The Hindu Business Line : Corporates see merit in spirit of charity

THE spirit of charity is thriving within the business community. Or so it would seem if recent Government approvals for tax deduction in computing profits is anything to go by.

Data collated over the last 20 months shows that the National Committee constituted by the Government had approved tax deductions of nearly Rs 500 crore on contributions made for welfare projects run by charitable institutions.

In August alone, the National Committee approved as many as 31 projects worth Rs 159 crore in tax deductions under Section 35 AC of the Income Tax Act 1961, the relevant section under the law.

Leading the list is an approval for deduction of close to Rs 42.29 crore — for donations given to Vedmata Gayatri Trust, Uttaranchal, for construction of building for Dev Sanskriti Vishwa Vidyalaya and running of healthcare and education programmes.

The approvals given in August have been the largest ever after September 2001 when the National Committee approved donations to 15 projects as eligible for IT deductions. The maximum amount allowed as deductions then touched Rs 145.73 crore.

The Sathya Sai Baba Medical Trust topped the list during this period, with the National Committee granting an approval for a project (running and maintenence of Sri Sathya Sai Institute of Medical Sciences) estimated to cost Rs 117 crore.

Construction of homes for the aged, rehabilitation centres for the physically handicapped, community health centres, community banking programmes, educational programmes etc, are typically the kind of projects that have been conceived with an eye on the business purse.

In several cases, the approvals also included contributions made to a corpus fund. Officials contend that income generated from the corpus is sometimes used by these institutions to meet the running expenses for the project. But the basic question is whether the Government has an effective mechanism to monitor expenditures incurred on these projects.

Official sources reckon that there could be physical limitations in monitoring projects, but add that checks and balances are in place. Every institution has to furnish a six-monthly status report on the amount of donations received and the expenditure incurred, besides giving reasons for cost or time over-runs.

"Over the last one year or so, members of the committee have been frequently visiting the sites to ensure that these projects are on track and monies are spent under the heads projected in the detailed project report," said an official.

Moreover, even prior to the approval of the project, a written commitment is being obtained from institutions that they would offer 50 per cent of the services to economically weaker sections on completion of the project.

Approvals are initially given for a period of three years. In several cases, extensions are also granted. The only caveat is that the National Committee should be satisfied about the activities of the institution during the preceding period of approval. The 14-member committee, chaired by Mr R.S. Pathak, retired Chief Justice of the Supreme Court, also has the right to terminate the approval. This would mean that donations made would be subject to tax at the maximum marginal rate at the hands of institutions. There have, however, been no instances of revocation in the recent past.

Section 35 AC of the IT Act has been in force for a decade now. The purpose of treating donations given by companies to specified institutions as business expenditure is to ensure greater private sector participation in welfare activities. Individuals contributing to these projects enjoy the benefit of a 100 per cent tax deduction.

In a series of presentations made recently to the Task Force chaired by Dr Vijay Kelkar, the Central Board of Direct Taxes (CBDT) has given an overview of the pros and cons of various tax exemptions available under the tax law. The objective of such an exercise is to assess whether their continuation is justified in the present context.

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Corporates see merit in spirit of charity