Confusion over contribution

Recently, there seems to be a lot of confusion and misunderstanding among various public charitable trusts and institutions registered in the states of Maharashtra and Gujarat regarding payment of ‘contribution’ to the Public Trusts Administration Fund.

According to section 58 of the Bombay Public Trusts Act, "Every public trust shall pay to the Public Trusts Administration Fund annually such contribution at a rate or rates not exceeding five percent of the gross annual income, or of the gross annual collection or receipt, as the case may be, as may be notified, from time to time, by the State Government.”

Gross annual income does not include corpus donations or deductions allowed by Rule 32 of the Bombay Public Trusts Rules, 1951.

Public trusts exclusively for secular education, medical relief, veterinary treatment of animals, relief of distress caused by natural calamity are exempt from payment of contribution. In the case of multi-purpose trusts, deductions are allowed for the portion of the gross income or collection or receipt spent for any one or more of the aforesaid purposes.

Deductions are also permitted for donations received from other public trusts and grants received from government and/or local authorities.

Under the Bombay Public Trusts Act 1950, the charity commissioner has powers to charge ‘contribution’ up to five percent of the organization’s gross income or receipt.

The right of the charity commis­sioner’s office to collect the contribution was challenged by the Salvation Army Western India Territory, Bombay, and Lohana Mahajan Trust, Bombay, and the matter went to the High Court, Bombay, and was decided on February 21, 1972.

According to the Bombay High Court ruling the levy of contribution by the charity commissioner’s office in the past exceeded the amount required to meet with the expenses of the office. The judges therefore held the said contribution as tax and ultra vires, since the State Government had no authority to levy tax.

The State of Maharashtra and the charity commissioner, Bombay, thereupon filed an appeal before the Supreme Court of India. The same was decided on February 10, 1975 when the Supreme Court of India allowed the appeal partly and held that the levy of contribution was legal and valid up to March 31, 1970, but ultra vires thereafter. The levy of contribution should have correlation with the services rendered, giving due consideration to the existence of the surplus funds which were not immediately required for further expenditure. In other words, the Supreme Court directed that a contribution which is charged should be in keeping with the expenditure made for the maintenance of the organization.

It was due to this litigation, then pending, that no contribution was charged for the period of three years and eight months, viz., from April 1, 1970 to December 14, 1973. During this period of three years and eight months, the funds were almost exhausted and hence, thereafter, five percent contribution was charged for two years from December 15, 1973 to December 14, 1975.

The guiding principle laid by the Supreme Court has been to levy the contribution in proportion to the expenditure incurred by the office of the charity commissioner for a particular year.

Recently two public spirited gentlemen, Manaharbhai Shah and Girishbhai Shah who are trustees of the Bombay based Sheth Vadilal Sarabhai Derasarji Trust managed to obtain valuable facts and figures from the office of the charity commissioner under the Right To Information Act.

According to the data provided it is observed that contributions collected over the years from various public charitable and religious trusts for the Public Trusts Administration Fund have been invested in fixed deposits of various banks aggregating over 155 crore rupees (Rs 155,47,83,162 as on March 2006). The return on this investment is close to nine crores (Rs 8,73,92,316).

Based on the information received, the Shahs are of the view that between the financial years 1996/97 to 2005/06 the office of the charity commissioner has collected ‘excess contribution’ (i.e. levy of contribution beyond the expenditure incurred by the office) to the tune of over 165 crores (Rs 165,15,61,770.22). The interest income on this ‘excess contribution’ amounts to over 69 crores (Rs 69,30,20,912.59).

On the other hand the office of the charity commissioner has annual office expenditure amounting to over nine crores (Rs 9,29,44,893). The Shahs are of the view that "the interest and other income alone are sufficient to meet (the) expenses of the charity commissioner’s office. Any shortfall can easily be made up from the surplus funds.”

Several questions are being raised:

Should charitable and religious trusts which have been paying ‘contribution’ all these years stop paying contribution?

Are these trusts eligible for refunds?

In my opinion, it would be wonderful if the Maharashtra State Government passes an order that it will now stop collecting the ‘contribution’ and perhaps even refund the previous collections based on the Supreme Court’s judgment passed more than three decades ago.

However, until such an order is passed, charitable and religious trusts may have to pay.

In the meantime all public charitable and religious trusts registered in the state of Maharashtra are requested to make a strong petition to the ‘Ministry of Law and Judiciary — Maharashtra State’ for total exemption from payment of contribution.

Noshir H. Dadrawala is chief executive officer of the Bombay based Centre for Advancement of Philanthropy and sits on the board of several international philanthropic organizations including the Hong Kong based Asia Pacific Philanthropy Consortium and the UK based Resource Alliance. He has participated in research studies and contributed papers for Harvard and Johns Hopkins Universities and authored a number of books on management and philanthropy. As a team member of the Poona based Social and Voluntary Group (SVG), he conducts annual tours to Iran to inculcate religious, historical and cultural pride among members of the Parsi Zoroastrian community.