Deduction u/ss. 35AC & 35CCA

The objectives of these sections are to mobilise funds, from business organisations towards social and economic welfare and upliftment of general public. Corporate contributing to these associations can fulfil their corporate social responsibility. Salient features of sections 35AC & 35CCA is discussed as under:

Expenditure on eligible projects or schemes

Deduction u/s 35AC

Deduction is allowed to assessee in respect of payment made to Public Sector Company or local authority or association or institutions approved by the National Committee for carrying out any eligible project or scheme. Further deduction is also available in respect of direct payments made by the company on eligible project or schemes.

The following terms has been defined as under:

• “National Committee” means the Committee constituted by the Central Government, from amongst persons of eminence in public life, in accordance with the rules made under this Act;

• “Eligible project or scheme” means such project or scheme for promoting the social and economic welfare of, or the uplift of, the public as the Central Government may, by notification in the Official Gazette, specify in this behalf on the recommendations of the National Committee

If such deduction in respect of any expenditure is claimed and allowed under this section for any assessment year, no deduction shall be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year.

Eligible persons to claim deduction

Following assessees having income from business is entitled for deduction under this section in respect of payments made to outside agencies viz. Public Sector Company or local authority or association or institutions approved by the National Committee

• an individual;

• a Hindu Undivided family;

• a company;

• a firm;

• an Association of persons or

• a Body of Individuals, whether incorporated or not;

• a local authority;

• every artificial juridical person not falling within any of the preceding sub-clauses

However company to claim deduction has option of either making payment to outside agencies or they can incur expenditure themselves on eligible project or schemes.

Eligible persons to receive contribution

• Public Sector Company or

• local authority or

• association or institutions approved by the National Committee

NGO and charitable organisation shall be covered under 3rd category above and in order to receive funds they are required to be approved by National Committee u/r. 11J.

Approval of association or institution

Rule 11J provides that the National Committee shall satisfy themselves on following points prior to according approval, to any association or institution—

1. the association or institution is—

1. constituted as a public charitable trust; or

2. registered under the Societies Registration Act, 1860 or under any law corresponding to that Act in force in any part of India; or

3. registered under section 25 of the Companies Act, 1956;

2. persons managing the affairs of the association or institution are persons of proven integrity;

3. the activities of the association or institution are open to citizens of India without any distinction of religion, race, caste, sex, place of birth or any of them and are not expressed to be for the benefit of any individual or community;

4. the association or institution maintains regular accounts of its receipts and expenditure; and

5. the instrument under which the association or institution is constituted does not or the rules or regulations governing the association or institution do not contain any provision for the transfer or application, at any time, of the whole or any part of the income or assets of the association or institution for any purpose other than a charitable purpose.

Approval of project or scheme

Rule 11K provides that the National Committee shall satisfy themselves on following prior to making recommendations to the Central Government with regard to any project or scheme for being notified in the Official Gazette as an eligible project or scheme—

1. the project or scheme relates to the provisions of one or more of the following:

1. construction and maintenance of drinking water projects in rural areas and in urban slums including installation of pump-sets, digging of wells, tube-wells and laying of pipes for supply of drinking water;

2. construction of dwelling units for the economically weaker sections;

3. construction of school buildings primarily for children belonging to the economically weaker sections of the society;

4. establishment and running of non-conventional and renewable source of energy systems;

5. construction and maintenance of bridges, public highways and other roads;

6. any other programme for uplift of the rural poor or the urban slum dwellers, as the National Committee may consider fit for support;

7. promotion of sports;

8. pollution control;

9. establishment and running of educational institutions in rural areas, exclusively for women and children up to 12 years of age;

10. establishment and running of hospitals and medical facilities in rural areas, exclusively for women and children up to 12 years of age;

11. establishment and running of creches and schools for the children of workers employed in factories or at building sites;

12. encouraging the production of bacteria induced fertilisers;

13. any programme that promotes road safety, prevention of accidents and traffic awareness;

14. construction of hostel accommodation for women or handicapped individuals or individuals who are of the age of sixty-five years or more;

15. establishment and running of institutions for vocational education and training in rural areas or towns which consist of population of less than five lakhs;

16. establishment and running of institutions imparting education in the field of engineering and medicine in rural areas or towns which consist of population of less than 5 lakhs;

17. plantation of softwood on degraded non-forest land;

18. any programme of conservation of natural resources or of afforestation;

19. relief and rehabilitation of handicapped individuals;

2. the benefit of the project or scheme shall flow to the public in general or to individuals belonging to the economically weaker sections of the society;

3. the applicant has the necessary expertise, personnel and other facilities for efficient implementation of the project or scheme;

4. the applicant shall maintain separate accounts in respect of the eligible project or scheme.

Procedures for making an application for approval of an association or institution by the National Committee under section 35AC (Rule 11L)

• An application should be made to The Secretary of the National Committee for Promotion of Social and Economic Welfare, Department of Revenue, Government of India, North Block, New Delhi-110 001;

• The application should be submitted in 2 sets. It shall either be in Hindi or in English.

• Following should also be attached:

• Details of the applicant

• Audited Balance Sheet and Profit and Loss Account or Income and Expenditure Account for three years one for latest year for which these are available and for two preceding years.

Procedures for making an application for approval of a project or scheme by the National Committee under section 35AC (Rule 11L)

The application for recommendation of a project or scheme should contain the following particulars and be accompanied with relevant documents:

• title of project or scheme, date of commencement, duration and likely date of completion;

• estimated cost of project or scheme duly supported by a copy of the resolution of the Managing Committee of the association, institution or the local authority or in case of the company, by the Board of Directors of the company;

• classes of persons who are likely to be benefited from the project or scheme;

• affirmation that no benefit from the project or scheme, other than remuneration or honorarium for whole time or part-time work done or for reimbursement of actual expenses related to the project will accrue to the persons managing the affairs of the association or institution or to individuals not belonging to the economically weaker sections of the society;

• where the project or scheme is to be executed by a company, information about whether the project or scheme is such which the company is required to execute under any law for the time being in force or under agreement with employees or otherwise;

• such other particulars as the applicant may like to place before the National Committee.

Details of the applicant should contain the following particulars along with relevant documents

• name and address of the association;

• details of instrument of constitution, rules and regulations, bye laws etc;

• name and address of the persons managing the affairs of the organisation including any one who had any time during the previous three years managed the affairs of the association or institution;

• particulars of approval under section 10(23C) or 80G if granted;

• brief activities of the organisation during three years preceding the date of application or less if existed for lesser period;

• such other information as the association or institution may wish to place before the National Committee.

Procedure before the National Committee (Rule 11M)

• On receipt of applications, Secretary to the National Committee circulates to all the members of the Committee and will be considered by the National Committee at its sitting held at least seven days after the date on which the application is circulated. In exceptional cases, the Chairman may curtail the period of notice and may also direct consideration of the application by circulation only.

• The National Committee may call for such other information and may also direct Secretary to make or cause to be made enquiries on any matter relating to the application.

• The quorum for taking a decision on an application shall be at least five members, including Chairman. If a meeting is adjourned without taking a decision for lack of quorum, the decision to adjourn the meeting may be taken by the members present, even without the requisite quorum. This decision would be conveyed to the absentee members along with notice about the date, time and place for re-holding the adjourned meeting.

• Approval of an association or institution shall be for a period generally not exceeding three years at a time. Subsequent approvals, if required, for a further period, can be granted only if the National Committee is satisfied about the activities of the association or institution during the preceding period of approval.

• The National Committee shall recommend ordinarily to the Central Government a project or scheme for being notified as an eligible project or scheme for an initial period up to three financial years if the project or scheme is likely to extend beyond three financial years, the National Committee shall make further recommendations for a period of three years at a time after being satisfied that the project or, as the case may be, scheme is being executed properly. For this purpose, the National Committee may monitor the execution of project or scheme and call for such information as it deems necessary.

Certificate for claiming deduction

Assessee along with return of income shall furnish a certificate in Form No. 58A containing prescribed details:

1. in case, payment is made to a public sector company or a local authority or an association or institution, certificate to issued by such organization/institution or

2. in case, payment is directly made by the company on the eligible projects or scheme, certificate to be obtained from Chartered Accountant.

However in the current regime of annexure less return of income, assessee may be required to file such certificate only when he has first opportunity to submit all relevant details and not at the time of filing of return of income.

Report to be submitted by Association

Report is required to be submitted with National Committee within 3 months from the end of financial year as under:

Rule No.	Form No.	Report by
11MA	8C	Approved Association/Institution
11MAA	58D	Public sector company or local authority association or institution, which is carrying out notified eligible project/scheme

Every receiver of funds shall, in respect of the 31st March in each financial year, deliver or cause to be delivered to the Secretary, National Committee, an annual report indicating the progress of work relating to the project/scheme during the year as well as the following information (please specify the information in respect of each contributor separately) :—

1. Names of the contributors and their addresses.

2. Permanent Account Number/G.I.R. Number of the contributors.

3. Amount(s) of contribution.

4. The project/scheme for which contribution was made.

5. Total amount of contribution received during the previous year.

6. Total cost of the project approved by the National Committee (with date of Committee’s approval).

Further such organization / institution shall send an annual statement of donation received and the details of the project to the National Committee and to each contributor by 30th June, following the financial year in which the amounts are received.

The National Committee, after receipt of the report may, at any time, undertake to inspect or verify the information furnished by the association or institution.

Withdrawal of authorisation

Where an association or institution is approved by the National Committee or any project/scheme has been notified can be revoked subsequently if

1. National Committee is satisfied that the project/scheme is not carried on in accordance with all or any of the conditions specified therein or

2. a approved association/institution/ organisation has not furnished report after the end of each financial year or report in respect of such eligible project or scheme has not been submitted after the end of each financial year.

However before revoking such approval, reasonable opportunity of being heard would be granted to such organisation or association/institution. Copy of order/notification revoking authorisation shall be forwarded by the National Committee to the concerned Assessing Officer.

Effect of withdrawal of authorisation

On withdrawal of authorisation, the total amount of the payment received by the organisation or association/institution or the deduction claimed by a company (in respect of payments made directly) shall be deemed to be the income of such company or authority or association or institution, as the case may be, for the previous year in which such approval or notification is withdrawn and such income would be taxed at the maximum marginal rate in force for that year.

Expenditure by way of payment to associations and institutions for carrying out rural development programmes – Deduction u/s 35CCA

Assessee is allowed deduction u/s. 35CCA in respect of expenditure incurred as under during the previous year:

1. to an association or institution, which has as its object the undertaking of any programme of rural development, to be used for carrying out any programme of rural development approved by the prescribed authority; or

2. to an association or institution, which has as its object the training of persons for implementing programmes of rural development; or

3. to a rural development fund set up and notified by the Central Government in this behalf; or

4. to the National Urban Poverty Eradication Fund set up and notified by the Central Government in this behalf.

The term “programme of rural development” includes any programme for promoting the social and economic welfare of, or the uplift of, the public in any rural area. (S. 33CC)

It has been clarified by way explanation that the deduction shall not be denied merely on the ground that subsequent to the payment of such sum by the assessee, the approval granted to such programme of rural development or to the association or institution has been withdrawn. However deduction cannot be disallowed because of lack of response from payee institution to notices under section 131 and on consequent presumption that these institutions were non existent.

Provisions does not specifically provide for the withdrawal of the authorisation. Power to grant approval implies power to withdraw approval. However such withdrawal of approval can only be prospectively and cannot give retrospective effect.

The deduction is allowed on furnishing the certificate and it is not for the assessee to show whether the institution to which the money has been donated is carrying on the rural development work as envisaged u/s 35CCA. There is no obligation on the donor to see proper utilisation of funds by the institution and subsequent withdrawal of approval will have no effect.

Where a deduction under this section is claimed and allowed for any assessment year, no deduction shall be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year.

Certificate for claiming deduction

The deduction shall be allowed in respect of expenditure [(a) supra] by way of payment of any sum to any association or institution only on furnishing a certificate from such association or institution and in respect of expenditure by way of payment to the effect that—

1. the programme of rural development had been approved by the prescribed authority before the 1st day of March, 1983; and

2. where such payment is made after the 28th day of February, 1983, such programme involves work by way of construction of any building or other structure (whether for use as a dispensary, school, training or welfare centre, workshop or for any other purpose) or the laying of any road or the construction or boring of a well or tube-well or the installation of any plant or machinery, and such work has commenced before the 1st day of March, 1983.

The deduction shall be allowed in respect of expenditure ((b) supra) by way of payment of any sum to any association or institution only on furnishing a certificate from such association or institution to the effect that—

1. the prescribed authority had approved the association or institution before the 1st day of March, 1983; and

2. the training of persons for implementing any programme of rural development had been started by the association or institution before the 1st day of March, 1983.

Association or institution shall issue certificate as specified above only after obtaining necessary authorisation from the prescribed authority in writing to issue certificates of such nature.

The “prescribed authority” to approve the programme of rural development or to approve an association or institution shall be the Committee consisting of the following :—

1. The Chief Commissioner or Commissioner of Income-tax who exercises jurisdiction over the State or, as the case may be, the Union territory in which the programme of rural development is to be carried out chairman

2. An officer not below the rank of a Secretary to the Government of the State or, as the case may be, the Union territory in which the programme of rural development is to be carried out member

Further in a case two or more Commissioners exercise jurisdiction over the State, the Board may, by notification in the Official Gazette, empower the Chief Commissioner or Commissioner specified in this behalf to be the Chairman of the Committee.

Assessee contributing u/ss. section 35AC & 35CCA can claim deduction of whole of the amount paid and in certain cases up to 150% of the amount paid u/s 35AC, unlike u/s 80G which is linked to certain percentage of the gross total income and amount paid. It can be effective tool for the NGO and other organisation to mobilise the funds for the social benefit of the society.