TAX FORUM : QUESTIONS & ANSWERS
How does the Code treat religious trusts and institutions?
There is no reference to appeal to the High Court, but there is provision for appeal to National Tax Tribunal.
Religious and other charitable institutions are both liable for registration and are governed by rules relating to application and accumulation at present. Direct Taxes Code, 2009, would give a more privileged position of total immunity from taxation for religious trusts and institutions by exemption in Item No. 37 in the Seventh Schedule, which lists exemptions for persons not liable for income-tax under Sec. 10 of the Code. “Public religious or charitable trusts
221;, “endowments” and “societies” with “religious or charitable purpose” are exempt under Item No. 37 as long as they are “any body or authority established, constituted or appointed by or under any Central, State or Provincial Act”, which provide for the administration of “public religious or charitable trust, endowments or societies.” This definition may be understood narrowly. There is also a further specific exemption under Item No. 38 for those covered by any Central, State or Provincial Act for regulating religious endowments. These two entries indicate these exemptions are meant more for regulatory bodies and not for all religious trusts or institutions. This is amplified by paragraph 15.6 of the Discussion Paper in the Chapter dealing with non-profit organisations, which reads as under:
“15.6 The income of any trust or institution recognised/ registered under the religious endowment Acts of the Central Government or the State governments shall be fully exempt from income-tax. However, donations to such trusts or institutions will not enjoy any deduction in the hands of the donor.”
The Discussion Paper refers only to those recognised or registered under Religious Endowment Act as in Entry 38, but Entry 37 could be understood in a broader sense as it covers all religious institutions which are constituted under any law with religious object. Such an interpretation would require official confirmation. In fact, it also refers to charitable institutions, when it mentions “religious or charitable purposes”. But in view of the provisions relating to non-profit organisations covering charitable institutions for “permitted welfare objects” in Chapter IV of the Act, they cannot possibly be put on a par with religious institutions. The provisions lack clarity. Those trusts and institutions covered by Item No. 37 and 38 of the Seventh Schedule would not be subject to requirement of registration and other regulations for charities relating to investments, application and accumulation of income hitherto covered by the present Act or other non-profit organisations under the present Code.
Though donation for religious institutions do not qualify for deduction, an amount of 50 per cent of donation will qualify under item C(10) of the Sixteenth Schedule as under the present law for donations made to temple, mosque, gurudwara, church or other place as is notified by the Centre in the Official Gazette to be of historic, archaeological or artistic importance or to be a place of public worship of renown throughout any State or States, for renovation or repair of such temple, mosque, gurudwara, church or other place.
Appeal procedure
Revisional power of the Commissioner under Sec. 144 of the Code will be confined as indicated in the title to the provision, “Revisional orders prejudicial to revenue”. Corresponding provision now available under Sec. 264 of the Act for relief to the assessee will be abolished. Power to condone the delay in admission of appeal will be limited for Commissioner (Appeals) to one year as against unlimited power now available for sufficient cause. In the absence of revisional power, this provision will create undue hardship in genuine cases. Time limit of one year is stipulated for disposal of appeal. A limit for time limit for condonation of delay is newly placed for the Tribunal as well as one year as for Commissioner (Appeals) irrespective of existence or otherwise of sufficient cause or hardship, which would otherwise be caused in genuine cases. There is no reference to appeal to the High Court, but there is provision for appeal to National Tax Tribunal from which further appeal is possible to the Supreme Court.
TDS
Sec. 195 to 201 relate to tax deduction at source. The Third Schedule gives the requirements of tax deduction in respect of payments to residents and the Fourth Schedule as regards payments to non-residents. The rental for use of machinery and plant under Sec. 194-I will be one per cent as against the present rate of 2 per cent with one per cent confined now only to payments to individuals and Hindu Undivided Families. Rate for winnings from lottery and horse races is also repeated at 30 per cent, but will be inconsistent with the top slab rate at 25 per cent proposed in the Code. If Permanent Account Number of the payee is not furnished, the rate of tax deduction at source will be 20 per cent even as stipulated by the Finance (No.2) Act, 2009. The minimum limit for tax deduction at source for various categories of payments remains the same. The provision for getting credit, where tax is deducted is conspicuous by its absence in the Code. But rule-making power is taken by the Board for prescribing conditions for giving credit to the deductee or any other person, the year in which such credit may be given or any other matter connected therewith under Sec. 201 of the Code.
S. RAJARATNAM
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