Article
Deemed application provision causes uncertainties for donation aggregators
By Sanjhi Agarwal and Prachi Bhardwaj
The article in this issue of Direct Tax Amicus discusses elaborately the recent amendment in Section 11 of the Income Tax Act, 1961 vide Finance Act, 2023, with effect from 1 April 2024. Noting that a charitable entity was allowed to accumulate a maximum of 15% of its income received during a year for application towards charitable causes in subsequent years, the article explains how this benevolent threshold of 15% was misused by various charitable entities by formation of multiple layers of chartable entities, and how to plug this loophole, the Legislature has made an insertion in Explanation 4 to Section 11(1). However, according to the authors, though, the intent of this amendment was to discourage the practice of retention of more than 15% of the sums received through formation of multi-layers of charitable entities, it may seriously impact those charitable entities which are working on channelizing the donations by aggregating donations from multiple donors and applying almost whole of the donations by contributing to charitable entities engaged in actual application towards end causes. They are of the view that a charitable entity which has donated 100% of its receipts to another charitable entity could be subject to tax in respect of 15% of its receipts as it would fail to demonstrate that the 15% of the receipts have been accumulated for charitable purpose.
Notifications & Circulars
- India-Chile Double Taxation Avoidance Agreement (DTAA) notified
- Exemption under Section 10(46) – Certain entities notified
- Exemption under Section 10(46) – Insertion of new clauses to specified income arising to Maharashtra Electricity Regulatory Commission
- National Institute of Design, Ahmedabad notified under Section 35(1)(ii)
Ratio decidendi
- Subscription fees for providing access to online database cannot be considered as ‘Royalty’ under India-Switzerland DTAA – ITAT Mumbai
- Reassessment proceedings – Concept of ‘reasonable opportunity’ is a common thread in both old and new regimes – Gujarat High Court
- Retrospective applicability of the amended Section 153C to the searches conducted prior to 2015 – Supreme Court
- No penalty leviable under Section 271C on mere delay in remittance of the withholding tax – Supreme Court
- 13 hours not a fair opportunity for responding to the Show Cause Notice – Madras High Court
- No deduction available under Section 37(1) upon loss incurred due to infraction of law – Supreme Court
