Local city development agencies, such as Delhi Development Authority and Noida Development Authority, which have been raking in the moolah for some time from their housing projects, have drawn the attention of taxmen. The Central Board of Direct Taxes has sounded an alert to its field forces asking them to keep a tab on tax payments by such bodies to ensure there is no evasion.
“It has come to our notice that a number of development agencies had registered themselves as charitable organisations and were enjoying tax exemption,” a government official said. Non-payment of income tax by these entities could run into several crores.
The alert comes in the backdrop of a detailed explanatory circular issued by the Central Board of Direct Taxes last December on the definition of charitable activities. The government had amended the definition to ensure that only genuine charity enjoys tax exemption available to such activities.Online GST Certification Course by TaxGuru & MSME- Click here to Join
The Income Tax Act recognises “charitable purpose” to cover activities related to relief of poor, education, medical relief and ‘advancement of any other object of general public utility’. ‘Advancement of general public utility’ made the definition open-ended, leading to its abuse. It also led to large-scale litigation as claims of such tax exemptions would be contested by the income tax department. Thus, in the 2008-09 Budget, a provision was added stating that any entity carrying out activities in the nature of trade, commerce or business under the garb of charitable purpose will be liable to pay income tax.
The official pointed out that these local development agencies enjoyed tax exemption through a separate provision until 2002, which was subsequently withdrawn in 2003. He said following the change, some of these entities registered themselves as charitable organisations to continue enjoying the tax holiday.
Now, the party may soon be over for these local development agencies, some of whom have annual revenues of over Rs 4,000 crore.