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Registration of Trust can be cancelled by Commissioner if activity not as per objective and dint follow other Laws


Registration of Trust can be cancelled by Commissioner if activity not as per objective and dint follow other Laws

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Registration of Trust can be cancelled by Commissioner if activity not as per objective and dint follow other Laws

 

The Finance Bill 2019 has made few changes which will impact many trust which are registered under section 12AA and availing the benefit of exemption.

 

At the time of Registration in Section 12AA

The Principal Commissioner or Commissioner usually checks the eligibility of Trust may call for documents or information necessary in order to satisfy himself about the genuineness of its activities of the Trust or NGO.

 

There is addition changes in the Budget 2019, that besides the genuineness of its activities, the Principal Commissioner or Commissioner shall also satisfy himself about compliance to the requirements of any other law which is material for the purpose of achieving its objects.

 

For example at the time of registration it is found that trust is not complying with provision of TDS as per Income Tax Act, or has not submitted or filed required Budget in advance to Charity Commissioner office, then there are chances that Principal Commissioner or Commissioner may reject the application of registration of trust under section 12AA of Income Tax Act.

 

Registration of Trust can be cancelled if Objects or other Laws are not followed

As per changes in the Finance Bill 2019, a commissioner can cancel the registration if he is not satisfied with the activities of Trust and believes that it is not genuine and the activities are not in accordance with its objectives as per mention in the Trust Deed at the time of registration or amendment deed. For example, if the trust deed says no compensation is to be paid to trustee, and trust pays the compensation, then commissioner can cancel the registration

 

The registration could also be cancelled if the tax department noticed that activities of the exempt entity are being carried out in a manner that either whole or any part of its income would cease to be exempt.

 

A registration of the Trust can also be cancelled after an institution is granted registration at any time under this 12AA Section, said the Finance Bill 2019 memorandum. All above amendments will be effective from 2019 September 1.

 

 

Finance Bill 2019 memorandum relevant Extract

Clause 7 of the Bill seeks to amend section 12AA of the Incometax

Act relating to procedure for registration.

Sub-clause (a) of sub-section (1) of the said section, inter alia,

provides that while considering the application of a trust or

institution, the Principal Commissioner or Commissioner may call

for documents or information necessary in order to satisfy himself

about the genuineness of its activities.

It is proposed to substitute the said sub-clause so as to provide

that besides the genuineness of its activities, the Principal

Commissioner or Commissioner shall also satisfy himself about

compliance to the requirements of any other law which is material

for the purpose of achieving its objects.

Sub-clause (b) of sub-section (1) of the said section, inter alia,

provides that after satisfying himself about the objects of the trust

or institution and the genuineness of its activities the Principal

Commissioner or Commissioner shall pass an order registering or

refusing to register the said trust or institution.

It is proposed to amend the said sub-clause so as to provide

that the Principal Commissioner or Commissioner, besides

satisfying himself about the objects of the trust or institution and

the genuineness of its activities, shall also satisfy himself about

the compliance to the requirements of any other law which is

material for the purpose of achieving its objects.

Sub-section (4) of the said section, inter alia, provides for

cancellation of registration if it is noticed that the activities of the

exempted entity are being carried out in a manner that either whole

or any part of its income would cease to be exempt.

It is proposed to amend the said sub-section so as to provide

that besides the existing ground of cancellation, the trust or

institution has not complied with the provisions of any other law

that it was required to comply with due to the reason that the same

was material for the purpose of achieving its objects and the order,

direction or decree, by whatever name called, holding that such

non-compliance has occurred, has either not been disputed or

attained finality, shall be an additional ground on which the

registration may be cancelled.

These amendments will take effect from 1st September, 2019.

 

Finance Bill 2019 Changes in Income Tax Act Section 12AA

In section 12AA of the Income-tax Act, with effect from the 1st day of September, 2019,––

(I) in sub-section (1),––

(i) for clause (a), the following clause shall be substituted, namely:––

“(a) call for such documents or information from the trust or institution as he thinks necessary

in order to satisfy himself about,––

(i) the genuineness of activities of the trust or institution; and

(ii) the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects,

and may also make such inquiries as he may deem necessary in this behalf; and”;

(ii) in clause (b), after the words “genuineness of its activities”, the words, brackets,

figures and letter “as required under sub-clause (i) of clause (a) and compliance of the

requirements under sub-clause (ii) of the said clause” shall be inserted;

(II) in sub-section (4), for the portion beginning with the words “the activities of the trust or the

institution” and ending with the words “cancel the registration of such trust or institution”, the following

shall be substituted, namely:––

“(a) the activities of the trust or the institution are being carried out in a manner that the provisions

of sections 11 and 12 do not apply to exclude either whole or any part of the income of such trust

or institution due to operation of sub-section (1) of section 13; or

(b) the trust or institution has not complied with the requirement of any other law, as referred to

in sub-clause (ii) of clause (a) of sub-section (1), and the order, direction or decree, by whatever

name called, holding that such non-compliance has occurred, has either not been disputed or

has attained finality,

then, the Principal Commissioner or the Commissioner may, by an order in writing, cancel the registration

of such trust or institution”.

 

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