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    Brief: - Charitable Institutions plays an important role in social welfare. These institutions are engaged in providing various services ranging from education to relief of poor across regions of the country. They operate on non-for-profit motive. The various resources mobilised by these institutions will be used for their objectives for which they are formed.

     

    To incentivise these institutions which are addressing various social issues the Income Tax Act, 1961 (‘ITA,1961’) has provided for exemption of income earned by Charitable Institutions vide section 11.

     

    ITA, 1961 Provisions: -

     

    Section 11 provides that income derived from property held under trust wholly for charitable or religious purposes to the extent applied to such purposes in India is exempt from tax.

     

    Section 2(15) of ITA, 1961 defines Charitable Purpose. It includes: -

     

    • Relief of the Poor; o Education;

     

    o  Yoga;

    o  Medical Relief;

    o  Preservation of Environment including watershed, forest and wildlife;

     

    o Preservation of Monuments or places or objects of artistic or historic interest; o Advancement of any other object of general public utility.

     

    The phrase ‘advancement of any other object of general public utility’, is very wide. It should be noted that the following are not treated as advancement of any other object of general public utility 1: -

     

    • Carrying on any activity in the nature of trade, commerce or business or o Carrying on any activity of rendering any service in relation to the trade.

     

    'Property' is a term of the widest import, and subject to any limitation or qualification which the context might require, it signifies every possible interest which a person can acquire, hold and enjoy. Business would undoubtedly be property unless there is something to the contrary in the enactment - J.K. Trust v. CIT 32 ITR 535.It includes immovable and movable property. - CIT v State Urban Development Agency 37 taxmann.com 193

     

    The profits of the business carried on by a non-religious trust will be exempt provided: -

     

    o    The business is incidental to the attainment of the objective of the trust; and

    o    Separate books of account are maintained by such trust in respect of such business.

     

     

    1Where aggregate receipts from such activities exceeds 20% of total receipts of the trust or institution undertaking having object of advancement of any other object of general public utility (WEF AY 2016-17)

     

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    This section requires Charitable Institutions to apply 85% of income for its purposes in India and the balance can be accumulated for application in future. The 15% of the income should be invested in the investments specified in section 11(5) of ITA, 1961.

     

    2Any amount credited or paid out of income to another charitable institution registered under Section 12AA of ITA, 1961 as a corpus (capital) contribution shall not be treated as application of income for charitable or religious purposes.

     

    Where 85% income cannot be applied during the previous year, it should be accumulated and applied for charitable purposes in future subject to a maximum period of 5 years. For this purpose, assessee has to file Form 10 before the due date for filing return of income specified under Section 139 of ITA, 1961.

     

    The word ‘applied’ need not necessarily spent. Even if the amount is irretrievably earmarked and allocated for charitable or religious purposes it may said to have been ‘applied’ to the said purposes- CIT Vs Radhaswami Satsang Sabha 25 ITR 472.

     

    Any amount by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as application of income, is not considered as application of income for the purpose of section 11 of ITA, 1961.

     

    Capital Donations, which are received for a specific purpose, are not subject to tax.

     

    Any voluntary contributions received by trust or institution created wholly for charitable or religious purpose, other than capital contributions, shall be deemed to income derived from property held under trust wholly for charitable or religious purposes.(Section 12)

     

    The objectives of Charitable Institutions are such that public in general are beneficiaries. They should not benefit a group of individuals. Section 13 of ITA,1961 specifically provides that the benefit of exemption provided in section 11 and 12 are not available if the beneficiaries of the activities of charitable institutions are only those specified there in.

     

    Section 12(2) of ITA, 1961 states that the value of services, being medical or educational services, made available by any charitable or religious trust running a hospital or medical institution or educational institution to any person referred to clause 3 (a)/(b)/(c)/ (cc)/(d) of section 13(3) shall be deemed to be income of the trust or institution derived from property held under trust wholly for charitable or religious purpose and shall be chargeable to tax.

     

    However, charitable institutions running educational institution or medical institution or hospital shall not lose the benefit of exemption of any income other than the income referred to in section 12(2).

     

     

     

     

     

    2Finance Act 2017

     

    3Author of the trust or founder of the institution or trustee or manager or relative of such person or person

    who made substantial contribution.

     

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    Charitable Institutions

     

     

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    Registration requirements: -

     

    The Charitable Institution will get the benefit of exemption U/s 11 and 12 only if it is registered U/s 12AA of the ITA, 1961.

     

    The application should be made in form 10 to the Principal Commissioner or Commissioner of Income Tax. Order granting or refusing registration shall be passed before expiry of six months from the end of the month in which the application was received.

     

    Where registration has been granted to the trust or institution U/s 12AA then the provisions of section 11 and 12 shall apply in respect of income related to the assessment year for which assessment proceedings are pending before assessing officer as on the date of such registration.

     

    After grant of registration Principal Commissioner or Commissioner has satisfied that the activities of the trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution he shall pass an order in writing cancelling the registration of such trust or institution.

     

    If the objects of the charitable institution are modified after grant of registration, such change should be informed to the Principal Commissioner or Commissioner within 30 days of such modification.

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    The Organization for Economic Co-operation and Development (“OECD”) has recently released its final report on Action 13 - Transfer Pricing Documentation and Country by Country (“CbC”) reporting, under its Action Plan on Base Erosion and Profit Shifting (“BEPS”).

     

    Action 13 recommended a three-tiered approach to TP documentation as under:

     

    • A “Master File” that provides tax administrations with high-level information on the global business operations and TP policies of a Multi-National Enterprise (“MNE”);

     

    • A specific “Local File” that provides the local tax administration with information regarding material related-party transactions, amounts involved, and the company’s analysis of the TP determination’s in relation to those transactions;

     

    • A “CbC reporting template” that includes information on the economic activity of the MNE group

     

    CbC reporting was agreed as one of the minimum standards for implementing anti-BEPS measures. The Indian Government vide Finance Act, 2016 amended the Indian tax law (ITL) to introduce provisions for additional TP documentation and CbC reporting to implement the recommendations contained in the OECD’s BEPS report on Action 13. These provisions were expected to be followed up by detailed rules for implementation.

     

    Accordingly, recently, the Indian tax administration has issued draft rules (Draft Rules) for CbC reporting and furnishing of master file for public comments/ suggestions.

     

    Particulars

    Masterfile

    CbCR

     

     

     

     

     

     

    (i) Consolidated group revenue exceeding INR 500

     

     

     

    Crores ; and

     

     

     

    (ii) Aggregate value of international transactions:

     

     

    Threshold

    • during  the  reporting  year,  as  per  books  of

    Consolidated group revenue

    exceeding INR 5,500 Crores

     

    accounts, exceeds INR 50 Crores; OR

     

     

     

    • in relation to purchase, sale, lease, transfer or use

     

     

     

    of intangible property, as per books of accounts,

     

     

     

    exceeds INR 10 crores

     

     

     

     

     

     

    Due date for

    On or before 31st March 2018

    O n  o r

    b e f o r e  3 0 t h

    Financial Year

    • Form No. 3CEBA

    November 2017

    2016-17

    • Form No. 3CEBE (if more than one constituent

    • Form No. 3CEBC

    Forms for

    entity in India)

    • Form No. 3CEBD (if more

    furnishing the

     

    than

    one  constituent

    report

     

    entity in India)

     

     

     

     

     

     

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    The Indian tax administration has considered the above guidance and the Draft Rules are largely in line with the contents as prescribed under Action 13 report.

     

    The Draft Rules, however, requires the following additional information:

     

    • Maintenance of a list of all the operating entities of the international group along with their addresses;

     

    • A description of the functions performed, assets employed and risks assumed by the constituent entities of the international group that contribute

     

    • at least 10% of the revenues, assets and profits of the group;

     

    • A list of all the entities of the international group engaged in development and management of intangibles along with their addresses;

     

    • A detailed description of the financing arrangements of the international group, including the names and addresses of the top ten unrelated lenders;

     

    • Filing procedures and the filing due dates

     

    The Draft Rules prescribe a separate statutory form i.e. Form 3CEBA wherein the constituent entity should furnish the prescribed information. This form shall be furnished to the Director General of Income-tax (Risk Assessment) on or before the due date for furnishing the Income-tax return.

     

    Further, in respect of the financial year (FY) 2016-17, the Draft Rules provide that the due date for furnishing master file information in Form 3CEBA is by 31 March 2018.

     

    In case where there are more than one constituent entities of an international group resident in India, the Draft Rules provide for a single filing by a designated constituententity.

     

    CbC reporting and its Contents

     

    Under Action 13, the CbC reporting template requires MNEs to report the following revenue,profits, income tax paid and accrued, employees , stated capital, retained earnings and tangible assets annually for each tax jurisdiction they do business. In addition, MNEs are required to identify each entity within the group doing business in a tax jurisdiction and to provide an indication of the business activity each entity conducts.

     

    The CbC reporting template is divided into three tables:

     

    • Table I - Overview of allocation of income, taxes and business activities by tax jurisdiction

     

    • Table II- List of all Constituent Entities of the MNE group included in each aggregation by tax jurisdiction, including designation of Main Business Activity

     

    • Table III - Additional Information

     

    The Draft Rules are in line with the above guidance and prescribe filing of economic information of the international group as per above. Further, the definition under Draft Rules are in line with Action 13 report of the OECD BEPS.

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    SBS I 5th Edition

    Brief of Update:

    This update pertains to release of various notifications under GST as a consequence of 21st GST Council Meeting at Hyderabad. The summary of the notifications is as under:

    Key Take Away:

    Handicraft:

    1. The casual taxable persons making inter-state taxable supplies of handicraft goods are ex- empted vide Section 23 from the obligation to get registration under GST subject to a condi- tion that the aggregate value of such supplies do not exceed Rs 20 lakhs computed on all India basis. However, they have to obtain PAN and also generate a way bill when they move goods from one state to another irrespective of the value of consignment. Notification 8/2017-IT dated 14th Sept, 17 specifies the HSN codes which would fit as handicraft – Notifica- tion 32/17 – CT and Notification 8/17- IT

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    SBS I 4th Edition

    Brief of Update: 

    This update pertains to release of a press note as a consequence of 21st GST Council Meeting at Hyderabad. The summary of the press note is hereunder: 

    1. The date for filing the GSTR – 1 for July 17 has been extended to 10th October 17;
    2. The date for filing the GSTR – 2 for July 17 has been extended to 31st October 17;
    3. The date for filing the GSTR – 3 for July 17 has been extended to 10th November 17;
    4. The due date for GSTR-1/2/3 for Aug 17 and later periods will be notified later;
    5. An opportunity for revising GST TRAN-1 has given once
    6. The due date for filing TRAN-1 has been extended till 31st October 

    We must wait for the notifications for effecting the said above decisions.

    This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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    SBS I 3rd Edition

    Brief of Update: 

    Central Government has notified e-way bill rules on 30th August 17 which prescribe the proce- dure relating the e-way bills under GST. 

    Salient Features of the Rules: 

    1. Effective Date: These rules will come into force from the date to be notified by Central Gov- ernment 
    1. E-Way bill in cases where goods are moved without using conveyance: In all cases where goods are moved from suppliersˇ location to recipientsˇ location, then the registered person is required to generate E-way Bill in GST portal by filing the details in Part A of FORM GST EWB-01 
    1. E-Way bill in cases where goods are moved using conveyance: In all cases where goods are moved using conveyance, E-Way Bill shall be generated in GST portal by filling in Part A and Part B of FORM GST EWB-01. Part B of the said form contains details relating to the convey- ance/vehicle. The details of conveyance as required Part B need not be submitted if the trans- portation distance is less than 10 
    1. E-Way bill in cases where supplier is not registered: In cases where supplier is not registered, E-Way bill can be generated in GST portal either by him or the transporter at their 
    1. Consolidated E-Way bill for Multiple Consignments: In cases where multiple consignments are loaded into a single conveyance, the suppliers of those consignments are required to generate E-Way bills for their respective consignments in FORM GST EWB01 and the transporter is required to raise a consolidated E-Way bill in FORM GST EWB-02 in GST portal prior to move- ment of goods 
    1. Validity Period of E-Way bill: Upon generation of E-Way Bill electronically in GST portal, an E-Way bill number (EBN) will be made available to supplier, recipient and the The E-way bill generated shall be valid for the period as mentioned below: 

     

    S. No

    Distance

    Validity Period

    1.

    Upto 100 km

    One Day

    2.

    For every 100 km or part thereof

    One additional day

     

    1. Requirement to change conveyance during transit: In case where the transporter is re- quired to change the goods to another conveyance during transit, he is allowed to so by up- dating the details of the new conveyance in the E-way bill that was already generated 
    1. Relaxation from E-Way bill requirement: Generation of E-Way bill for movement of goods is not required in the following 
    1. Where the value of goods transported is less than Rs 50,000/-;
    2. Where goods are transported by non-motorised conveyance;
    3. Where goods transported are those listed in Annexure to Rule 138 of CGST Rules, 2017;
    4. Where goods are to be moved from port, airport, air cargo complex and land customs station to an inland container depot or a container freight station for clearance by customs;

    Where the movement of goods is within such areas as notified by State Governments.

    This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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