Foreign funds for charity

The Foreign Contribution (Regulation) Bill 2010 has been passed by both houses of the Indian Parliament. It now awaits the President’s assent and a Gazette no-tification to be enacted into law.

In this proposed legislation charitable organizations will be allowed to main- tain multiple bank accounts for manage- ment and utilization of Foreign Contri- bution Regulation Act (FCRA) funds provided only one bank account is main- tained for receiving all such contribu- tions.

Registration and prior permission shall be granted or rejected within a period of 90 days from date of receipt of application. Currently this time frame is stipulated only for applications for prior permission. At present foreign contribu- tion cannot be transferred to organiza- tions which are not registered nor have prior permission under FCRA. The FCRA 2010 will allow such transfer with prior approval. However, the rules in this regard are yet to be framed.

Under FCRA 2010, "foreign company”

is defined. Under the definition given u/s

2(g), Indian companies are not included. However, u/s 2(j) "foreign source” in- cludes an Indian company if more than 50 percent of its equity is held by foreigners. This dichotomy is confusing!

The definition of "foreign contribution” includes various types of foreign receipts. It does not distinguish between commercial receipts and voluntary con- tributions. In fact, Explanation 3 to sec- tion 2(h) excludes income from busi- ness, trade or commerce. This section states that any fee or cost against busi- ness, trade or commerce shall not be considered as foreign contribution. In other words, such receipts can be treated as local income. However, this provi- sion is in conflict with the amended section 2(15) of the Income Tax Act which prohibits trade or business related receipts above Rs 10 lakh. NGOs (non- governmental organizations) are there- fore urged to exercise caution.

Section 3 specifies persons who are ineligible to receive foreign contribution, where a few more have been added to the existing list. Of particular concern is the inclusion of "organization of a political nature.” The term "political nature” has not been defined.

Section 8 states that the administra- tive expenses shall not exceed 50 per- cent and any expenditure of administra- tive nature in excess of 50 percent shall be defrayed with prior approval of the Central Government.

Registration under FCRA will re- quire renewal every five years! How- ever, the Act has provided relief to all the existing NGOs for the first five years from the date of enactment. In other words, all existing NGOs will be required to renew their registration at the end of the period of five years from the date of enactment of FCRA 2010. According to Section 16 of the pro- posed Act, all NGOs should apply for renewal of the certificate within six months prior to the expiry of the five- year period.

Sweeping powers have been given to the authorities for rejecting applica- tions for prior permission or registra- tion. For example, under Section 12, "the applicant should not have been prosecuted or convicted for indulging in activities aimed at conversion or creating communal tension.” Inclusion of the term "prosecuted” is of tremen- dous concern since it implies that even if there is a false or frivolous legal proceeding going on registration could be denied.

Registration may be cancelled for various reasons including lack of ac- tivity for a period of two years. Cur- rently NGOs have been enjoying the benefit of keeping their registered status alive by simply filing "Nil” returns despite not receiving or utilizing for eign funds for many years.

Also, any organization whose certifi- cate has been cancelled or revoked shall not be eligible for registration or prior permission for a period of three years from the date of cancellation.

FCRA 2010 further provides that af- ter cancellation of registration certifi- cate, all the foreign contribution and

assets thereof (created since the incep- tion of the organization) shall vest with such authority as may be prescribed. The government authorities shall take charge of the foreign contribution and assets till the registration is restored.

NOSHIR H. DADRAWALA Chief Executive,

Centre for Advancement of Philanthropy

noshir101@gmail.com