Inter-NGO Donations
DONATION TO ANOTHER NGO
01 =>
It has been held in various cases that
donation made by one NGO to another shall
be considered as application of income for
the objectives of the organisation
provided the receiving organisation
also has objects similar to the object
donor
organisation.
DONATIONS TO OTHER NGOs AFTER
1-4-2002
02 =>
The Finance Act, 2002 has inserted an
Explanation to sub-section (2) of
section 11. This Explanation prohibits
donations to other NGOs out of the
accumulated funds. This amendment can have
far-reaching practical implications. The
new amendment puts restriction
on donations to other NGOs only out of
accumulated funds. In other
words, funds once accumulated under section
11(2) can only be applied
for charitable purposes directly by the
concerned organisation and any
inter-organisational transfer would not be
possible.
DONATION OUT OF CURRENT INCOME IS
NOT BANNED
03 =>
However inter-organisational donations are
possible from current year's
income, but the newly amended provision
will certainly create hurdles
for organisations, which were used as
conduct for channel rising funds
to other organisations. The new Explanation
inserted by the Finance Act,
2002, to section 11(2) has debarred
organisations from applying its
accumulated or set-apart income by way of
payment or credit to other
such organisations. Now, payments or
credits out of accumulated funds to
any other organisation would not be
treated as application for
charitable or religious purpose. There is
no apparent bar on payment or
credit to such other organisations out of
previous year's income subject
to the provisions of section 11(1).
INTER-NGO
DONATION
04 =>
In the light of the above, funds once
accumulated are no longer
available for credit or payment to any
other NGO,
though such transfer may still be possible
out of the current year's
income under section 11. CBDT has also
issued a clarificatory circular
no. 8, dt.
27.08.2002.
05 =>
In the light of the aforesaid and the
amendments by virtue of Finance
Act, 2002, donations to other Charitable
Organisation are still possible
but only out of the current years income.
Once the funds are
accumulated then it will not be permissible
to make inter-trust donation
and treat them as
application.
AMENDMENT IN FINANCE ACT, 2003
06 =>
The Finance Act, 2003 has inserted another
proviso to sub-section (3A)
of section 11 which provides that inter-NGO
donation out of
accumulated funds will be permissible in
case of dissolution of a
Charitable Organisation. This amendment has
been made to reduce the
hardship of NGOs on the brink of
dissolution.
TAX PLANNING THROUGH DEEMED
APPLICATION
07 =>
In the light of what is discussed in this
chapter, the amended
provisions with regard to inter-NGO
donations will cause hardship to
those organisations which act as a mother
NGO to many small charitable
organisations and funds through various
foreign and domestic sources are
routed through them. Many donors prefer to
fund through one mother NGO
which subsequently distributes the funds to
smaller NGOs. After the
amendment made in 2002 there is an
apprehension in the fraternity of NGOs,
that it may become difficult to disburse
funds
received towards the end of the year. And
since accumulated income is
not available for inter- NGO donations, the
funds could neither be
applied nor could be donated to other
NGOs.
08 =>
For instance if a NGO receives funds in
the month
of March - which is required to be
distributed to other NGOs - and is unable
to make inter-NGO donations within the
year of receipt, then it has to accumulate
the same. Once the income is
accumulated under section 11(2) then it is
not permissible to make
inter-NGO
donations.
09 => Under
the above mentioned circumstances, a NGO
may
exercise the option available under
Explanation to section 11. The
Explanation to the section 11 refers to two
situations where the income
applied falls short of 85% and still can be
deemed to have been applied
in the previous year other reason. Under
the second situation, the
assessee may exercise its option by
applying in writing before the
expiry of the time allowed under section
139(1) for filing of return.
After exercise of the option, the income
will be deemed to have been
applied in the previous year even though it
is spent in the succeeding
or the year of
receipt.
10 =>
Inter-NGO donations being valid
application of income, there is no
reason why option under Explanation 2 to
section 11(1) could not be
applied and the income be actually
spent/disbursed in the succeeding
year. But the reasons have to be genuine,
the organisation must have
valid reasons for not being able to apply
the income as inter-NGO
donations.
The NGO
Center
SUDESH KUMAR
FOUNDATION
Email: ask@ngoregistry.com
