CAG Exposes Defects In Law And Procedure Of Taxation Of Charitable Trusts

The Comptroller and Auditor General of India (“CAG”) has issued a hard-hitting report in which it has conducted a detailed study of the law and procedure relating to charitable trusts and identified all the short-comings therein.

The revenue loss due to the lapse runs into several thousands of crores.

One of the surprising aspects is with regard to the procedure followed by the income-tax department. The Report cites several cases where the department has issued registrations without verifying even the trust deed or the audited accounts. There are also several cases where exemption has been granted despite there being no registration.

The report also gives glaring instances of trusts that are earning huge profit and accumulating it to buy fixed assets instead of spending on charitable purposes. It also makes a pointed reference to several Tata trusts which have invested thousands of crores in prohibited modes but are still enjoying exemption.

The Report has also carefully analyzed the provisions of the Act and identified deficiencies therein that require to be addressed.

The Report offers several recommendations with regard to the reforms required to be carried out to the law and procedure so as to avoid abuse of the exemption by charitable trusts.

The Report is a must-read for all tax professionals because one can expect to see a lot of corrective action by the department in due course of time.

One comment on “CAG Exposes Defects In Law And Procedure Of Taxation Of Charitable Trusts
  1. vswami says:

    A Critique
    CAG, in one’s independent understanding, has mostly exposed, not defects in, but the numerous varying types of acts of commission and omission on the part of ITD in following the extant provisions of law and the rules of procedure, thereby causing loss to the Revenue of a significant amount. The report, being the outcome of an obviously time consuming and highly expensive detailed audit, could have been expected to meet its aim or object, at least half-way, had the CAG, on its part, prudently included its weighty suggestions and recommendations as to the time frame within which remedial steps/measures require to be taken , so as to make good, also mitigate scope for any further sizable loss to the exchequer. In the absence of it, is anybody’s guessing whether and when the usefulness of the report would, if at all, come to be known /proved. With a grave uncertainty hanging, like the mythological Damocles’ sword, over the political scenario, pending the general elections round the corner, it is well nigh impossible or impractical to even venture any guess on the likely changes in law and rules as expounded in the CAG’s recommendations. Until then, may be, the ‘business ‘ (the functions / activities of so called “charitable trusts’ being no exception) can only be expected to go on as always before.

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