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Transparency, Mr. Sinha?

Religious and charitable organizations fear they will be real victims of Amendments in the Finance Bill 2001 passed by the Lok Sabha, says John Dayal

I do not mean to be sarcastic, but retired Lieutenant General AM Sethna, Param Vishisht Seva Medal, Ati Vishisht Seva Medal, too is a member of the National Commission for Minorities. I am sure he too solves problems of individuals of his community as and when they come to him, but unlike some others I could name in the self same commission, General Sethna did not think twice before writing to the government for his community when he thought that the government, which had appointed him had perhaps exceeded its brief.

In a letter he wrote to the government on the Finance Bill 2001 in his capacity as the President of the Delhi Parsee Anjuman, the religious organization of the national capital’s miniscule Parsee community, General Sethna minced no words to point out that provisions introduced by Union finance minister Yashwant Sinha while presenting the Central Budget had many anomalies, and a `fine print’ that posed dangers to communities which had trust funds to run educational, Medicare and social welfare activities and institutions. In polite terms, the general did tell the government it was committing a mistake which would be painful for the minorities.His is the only voice, as far as the public is concerned, on the issue from the National Commission for Minorities.

Religious leaders, heads of institutions and other representatives of all major religious groups met at the India International Centre yesterday (Monday, 23rd April 2001) in a national consultation on the repercussions of Amendments to Sections clause (23C) of Section 10, Sub-Section 2 of Section 11, Section 12 A, Section 139 (1) . Under the guise of `Transparency’’, these clauses force religious and charitable trusts to take out newspaper advertisements, reduce the half (five years) the period for which they can accumulate money for building new projects, etc.

Those who attended the national consultations included All India Christian Council president Dr Joseph D’Souza, I as the Convenor of the consultations, Maharashtra state Minorities Commission member Mr. Abraham Mathai, Minority Council secretary general Prof Iqbal Ansari, Advocate S S Sethi, (Sant Nirankari Mission), Bahai leader Dr A K Merchant, Dalit-Bahujan theoretician and academic Prof Kancha Ilaiah, Jain Kiran Raj, (President, Jain Milan, Bangalore), Religious head of the Indian Banjara community. Sevalai Swamiji of Baseva Kendra, Bangalore, Bishop Mar Aprem, Metropolitan, Chaldean Syrian Church, Sr. Dolores Rego, National Secretary, Conference of Religious in India, Bishop MA Thomas who was recently awarded the Padma Shri, Rev G Samuel, President, Baptist Church Hyderabad, and others. Finance expert Joclyn Martins and others were resource persons.

Later, a memorandum was submitted to the Union Finance Minister through Mr. Eduardo Faleiro, himself a former minister of state for Finance, and a sitting member of the Rajya Sabha. Even though it was clear that Mr. Sinha was not in a position to defy the dictates of party and cabinet, the religious groups called on the central government to drop the amendments and, instead, take measures to encourage the voluntary sector in education, Medicare and social empowerment by significantly reducing bureaucratic red tape and multi-agency interferences in the interest and welfare of the people.

In post Budget pronouncements, the Union Minister for Finance, Mr. Yashwant Sinha, and his ministerial colleagues highlighted two aspects of the Budget: One, that it, and through it, the Government, were being pro-people (there were no increases in Income tax rates etc.) and that they were strengthening and encouraging transparency in all sectors, including in religious and charitable organizations.

There was some surprise as to why the Central Government suddenly thought of additional measures in the Budget to enforce transparency in the charitable sector, which is adequately covered by stringent laws and regulations, apart from the constant scrutiny of members of the community, the donor agencies and individuals as well as the recipient groups and beneficiaries. On the surface of it, the official explanation was that the clauses were being included because of representations made and complaints received about malpractices in various charitable trusts and institutions from some parts of the country or the other, but no details were provided. The Budgetary provision of course did not say it was directed against a particular community or group, but the government’s track record did make certain religious and linguistic minority groups more apprehensive than others about the motives of the government. The experience in the last three years with the Foreign Contributions Regulation Act, FCRA, and even the VISA and municipal zoning laws, Education Acts and other similar acts had shown how regulations can be arbitrarily used, and abused, as punitive measure or vindictive control.

This analysis, of course, makes no value judgement nor does it attribute motives to the central government in general or the Union Finance Minister in particular.

The first is the matter of transparency. India is among a few full-fledged democracies in the world which not only do not have constitutional provisions or amendments guaranteeing the Freedom of the Press, but also have very harsh and anachronistic Official Secret Acts formulated during the colonial era. The freedom that is enjoyed by the professional Media in India is a derivative of the Freedom of Expression (under Article 19 of the Constitution of India) of the individual citizen -- and the editor, printer, publisher and owners are citizens of India is more or less ensured through the implementation of the rulers governing registration of newspapers and periodicals. Repeated efforts by the Media and citizens groups to get the government to formulate and enforce the Right of Information have been stonewalled both at the Centre and in most states, irrespective of the political party in power for the time being. Many guilty in everything from military defeats to diplomatic snafus have gone without public accounting because they were shielded by this obsolete provision.

The pro-people image of Budget 2001, taken together with the Exim Policy 2001, has also taken a severe beating as reality set in after the initial euphoria. There has been sharp response from various segments of society, particularly farmers, the working class, labour and religious and charitable organizations who are the main victims of the aftermath of the WTO regime as shown in the Exim Policy 2001.

There is no need to quote here from authoritative sources, including the Economic and Political Weekly, to spell out in detail the hardship that will be wrought on the weaker sections of society, precisely those segments who the religious and charitable organizations seek to serve with the increasing abdication of the state in areas of health, education, welfare. The NGO involvement and engagement in these areas will have to increase manifold if a reasonable safety net is to be constructed for the weaker and marginalized segments of society.

As prominent religious and charitable organizations, Including the Conference of Religions in India (CRI), the Catholic Bishops Conference and the All India Christian Council have pointed out, the Budgetary provision places a very expensive and unjustified burden on these institutions, many of which are run by minority communities, by introducing Clause 5 c (1) and Clause 10 of the Finance Bill. These make it compulsory that every Religious and Charitable Institution having a total `Income’ of more than Rs. Ten lakh an year publish its accounts in a local daily newspaper and attach the copy along with the return to avail of exemptions under Section 10 (23) c or Section 11.

So far, Religious and Charitable Institutions (RCI, in short)) were directed to comply with three separate sets of formalities to be able to avail of the tax exemptions. The first of these was a system of self regulation, which, inter alia, included
i.The funds of RCIs, if they were to be invested, should be only in government approved modes, which basically meant gilt edged government securities or public sector banks
ii.In some cases, 75 per cent of the incomes (the phrase ‘incomes’ itself was a point of debate, as profits were not going into individual pockets or for building assets of private persons), 75 per cent of the incomes of the RCIs should be applied in the purpose for which they were set up, that is, religious and charitable works. It could be accumulated only with the permission of the Income tax department if for some reason it could not be spent in the stipulated time.
iii.It also stood to common sense that if any charitable and religious organization did indeed have a business interest and a separate business income, only the income from activities incidental to the attainment of the religious or charitable activities could be exempted from taxation.

Apart from the self-regulation, other regulations included: Evaluation by Income tax department through, firstly, the processes involved in the granting of recognition, approvals to institutions and Gazette notifications, and secondly, in the data required to be submitted in the filing of Tax returns with the IT department.

Finally, there was a system of Third Party certification. As in other cases, it was mandatory for RCIs to get their accounts audited properly by a chartered accountant as per law and together with this audit report, also file a certificate from the CSA in a particular form prescribed by the Income tax Department. All major RCIs observe these norms. The office bearers of the organizations face grave risks to their public standing and reputation and regard in their community if they were to be found defaulting on these statutory and voluntary regulations. The CAs use form Number X-B for IT exemption procedures.

In addition, the RCIs are for the most formed under the registration of Societies Act, or the Registration of Company’s Act, in some cases) and fulfill all criteria in law, for transparency and culpability. Government departments, including IT and local administrations, are fully in the picture as published statements of accounts are freely distributed to all members and are available with the RCIs. The membership of these institutions is privy to the statement of accounts, as indeed to the purposes on which the moneys are being spent. The beneficiaries are in the public eye. In case of any enquiry, all these documents can be procured from multiple sources, including the government’s own departments. There is, therefore, no way in which the authorities can be kept in the dark by the RCIs. The new provision for publication in newspaper will complicate the procedures further and lead to a waste of funds, often procured from well meaning donors after convincing them of the felt need of the people of the area. In a way, much funds will be diverted to non-productive and non-social use.

In fact, there are genuine fears – more so after seeing the proceedings of the Press Council, that RCIs may open themselves to unwelcome and unpleasant interference and pressures from all sorts of quarters This will certainly divert funds and attention, and detract from the first purpose of these institutions – to serve the poor, the weak, the marginalized in crucial areas of health, education, welfare of the child, counseling against drugs and alcoholism, and refurbishing the moral and social fabric of the family, the local area and the country at large.

Text of Modifications of provisions relating to Charitable trusts
Under the existing provisions contained in Section 11, income from property held under a trust and used wholly and exclusively for Charitable or Religious purposes is exempt from payment of income tax. This exemption is confined only to that portion of income, which is applied for Charitable or Religious purposes or is accumulated for such purposes, subject to the conditions specified in Section 11(2). These conditions, inter-alia, specify that the maximum period for which such income can be accumulated is ten years.
It is proposed to amend the provisions of Sub-Section 2 of Section 11 so as to reduce the maximum period for which accumulation is permitted to five years in respect of any income accumulated or set apart after the 1st day of April, 2001.
In order to promote transparency in the functioning of Charitable trusts, it is proposed to amend Section 12A to provide that the exemption under Section 11 will be allowed to the Charitable or Religious trusts only if they publish their accounts in a local newspaper and a copy of such newspaper is enclosed along with the return of income. To mitigate hardship to smaller trusts, it is proposed to apply this requirement only to trusts having total income, before giving effect to the exemption available under Sections 11 and 12, exceeding rupees ten lakhs in the relevant previous year.
The proposed amendments will take effect from 1st April, 2002 and will accordingly, apply in relation to the assessment year 2002-2003 and subsequent assessment years. [Clauses 9 & 10]. Under the existing provisions contained in Sub-Clauses (iv), (v), (vi) and (via) of Clause (23C) of Section 10, the income of following entities is exempt from payment of income-tax:-
(a) notified fund or institution established for Charitable purposes;
(b) notified trust wholly for public Religious purposes or notified institution wholly for public Religious purposes;
(c) approved university or other educational institution existing solely for educational purposes; and
(d) approved hospital or other medical institutions existing solely for philanthropic purposes.
The third proviso to the said Clause provides that the aforesaid fund or trust or institution or educational or medical institutions shall apply its income, or accumulate it for application, wholly and exclusively for the purposes for which they are established. No maximum period for which such income can be accumulated has been provided.
It is proposed to amend the third proviso of Clause (23C) of Section 10 so as to provide that the maximum period of accumulation of income, that is accumulated after the 1st day of April, 2001, by any such fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, will be five years only.
To promote transparency in the functioning of these funds, trusts or institutions, it is proposed to make necessary amendments in Section 10(23C) so as to require the fund, trust or institution to publish their accounts in a local newspaper and to furnish a copy of the same with the form of application for exemption or continuance thereof. To mitigate hardship to smaller trusts or funds or institutions, it is proposed to provide that such requirements will be applicable only for educational or medical institutions referred to in Sub-Clauses (vi) and (via) where the annual receipt is above one crore rupees, and in case of funds, trusts or institutions, as the case may be, referred to in Sub-Clauses (iv) & (v) having total receipts above ten lakh rupees.
The proposed amendment will take effect from 1st April, 2002 and will accordingly, apply in relation to the assessment year 2002-2003 and subsequent assessment years. [Clause 5(e)]
In order to mitigate the hardships being faced by universities or educational institutions or hospitals or medical institutions referred to in Sub-Clauses (vi) & (via), it is proposed to provide that any asset in the form of equity shares of a public company along with accretions by way of bonus shares thereof, held by such institutions as on the 1st day of June, 1998 and which form part of their corpus, will not be required to be re-invested in the specified modes under Section 11(5).
This proposed amendment will take effect from 1st April, 2002 and will accordingly, apply in relation to the assessment year 2002-2003 and subsequent assessment years. [Clause 5(e)]

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