA. Suresh Kejriwal (Assisted by CA. Tarun Kumar)

Circumstances when exemption isnt available Having commercial receipts in excess of 20% of the annual receipts in violation of the provisions of proviso to section 2(15). Not maintaining the books of accounts and records as prescribed Not getting the books of account audited. Not filing the return of income . February, 2022 | 22

Computation of Income The income chargeable to tax shall be computed after allowing the deduction for the expenditure (other than capital expenditure) incurred in India for the objects. Subject to fulfilment of the following conditions: 1. Expenditure is not from the corpus 2. Expenditure is not from any loan or borrowing 3. Claim of depreciation is not in respect of an asset which has been claimed as an application of income 4. Expenditure is not in the form of any contribution or donation to any person. 5. Disallowances for cash payment and Non TDS shall apply 6. No set off of earlier year loss February, 2022 | 23

Issues & Controversies If Section 12A conditions are not satisfied, will the income be computed under the 5 heads of Income? February, 2022 | 24

5. Special Rate for Taxation of 5. Special Rate for Taxation of Certain Incomes Certain Incomes Dr. Manoj Fogla CA. Suresh Kejriwal (Assisted by CA. Tarun Kumar)

Specified Income Income under section 11(1)(c) Income under section 11(1B) & 11(3) Income under section 13(1)(c): Benefit to specified person Income under section 13(1)(d) : 11(5) Investment Income accumulated or set apart in excess of 15% of the income where such accumulation is not allowed under any specific provision of this Act Note: Under new provision no deduction shall be allowed for computing specified income under any provision of the Act. February, 2022 | 26

Section 115BBI The income-tax on specified income shall be as under: The amount of income-tax calculated at the rate of 30% on the aggregate of specified income; and The amount of income-tax the assessee would have been chargeable had the total income of the assessee been reduced by the aggregate of specified income referred to above. No deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provision of the Act in computing specified income. February, 2022 | 27

Issues & Controversies What is the relevance of section 164(2) after the insertion of section 115BBI? How to deal with inconsistency between these two provisions? February, 2022 | 28

6. Requirement to maintain 6. Requirement to maintain Books of Accounts Books of Accounts Dr. Manoj Fogla CA. Suresh Kejriwal (Assisted by CA. Tarun Kumar)

Maintenance of Books of Accounts One additional condition: The books of accounts & other documents are kept and maintained in such Form, manner and at such place as may be prescribed. Though maintenance of books of accounts was an implicit condition because of the audit requirements but the proposed amendment has made it explicit. We need to wait for the Rules providing for form, manner & the place. Section 13(10) has been inserted for computing income chargeable to tax if books of accounts as provided are not maintained. Similar amendment are proposed under section 10(23C) February, 2022 | 30

7. Application of Income on 7. Application of Income on Payment Basis Payment Basis Dr. Manoj Fogla CA. Suresh Kejriwal (Assisted by CA. Tarun Kumar)

Cash Basis of Accounting It is proposed that the amount of application shall be considered only it is actually paid i) Irrespective of the year in which liability arises and ii) Irrespective of the method of accounting regularly employed Our Understanding: The proposed change has settled the controversy as it how the amount applied for shall be determined but: There will be a accounting challenge to determine the application amount on cash basis where accounts are maintained on accrual basis (Section 8 company ) In certain cases it will go against the TDS provisions which are also applicable to NGO Similar amendment are proposed under section 10(23C) February, 2022 | 32

Issues & Controversies Cash basis of accounting for application but still option can be exercised by filing Form 9A for income not received? Hence whether NGO need to follow Mixed system of accounting? February, 2022 | 33

8. Voluntary Contributions to 8. Voluntary Contributions to Religious Institutions Religious Institutions Dr. Manoj Fogla CA. Suresh Kejriwal (Assisted by CA. Tarun Kumar)

Option to treat as corpus donation Voluntary Contributions for the renovation and repair of Religious places notified under clause (b) of sub-section (2) of section 80G Normally the benefit of Section 80G are not available to religious trust In case of Religious cum charitable trust 80G approvals are given only if the expenditure on religious purpose does not exceed 5% of income Section 80G(2)(b) is a separate section enabling religious trust being a place of public worship throughout any State or States and notified as such by the Central Govt. can also apply & avail 80G benefit The proposed amendment is to bring certainty on the treatment of the voluntary received under this approval of 80G & it provides that the amount of voluntary contribution received can be treated as received towards corpus at the option of recipient NGO February, 2022 | 35

Conditions to be fulfilled Corpus to be applied only for the purpose for which the voluntary contribution was made; Corpus shall not be applied for making a contribution or donation to any person; Corpus to be maintained as separately identifiable; Corpus to be invested in Section 11(5) modes. February, 2022 | 36

Consequences on Violation If any trust or institution has treated any sum received by it as forming part of the corpus, and subsequently, any of the specified conditions is violated. In that case, such sum shall be deemed to be the income of such trust or institution of the previous year during which the violation takes place. February, 2022 | 37

Issues & Controversies Whether this amendment is for religious organization per se or only that part of donation which are subject to 80G approval ? February, 2022 | 38