New Delhi: I-T officials have objected to replacement of the word "charitable" with "welfare" for tax relief purposes in the new Direct Taxes Code (DTC), saying it could lead to misuse of concessions that are aimed at encouraging people to undertake activities for the welfare of poor.
Giving their feedback on the DTC to the Finance Ministry, senior tax officials from Mumbai and Ahmedabad have said that substituting "charitable" with "welfare" could widen the ambit of tax relief and benefit even those not-for-profit organisations which do not focus on welfare of poor.
Arguing that the word "welfare" would dilute the element of benevolence, essential for charitable purposes, they said, original definition for charities (as in Income Tax Act, 1961) should be included in the new tax code.
The draft of the DTC, which was unveiled by Finance
Minister Pranab Mukherjee in August for public debate, is
likely to be tabled in the monsoon session of Parliament next
year.
"In the present I-T Act, the exemptions of providing
relief to common man were categorised as income derived from
property held for charitable or religious purposes while the
new tax code calls it as computation of income of non-profit
organisations," a senior I-T official said.
While deciding cases of violation of tax exemption cases
the I-T tribunals and courts across the country have
interpreted "charity" with benevolence but in the new
definition there can be "a non-profit service but no
benevolence".
For instance, an NGO, which runs an expensive
multi-specialty hospital, may not earn profit, with no
individual getting any dividends, but the hospital will always
be away from the reach of the poor due to its exorbitant
costs, an official explained.
The new DTC has defined the provisions of NGO's and
their activities from section 86 to 96 which aim to replace
sections 11 to 13 and 10 (23C) of the present I-T Act.
Tax officials have said that the phrase "advancement of
any other object of general public utility" under the
permitted welfare activities in Section 96(g) of the new
Direct Tax Code (DTC) is ambiguous and there should be more
clarity on it.
I-T officers have also said that the "permitted welfare
activity" under the same section, pertaining to preservation
of environment, including watersheds, forests and wildlife,
fall under the purview of respective state governments and
hence would lead to ambiguities in deciding cases of
exemption.
Bureau Report
First Published: Friday, October 02, 2009, 17:19