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CAG Dragged 3 Educational Institutions for Tax Issue against Surplus Profits under Their Trust

Dec 16, 2013 16:38 IST

    A CAG audit has exposed 3 educational institutions belonging to Delhi, Mumbai and Pune for receiving up to Rs 500 crore annually, with having yearly profit percentage laying between 50% to as high as 84%.

    As per the CAG report, 3 educational institutions named as Tatwajnana Vidyapeeth of Mumbai, Ishan Educational Research Society in Delhi and Symbiosis Society Group in Pune have allegedly collected 50% to 84% profit consistently through their assessment year 2007 and 2011. In the past 4 years, these 3 institutes have managed to collect a profit of Rs. 622 crore, as mentioned in a newest CAG report.
    CAG informed, 22 educational institutes collected surpluses of INR 819 crore varying from 35% to up to 84% of their overall income. The usage of the surpluses was put to create more fixed assets to earn further profits or to transfer them to other trusts with no charitable intentions, ultimately to avoid tax.

    On 13 December, 2013 the CAG report was tabled in Parliament. Besides, it questioned the functioning of I-T department for showing such leniency that these educational institutions gathered such large profits and managed to avoid pay taxes. The argument was also held up on the concept of a ‘Trust’ for noble cause, which was defeated after the revelation of such an incidence.

    The ministry of finance on the contrary defended the tax matter, by stating that a trust is allowed to save a surplus income up to 15% and it can be done till 5 years.
    However, the auditor turned down the argument and said that audit is not claiming the accumulation to be illegal, but pointed out cases of consistent accumulations and cited illustration of exploitation of such accumulations.

    In the argument CAG mentioned an order of court which had ruled that "the carry forward of income up to 85%, though permitted u/s 11(2) of the I-T Act, should not be adopted on a routine basis and if it is done, then the very purpose of trust will be defeated."

    The proposed direct tax code bill, is expected to fetch reforms in the Income Tax, and states that trusts and NGOs apply at least 85% of their income in every assessment year, to obtain tax exemption.

    The recommendation of the auditor is that the finance ministry may work on amending the law and bring suitable reforms to develop an appropriate mechanism, in which trusts are not permitted to accumulate funds consistently, and a strict monitoring of the given declarations must be made regularly.

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