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Charities put on the grind

There is practically no change but there are some assurances. Charities, which are affected by the withdrawal of tax exemption of income from activities incidental to the object of general public utility is saved only for agricultural marketing commodities by Sec. 10(26AAB) now inserted in the Act. Others affected like sports bodies, those engaged in the promotion of handicrafts, protection of disabled, non-formal education, promotion of arts and science and the like are not subject matter of exception.

The Finance Minister in his speech before the Parliament while piloting the Bill, has given the following assurance:

“I once again assure the House that genuine charitable organisations will not in any way be affected. The Central Board of Direct Taxes (CBDT) will, following the usual practice, issue an explanatory circular containing guidelines for determining whether an entity is carrying on any activity in the nature of commerce or business. Whether the purpose is a charitable purpose will depend on the totality of the facts of the case. Ordinarily, chambers of commerce and similar organisations rendering services to their members would not be affected by the amendment and their activities would continue to be regarded as ‘advancement of any other object of general public utility”.

Though chambers of commerce are hit by the amendment, he has promised them and other similar organisations relief in respect of their income from dealings with members, which is even otherwise exempt on principle of mutuality. He has further assured that “genuine” charities will not be affected as will be explained by way of the annual Circular explaining the amendments. Since the Circular for Finance Act, 2007, was issued on March 12, 2008, after the next Finance Bill, an early circular giving promised relaxation should help, since the new law will apply for income even from April 1, 2008. Whether the Circular will override the law and relax the rigours of the amendment for “genuine” charities is yet to be seen.

It is a hard task for the CBDT to identify “genuine” charities among the large number of charities affected by the amendment, when no guidelines for the task is available in the amendment or the Finance Minister’s speech.

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