Hospitals, educational institutions, many other trusts, and perhaps even the country’s richest sports organizations are beginning to fear that the tax collector, armed with a warrant, may soon be knocking on their doors. – successive trials.

After the high court set the ball rolling, the tax tribunal, which is the highest appellate body, last week ordered the tax department to question the practices of the Hyderabad hospital. which requires his patients to make a lot of profit. It’s the first decision prompted by two Supreme Court rulings in October that, according to tax practitioners and trust advisers, have opened a Pandora’s box for trusts to operate. good in the country.

India’s Income Tax Act has favored charities, giving them special treatment since 1886.

But recent court rulings require that a charitable trust must pass two basic tests before it is exempt from income tax: first, it is a “sole” trust — not just ‘general’ but complete — dedicated to the purpose for which it was put?; secondly, is the charge — either to provide education or to provide health services —————————— ———-Is the price good? “The magnitude of the impact seems to be that most such large institutions will have to review their systems and performance to avoid losing their entire exemption in light of the stricter guidelines,” said Rahul Garg. , partner of Asire Consulting, a tax advice and regulation.

With the Supreme Court in two different judgments on the same day establishing the concept of trust in education and public utility in general, and now the Tribunal on income tax gives its judgment based on the SC judgment, many charitable trust IT departments may look into these judgments.

In the case of Fernandez Foundation of Hyderabad, the ITAT observed that it was a non-profit making company and later converted into a Section 8 company (ie, registered as a not-for-profit organization) to benefit from the tax exemption. . The tribunal also observed that if he got land at a decent rate, he promised to treat 25% of the patients free of charge, in fact the free treatment was very little.

Trust managers say that the trust should not be treated like a company because the first does not distribute its surplus as dividends but reinvests money to expand the building to continue its operations. But, according to the Supreme Court, ‘trade’ cannot be ‘charity’ and likewise charity, cannot be commercial. Therefore, extracting the surplus or profits and claiming them as charity is under a cloud. Trusts that claim exemption under ‘General Public Utility’ (GPU) should do charitable work at cost plus markup. But what is a reasonable benchmark for calculating the cost of services provided by the trust?

“The ITAT judgment upholds the intention of the legislature in the clearest terms, but the prescribed test of cost, profitability etc. may result in a fresh trial. It is desirable that the government lays down the rules some basics of how to do computing or safe harbor rules that might explain the problem,” said lawyer KRPradeep.

Given the impact of these multiple rulings, some chambers of commerce in the pre-budget delegation have asked the government to join the charity trust from the tax office. “The Supreme Court’s ruling carefully examines the meaning of charitable purposes as well as statutory discrimination. This interpretation has left many private educational institutions and hospitals open to paying huge taxes and potentially denying tax exemptions. On a larger scale, it tries to protect usage and prevent abuse,” said administrator and lawyer Girija GP.

However, the verdict may leave many wondering what will happen to the Board of Control for Cricket in India whose argument was upheld by the ITAT Mumbai in November 2021. The tribunal in the appeal filed by the BCCI supported the stand of the sport. but even if he earns money through Indian Premier League (IPL), the purpose of promoting cricket is still growing and therefore his income should be exempt from tax.



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