Charitable Trusts - Inconsistencies in the Income Tax Act - CAG
THE CAG has pointed out several inconsistencies in the Income Tax Act in relation to Trusts:
Act does not specifically allow deficit of earlier years, depreciation and repayment of loan in case of exempt entities. In the absence of any express provision in Act, the courts have taken divergent views. ITD has also not taken uniform practice in allowing depreciation, repayment of loan and deficit of earlier years. [In Kerala, CIT Kottayam, Matha Amrithanandamayi Math, claimed depreciation of 138.46 crore during AY 07 to AY 09 as application against income from property held under Trust. This was not in order as Trust has not added back depreciation for any of the AYs for which it already claimed deduction for acquisition of capital asset as application of money involving potential revenue impact of 46.77 crore.]
ITD did not take uniform stand to allow/disallow deficit of earlier years to 110 Trusts involving tax effect of 327.48 crore.
There is no internal mechanism within ITD to have control over the receipts issued by the entity having registration under section 80G. ITD did not cross-check the donations received by 24 Trusts.
There is no provision in Act to invest corpus fund in specified mode and tax interest earned thereon. In absence of this AOs allowed exemptions on interest earned on corpus fund to two Trusts involving tax effect of Rs.69.67 crore.
There is no enabling provision in Act to deduct TDS in case of Trusts. Therefore, AOs allowed expenditure incurred by Trusts in seven cases, without deducting TDS which involved tax effect of Rs. 9.49 crore.
Audit Recommends: CAG recommended that
a. The Ministry may bring suitable amendment in Act to streamline the treatment of depreciation, deficit and repayment of loans. The Ministry stated (May 2013) that the matter will be examined.
b. The Ministry should issue suitable instructions to verify information of major donations received u/s 80G during scrutiny cases to ensure the proper accounting of donations/transaction in the accounts of donors.
c. The Ministry may bring suitable definition for the phrase "substantially financed" to clarify provisions of section 10(23C). The Ministry stated {May 2013} that the matter will be examined.
d. The Ministry may consider bringing suitable modifications in provisions for compliance with TDS provisions by Trusts and the provisions may be made for proper disclosure in the Audit Reports. The Ministry stated (May 2013) that the matter will be examined.
e. The Ministry may consider bringing out suitable changes in Forms to be submitted by Trusts.
From CAG Report No. 20/2013