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Taxability of voluntary contributions

FATEMA (CHARTERED ACCOUNTANT) (719 Points)

01 December 2009

A body of individuals come together and open a bank account in their joint name.They accept voluntary contributions from public.The receipt is issued while accepting the contribution which specifies the name of the donor and the purpose for which the contribution is to be used.The contribution is immediately used from the purpose specified.Is the voluntary contribution taxable in the hands of the BOI?

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16 Replies

G.E.Sudarsan (Audit Assistant) (97 Points)
Replied 01 December 2009

Normally BOI voluntary contribution is taxable, but the BOI registered U/S.12A with the Income tax authorities, it is fully exempt from tax. so the BOI use form 10a for apply registration U/S.12A to the Income tax authorities.

FATEMA (CHARTERED ACCOUNTANT) (719 Points)
Replied 01 December 2009

But the BOI is just acting as an intermideary.It is collecting money and spending it.It is acting as an agent of the donor because the donor cannot reach the ultimate donee.

Will the voluntrary contributions still be taxable?

CA Amit Kanani (Practicing CA) (338 Points)
Replied 01 December 2009

Yes it is still taxable. U have to get registered BOI as trust u/s 12a with CIT. for availing exemption B coz then CIT come to know that Boi is acting for charitable purpose. If it is not charitable purpose then no exemption shall available.

G.E.Sudarsan (Audit Assistant) (97 Points)
Replied 01 December 2009

yes it should be taxable because it involves the carrying on of any activiy in the nature of trade,commerce or business.

Anup rathi (CA FINAL) (268 Points)
Replied 01 December 2009

Accoding to me it is not taxable as it is used for the purpose for which it is recd

FATEMA (CHARTERED ACCOUNTANT) (719 Points)
Replied 01 December 2009

G.E. Sudarsan,

U r mistaken here.The activity carried on by this particular BOI is not a trading activity.They ensure that all the receipts are utilised and there bank account stands nil at the end of the year.

They do not earn any surplus.

G.E.Sudarsan (Audit Assistant) (97 Points)
Replied 01 December 2009

anyhow here only solution is registered U/S.12A and the contribution amount is utilised for genune objects, hence it shall not taxed.

FATEMA (CHARTERED ACCOUNTANT) (719 Points)
Replied 01 December 2009

Cant it be done without any registeration?

Imagine u and me opening a bank account jointly and carrying on the same activity.Will you file the income tax return?

G.E.Sudarsan (Audit Assistant) (97 Points)
Replied 01 December 2009

Mrs/ Ms Fatema, Opening a bank account is it posible without any formation for lakhs and lakhs transaction? Registration and formation procedure is a basic object. whether it is a friends or anywhere? Because accept deposits from public, here involve not you and me? opening bank account is not a thing. but the purpose is going to beneficiary. So kind of formation procedure we need that's all

CA FaIyaZ PaTrAwaLa (CA) (276 Points)
Replied 01 December 2009

Voluntary Contribution is taxable fot the BOI.if the BOI is not registered as a trust u/s 12A with the Income tax Act.

CA Dhiraj Ramchandani (CA, M. com) (10823 Points)
Replied 01 December 2009

Hi fatema...

The query u raised, seems same to the last one...

But yes, they are needed to register themeselves u/s 12A, as they are carrying on an activty where cash inflow and outflow are involved, moreover, if their balance at the end of the day remains nil, whatz the problem in filing the return then???

Trust me, govt won't force them to pay tax on nil income, i can assure u that

FATEMA (CHARTERED ACCOUNTANT) (719 Points)
Replied 01 December 2009

Thanx for the assurance Dhiraj.Government pe itna bharosa mujhe bhi hai.

The problem is not in filing of income tax return.We do not want the BOI to get registered as a trust for some confidential reasons.

Cant v do without getting it registered as a trust?

CA Dhiraj Ramchandani (CA, M. com) (10823 Points)
Replied 01 December 2009

Arey, u can continue with this unregistered body.... But how far can u escape???

Think for donors, they require deduction for their donations, but if the BOI (reciever) are not registered itself, how are donors going to trust such BOI???? How are they gonna pay any money to such firm, which is not registered...

Though they perform the work of intermediary, they are as such just suggested to get registered.. Their's no compulsion as such, but legallity matters and its risky to carry such business without being registered... Not at all advisable...

FATEMA (CHARTERED ACCOUNTANT) (719 Points)
Replied 01 December 2009

Dhiraj,

The donors can not claim deductions because if we get registered as a trust, we will be a religious trust and the donations are qualified for exemptions.

The second point is that receiving voluntary contributions is diversion of income and not application of income.Diversion of income is exempted from tax.

Giving you th link.Please refer to point 2 on page 8.In that point "customs" signifies the dawoodi bohra custom (dawoodi bohra is a religion) and "contract" signifies the recipt that will be issued to the donors.

https://incometax.indlaw.com/search/articles/?e56a5852-13d9-4a20-99f0-86224a691f0b