Chapter IV Special Provisions Relating to Computation of Total Income of NonProfit Organisations

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The Tax PublishersSection C CHAPTER IV SPECIAL PROVISIONS RELATING TO THE COMPUTATION OF TOTAL INCOME OF NON-PROFIT ORGANISATIONS 90. Applicability of this Chapter (1) The provisions of this Chapter shall be applicable to a non-profit organisation, other than any organisation of public importance, specified in the Seventh Schedule. (2) The Central Government may, subject to such conditions as may be considered necessary, notify a person as a non-profit organisation of public importance for the purpose of the Seventh Schedule. (3) The provision of this Chapter other than section 95, section 97, section 98, section 99, section 101, section 102 and section 103, shall not apply to a non-profit organization, being a public religious trust or institution. FROM NOTES ON CLAUSES Clause 90 provides that Chapter-IV shall be applicable to a non-profit organisation, other than any organisation of public importance, specified in the Seventh Schedule. It also provides that the Central Government may, subject to such conditions as may be considered necessary, notify a person as a non-profit organisation of public importance for the purpose of the Seventh Schedule. For this purpose, a non-profit organisation has been defined in clause 314 to mean an organisation, by whatever name called, including a trust, if-- (i) it is not established for the benefit of any particular caste or religious community; (ii) it does not provide any benefit for the members of any particular caste or religious community; (iii) it is established for the benefit of the general public or for the benefit of the Scheduled Castes, the Scheduled Tribes, backward classes, women or children; (iv) it is established for carrying on charitable activities; (v) it is not established for the benefit of any of its members; (vi) it actually carries on the charitable activities during the financial year; (vii) the actual beneficiaries of its activities are the general public, Scheduled Castes, the Scheduled Tribes, backward classes, women or children; and (viii) it is registered as such under clause 98. FROM MEMORANDUM REGARDING DELEGATED LEGISLATION Clause 90 of the Bill provides that the Central Government may, subject to such conditions as may be considered necessary, notify a person as a non-profit organisation of public importance for the purpose of the Seventh Schedule. Accordingly, it is proposed to empower the Central Government to issue notificationsin this regard for the purposes of this clause. 91. Total income of a non-profit organisation The total income of a non-profit organisation shall be computed in accordance with the provisions of this Chapter. FROM NOTES ON CLAUSES Clause 91 provides that the total income of a non-profit organisation shall be computed in accordance with the provisions of Chapter IV. 92. Computation of total income of a non-profit organisation (1) Subject to the provisions of section 8, the total income of any non-profit organisation in relation to any charitable activity, during the financial year, shall be the gross receipts as reduced by the amount of outgoings, computed in accordance with the cash system of accounting. (2) Notwithstanding anything in sub-section (1), the total income of a non-profit organisation, being a company registered under section 25 of the Companies Act, 1956 in relation to any charitable activity, during the financial year, shall be the gross receipts as reduced by the amount of outgoings, computed in accordance with the mercantile system of accounting. FROM NOTES ON CLAUSES Clause 92 provides for the computation of total income of a non-profit organisation. It provides that subject to the provisions of section 8, the total income of any non-profit organisation in relation to any charitable activity during the financial year shall be the gross receipts as reduced by the amount of outgoings, computed in accordance with the cash system of accounting. The said clause also provides that where the non-profit organisation is a company registered under section 25 of the Companies Act, 1956, such total income shall be computed in accordance with the mercantile system of accounting. 93. Gross receipts of a non-profit organisation (1) The gross receipts from any charitable activity shall be the aggregate of the following, namely:-- (a) the amount of voluntary contributions received; (b) any rent received in respect of a property held by the non-profit organisation consisting of any buildings or lands appurtenant thereto; (c) the amount of income derived from any business carried on by the non-profit organisation, if the business is incidental to any charitable activity so carried on; (d) income from transfer of any capital asset computed in accordance with the provisions of sections 46 to 54 (both inclusive) where the asset is not used for the purposes of any charitable activity or any business incidental to such charitable activity; (e) full value of consideration on transfer of any capital asset other than the asset referred to in clause (d); (f) the amount of income received from investment of its funds or assets; (g) the amount of any incoming, realisation, proceeds, or subscription received from any source; and (h) any amount, which was received in the last month of the immediately preceding financial year and was deposited in a specified deposit account as referred to in clause (e) of section 94. (2) The gross receipts referred to in sub-section (1) shall not include-- (a) any loan taken during the financial year; and (b) voluntary contributions received with a specific direction that they shall form part of the corpus of the non-profit organisation. FROM NOTES ON CLAUSES Clause 93 provides that the gross receipts of the non-profit organisation from any charitable activity shall be the aggregate of the following, namely:-- (a) the amount of voluntary contributions received; (b) any rent received in respect of a property held by it consisting of any building or land appurtenant thereto; (c) the amount of income derived from any business carried on by it, if the business is incidental to any charitable activity so carried on; (d) income from transfer of any capital asset computed in accordance with the provisions of sections 46 to 54 (both inclusive) where the asset is not used for the purposes of any charitable activity or any business incidental to such charitable activity; (e) full value of the consideration received from the transfer of any business capital asset, other than the asset referred to clause (d); (f) the amount of income received from investment of its funds or assets; and (g) the amount of any incoming, realisation, proceeds, or subscription received from any source. (h) any amount, which was received in the last month of the immediately preceding financial year and was deposited in a specified deposit account as referred to sub-items (e) of clause 94. The said clause further provides that such gross receipts shall not include any loan taken during the financial year and voluntary contributions received with a specific direction that they shall form part of the corpus of the non-profit organisation. 94. Outgoings of a non-profit organisation The amount of outgoings during the financial year for the purpose of computation of the total income shall be the aggregate of-- (a) the amount paid for any expenditure, not being capital expenditure, incurred wholly and exclusively for earning or obtaining any receipts referred to in section 93; (b) the amount paid for any expenditure, incurred for the purposes of carrying out any charitable activity; (c) the amount paid for any capital expenditure for the purposes of any business, if the business is incidental to any charitable activity carried on by the non-profit organisation; (d) any amount applied outside India, if-- (i) the amount is applied for an activity which tends to promote international welfare in which India is interested; and (ii) the non-profit organisation is notified by the Central Government in this behalf; (e) any amount which is received during the last month of the financial year and has been deposited on or before the last day of the financial year in a specified deposit account under such deposit account scheme as may be prescribed; and (f) any amount accumulated or set apart for carrying on any charitable activity-- (i) to the extent of fifteen per cent. of the total income (before giving effect to the provisions of this clause) or ten per cent. of the gross receipts, whichever is higher; and (ii) invested or deposited in the modes specified in section 95, for a period not exceeding three years from the end of the financial year. FROM NOTES ON CLAUSES Clause 94 provides that for the purpose of computation of the total income, the amount of outgoings during the financial year of a non-profit organisation shall be the aggregate of-- (a) the amount paid for any expenditure incurred wholly and exclusively for earning or obtaining any receipts referred to in clause 92; (b) the amount paid for any expenditure, other than capital expenditure, incurred for the purposes of carrying out any charitable activity; (c) the amount paid for any capital expenditure for the purposes of any business, if the business is incidental to any charitable activity carried on by the non-profit organisation; (d) any amount applied outside India, if the amount is applied for an activity which tends to promote international welfare in which India is interested and the non-profit organisation is notified by the Central Government in this behalf; (e) any amount which is received during the last month of the financial year and has been deposited on or before the last day of the financial year in a specified deposit aacount under such Deposit Account Scheme as may be prescribed; and (f) any amount accumulated or set apart for carrying on any charitable activity-- (i) to the extent of fifteen per cent. of the total income (before giving effect to the provisions of this clause) or ten per cent. of the gross receipts, whichever is less; and (ii) invested or deposited in the modes specified in clause 95, for a period not exceeding three years from the end of the financial year. FROM MEMORANDUM REGARDING DELEGATED LEGISLATION Clause 94 of the Bill provides that the amount of outgoings during the financial year for the purpose of computation of the total income shall include any amount applied outside India, if - (i) the amount is applied for an activity which tends to promote international welfare in which India is interested; and (ii) the non-profit organisation is notified by the Central Government in this behalf. Accordingly, it is proposed to empower the Central Government to issue notifications in this regard for the purposes of this clause. Clause 94 of the Bill further provides that the amount of outgoings during the financial year for the purpose of computation of the total income shall be the aggregate of the amounts specified therein. These amounts include any amount accumulated or set apart for carrying on any charitable activity- (i) to the extent of fifteen per cent. of the total income (before giving effect to the provisions of this clause) or ten per cent. of the gross receipts, whichever is less; and (ii) invested or deposited in the modes specified in clause 95, for a period not exceeding three years from the end of the financial year. The modes of investing or depositing the money in such activity include any other mode of investment or deposit as may be prescribed. Accordingly, it is proposed to empower the Central Government to make rules in this regard for the purposes of clause 95. 95. Modes of investment (1) The modes of investing or depositing the money referred to in clause (f) of section 94 shall be the following, namely:-- (i) deposit in any account with the Post Office Savings Bank; (ii) deposit in any account with a scheduled bank; (iii) investment in any security issued by the Central Government or a State Government; (iv) investment in debentures issued by any company or corporation, guaranteed by the Central Government or by a State Government; (v) investment or deposit in any public sector company; (vi) investment in immovable property; or (vii) any other mode of investment or deposit as may be prescribed. (2) The funds or the assets of the non-profit organisation (other than any assets forming part of its corpus as on the 1st day of June, 1973) shall be invested or held, at any time during the financial year, in any of the modes referred to in sub-section (1). FROM NOTES ON CLAUSES Clause 95 stipulates that the modes of investing or depositing the money referred to in sub-clause (f) of clause 94. It also provides that the funds or the assets of the non-profit organisation (other than any assets forming part of its corpus as on the 1st day of June, 1973) shall be invested or held, at any time during the financial year, in any of the said modes. 96. Deemed income of a non-profit organisation (1) Any amount referred to in clause (f) of section 94 shall be deemed to be the income of the non-profit organisation, if the amount-- (a) is not utilised for the purpose for which it was accumulated or set apart during the period specified therein; or (b) ceases to remain invested or deposited in any of the modes specified in section 95. (2) In this section, the amount shall be deemed to be the income of the financial year- (a) immediately following the expiry of the specified period in a case falling under clause (a) of sub-section (1); or (b) in which the amount ceases to remain so invested or deposited in a case falling under clause (b) of sub-section (1). FROM NOTES ON CLAUSES Clause 96 provides that any amount referred to in sub-clause (f) of clause 94 shall be deemed to be the income of the non-profit organisation, if the amount is not utilised for the purpose for which it was accumulated or set apart during the period specified therein or the amount ceases to remain invested or deposited in any of the modes specified in clause 95. The said clause further provides that for the purposes of this clause, the amount shall be deemed to be the income of the financial year immediately following the expiry of the specified period if the amount is not utilised during the financial year for the purpose for which it was accumulated or set apart, or in which the amount ceases to remain so invested or deposited in any of the specified modes. 97. Use or application of funds or assets for the benefit of interested person (1) The funds or the assets of the non-profit organisation shall not be used or applied, directly or indirectly, for the benefit of an interested person. (2) Without prejudice to sub-section (1), the funds or the assets of the non-profit organisation shall be deemed to have been used or applied for the benefit of an interested person, if-- (a) the funds or the assets of the non-profit organisation are, or continue to be, lent to any interested person, for any period during the financial year, without either adequate security or adequate interest or both; (b) the land, building or other asset of the non-profit organisation is, or continues to be, made available for the use of any interested person, for any period during the financial year, without charging adequate rent or other compensation; (c) any amount is paid by way of salary, allowance or otherwise during the financial year to any interested person, out of the resources of the non-profit organisation for services rendered by that person to such organisation and the amount so paid is in excess of what may be reasonably paid for such services; (d) the services of the non-profit organisation are made available to any interested person, during the financial year, without adequate remuneration or other compensation; (e) any share, security or other property is purchased by or on behalf of the non-profit organisation from any interested person, during the financial year, for consideration which is more than adequate; (f) any share, security or other property is sold by or on behalf of the non-profit organisation to any interested person, during the financial year, for consideration which is less than adequate; (g) any fund or asset of the non-profit organisation is diverted during the financial year in favour of any interested person where the fund or the value of the asset, as the case may be, or the aggregate of the funds and the value of the assets so diverted exceeds one thousand rupees; or (h) any funds of the non-profit organisation are, or continue to remain, invested for any period during the financial year (not being a period before the 1st day of January, 1971), in any concern in which any interested person has a substantial interest and such investment exceeds five per cent. of the capital of that concern. FROM NOTES ON CLAUSES Clause 97 relates to use or application of funds or assets for the benefit of an interested person. It provides that the funds or the assets of the non-profit organisation shall not be used or applied, directly or indirectly, for the benefit of an interested person. The said clause further provides that the funds or assets of the non-profit organisation shall be deemed to have been used or applied for the benefit of an interested person, if-- (a) its funds or assets are lent to any interested person, for any period during the financial year without either adequate security or adequate interest or both; (b) its land, building or other asset is made available for the use of any interested person for any period during the financial year without charging adequate rent or other compensation; (c) any amount is paid by way of salary, allowance or otherwise during the financial year to any interested person for services rendered to the non-profit organisation and the amount so paid is in excess of what may be reasonably paid for such services; (d) the services of the non-profit organisation are made available to any interested person during the financial year without adequate remuneration or other compensation; (e) any share, security or other property is purchased by or on behalf of the non-profit organisation from any interested person during the financial year for consideration which is more than adequate; (f) any share, security or other property is sold by or on behalf of the non-profit organisation to any interested person, during the financial year, for consideration which is less than adequate; (g) any fund or asset of the non-profit organisation are diverted during the financial year in favour of any interested person if the aggregate of the funds and value of assets exceeds one thousand rupees; (h) any funds of the non-profit organisation are, or continue to remain, invested for any period during the financial year in any concern in which any interested person has a substantial interest and such investment exceeds five per cent. of the capital of that concern. The term 'interested person' has been defined in clause 103. 98. Registration of a non-profit organisation (1) A non-profit organisation shall make an application for its registration in the prescribed form and manner to the Commissioner. (2) The provisions of sub-section (1) shall not apply to any non-profit organization which has been granted approval or registration under the Income Tax Act, 1961 (43 of 1961), as it stood before the commencement of this Code, if the organisation fulfils such conditions as may be prescribed. (3) The Commissioner, on receipt of the application for registration of a non-profit organisation made under sub-section (1), shall call for such documents or information as he considers necessary in order to satisfy himself about the objects and genuineness of its activities and may make such further inquiries as may be required. (4) The Commissioner shall, within a period of six months from the end of the month in which the application under sub-section (1) was received, pass an order in writing-- (a) registering the non-profit organisation if he is satisfied about its objects and the genuineness of its activities; or (b) refusing to register the non-profit organisation if he is not so satisfied, after giving the organisation an opportunity of being heard. (5) The registration granted under sub-section (4) shall be valid from the financial year in which the application under sub-section (1) was made. (6) Where the Commissioner is satisfied that the activities of the non-profit organisation are-- (i) not genuine; or (ii) not being carried out in accordance with its objects; or (iii) not being carried out in accordance with any other law which is applicable to it or under which it is registered or approved, he shall pass an order in writing cancelling the registration or withdrawing the approval, as the case may be, granted under this section or the Income Tax Act, 1961 (43 of 1961), as it stood before the commencement of this Code, after giving the organisation an opportunity of being heard. FROM NOTES ON CLAUSES Clause 98 provides the procedure for registration of a non-profit organisation. Any non-profit organisation which has been granted approval or registration under the Income Tax Act, 1961, as it stood immediately before the commencement of this Code, will not be required to apply for registration under the Code, if it fulfils the prescribed conditions. Any other non-profit organisation shall make an application for its registration in the prescribed form and manner to the Commissioner. The said clause also provides that on receipt of such application, the Commissioner shall call for such documents or information as he considers necessary in order to satisfy himself about the objects and genuineness of its activities and may make such further inquiries as may be required. Thereafter, the Commissioner shall, within a period of six months from the end of the month in which such application was received, pass an order in writing registering the non-profit organisation if he is satisfied about its objects and the genuineness of its activities or refusing to register it, if he is not so satisfied, after giving the organisation an opportunity of being heard. The said clause further provides that the registration so granted shall be valid from the financial year in which the said application was made. However, where the Commissioner is satisfied that the activities of the non-profit organisation are not genuine or are not being carried out in accordance with its objects or are not being carried out in accordance with the any other law which is applicable to it or under which it is registered or approved, he shall pass an order in writing cancelling the registration or withdrawing the approval, after giving the organisation an opportunity of being heard. FROM MEMORANDUM REGARDING DELEGATED LEGISLATION Clause 98 of the Bill provides that a non-profit organisation shall make an application for its registration in the prescribed form and manner to the Commissioner. These provisions shall not apply to any non-profit organisation which has been granted approval or registration under the Income Tax Act, 1961 before the commencement of the Code, if the organisation fulfils such conditions as may be prescribed. Accordingly, it is proposed to empower the Central Government to make rules and forms in this regard for the purposes of this clause. 99. Maintenance of accounts and tax audit (1) The non-profit organisation shall keep and maintain such books of accounts, in the manner as may be prescribed. (2) The non-profit organisation shall maintain separate books of account in respect of business incidental to charitable activity. (3) The non-profit organisation shall obtain a report of audit in such form as may be prescribed, from an accountant before the due date of filing of the return of tax bases, if the gross receipts referred to in section 93 in any financial year exceed five lakh rupees. FROM NOTES ON CLAUSES Clause 99 provides that a non-profit organisation shall keep and maintain the prescribed books of account. It shall also maintain separate books of account in respect of business incidental to charitable activity. The said clause further provides that if the gross receipts referred to in clause 93 of the non-profit organisation in any financial year exceed five lakh rupees, it shall obtain an audit report from an accountant in the prescribed form before the due date of filing of the return of tax bases. FROM MEMORANDUM REGARDING DELEGATED LEGISLATION Clause 99 of the Bill provides that the non-profit organisation shall keep and maintain such books of accounts, in the manner as may be prescribed. Further, the non-profit organisation shall obtain a report of audit in the prescribed form from an accountant before the due date of filing of the return of tax bases , if the gross receipts referred to inclause 93 in any financial year exceed five lakh rupees. Accordingly, it is proposed to empower the Central Government to make rules and forms in this regard for the purposes of this clause. 100. Anonymous donations (1) Where the total income of a non-profit organisation includes any anonymous donation, the income-tax payable shall be the aggregate of-- (a) the amount of income-tax calculated at the rate of thirty per cent. on the aggregate of anonymous donations received in excess of the higher of the following, namely:-- (i) five per cent. of the total donations received by the non-profit organization; or (ii) one lakh rupees; and (b) the amount of income-tax with which the non-profit organisation would have been chargeable had its total income been reduced by the amount of anonymous donations referred to in clause (a). (2) The provisions of sub-section (1) shall apply notwithstanding that the anonymous donation has been made with a specific direction that it shall form part of the corpus of the non-profit organisation. (3) No outgoings shall be allowed in respect of any anonymous donation received. (4) In this section, 'anonymous donation' means any voluntary contribution, where a person receiving such contribution does not maintain a record of the identity indicating the name and address of the person making such contribution and such other particulars as may be prescribed. FROM NOTES ON CLAUSES Clause 100 deals with anonymous donations received by a non-profit organisation. The said clause defines 'anonymous donation' to mean any voluntary contribution, where a person receiving such contribution does not maintain a record of the identity indicating the name and address of the person making such contribution and such other particulars as may be prescribed. The said clause provides that where the total income of a non-profit organisation includes any anonymous donation, the income-tax payable shall be the aggregate of-- (a) the amount of income-tax calculated at the rate of thirty per cent. on the aggregate of anonymous donations received in excess of five per cent. of the total donations received by it or one lakh rupees, whichever is higher, and (b) the amount of income-tax with which the organisation would have been chargeable on its balance income. The said clause also provides that the above provisions shall apply even if the anonymous donation has been made with a specific direction that it shall form part of the corpus of the non-profit organisation. Besides, no outgoings shall be allowed in respect of any anonymous donation received. FROM MEMORANDUM REGARDING DELEGATED LEGISLATION Clause 100 of the Bill defines 'anyonmous donation for the purpose of he said clause to mean any voluntary contribution, where a person receiving such contribution does not maintain a record of the identity indicating the name and address of the person making such contribution and such other particulars as may be prescribed. Accordingly, it is proposed to empower the Central Government to make rules in this regard for the purposes of this clause. 101. Consequences of conversion of a non-profit organisation (1) A non-profit organisation shall be liable to income-tax at the rate of thirty per cent. in respect of its net worth if-- (a) it converts into any form of organisation which does not qualify as a non-profit organisation; (b) it merges with any form of organisation which does not qualify as a non-profit organisation; (c) it fails to transfer upon dissolution all its assets to any other non-profit organisation, within a period of three months from the end of the month in which the dissolution takes place. (2) In this section-- (a) net worth of the non-profit organisation shall be computed as on-- (i) the date of conversion or merger, as the case may be, in a case falling under clause (a) or clause (b) of sub-section (1); and (ii) the date of dissolution in a case falling under clause (c) of sub-section (1); (b) 'net worth' of the non-profit organisation means the aggregate value of the total assets of the non-profit organisation as reduced by the liabilities of such organisation computed in accordance with such rules of valuation as may be prescribed. FROM NOTES ON CLAUSES Clause 101 deals with the consequences of conversion of a non-profit organisation. The clause provides that a non-profit organisation shall be liable to income-tax at the rate of thirty per cent. in respect of its net worth if-- (a) it converts into any form of organisation which does not qualify as a non-profit organisation; (b) it merges with any form of organisation which does not qualify as a non-profit organisation; (c) it fails to transfer upon dissolution all its assets to any other non-profit organisation, within a period of three months from the end of the month in which the dissolution takes place. The net worth of the non-profit organisation shall be computed as on the date of conversion or merger in a case falling under (a) or (b) above and the date of dissolution in a case falling under (c) above. 'Net worth' has been defined in the said clause to mean the aggregate value of its total assets as reduced by its liabilities computed in accordance with such rules of valuation as may be prescribed. FROM MEMORANDUM REGARDING DELEGATED LEGISLATION Clause 101 of the Bill provides that a non-profit organisation shall be liable to income-tax at the rate of thirty per cent. in respect of its net worth subject to the conditions specified in the said clause. 'Net worth' of the non-profit organisation has been defined to mean the aggregate value of the total assets of the non-profit organisation a reduced by the liabilities of such organisation computed in accordance with such rules of valuation as may be prescribed. Accordingly, it is proposed to empower the Central Government to make rules in this regard for the purposes of this clause. 102. Provisions of this Chapter not to apply in certain cases (1) The provisions of this Chapter shall not apply to any person who-- (a) holds any business under trust, notwithstanding any specific direction that-- (i) the business shall form part of the corpus of such person; or (ii) the income from the business shall be applied only for charitable activity; (b) fails to comply with the conditions specified in section 97; (c) ceases to be a non-profit organisation at any time during the financial year, irrespective of registration granted under sub-section (4) of section 98; (d) carries on any business if it is not a business incidental to charitable activity. (2) Without prejudice to sub-section (1), the non-profit organisation which ceases to be so due to conversion, merger or dissolution as referred to in sub-section (1) of section 101 shall be liable to income-tax in respect of its net worth in accordance with that section. (3) The total income of any person falling under clauses (a), (b), (c) or clause (d) of sub-section (1) shall be computed in accordance with the other provisions of this Code. FROM NOTES ON CLAUSES Clause 102 provides that the provisions of Chapter IV shall not apply to any person who-- (a) holds any business under trust, notwithstanding any specific direction that the business shall form part of the corpus of such person or that the income from the business shall be applied only for charitable activity; (b) fails to comply with the conditions specified in clause 96; (c) ceases to be a non-profit organisation at any time during the financial year, irrespective of registration granted under clause 97; or (d) carries on any business which is not incidental to charitable activity. The said clause further provides that the non-profit organisation which ceases to be a non-profit organisation on account of conversion, merger or dissolution as referred to in sub-clause (1) of clause 101 shall be liable to income-tax in respect of its net worth in accordance with that section. The said clause also provides that the total income of any person falling under (a), (b), (c) or (d) above shall be computed in accordance with the other provisions of the Code. 103. Interpretations in this Chapter In this Chapter, unless the context otherwise requires,-- (a) 'business incidental to charitable activity' means a business carried on in the course of the actual carrying out of any charitable activity; (b) 'charitable activity' means the following activities carried out in India, namely:-- (i) relief of the poor; (ii) advancement of education; (iii) medical relief; (iv) preservation of environment (including watersheds, forests and wildlife); (v) preservation of monuments or places or objects of artistic or historic interest; or (vi) advancement of any other object of general public utility, not involving the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation thereto, for a cess, fee or any other consideration (irrespective of nature of use, application or retention of the income from such activity) and where the gross receipts during the financial year from such activity exceed ten lakh rupees; (c) 'general public' means the body of people at large sufficiently defined by some common quality of public or impersonal nature; (d) 'interested person' in relation to a non-profit organisation means-- (i) the founder of the organisation or the settlor of the trust; (ii) any person whose total contribution to the organisation during the financial year exceeds fifty thousand rupees; (iii) a member of the Hindu undivided family if the settlor or founder or person is a Hindu undivided family; (iv) any manager, by whatever name called, of the organisation or trustee of the trust; (v) any relative of the settlor, founder, member, trustee or manager; or (vi) any concern in which any of the persons referred to in clauses (i) to (v) has a substantial interest; (e) 'trust' includes legal obligation. FROM NOTES ON CLAUSES Clause 103 provides the meaning of certain terms used in Chapter-IV. It defines 'charitable activity' to mean the following activities carried out in India, namely:-- (i) relief of the poor; (ii) advancement of education; (iii) medical relief; (iv) preservation of environment including watersheds, forests and wildlife; (v) preservation of monuments or places or objects of artistic or historic interest; or (vi) advancement of any other object of general public utility, not involving the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation thereto, for a cess, fee or any other consideration (irrespective of nature of use, application or retention of the income from such activity) and where the gross receipts during the financial year from such activity exceed ten lakh rupees. The said clause also defines the phrases 'business incidental to charitable activity' and 'general public'. 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The Tax PublishersSection C
CHAPTER IV
SPECIAL PROVISIONS RELATING TO THE COMPUTATION OF
TOTAL INCOME OF NON-PROFIT ORGANISATIONS

90. Applicability of this Chapter

(1) The provisions of this Chapter shall be applicable to a non-profit organisation, other than any organisation of public importance, specified in the Seventh Schedule.

(2) The Central Government may, subject to such conditions as may be considered necessary, notify a person as a non-profit organisation of public importance for the purpose of the Seventh Schedule.

(3) The provision of this Chapter other than section 95, section 97, section 98, section 99, section 101, section 102 and section 103, shall not apply to a non-profit organization, being a public religious trust or institution.

FROM NOTES ON CLAUSES

Clause 90 provides that Chapter-IV shall be applicable to a non-profit organisation, other than any organisation of public importance, specified in the Seventh Schedule. It also provides that the Central Government may, subject to such conditions as may be considered necessary, notify a person as a non-profit organisation of public importance for the purpose of the Seventh Schedule.

For this purpose, a non-profit organisation has been defined in clause 314 to mean an organisation, by whatever name called, including a trust, if--

(i) it is not established for the benefit of any particular caste or religious community;

(ii) it does not provide any benefit for the members of any particular caste or religious community;

(iii) it is established for the benefit of the general public or for the benefit of the Scheduled Castes, the Scheduled Tribes, backward classes, women or children;

(iv) it is established for carrying on charitable activities;

(v) it is not established for the benefit of any of its members;

(vi) it actually carries on the charitable activities during the financial year;

(vii) the actual beneficiaries of its activities are the general public, Scheduled Castes, the Scheduled Tribes, backward classes, women or children; and

(viii) it is registered as such under clause 98.

FROM MEMORANDUM REGARDING DELEGATED LEGISLATION

Clause 90 of the Bill provides that the Central Government may, subject to such conditions as may be considered necessary, notify a person as a non-profit organisation of public importance for the purpose of the Seventh Schedule.

Accordingly, it is proposed to empower the Central Government to issue notificationsin this regard for the purposes of this clause.

91. Total income of a non-profit organisation

The total income of a non-profit organisation shall be computed in accordance with the provisions of this Chapter.

FROM NOTES ON CLAUSES

Clause 91 provides that the total income of a non-profit organisation shall be computed in accordance with the provisions of Chapter IV.

92. Computation of total income of a non-profit organisation

(1) Subject to the provisions of section 8, the total income of any non-profit organisation in relation to any charitable activity, during the financial year, shall be the gross receipts as reduced by the amount of outgoings, computed in accordance with the cash system of accounting.

(2) Notwithstanding anything in sub-section (1), the total income of a non-profit organisation, being a company registered under section 25 of the Companies Act, 1956 in relation to any charitable activity, during the financial year, shall be the gross receipts as reduced by the amount of outgoings, computed in accordance with the mercantile system of accounting.

FROM NOTES ON CLAUSES

Clause 92 provides for the computation of total income of a non-profit organisation. It provides that subject to the provisions of section 8, the total income of any non-profit organisation in relation to any charitable activity during the financial year shall be the gross receipts as reduced by the amount of outgoings, computed in accordance with the cash system of accounting. The said clause also provides that where the non-profit organisation is a company registered under section 25 of the Companies Act, 1956, such total income shall be computed in accordance with the mercantile system of accounting.

93. Gross receipts of a non-profit organisation

(1) The gross receipts from any charitable activity shall be the aggregate of the following, namely:--

(a) the amount of voluntary contributions received;

(b) any rent received in respect of a property held by the non-profit organisation consisting of any buildings or lands appurtenant thereto;

(c) the amount of income derived from any business carried on by the non-profit organisation, if the business is incidental to any charitable activity so carried on;

(d) income from transfer of any capital asset computed in accordance with the provisions of sections 46 to 54 (both inclusive) where the asset is not used for the purposes of any charitable activity or any business incidental to such charitable activity;

(e) full value of consideration on transfer of any capital asset other than the asset referred to in clause (d);

(f) the amount of income received from investment of its funds or assets;

(g) the amount of any incoming, realisation, proceeds, or subscription received from any source; and

(h) any amount, which was received in the last month of the immediately preceding financial year and was deposited in a specified deposit account as referred to in clause (e) of section 94.

(2) The gross receipts referred to in sub-section (1) shall not include--

(a) any loan taken during the financial year; and

(b) voluntary contributions received with a specific direction that they shall form part of the corpus of the non-profit organisation.

FROM NOTES ON CLAUSES

Clause 93 provides that the gross receipts of the non-profit organisation from any charitable activity shall be the aggregate of the following, namely:--

(a) the amount of voluntary contributions received;

(b) any rent received in respect of a property held by it consisting of any building or land appurtenant thereto;

(c) the amount of income derived from any business carried on by it, if the business is incidental to any charitable activity so carried on;

(e) full value of the consideration received from the transfer of any business capital asset, other than the asset referred to clause (d);

(f) the amount of income received from investment of its funds or assets; and

(g) the amount of any incoming, realisation, proceeds, or subscription received from any source.

(h) any amount, which was received in the last month of the immediately preceding financial year and was deposited in a specified deposit account as referred to sub-items (e) of clause 94.

The said clause further provides that such gross receipts shall not include any loan taken during the financial year and voluntary contributions received with a specific direction that they shall form part of the corpus of the non-profit organisation.

94. Outgoings of a non-profit organisation

The amount of outgoings during the financial year for the purpose of computation of the total income shall be the aggregate of--

(a) the amount paid for any expenditure, not being capital expenditure, incurred wholly and exclusively for earning or obtaining any receipts referred to in section 93;

(b) the amount paid for any expenditure, incurred for the purposes of carrying out any charitable activity;

(c) the amount paid for any capital expenditure for the purposes of any business, if the business is incidental to any charitable activity carried on by the non-profit organisation;

(d) any amount applied outside India, if--

(i) the amount is applied for an activity which tends to promote international welfare in which India is interested; and

(ii) the non-profit organisation is notified by the Central Government in this behalf;

(e) any amount which is received during the last month of the financial year and has been deposited on or before the last day of the financial year in a specified deposit account under such deposit account scheme as may be prescribed; and

(f) any amount accumulated or set apart for carrying on any charitable activity--

(i) to the extent of fifteen per cent. of the total income (before giving effect to the provisions of this clause) or ten per cent. of the gross receipts, whichever is higher; and

(ii) invested or deposited in the modes specified in section 95, for a period not exceeding three years from the end of the financial year.

FROM NOTES ON CLAUSES

Clause 94 provides that for the purpose of computation of the total income, the amount of outgoings during the financial year of a non-profit organisation shall be the aggregate of--

(a) the amount paid for any expenditure incurred wholly and exclusively for earning or obtaining any receipts referred to in clause 92;

(b) the amount paid for any expenditure, other than capital expenditure, incurred for the purposes of carrying out any charitable activity;

(c) the amount paid for any capital expenditure for the purposes of any business, if the business is incidental to any charitable activity carried on by the non-profit organisation;

(d) any amount applied outside India, if the amount is applied for an activity which tends to promote international welfare in which India is interested and the non-profit organisation is notified by the Central Government in this behalf;

(e) any amount which is received during the last month of the financial year and has been deposited on or before the last day of the financial year in a specified deposit aacount under such Deposit Account Scheme as may be prescribed; and

(f) any amount accumulated or set apart for carrying on any charitable activity--

(i) to the extent of fifteen per cent. of the total income (before giving effect to the provisions of this clause) or ten per cent. of the gross receipts, whichever is less; and

(ii) invested or deposited in the modes specified in clause 95, for a period not exceeding three years from the end of the financial year.

FROM MEMORANDUM REGARDING DELEGATED LEGISLATION

Clause 94 of the Bill provides that the amount of outgoings during the financial year for the purpose of computation of the total income shall include any amount applied outside India, if - (i) the amount is applied for an activity which tends to promote international welfare in which India is interested; and (ii) the non-profit organisation is notified by the Central Government in this behalf.

Accordingly, it is proposed to empower the Central Government to issue notifications in this regard for the purposes of this clause.

Clause 94 of the Bill further provides that the amount of outgoings during the financial year for the purpose of computation of the total income shall be the aggregate of the amounts specified therein. These amounts include any amount accumulated or set apart for carrying on any charitable activity- (i) to the extent of fifteen per cent. of the total income (before giving effect to the provisions of this clause) or ten per cent. of the gross receipts, whichever is less; and (ii) invested or deposited in the modes specified in clause 95, for a period not exceeding three years from the end of the financial year. The modes of investing or depositing the money in such activity include any other mode of investment or deposit as may be prescribed.

Accordingly, it is proposed to empower the Central Government to make rules in this regard for the purposes of clause 95.

95. Modes of investment

(1) The modes of investing or depositing the money referred to in clause (f) of section 94 shall be the following, namely:--

(i) deposit in any account with the Post Office Savings Bank;

(ii) deposit in any account with a scheduled bank;

(iii) investment in any security issued by the Central Government or a State Government;

(iv) investment in debentures issued by any company or corporation, guaranteed by the Central Government or by a State Government;

(v) investment or deposit in any public sector company;

(vi) investment in immovable property; or

(vii) any other mode of investment or deposit as may be prescribed.

(2) The funds or the assets of the non-profit organisation (other than any assets forming part of its corpus as on the 1st day of June, 1973) shall be invested or held, at any time during the financial year, in any of the modes referred to in sub-section (1).

FROM NOTES ON CLAUSES

Clause 95 stipulates that the modes of investing or depositing the money referred to in sub-clause (f) of clause 94. It also provides that the funds or the assets of the non-profit organisation (other than any assets forming part of its corpus as on the 1st day of June, 1973) shall be invested or held, at any time during the financial year, in any of the said modes.

96. Deemed income of a non-profit organisation

(1) Any amount referred to in clause (f) of section 94 shall be deemed to be the income of the non-profit organisation, if the amount--

(a) is not utilised for the purpose for which it was accumulated or set apart during the period specified therein; or

(b) ceases to remain invested or deposited in any of the modes specified in section 95.

(2) In this section, the amount shall be deemed to be the income of the financial year-

(a) immediately following the expiry of the specified period in a case falling under clause (a) of sub-section (1); or

(b) in which the amount ceases to remain so invested or deposited in a case falling under clause (b) of sub-section (1).

FROM NOTES ON CLAUSES

Clause 96 provides that any amount referred to in sub-clause (f) of clause 94 shall be deemed to be the income of the non-profit organisation, if the amount is not utilised for the purpose for which it was accumulated or set apart during the period specified therein or the amount ceases to remain invested or deposited in any of the modes specified in clause 95.

The said clause further provides that for the purposes of this clause, the amount shall be deemed to be the income of the financial year immediately following the expiry of the specified period if the amount is not utilised during the financial year for the purpose for which it was accumulated or set apart, or in which the amount ceases to remain so invested or deposited in any of the specified modes.

97. Use or application of funds or assets for the benefit of interested person

(1) The funds or the assets of the non-profit organisation shall not be used or applied, directly or indirectly, for the benefit of an interested person.

(2) Without prejudice to sub-section (1), the funds or the assets of the non-profit organisation shall be deemed to have been used or applied for the benefit of an interested person, if--

(a) the funds or the assets of the non-profit organisation are, or continue to be, lent to any interested person, for any period during the financial year, without either adequate security or adequate interest or both;

(b) the land, building or other asset of the non-profit organisation is, or continues to be, made available for the use of any interested person, for any period during the financial year, without charging adequate rent or other compensation;

(c) any amount is paid by way of salary, allowance or otherwise during the financial year to any interested person, out of the resources of the non-profit organisation for services rendered by that person to such organisation and the amount so paid is in excess of what may be reasonably paid for such services;

(d) the services of the non-profit organisation are made available to any interested person, during the financial year, without adequate remuneration or other compensation;

(e) any share, security or other property is purchased by or on behalf of the non-profit organisation from any interested person, during the financial year, for consideration which is more than adequate;

(f) any share, security or other property is sold by or on behalf of the non-profit organisation to any interested person, during the financial year, for consideration which is less than adequate;

(g) any fund or asset of the non-profit organisation is diverted during the financial year in favour of any interested person where the fund or the value of the asset, as the case may be, or the aggregate of the funds and the value of the assets so diverted exceeds one thousand rupees; or

(h) any funds of the non-profit organisation are, or continue to remain, invested for any period during the financial year (not being a period before the 1st day of January, 1971), in any concern in which any interested person has a substantial interest and such investment exceeds five per cent. of the capital of that concern.

FROM NOTES ON CLAUSES

Clause 97 relates to use or application of funds or assets for the benefit of an interested person. It provides that the funds or the assets of the non-profit organisation shall not be used or applied, directly or indirectly, for the benefit of an interested person. The said clause further provides that the funds or assets of the non-profit organisation shall be deemed to have been used or applied for the benefit of an interested person, if--

(a) its funds or assets are lent to any interested person, for any period during the financial year without either adequate security or adequate interest or both;

(b) its land, building or other asset is made available for the use of any interested person for any period during the financial year without charging adequate rent or other compensation;

(c) any amount is paid by way of salary, allowance or otherwise during the financial year to any interested person for services rendered to the non-profit organisation and the amount so paid is in excess of what may be reasonably paid for such services;

(d) the services of the non-profit organisation are made available to any interested person during the financial year without adequate remuneration or other compensation;

(e) any share, security or other property is purchased by or on behalf of the non-profit organisation from any interested person during the financial year for consideration which is more than adequate;

(f) any share, security or other property is sold by or on behalf of the non-profit organisation to any interested person, during the financial year, for consideration which is less than adequate;

(g) any fund or asset of the non-profit organisation are diverted during the financial year in favour of any interested person if the aggregate of the funds and value of assets exceeds one thousand rupees;

(h) any funds of the non-profit organisation are, or continue to remain, invested for any period during the financial year in any concern in which any interested person has a substantial interest and such investment exceeds five per cent. of the capital of that concern.

The term 'interested person' has been defined in clause 103.

98. Registration of a non-profit organisation

(1) A non-profit organisation shall make an application for its registration in the prescribed form and manner to the Commissioner.

(2) The provisions of sub-section (1) shall not apply to any non-profit organization which has been granted approval or registration under the Income Tax Act, 1961 (43 of 1961), as it stood before the commencement of this Code, if the organisation fulfils such conditions as may be prescribed.

(3) The Commissioner, on receipt of the application for registration of a non-profit organisation made under sub-section (1), shall call for such documents or information as he considers necessary in order to satisfy himself about the objects and genuineness of its activities and may make such further inquiries as may be required.

(4) The Commissioner shall, within a period of six months from the end of the month in which the application under sub-section (1) was received, pass an order in writing--

(a) registering the non-profit organisation if he is satisfied about its objects and the genuineness of its activities; or

(b) refusing to register the non-profit organisation if he is not so satisfied, after giving the organisation an opportunity of being heard.

(5) The registration granted under sub-section (4) shall be valid from the financial year in which the application under sub-section (1) was made.

(6) Where the Commissioner is satisfied that the activities of the non-profit organisation are--

(i) not genuine; or

(ii) not being carried out in accordance with its objects; or

(iii) not being carried out in accordance with any other law which is applicable to it or under which it is registered or approved,

he shall pass an order in writing cancelling the registration or withdrawing the approval, as the case may be, granted under this section or the Income Tax Act, 1961 (43 of 1961), as it stood before the commencement of this Code, after giving the organisation an opportunity of being heard.

FROM NOTES ON CLAUSES

Clause 98 provides the procedure for registration of a non-profit organisation. Any non-profit organisation which has been granted approval or registration under the Income Tax Act, 1961, as it stood immediately before the commencement of this Code, will not be required to apply for registration under the Code, if it fulfils the prescribed conditions. Any other non-profit organisation shall make an application for its registration in the prescribed form and manner to the Commissioner.

The said clause also provides that on receipt of such application, the Commissioner shall call for such documents or information as he considers necessary in order to satisfy himself about the objects and genuineness of its activities and may make such further inquiries as may be required. Thereafter, the Commissioner shall, within a period of six months from the end of the month in which such application was received, pass an order in writing registering the non-profit organisation if he is satisfied about its objects and the genuineness of its activities or refusing to register it, if he is not so satisfied, after giving the organisation an opportunity of being heard.

The said clause further provides that the registration so granted shall be valid from the financial year in which the said application was made. However, where the Commissioner is satisfied that the activities of the non-profit organisation are not genuine or are not being carried out in accordance with its objects or are not being carried out in accordance with the any other law which is applicable to it or under which it is registered or approved, he shall pass an order in writing cancelling the registration or withdrawing the approval, after giving the organisation an opportunity of being heard.

FROM MEMORANDUM REGARDING DELEGATED LEGISLATION

Clause 98 of the Bill provides that a non-profit organisation shall make an application for its registration in the prescribed form and manner to the Commissioner. These provisions shall not apply to any non-profit organisation which has been granted approval or registration under the Income Tax Act, 1961 before the commencement of the Code, if the organisation fulfils such conditions as may be prescribed.

Accordingly, it is proposed to empower the Central Government to make rules and forms in this regard for the purposes of this clause.

99. Maintenance of accounts and tax audit

(1) The non-profit organisation shall keep and maintain such books of accounts, in the manner as may be prescribed.

(2) The non-profit organisation shall maintain separate books of account in respect of business incidental to charitable activity.

(3) The non-profit organisation shall obtain a report of audit in such form as may be prescribed, from an accountant before the due date of filing of the return of tax bases, if the gross receipts referred to in section 93 in any financial year exceed five lakh rupees.

FROM NOTES ON CLAUSES

Clause 99 provides that a non-profit organisation shall keep and maintain the prescribed books of account. It shall also maintain separate books of account in respect of business incidental to charitable activity. The said clause further provides that if the gross receipts referred to in clause 93 of the non-profit organisation in any financial year exceed five lakh rupees, it shall obtain an audit report from an accountant in the prescribed form before the due date of filing of the return of tax bases.

FROM MEMORANDUM REGARDING DELEGATED LEGISLATION

Clause 99 of the Bill provides that the non-profit organisation shall keep and maintain such books of accounts, in the manner as may be prescribed. Further, the non-profit organisation shall obtain a report of audit in the prescribed form from an accountant before the due date of filing of the return of tax bases , if the gross receipts referred to inclause 93 in any financial year exceed five lakh rupees.

Accordingly, it is proposed to empower the Central Government to make rules and forms in this regard for the purposes of this clause.

100. Anonymous donations

(1) Where the total income of a non-profit organisation includes any anonymous donation, the income-tax payable shall be the aggregate of--

(a) the amount of income-tax calculated at the rate of thirty per cent. on the aggregate of anonymous donations received in excess of the higher of the following, namely:--

(i) five per cent. of the total donations received by the non-profit organization; or

(ii) one lakh rupees; and

(b) the amount of income-tax with which the non-profit organisation would have been chargeable had its total income been reduced by the amount of anonymous donations referred to in clause (a).

(2) The provisions of sub-section (1) shall apply notwithstanding that the anonymous donation has been made with a specific direction that it shall form part of the corpus of the non-profit organisation.

(3) No outgoings shall be allowed in respect of any anonymous donation received.

(4) In this section, 'anonymous donation' means any voluntary contribution, where a person receiving such contribution does not maintain a record of the identity indicating the name and address of the person making such contribution and such other particulars as may be prescribed.

FROM NOTES ON CLAUSES

Clause 100 deals with anonymous donations received by a non-profit organisation. The said clause defines 'anonymous donation' to mean any voluntary contribution, where a person receiving such contribution does not maintain a record of the identity indicating the name and address of the person making such contribution and such other particulars as may be prescribed. The said clause provides that where the total income of a non-profit organisation includes any anonymous donation, the income-tax payable shall be the aggregate of--

(a) the amount of income-tax calculated at the rate of thirty per cent. on the aggregate of anonymous donations received in excess of five per cent. of the total donations received by it or one lakh rupees, whichever is higher, and

(b) the amount of income-tax with which the organisation would have been chargeable on its balance income.

The said clause also provides that the above provisions shall apply even if the anonymous donation has been made with a specific direction that it shall form part of the corpus of the non-profit organisation. Besides, no outgoings shall be allowed in respect of any anonymous donation received.

FROM MEMORANDUM REGARDING DELEGATED LEGISLATION

Clause 100 of the Bill defines 'anyonmous donation for the purpose of he said clause to mean any voluntary contribution, where a person receiving such contribution does not maintain a record of the identity indicating the name and address of the person making such contribution and such other particulars as may be prescribed.

Accordingly, it is proposed to empower the Central Government to make rules in this regard for the purposes of this clause.

101. Consequences of conversion of a non-profit organisation

(1) A non-profit organisation shall be liable to income-tax at the rate of thirty per cent. in respect of its net worth if--

(a) it converts into any form of organisation which does not qualify as a non-profit organisation;

(b) it merges with any form of organisation which does not qualify as a non-profit organisation;

(c) it fails to transfer upon dissolution all its assets to any other non-profit organisation, within a period of three months from the end of the month in which the dissolution takes place.

(2) In this section--

(a) net worth of the non-profit organisation shall be computed as on--

(i) the date of conversion or merger, as the case may be, in a case falling under clause (a) or clause (b) of sub-section (1); and

(ii) the date of dissolution in a case falling under clause (c) of sub-section (1);

(b) 'net worth' of the non-profit organisation means the aggregate value of the total assets of the non-profit organisation as reduced by the liabilities of such organisation computed in accordance with such rules of valuation as may be prescribed.

FROM NOTES ON CLAUSES

Clause 101 deals with the consequences of conversion of a non-profit organisation. The clause provides that a non-profit organisation shall be liable to income-tax at the rate of thirty per cent. in respect of its net worth if--

(a) it converts into any form of organisation which does not qualify as a non-profit organisation;

(b) it merges with any form of organisation which does not qualify as a non-profit organisation;

(c) it fails to transfer upon dissolution all its assets to any other non-profit organisation, within a period of three months from the end of the month in which the dissolution takes place.

The net worth of the non-profit organisation shall be computed as on the date of conversion or merger in a case falling under (a) or (b) above and the date of dissolution in a case falling under (c) above. 'Net worth' has been defined in the said clause to mean the aggregate value of its total assets as reduced by its liabilities computed in accordance with such rules of valuation as may be prescribed.

FROM MEMORANDUM REGARDING DELEGATED LEGISLATION

Clause 101 of the Bill provides that a non-profit organisation shall be liable to income-tax at the rate of thirty per cent. in respect of its net worth subject to the conditions specified in the said clause. 'Net worth' of the non-profit organisation has been defined to mean the aggregate value of the total assets of the non-profit organisation a reduced by the liabilities of such organisation computed in accordance with such rules of valuation as may be prescribed.

Accordingly, it is proposed to empower the Central Government to make rules in this regard for the purposes of this clause.

102. Provisions of this Chapter not to apply in certain cases

(1) The provisions of this Chapter shall not apply to any person who--

(a) holds any business under trust, notwithstanding any specific direction that--

(i) the business shall form part of the corpus of such person; or

(ii) the income from the business shall be applied only for charitable activity;

(b) fails to comply with the conditions specified in section 97;

(c) ceases to be a non-profit organisation at any time during the financial year, irrespective of registration granted under sub-section (4) of section 98;

(d) carries on any business if it is not a business incidental to charitable activity.

(2) Without prejudice to sub-section (1), the non-profit organisation which ceases to be so due to conversion, merger or dissolution as referred to in sub-section (1) of section 101 shall be liable to income-tax in respect of its net worth in accordance with that section.

(3) The total income of any person falling under clauses (a), (b), (c) or clause (d) of sub-section (1) shall be computed in accordance with the other provisions of this Code.

FROM NOTES ON CLAUSES

Clause 102 provides that the provisions of Chapter IV shall not apply to any person who--

(a) holds any business under trust, notwithstanding any specific direction that the business shall form part of the corpus of such person or that the income from the business shall be applied only for charitable activity;

(b) fails to comply with the conditions specified in clause 96;

(c) ceases to be a non-profit organisation at any time during the financial year, irrespective of registration granted under clause 97; or

(d) carries on any business which is not incidental to charitable activity.

The said clause further provides that the non-profit organisation which ceases to be a non-profit organisation on account of conversion, merger or dissolution as referred to in sub-clause (1) of clause 101 shall be liable to income-tax in respect of its net worth in accordance with that section. The said clause also provides that the total income of any person falling under (a), (b), (c) or (d) above shall be computed in accordance with the other provisions of the Code.

103. Interpretations in this Chapter

In this Chapter, unless the context otherwise requires,--

(a) 'business incidental to charitable activity' means a business carried on in the course of the actual carrying out of any charitable activity;

(b) 'charitable activity' means the following activities carried out in India, namely:--

(i) relief of the poor;

(ii) advancement of education;

(iii) medical relief;

(iv) preservation of environment (including watersheds, forests and wildlife);

(v) preservation of monuments or places or objects of artistic or historic interest; or

(vi) advancement of any other object of general public utility, not involving the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation thereto, for a cess, fee or any other consideration (irrespective of nature of use, application or retention of the income from such activity) and where the gross receipts during the financial year from such activity exceed ten lakh rupees;

(c) 'general public' means the body of people at large sufficiently defined by some common quality of public or impersonal nature;

(d) 'interested person' in relation to a non-profit organisation means--

(i) the founder of the organisation or the settlor of the trust;

(ii) any person whose total contribution to the organisation during the financial year exceeds fifty thousand rupees;

(iii) a member of the Hindu undivided family if the settlor or founder or person is a Hindu undivided family;

(iv) any manager, by whatever name called, of the organisation or trustee of the trust;

(v) any relative of the settlor, founder, member, trustee or manager; or

(vi) any concern in which any of the persons referred to in clauses (i) to (v) has a substantial interest;

(e) 'trust' includes legal obligation.

FROM NOTES ON CLAUSES

Clause 103 provides the meaning of certain terms used in Chapter-IV. It defines 'charitable activity' to mean the following activities carried out in India, namely:--

(i) relief of the poor;

(ii) advancement of education;

(iii) medical relief;

(iv) preservation of environment including watersheds, forests and wildlife;

(v) preservation of monuments or places or objects of artistic or historic interest; or

The said clause also defines the phrases 'business incidental to charitable activity' and 'general public'.