Charitable Trusts in a tizzy after state ordinance
The recent ordinance of the Maharashtra State Government has made Charitable Trusts and Societies which are already reeling under a huge resource crunch and other challenges, press the panic button. Is there a reason to worry or feel concerned? Read on …
What has the ordinance introduced?
Under the Ordinance a new Section 57A shall be inserted in the Maharashtra Public Trusts Act 1950 in order to enable the establishment of a new and separate “Epidemic Disease Relief Fund & Disaster Relief Fund”.
This new “Epidemic Disease Relief Fund & Disaster Relief Fund” shall vest in the office of the Charity Commissioner and all Public Charitable Trusts (except those exempted by the State Government by a General or Special Order) shall contribute a per centage of their Gross Annual Income as prescribed.
Ever since we posted the news on our CAP Blog (https://capindia.in/blog/), questions have been flying fast and furious. We have therefore prepared answers to some of the Frequently Asked Question (FAQ)? However, please understand that it is not possible to answer every question accurately till the Rules are Notified by the Maharashtra State Government. Our answers are most based on experience, current trends and past precedents.
Question 1. What will be the per centage levied by the office of the Charity Commissioner?
Answer 1. We don’t know as yet. It could possibly be around two per cent of the Gross Annual Income of the trust.
Question 2. What would ‘Gross Annual Income’ mean?
Answer 2. Gross Annual Income would mean all income of the trust including all donations and grants including foreign or CSR, fees, interest etc.
Question 3. Would there be deductions?
Answer 3. We can’t say. However, ‘Gross Annual Income’ may not include corpus donations (as these would be capital receipts) or deductions allowed by Rule 32 of the Maharashtra Public Trusts Rules, 1951.
Under existing Rule 32, public trusts exclusively for secular education, medical relief, veterinary treatment of animals, relief of distress caused by natural calamity are exempt from payment of contribution u/s 57 & 58 of the Maharashtra Public Trusts Act 1950. In the case of trusts with multi-purpose objects and activities, deductions are allowed for the portion of the gross income or collection or receipt spent for any one or more of the aforesaid purposes. Deductions may also be allowed for donations received from other public trusts within the state and grants received from government and/or local authorities.
Question 4. Would this Ordinance also apply to Societies registered under the Societies Registration Act 1860?
Answer 4. In Maharashtra State, all Societies registered under the Societies Registration Act 1860 are also registered as Trust and the Maharashtra Public Charitable Trust is applicable to all such Societies.
Question 5. Would this Ordinance also apply to Religious Trusts and Societies?
Answer 5. This Ordinance is likely to be applicable to Religious Trusts and Societies as well. However, we cannot say this with any certainty at the moment.
Question 6. Will this Ordinance affect all trusts and societies?
Answer 6. This ordinance will affect only Trusts and Societies registered in the State of Maharashtra and to which the Maharashtra Public Trusts Act 1950 is applicable?
Question 7. Will some Trusts be exempt?
Answer 7. The provisions of this new Section 57A will not apply to Trusts or Societies exempted by the State Government by a General or Special Order.
Question 8. Is there a history of the Charity Commissioner collecting such “contributions” in the State of Maharashtra?
Answer 8. According to section 58 of the Bombay (now Maharashtra) Public Trusts Act 1950, “Every public trust shall pay to the Public Trusts Administration Fund annually such contribution at a rate or rates not exceeding five per cent of the gross annual income, or of the gross annual collection or receipt, as the case may be, as may be notified, from time to time, by the State Government.”
Question 9. Why was the contribution levied by the Charity Commissioner two per cent and not five per cent as provided under section 58?
Answer 9. The power of the Charity Commissioner’s office to collect “contribution” was first challenged by the Salvation Army Western India Territory, Bombay, and Lohana Mahajan Trust, Bombay, and the matter went to the Mumbai High Court and was decided on 21st February 1972. Their Lordships of the Mumbai High Court observed that the levy of contribution by the charity commissioner’s office in the past was more than required to meet with the expenses of the CC’s office. Their Lordships therefore held the said contribution as tax and ultra vires, since the state government had no authority to levy tax.
The state of Maharashtra and the Charity Commissioner, thereupon filed an appeal before the Supreme Court of India, being Civil Appeal no 487 of 1973. The same was decided on 10th February 1975 and their Lordships of the Supreme Court of India were pleased to allow the appeal partly and held that the levy of contribution was legal and valid up to 31st March 1970, but ultra vires thereafter.
Their Lordships observed that the levy of contribution should have correlation with the services rendered (by the office of the charity commissioner), giving due consideration to the existence of the surplus funds which were not immediately required for further expenditure by way of service, calculating capital expenditure. In other words, the Supreme Court directed that a contribution which is charged should be in keeping with the expenditure made for the maintenance of the organization.
It was due to this litigation then pending that no contribution was charged for the period of three years and eight months, viz., from 1st April 1970 to 14th December 1973. During this period of three years and eight months, the funds were almost exhausted. Thereafter, two per cent (instead of five per cent) contribution was charged.
Question 10. Why is no contribution levied by the Charity Commissioner since the past so many years?
Answer 10. Years after the order of the Supreme Court and in the wake of the then newly enacted Right to Information Act (RTI) 2005 valuable facts and figures were unearthed from the office of the Charity Commissioner under an RTI application.
According to the data then provided by the Office of the Charity Commissioner (Maharashtra State) it was observed that contributions collected over the years from various public charitable and religious trusts, for the ‘Public Trusts Administration Fund’ had been invested in Fixed Deposits of various Banks aggregating Rs. 155,47,83,162.00 (as on March 2006). The return on this investment was Rs. 8,73,92,316.00.
Based on the information received a view was taken that between the Financial Years 1996-97 to 2005-06 the Office of the Charity Commissioner had collected ‘excess contribution’ (i.e. levy of contribution beyond the expenditure incurred by the Office) to the tune of Rs. 165,15,61,770.22. The interest income on this ‘excess contribution’ alone was to the tune of Rs. 69,30,20.912.59.
On the other hand, the Office of the Charity Commissioner at that point in time had annual office expenditure amounting to Rs.9,29,44,893.00 and it was felt that the interest and other income alone was sufficient to meet expenses of the Charity Commissioner’s Office. Any shortfall could easily be made up from the surplus funds.
Taking cue from the earlier judgment of the Supreme Court, a Public Interest Litigation (PIL) was filed once again before the Bombay High Court (PIL 40/2007) to decide whether the contribution collected by the charity commissioner was legal and whether it should be stopped. Two more PILs (1780 and 1864 of 2007) were also filed in the same matter by two different trusts and all the cases were then tagged together.
According to the affidavit filed by the State Government and Charity Commissioner before the High Court in the PIL, an amount of Rs.248 crores was lying with the Charity Commissioner in the fund. On questions asked by the High Court about the proposed expense from the said fund, the State Government and the Charity Commissioner could not file any explanation despite repeated opportunities given to both.
After passing strictures on the administration of State Government and office of Charity Commissioner, the Mumbai High Court passed an interim order on 25th September 2009, restraining Charity Commissioner from collecting any fee hence forth in the State until further orders in the matter.
Question 11. When will be know more about what per cent will be levied and when it will have to be paid?
Answer 11. We will have more clarity when under Section 84 of the Maharashtra Public Trust Act 1950 the State Government shall make Rules for the purpose of carrying into effect the provisions of this new Section 57A.
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