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No income tax relief to welfare bodies working for personal gains

ISLAMABAD (March 19 2003) : The Central Board of Revenue (CBR) has decided not to allow income tax exemption of the Second Schedule of Income Tax Ordinance 2001 to those non-profit organisations, trusts/welfare institutions which are instrumental in achieving personal gains and propagating views of a particular political party or religious sect.

The CBR would only give exemption to those non-profit institutions, which would fulfil the evaluation criteria laid down by independent rating agencies.

These conditions are required to be fulfilled by institutions to enjoy exemption as per sub-clause 3 of clause 58 of the Part-I of Second Schedule of Ordinance, 2001.

The approval granted prior to the commencement of Income Tax Rules 2002 to any institution, fund, trust or society would be considered withdrawn unless an application is made on behalf of such institution, fund, trust or society for the year 2002 by June 30, 2003.

The CBR has proposed a new income tax procedure for the non-profit organisations, trusts/welfare institutions for availing exemption under the Income Tax Ordinance, 2001.

The procedure deals with the approval of trust or welfare institution/non-profit organisation for availing exemption under sub-clause 3 of clause 58 of the Part-I of Second Schedule of Ordinance, 2001.

The CBR has made draft amendment in the Income Tax Rules 2002 through SRO. 258(I)/2003 issued here on Tuesday.

The authorities have circulated the draft amendment to all stakeholders for comments, which would be notified after 15 days of its publication in the Official Gazette.

Under the procedure, the non-profit organisations/trusts would submit application to the CBR giving solid reasons to enjoy exemption under the above-mentioned clause of Second Schedule.

According to the draft amendment in the Income Tax Rules, the application would be accompanied by a copy of the constitution, memorandum and articles of association, rules, regulations or bye-laws, as the case may be, of the institution, fund, trust or society specifying the aims and objects for which it is established.

A certified copy of the registered trust deed, in case of a trust.

A certified copy of certificate of registration in the case of institution registered under the Societies Registration Act, 1860 (XXI of 1860), the Voluntary Social Welfare Agencies (Registration and Control) Ordinance, 1961 (XLVI of 1961), or under any other law relating to the registration of welfare institutions.

Such institutions would also submit duly attested copies of the balance-sheet and revenue accounts of the trust, institution or non-profit organisation as audited by a qualified accountant for three years immediately preceding the financial year in which the application is made.

The names and addresses of the promoters, directors, trustees, office-bearers and managers including president, secretary and treasurer of the institution, trust or organisation and indicating clearly their family relationship, if any, with each other are also required.

A detailed report with regard to the performance of the organisation, trust or institution for achieving its aims and objects during three financial years immediately preceding the date of the application duly evaluated, certified and rated by an independent agency approved by an authority designated by the Government for this purpose or till that authority is established under the arrangements made by the Central Board of Revenue.

On receipt of an application for registration under this rule, the Board, subject to the requirements and conditions specified in sub-rule (3) and after such inquiry as it may deem necessary to grant approval to the institution if —

i. The institution has been formed for the purpose of establishing hospitals or providing education or for community welfare or development;

ii. It has operated and functioned anywhere in Pakistan for a period of not less than three years and has complied with minimum acceptable standards of internal governance, accountability, transparency and efficiency prescribed by any law for the time being in force;

iii. By virtue of its services, it has acquired the recognition of the national authority established for the control and support of non-profit organisations;

iv. Its area of operation is wholly within Pakistan; and

v. Its books of accounts are maintained regularly and in accordance with the generally accepted accounting principles and satisfactory arrangements exist for their inspection by interested members of the public;

The approval shall be notified in the official Gazette.

The approval shall be valid for the tax year in which the approval is granted and for two tax years next following;

For the purposes this rule, the comparison “qualified accountant” has the same meaning as assigned to it in clause (f) of sub-rule (2) of rule 211.

The approval would not be granted to an institution if the Board is satisfied that Any of the requirements or conditions specified in sub-rules (1) and (2) has not been fulfilled; or

Has been or is being used or is likely to be used for personal gains of any particular person or a group of persons; or

Has been or is likely to be used for propagating the views of a particular political party or a religious sect; or

Has not been or will not be able to achieve its declared aims and objects according to evaluation by an independent rating agency; or

The constitution, memorandum or articles of association, rules, regulations, bye-laws, or the trust deed, as the case may be, specifying the aims and objects of the institution, trust or organisation do not provide;

i. For audit of the accounts of the institution, every year by a qualified accountant;

ii. For the transfer of all assets, in the event of its dissolution, after meeting all liabilities, if any, to an institution approved under this rule or rule 212 within three months of the dissolution under intimation to the Board.

iii. For the regular maintenance of books of accounts in accordance with the generally accepted accounting principles and for their inspection by the interested members of the public, without any hindrance, at all reasonable times;

iv. For the utilisation of its money, property or income or any part thereof solely for promoting the objects specified in sub-clause (i of clause (a) of sub-rule (2);

v. For maintenance of the bank accounts of the institution trust or organisation with a scheduled bank;

vi. For prohibiting the making of any changes in the constitution, memorandum or articles of association, rules, regulations, or bye-laws or the trust deed without the prior approval of the Board; and

vii. For restricting the moneys validly set apart or not utilised to 25 percent of the income unless otherwise authorised by the Board and for the investment of all funds in excess of the said limit, in Government securities or NIT Units.

The approval granted under sub-rule (2) may be renewed.

(a) Upon an application made by the institution, trust or organisation in Form II annexed to this rule, within three months of the expiry of the validity of the approval last granted and such application is accompanied by such documents and instruments as are specified in clause (b) of sub-rule (1) and the Board is satisfied, after such inquiry as it may consider necessary, that a genuine institution, trust or organisation existed in the preceding year that complied with at all times, all the provisions of this rule and did not suffer any one or more of the requirements or conditions or disqualification specified in this rule;

(b) The institution seeking approval shall furnish, along with the renewal application, the following documents and particulars pertaining to each of three tax years immediately preceding the tax year in which the said application is made, namely:

A copy of the return of income filed and the assessment order, if any;

A copy of the audited accounts and balance sheet and the auditor's report

A statement of income and donations received and moneys paid;

A statement showing the money set apart or kept unutilised with reasons thereof;

Names and addresses of all trustees, directors, office-bearers and managers;

A copy of the annual report in respect of the activities and performance of the institution, trust or organisation;

(5). Renewal shall not be granted if the institution, trust or organisation did not enjoy approval in respect of the tax year immediately preceding the year for which renewal application is made under this rule.

(6). Renewal granted under this rule shall be valid for the tax year in which the application of renewal is filed and two tax years next following.

(7). The Board may, at any time, withdraw the approval earlier granted, if the institution, trust or organisation fails to comply with any of the provisions of this rule.

(8). The approval granted under sub-rule (2) and the renewal of approval granted under sub-rule (4) shall not be refused or approval once granted or renewed shall not be withdrawn under sub-rule (7) unless the institution has an opportunity to show cause against the action proposed to be taken.

(9). The Board, as the case may be, may relax or modify any of the requirement(s) or condition(s) of this rule in any individual case, if it is satisfied that the requirement(s) or condition(s) could not be fulfilled by the applicant for reasonable cause.(10). The approval granted prior to the commencement of these rules to an institution, fund, trust or society shall be deemed to have been withdrawn unless an application in the manner laid down in sub-rule (4) is made on behalf of such institution, fund, trust or society for calendar year 2002 by the 30th June, 2003.

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