Aerial View Of “Regulatory Compliances Expected From Public Charitable Trusts”

There are more than Eight Lacs Charitable Trust in state of Maharashtra[1]. Recent past has noticed a radical shift in the manner in which regulatory authorities of “Digital India” are looking at non compliances pertaining to Public Charitable Trust. The website of “The Office Of Charity Commissioner Of Maharashtra State”[2] hosts a listing of more than 33 locations in Maharashtra where historic drive of deregistration of very large number of trusts had been executed for non-compliances pertaining to relevant applicable statutes. September 2017 evidenced the ruckus of cancellation of licenses for around 4,800 NGOs for non-compliances pertaining to FCRA ( Foreign Currency Regulation Act 2010), further the total number of NGOs who have lost their licenses in past five years has jumped to around 24,000.

While all above actions by regulatory authorities are essential for sanitising our systems, yet such news could overwhelm large number of Trustees of those Charitable Trusts who are engrossed in their philanthropic work and are unwary to the compliances imposed by relevant statutes. Enlisted below are few such points which could enable stakeholders to understand applicable statute and ensure its compliance:

♠ Reporting of changes ( Section 22 Read With Rule 13 Of The Maharashtra Public Trusts Act) :

• It is mandatory to inform the Deputy or Assistant Charity Commissioner of any change which has occurred in the trust in respect of the trustees, moveable or immovable properties. In case of changes in Immovable Property, these should be informed in the format as prescribed in Schedule III-A, while for other changes these should be informed in the format as prescribed in Schedule III.
• The information should be communicated within a period of 90 days from the change as provided under section 22 of the “The Maharashtra Public Trusts Act”. The change so informed is necessary to be recorded on satisfaction of its legality and validity to the authority. It is the duty of trustee to inform the change and also substantiate the same with record about its legality and validity.

♠ Accounts & Audit:

• Section 32 Read With Rule 17 Of The Maharashtra Public Trusts Act: Every trustee of a public trust shall keep regular accounts of all receipts, moveable and immovable property. Proper accounts should be maintained of all encumbrances created on the trust property and of all payments and alienations made on behalf of the public trust.
• Contents Of Audit Report:While “Audit Report” is the prerogative of Auditor, yet it is essential that the operational trustees take cognisance of the contents of 14 points as enlisted in Rule 19. Below points reflect the key aspects of “Audit Report:

1. Regularity in maintenance of Books Of Accounts,

2. Reproduction of books, documents and relevant information to auditors,

3. Cash balance reconciliations,

4. Maintenance of register for moveable and immovable properties and timely communication of changes therein to Deputy or Assistant Commissioner,

5. Application of funds or properties of trust for purpose other than the object of the trust,

6. Reasoning and justifications for any outstanding amounts for period of more than one year,

7. Ensure tenders being invited for repairs or construction made above Rs 5,000,

8. Ensuring compliance with the provisions of Section 35 of The Maharashtra Public Trusts Act while making any investments pertaining to the trust,

9. Ensuring compliance with the provisions of Section 36 of The Maharashtra Public Trusts Act while alienation of any immovable property of the public trust,

10. Filing of budgets in prescribed format of Schedule VII A. ( Section 31A read with rule 16A), (Budget needs to filed at least one month before the commencement of each accounting year),

11. Ensuring adherence to aspects of propriety, prudence and legality.

• Time period for retaining of books of accounts: There is no such time limit prescribed in The Maharashtra Public Trusts Act. In that case one can take view that the accounts are to be maintained since inception of the trust.

• Section 36B read with Rule 24A Of The Maharashtra Public Trusts Act: Register of movable and immovable properties:

1. A public trust shall prepare and maintain a register of all moveable and immovable properties (not being property of a trifling value) of such trust in such form or forms giving all such information, as may be prescribed by the Charity Commissioner,

2. Format of register should be as prescribed by X-AA,

3. Such register shall show the jewels, gold, silver, precious stones, vessels and utensils and all other moveable property belonging to the trust with their description, weight and estimated value,

4. Details of all movable assets with their description, weight and estimated value to be maintained.

5. Such register shall be prepared within three months from the expiry of the accounting year,

6. Such register shall be signed by all the trustees or by any person duly authorised by trustees in this behalf after verifying its correctness.

♠ Borrowing of money for or on behalf of trust:

Section 36A (3) of The Maharashtra Public Trusts Act : No trustee shall borrow moneys (whether by way of mortgage or otherwise) for the purpose of or on behalf of the trust of which he is a trustee, except with the previous sanction of the Charity Commissioner, and subject to such conditions and limitations as may be imposed by him in the interest or protection of the trust.

♠ Finance Bill 2018:

• Section 11(1) of the Income Tax Act 1961 lays down that any income, profits and gains derived from property held under trust wholly for religious and charitable purposes, shall not be included in the total income of the trust or institution to the extent such income is applied or accumulated for application to such purposes.
• While computing the amount of application subject to Section 11, the following amount shall not be considered as application:
  • If any payment is made in excess of Rs.10,000/- other than by way of A/c Payee cheque or A/c payee bank draft or use of Electronic Clearing System through a bank account or
  • If any application of income is claimed on the basis of provision as liability and subsequently the liability in excess of Rs 10,000/- is discharged other than by paying by way of A/c Payee cheque or A/c payee bank draft or use of Electronic Clearing System through a bank account.
• If the payments are subject to TDS provision and if TDS is not deducted thereon, then 30% of such sum payable shall not be considered as application. (However the same amount shall be considered as application in the year in which the corresponding tax is deducted & deposited with the Govt).
• With above referred changes in Finance Bill 2018, it is essential that trusts deducts TDS as per provisions of Income Tax Act to claim expense as the application of Income. Failure to do so shall cause the amount to be taxable in the hands of Trusts.
• Finance Bill 2018 provides for making PAN mandatory for any entity entering into a financial transaction of Rs 2.5 lakh or more. Further to link the financial transactions with the natural persons, the Finance Bill has also proposed that the managing director, director, partner, trustee, CEO, founder or any person competent to act on behalf of such entities shall also apply to the Assessing Officer for allotment of PAN. Thus it would be essential to ensure that all Trustees have their PAN.

♠ Foreign Contribution (Regulation) Act 2010 ( FCRA ):

• Section 11 Of FCRA read with Rule 9 Of FCRA Rules 2011: An application for registration of a person for acceptance of foreign contribution shall be made electronically on-line,

• Rule 10 Of FCRA Rules 2011: Every certificate of registration granted to a person under the Act shall be valid for a period of five years from the date of its issue.Every certificate of registration granted to a person under the Act shall be valid for a period of five years from the date of its issue.

• Rule 11 Of FCRA Rules 2011: Every person who has been granted registration or prior permission shall maintain a separate set of accounts and records, exclusively, for the foreign contribution received and utilised.

• Rule 17 Of FCRA Rules 2011: Every person who receives foreign contribution under the Act shall submit a report accompanied by an income and expenditure statement, receipt and payment account, and balance sheet for every financial year beginning on the 1 st day of April within nine months of the closure of the financial year, to the Secretary to the Government of India, Ministry of Home Affairs, New Delhi.

Its beyond the scope of this article to give an exhaustive list of applicable statutes for a public charitable trust, however above selective listing would surely give the readers a broad understanding of several regulatory compliances that are required to be adhered for successfully running the operations of a public charitable trust.It is said “Control leads to compliance and autonomy leads to engagement”. Considering the mammoth issues that some of the NGOs are attempting to resolve, compliance and engagement could be accomplished if the key management team embarks to design the control framework and thereafter ensure its periodic review and monitoring.

[1] https://charity.maharashtra.gov.in/Portals/0/files/Charity%20Orgs.pdf

[2] https://charity.maharashtra.gov.in/en-us/

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The Author is a partner with  YSP & Co LLP with over 20 years of experience in myriad areas of GST, Direct Tax, System Audits, Controllership and CFO Functions.The author could be reached at rajeevj12@gmail.com / 8356097618 / 9619912774.