Circular No 7/2010 regarding validity of 80G Application

INCOME-TAX ACT

CIRCULAR

Section 10(23C)(iv) of the Income-tax Act, 1961 – Exemptions – Charitable or religious trusts/institutions –Clarification regarding period of validity of approvals issued under section 10(23C)(iv), (v), (vi) or (via) and section 80G(5) of the Income-tax Act

Circular No. 7/2010 [F.No.197/21/2010-ITA-I], Dated 27-10-2010

The Board has received various references from the field formations as well as members of public about the period of validity of approvals granted by the Chief Commissioners of Income Tax or Directors General of Income Tax under sub-clauses (iv), (v), (vi) and (via) of Section 10(23C) and by the Commissioners of Income Tax or Directors of Income Tax under Section 80G (5) of the Income Tax Act, 1961.

2. It has also been noticed by the Board that different field authorities are interpreting the provisions relating to the period of validity of the above approvals in a different manner. The following instructions are accordingly issued for the removal of doubts about the period of validity of various approvals referred to above.

3. Sub-Clauses (iv) and (v) of Section 10(23C) were amended by Taxation Laws (Amendment) Act, 2006 by insertion of the following proviso to that clause:-

“Provided also that any (notification issued by the Central Government under sub-clause (iv) or sub-clause (v), before the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President, shall at any one time, have effect for such assessment year or years, not exceeding three assessment years) (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification.”

The intention behind the insertion of the above proviso was laid out in the relevant portion of the explanatory notes to the Taxation Laws Amendment Act, 2006 which reads as under:

“A need has been felt to dispense with the requirement of periodic renewal of notifications. The requirement of periodic renewal of notifications has been resulting in delays in their renewal.

5.2 In order to overcome delays, the eighth proviso to section 10(23C) has been amended so as to provide that the above mentioned limit of effectivity for three assessment years shall be applicable in respect of notifications issued by the Central Government under sub-clause (iv) or sub-clause (v) before the date on which Taxation Laws (Amendment) Bill, 2006 receives the assent of the President.

5.3 The Taxation Laws (Amendment) Bill, 2006 received the assent of the President on 13.07.2006. Therefore, on account of the above amendment any notification issued by the Central Government under the said sub-clause (iv) or sub-clause (v), on or after 13.07.2006 will be valid until withdrawn and there will be no requirement on the part of the assessee to seek renewal of the same after three years.”

The intention of legislature that the approvals under Section 10(23C) (iv) & (v) after the cut off date mentioned above would be a one time approval which would be valid until withdrawn, is thus sufficiently clear.

4. Approvals under Sub-Clauses (vi) and (via) of Section 10(23C) are governed by the procedure contained in Rule 2CA. Rule 2CA was amended w.e.f. 1.12.2006, inter alia by substitution of the existing sub-rule 3 by a new provision which is reproduced below:-

“(3) The approval of the Central Board of Direct Taxes or Chief Commissioner or Director General, as the case may be, granted before the 1st day of December, 2006 shall at any one time have effect for a period of exceeding three assessment years.”

Read in isolation, without any further guidance as was given by way of explanatory notes to Finance Act, 2006 in respect of amendment of sub-clauses (iv) & (v) of Section 10(23C), the above amendment leaves some scope for doubt about the period of validity of the approval under Section 10(23C)(vi) and (via) on or after 1.12.2006. For the removal of doubts if any in this regard, it is clarified that as in the case of approvals under sub-clauses (iv) & (v) of Section 10(23C), any approval issued on or after 1.12.2006 under sub-clause (vi) or (via) of that sub-section would also be a one time approval which would be valid till it is withdrawn.

5. As regards approvals granted upto 1.10.2009 under Section 80G by the Commissioners of Income Tax/ Directors of Income Tax, proviso to Section 80G(5) (vi) clarified that any approval shall have effect for such assessment year or years not exceeding five assessment years as may be specified in the approval. The above proviso was deleted by the Finance (No. 2) Act, 2009. The intent behind the deletion of above proviso as explained in the explanatory memorandum to Finance (No.2) Bill, 2009 was as under:

“Further as per clause (vi) of sub-section (5) of section 80G of the Income-tax Act, 1961, the institutions or funds to which the donations are made have to be approved by the Commissioner of Income-tax in accordance with the rules prescribed in rule 11AA of the Income-tax Rule, 1962. The proviso to this clause provides that any approval granted under this clause shall have effect for such assessment year or years, not exceeding five assessment years, as may be specified in the approval.

Due to this limitation imposed on the validity of such approvals, the approved institutions or funds have to bear the hardship of getting their approvals renewed from time to time. This is unduly burdensome for the bona fideinstitutions or funds and also leads to wastage of time and resources of the tax administration in renewing such approvals in a routine manner.

Therefore, it is proposed to omit the proviso to clause (vi) of sub-section (5) of section 80G to provide that the approval once granted shall continue to be valid in perpetuity. Further, the Commissioner will also have the power of withdraw the approval if the Commissioner is satisfied that the activities of such institution or fund are not genuine or are not being carried out in accordance with the objects of the institution or fund. This amendment will take effect from 1st day of October, 2009. Accordingly, existing approvals expiring on or after 1st October, 2009 shall be deemed to have been extended in perpetuity unless specifically withdrawn.”

It appears that some doubts still prevail about the period of validity of approval under Section 80G subsequent to 1.10.2009, especially in view of the fact that no corresponding change has been made in Rule 11A(4). To remove any doubts in this regard, it is reiterated that any approval under Section 80G(5) on or after 1.10.2009 would be a one time approval which would be valid till it is withdrawn.

CAN A COMPANY GIVE LOAN TO GROUP COMPANIES UNDER COMPANY ACT, 2013?

Many corporate including Pvt Ltd Cos have other related group companies and they transfer money to & from other company as and when require. Stop doing this, even retrospectively from 12th Sep, 2013 as these can be treated as interest free loan u/s 185 of new company law. Loan has not been defined u/s 185. These transfers can be treated as loan. Any transaction of giving money to be returned with or without interest can be treated as loan. However, fund can be transferred to public ltd co. if less than 25% of total voting power is exercised or controlled by "such director(s)".
Section 185 of the Companies Act, 2013 has been made operational from 12-09-2013.This sec is applicable for all companies. This sec states that:
  No company can advance loan to its “directors” or to “other persons in whom directors are interested”.
 No company can give any guarantee or provide any security in connection with any loan taken by him or such other person.

EXCEPTIONS:
Ø  the giving of any loan to a managing or whole-time director—
(i) as a part of the conditions of service extended by the company to all its employees; or
(ii) pursuant to any scheme approved by the members by a special resolution; or
Ø   a company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the bank rate declared by the Reserve Bank of India.
The expression “TO ANY OTHER PERSON IN WHOM DIRECTOR IS INTERESTED” means—
(a) any director of the lending company, or of a company which is its holding company or any partner or relative of any such director;
(b) any firm in which any such director or relative is a partner;
(c) any private company of which any such director is a director or member;
(d) any body corporate at a general meeting of which not less than twenty five per cent. of the total voting power may be exercised or “controlled” by any such director, or by two or more such directors, together; or
(e) any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.
"Control" has been defined as to include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholding or management rights or shareholders agreements or voting agreements or in any other manner. [Section 2(g) of the Companies Act, 2013]
IMPRISONMENT & PENALTY UPTO 25 LAKHS :If any loan is advanced or a guarantee or security is given or provided in contravention of the provisions of sub-section (1), the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, and the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.
COMMENTS: Kindly note the following observations:
1) Existing loan on 12th sep is not affected by above provisions. However, it should not be renewed & should be repaid on due date.
2) If any loan had already been given after 11th sep., you should book it as advance  for property/ purchase of goods/ materials etc. backed by adequate documentation . These should be return as soon as possible.
3) Deposits or advance for property/ purchase of goods, services etc  is not covered.
4) Company in the ordinary course of business can give loan at not below bank rate.
5) Sec 372 of the Companies Act, 1956 is applicable after 11th sep.
6) Above is my opinion only, you may have different opinion.
PRIVATE LTD COMPANIES HAVING TURNOVER UPTO 60 LAKHS SHOULD BE CONVERTED TO LLP
1) LLP is not a company, hence proposed limit of audit of 20 company / CA will not be applicable.
2) As companies Act will not be applicable, you can transfer fund from one LLP to another group LLP.
3) Many of exemption which Pvt Ltd company enjoy under old Companies Act has been withdrawn, which are not applicable to LLP.
4) Compliances under new companies Act for Pvt Ltd Companies has been substantially increased, which are not applicable for LLPs.
5) There is heavy penalty for non compliances under New Company Act. Penalty of rs 50000 is a small amount for a single violation.
6) Cost benefit analysis suggests that these should be converted into LLP.
7) However, as per sec 47(xiiib) of Income tax Act, for tax neutrality of such conversion , turnover of Pvt Ltd company  in any of last 3 years must not exceeds 60 lakhs. So, if turnover exceeds 60 lakhs than such conversion will be subject to income tax.
PRIVATE LTD COMPANIES SHOULD  BE CONVERTED INTO PUBLIC LTD COMPANIES
1) Sec 185 of New Co Act is not applicable to public ltd co at a general meeting of which not less than twenty five per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together
2) We can plan accordingly and take benefit.
3) So, we can convert our existing Pvt Ltd companies to public Ltd companies and take benefits.

THE COMPANIES ACT, 2013
185. (1) Save as otherwise provided in this Act, no company shall, directly or indirectly, advance any loan, including any loan represented by a book debt, to any of its directors or to any other person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person:
Provided that nothing contained in this sub-section shall apply to—
(a) the giving of any loan to a managing or whole-time director—
(i) as a part of the conditions of service extended by the company to all its employees; or
(ii) pursuant to any scheme approved by the members by a special resolution; or
(b) a company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the bank rate declared by the Reserve Bank of India.
Explanation.—For the purposes of this section, the expression “to any other person in whom director is interested” means—
(a) any director of the lending company, or of a company which is its holding company or any partner or relative of any such director;
(b) any firm in which any such director or relative is a partner;
(c) any private company of which any such director is a director or member;
(d) any body corporate at a general meeting of which not less than twenty five per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or
(e) any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.
(2) If any loan is advanced or a guarantee or security is given or provided in contravention of the provisions of sub-section (1), the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, and the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.

Companies Act 2013 Not Providing Exemptions To Private Companies

1.    Section 293 of Companies Act 1956 provisions relating to Restrictions on Powers of Board mandate members approval in general meeting only for public companies and private companies which is subsidiary of public companies. It was not applicable to private companies. 

However, now corresponding new Section 180 of Companies Act 2013 relating to Restrictions on Powers of Board. (which has been made effective w.e.f  12.09.2013) has taken away such exemption from private companies.

2.    Section 295 of Companies Act 1956 relating to loans to directors did not apply to private companies. Even in case of public companies such transactions could be entered into at the most with the approval of the Central Government.

Now corresponding Section 185 of Companies Act 2013 which has become effective from 12.9.2013 does not provide for such exemption to private companies. It seems the new Act puts total ban on such transactions, excepting loans to MD/WTD as part of conditions of service extended to all employees or pursuant to scheme approved by members by special resolution.

3.    Presently Section 372A of Companies Act 1956 provisions relating to Inter-corporate loans and investments are not applicable to private companies.

However, now corresponding new Section 186 of Companies Act 2013 relating to Loan and investment by company. (which is yet to be made effective) has taken away such exemption from private companies.

4.    Presently Section 81 of Companies Act 1956 relating to further issue of shares are not applicable to private companies. Even public companies issuing further shares within initial specified period ( two years from incorporation or one year after first issue of shares, whichever is earlier) are free to issue shares to anyone and need not be to existing shareholders on proportionate basis.

However, now corresponding new Section 62 of Companies Act 2013 (which is yet to be made effective) has taken away such exemption from private companies. Further, even initial specified period as above has also been deleted. As a result now all companies, whether private or public, will have to follow prescribed procedure (Rules yet to be notified) for further issue of shares right from the date of incorporation.

          Compliances on the part of private companies will increase substantially.

Fees and Penalty for Late Filing of TDS Returns are as follows:

Section 234E – Levy of Fees :

• Failure to submit e-TDS Statement on time will result in fees on the deductor.
• If you delay or forget to file your e-TDS Statement, fees of Rs. 200 per day will be levied on the deductor, as long as TDS Statement is not filed.
• The levied amount of fee is not supposed to exceed the TDS deductibles.
• Prior to filing of TDS Statement such fee should be paid and it should be reflected in the TDS Statement.

• Effective from 1st July 2012, any delay in furnishing the eTDS statement will result in a mandatory fees of Rs. 200 per day, the total fees should not exceed the total amount of TDS made for the quarter. The late filing fee should be paid before filing such delayed eTDS statement.

Section 271H – Penalty:

Deductor has to pay a penalty ranging from minimum of Rs. 10,000/- to One Lac rupees,

• If deductor exceeds one year time limit to File TDS Statement.
• If deductor furnishes incorrect details like PAN, TDS Amount, Payment of Challan etc.

How To File Your Income Tax Returns Online

Filing income tax returns is something everyone dreads. That isn't without reason, because the sheer complexity makes most mortals concede defeat and run to their chartered accountants. Note: This guide applies only to salaried individuals. The most important part of this exercise is to procure the Form 16, which is provided by your employer. It is a statement of your taxable salary, allowed deductions, and the tax that has been paid on your behalf. Also, banks and other financial instutions that deduct tax on the interest due to you are supposed to supply you with the Form 16A. If that sounds Greek and Latin, all you need to do is contact the HR department and demand a copy of your Form 16. This needs to be done before 31st July, if you are eligible for tax refunds (this depends on the tax slab you fall in). However, if you aren't eligible and your salary is under 5 lakhs, you are exempt from filing returns. It is prudent to do so nonetheless. This is especially true if you intend to apply for home \ car loans in the future, since that requires I-T return details spanning the last three years. With the Form 16 sorted out, you can then log on to the INCOMETAX INDIA website. Step 1: Click on the Register link to create a new account. You are then prompted to enter your PAN number, which is assigned as your user ID. Step 2: Enter your details in the registration form, following which you will receive a confirmation mail in the inbox of the specified email address. Keep your PAN card handy, because the details have to match those mentioned on the card. Step 3: After verifying and logging into your spanking new account, you need to view the Form 26AS statement and ensure that the Tax Deducted at Source (TDS) amount matches the one mentioned in your Form 16. However, if the TDS amount in the Form 16 is more than that reflected in the Form 26AS, you cannot file your I-T return online. You will then have to contact your CA or the Form 16 issuer to correct the discrepancy. To view the 26AS statement, click on the View Tax Credit Statement (Form 26AS) under the My Account drop-down menu at the top. Step 4: In the subsequent form, select Assessment Year 2011-12 from the drop-down box, enter your Date of Birth, and click Submit. Step 5: Note down the total TDS deposited (highlighted by the red box) and verify if it matches with the amount mentioned in your Form 16. Step 6: Now, we need to download the I-T Return utility. To do so, select Individual, HUF from the e-Filing menu under the Download section at the top of the left hand side bar. Use the table below to check which one of the ITR forms you are supposed to fill. Since this guide only covers salaried individuals, you'll have to select ITR-1. However, if you own a business or have amassed a truckload of money after selling off property, this guide is of no use to you. Then again, you're rich enough to hire a CA anyway. That means you have to download either the PDF or Excel version of the I-T Return utility. Step 7: Open the I-T Return utility downloaded in the previous step. The examples illustrated below use the PDF version of the utility. Get your Form 16 ready, as most details are to be copied over from the same. This section is fairly straightforward. Enter your name, address, birth date, PAN number, and fill up the numbers in Fields 1 and 2 from the Form 16 (details below). Field 3 (yellow box) is the sum of the interest earned from your bank accounts, FDs, etc. Unless you are employed by the Indian government or in a Public Sector Undertaking (PSU), select the Others check box in the Employer Category (highlighted in purple). Keep the default value for the Return Filed Under field (denoted by a brown box). The Income Tax Ward \ Circle value (marked in black) requires a bit more effort. Head back to the website and click on Know Jurisdiction under the Services drop-down menu at the top. Copy your Jurisdiction code as shown below. You only need to copy the numbers and not the letters. Paste the same in the Income Tax Ward \ Circle box. Remember, Field 1 in the ITR-1 has to be filled with the amount mentioned in the Gross Total Income field in your Form 16, as illustrated below: Step 8: Fields 16, 17, 18, and 19 are calculated based on the values you will enter in Field 23. Details below. Field 20 lets you specify the bank account where you want the tax refunds, if any, to be credited. The next two fields allow you to choose between a direct wire transfer or cheque-based refund. If you choose the former, you have to specify your MICR code (printed in your cheque book). Set the bank account type to Savings. Field 23 deals with TDS details. You have to fill the name and TAN number of your employer(s), and the associated numbers - all of which can be found in the Form 26AS. If you have drawn money from more than one employer, you can add an additional row by pressing the [+] button at the left margin, whereas the [x] button kills unwanted rows. Field 24 is meant to fill in TDS details on your income from investments such as fixed deposits, while Field 25 deals with Advance Tax and Self Assessment Tax. The latter is best illustrated with this example: suppose you have a large sum in the bank account earning you a tidy interest that is already taxed at the default rate of 10%. However, your income actually puts you in the 20% slab. This is where you honestly inform the government of the same, by paying the tax through any nationalised bank and receiving a Challan Number. While it's easy to get away without doing so, you'll be in a big doo-doo in the rare case that the authorities decide to audit you. You know how the saying goes: Honesty is the best policy. Fill in your verification details and then click the Calculate Tax button at the bottom. Then click on the Check Form button to weed out any mistakes or omissions. Once you do that, the Export to XML button (in the bottom right corner) will become active. Click on it and save the XML report to your hard drive Step 9: Now, we need to submit the XML report. To do so, head back to the website (make sure you're still logged in) and select AY 11-12 from the Select Assessment Year menu under the Submit Return section in the left hand side bar In the subsequent form, select ITR-1 from the drop-down box and hit Next. You may choose to digitally sign the form, but that entails some more effort on your part to submit your digital signature for verification. I have chosen to skip that step. However, if you use a digital signature, you have to upload that along with the XML file, then head over to Step 11. Step 10: You will now be given a printout of your return, which you need to print, sign, and submit to the address mentioned in the form itself. Please note that the submissions have to be sent through regular post only, within 120 days. In due course of time, you will receive an acknowledgement email from the I-T department. Step 11: Congratulations, you have successfully filed your I-T returns online.