The very basic code of ethics for a trust is to work towards the welfare of the society and fulfill the requirements of the deprived ones without any sheer profit. And, because of this noble responsibility alone, trusts are exempted from paying tax and are subjected to avail free or cheaper real estate. But, what a latest CAG audit report has revealed is in contrast to this trust code, as three educational institutions in Delhi, Mumbai and Pune have been earning as much as up to Rs 500 crore a year with their annual profit falls between 50% to 84%.
According to the CAG report, the three institutions, -- Tatwajnana Vidyapeeth of Mumbai, Ishan Educational Research Society of Delhi and Symbiosis Society Group of Pune have earned a profit of Rs 622 crore over the last four years.
These institutions have accumulated profit ranging from 50% to 84% constantly during their assessment year 2007 and 2011 and made a surplus of Rs 622 crore in four years.
"Twenty-two educational institutions accumulated surpluses of Rs 819 crore ranging from 35% to 84% of their total income. These surpluses were used for creating fixed assets for earning more profit or transferred to other trusts rather than charitable purpose to avoid tax," CAG said.
Presented in Parliament on 13 December 2013, the CAG report has questioned that why the Income Tax Department has let these educational bodies to accumulate such large profits without being taxed. The autitor also argued that the I-T dept leniency defeats the concept of a trust.
However, the Finance Ministry defended tax relief by asserting that a trust is allowed to accumulate surplus of income up to 15% and that it can be accumulated up to five years.
To support its argument, the CAG cited a court order which has 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."
In its recommendation, the auditor has said that the Ministry Of Finance may "bring in suitable amendment in law to evolve a suitable mechanism so that trusts are not allowed accumulations consistently through strict monitoring of its declarations."