Irregularity in tax benefits allowed to hundreds of trusts, which include many well-known entities such as Breach Candy Hospital, Jamsetji Tata Trust and several state cricket associations, contributing tax effect to the tune of Rs3,019 crore has come to light.
A performance audit report of the Comptroller and Auditor General of India (CAG) on exemptions to charitable trusts and institutions, tabled in Parliament on Friday, highlights major violations of tax rules in 1,283 cases for more than two years. Out of the 90,000 trusts audited by the CAG, procedural lapses were noted in 6,948 (7.7%) cases.
The Income Tax Act, 1961 provides various tax exemptions to charitable trusts and institutions run solely for philanthropic purposes, not for profit. The audit sought to verify the eligibility of trusts enjoying tax benefits.
Even though the tax exemption allowed to Breach Candy Hospital trust initially was withdrawn by the I-T department on the ground that it runs with the motive of profit and not philanthropy, the trust continued to enjoy tax benefits. This resulted in under-assessment of income involving tax effect of Rs4.94 crore.
Similarly, despite clear guidelines on disallowing tax exemptions on the income received from TV rights from the Board Of Control For Cricket In India, at least four cricket associations — Saurashtra Cricket Association, Baroda Cricket Association, Kerala Cricket Association and Maharashtra Cricket Association — continued to enjoy tax benefits. This resulted in non-levy of tax to the tune of Rs37 crore.
The CAG also pulled up the I-T department for failing to take action against the investment of Rs3,139 crore made by Jamsetji Tata Trust and Navajbai Ratan Tata Trust in contravention to the I-T rules, resulting in short levy of tax of Rs1,066 crore.
The I-T department received a total of 1.75 lakh trust applications for granting registrations during the financial years 2009 to 2011. While the department approved 90,000 of these applications, 36,000 requests were turned down, while the rest are pending for action.
The report notes procedural lapses, allowance of exemptions and non-monitoring of foreign contributions received. The auditors in their recommendations urged the ministry concerned to provide a database of registered trusts to I-T officials for better coordination between approving authorities and the tax officer. It also said that the ministry may come out with protocols to make sure that tax officials verify unauthorised investments made by trusts.