Budget 2010: Empowered Income tax department to cancel any charitable organisation’s registration

Mar 9, 2010

The Income Tax department has got the power

to cancel any charitable organisation’s registration that

accords it the benefit of tax exemption. 

The department can annul the registration and the
exemption emanating from it if the organisation is
found to violate the norms for registration,
according to Budget 2010-11.

By this move, the government has made its intent to prevail
over a series of court judgments, which held that the I-T department
did not have the right to cancel registration of organisations with it.

The government provides relief to specified not-for-profit
or charitable organisations under Section 12A of the Income
Tax Act. A registration with the Income Tax department
cannot be taken away by an I-T commissioner if violations
are found, some courts had said earlier.

However, the Budget proposal has said,
“The power of cancellation of registration is inherent
and flows from the authority of granting exemption.”

Many organisations that are registered under the Section of
the I-T law have had a tiff with the department that sought to
cancel their registration on alleged violations of the rules.

Such organisations have to maintain books of accounts for any
commercial activity undertaken by them and if they fail to do so,
the taxman enjoys the authority to question the concerned entity
on the issue. The Budget proposal now gives the taxman the
additional power to cancel the registration.

There were instances where the exemptions were being misused
by the organisations, official sources said, adding that the object
of the organisation stated in the registration was often changed
without any knowledge of the tax department.

“I think this (the Budget proposal to empower the I-T department
is an appropriate move. Someone who gives a licence or
with whom you register, the same organisation should also
have the power to cancel the registration or licence,” said
senior chartered accountant and ICAI vice-president G Ramaswamy.

In 2008, however, in a case of an appeal made by NGOs
whose registration was cancelled by the tax department,
the court had said that such a measure cannot be taken.

The Budget proposal has pointed out that judicial rulings
in some cases have held that commissioner does not have
the power to cancel the registration obtained by a trust
or institution as it is not specifically mentioned in Section 12AA.

“It is therefore, proposed to amend Section 12AA
so as to provide that the commissioner can also
cancel the registration obtained under Section 12AA,”
the Finance Bill 2010-11 has said. 
 
Charitable organisations would, however,
be given a chance to be heard by the tax
commissioner before he decides to cancel the registration.