Would you do a Charitable Work in India?

[ramsarya]

[FONT=Century Schoolbook, serif]I was born and brought up in village Kalirawan, Hisar, Haryana. My family owned some land, but it was arid; therefore the family was not well-to-do. Up to 8[/FONT][SUP][FONT=Century Schoolbook, serif]th[/FONT][/SUP][FONT=Century Schoolbook, serif]grade, I attended the village school before graduating near the top of my class (2[/FONT][SUP][FONT=Century Schoolbook, serif]nd[/FONT][/SUP][FONT=Century Schoolbook, serif]position) from Punjab Engineering College in 1966. To support my studies, my parents had to regularly borrow money from moneylenders. [/FONT]


[FONT=Century Schoolbook, serif] After teaching for four years at CR Polytechnic Rohtak, I came to the US for higher studies. Instead of going back after five years, as promised to my mother, my wife, Santosh, and I decided to stay a little longer. That little longer stretched to quite a few years and then probably to forever.[/FONT]


[FONT=Century Schoolbook, serif] After working for consulting firms for a few years as a Structural Engineer, I got into the real estate development business in 1985[/FONT][FONT=Georgia, serif].With financial independence, brought about by the flourishing business, came thoughts of doing something for uplifting our village.So after a long and thoughtful planning, we decided to start a school in Kalirawan, because I was aware that since I graduated in 1966, not a single child from Kalirawan had gone on to become an engineer,doctor, or a gazetted officer – civil or military. We hoped to change that by providing quality education at this non-profit school.The School that started in 2001 with 60 students admits only 4-5 year olds.[/FONT]


[FONT=Georgia, serif] We had a few problems in setting up the school. Although not insurmountable, these hurdles were high enough to drive away a lot of well-meaning philanthropists. Obtaining the FCRA approvals was one such energy sapping experience. However, over the years we have been lucky enough to gather a team of very dedicated unselfish people to help us run the school. The excellent results of 10[/FONT][SUP][FONT=Georgia, serif]th[/FONT][/SUP][FONT=Georgia, serif]grade CBSE examination of last year (our first one) bears testimony to the hard work put in by teachers and students. All Management Committee members and trustees are volunteers, and don't even claim traveling or other incidental expenses from school.[/FONT]


[FONT=Georgia, serif] As a non-profit Trust/Society running the school, we had to register under section 80-G of the Indian Tax Code, which, inexplicably, took two long years. It took a lot of effort and time to convince the local officials that this is genuinely a not-for-profit venture, and they should abandon the hopes of illegally benefiting from it[/FONT]


[FONT=Georgia, serif] Last year, the Income Tax Officer from Hisar opened an inquiry into the school's finances for the year 2004-5. We were told that this is a routine inquiry for any institution receiving foreign currency, but we became suspicious when the officer asked us to submit all those documents again that were submitted at the time of registration.Since the ITO could not find anything worth objecting to in the records asked for, he sent the case to Jaipur for evaluation of the building construction. Jaipur officials visited the school, and told our accountant that their regular ‘fee’ for this kind of work is 2% of the construction cost. They also stated that if we did not pay them 6 lacs (2% of our actual coast of 2.9 crore) the building will be evaluated at 5 crores. The officials could not explain why we would spend more but show less, especially when the construction has been totally paid from our income-tax-paid earnings in the US. [/FONT]


[FONT=Georgia, serif]The School still runs in annual deficit to the tune of Rs. 8 to 15 lacs.Santosh and I not only cover the deficit and the cost of capital improvements but also spend 5 to 6 weeks every year at the school to stay involved with every aspect of it. Moreover, we request our friends in the US to volunteer in the school for the benefit of the students. Dr. Birbal Singh, an IIT Bombay graduate and now a professor in Canada spent 3 weeks last summer to prepare the students for engineering competitive exams. He has committed to volunteer for 4 to 6 weeks every year. Another young student from New Jersey volunteered for 10 days in November last year. Other friends have set up scholarships for the students at this school.[/FONT]


[FONT=Georgia, serif] After waiting for about a week, the official from Jaipur sent the case to Rohtak for evaluation as he was not going to get any illegal benefit from us. Three officials from Rohtak came to the school at our expense. I was in the school that day. They evaluated the building at 4.46 crores. ITO Hisar rightaway sent a letter demanding an income tax of Rs 14.40 lacs for the year 2004-5. We had sent only about Rs 28 lacs in 2004-5. His letter calculated the unreported income of 0.6 times the actual and with income tax and penalties we owe the above amount. Of course, now we have to hire an expensive attorney and an independent evaluator, so we can file an appeal. Even if our appeal for 2004-05 case is upheld, we fear that we might have to go through the same process for 2005-06 and onwards. Government evaluators use estimation tables compiled by CPWD , which are influenced by personal interests of multiple parties such as private contractors and officers. Our construction had the benefit of directly bought materials, some voluntary labour, and my personal experience as a civil engineer and business owner. [/FONT]


[FONT=Georgia, serif] Most NRIs have a great love for their motherland and want to extend all help they can, but treatment such as above holds them back. Many well-intentioned philanthropists don't want to deal with hassles like the above, because they fear being second-guessed and insinuated of ulterior motives. Who wants to spend time, mental peace and money to go through the courts to prove that they did not do anything wrong in trying to help the community?[/FONT]


[FONT=Georgia, serif] I might have sounded too pessimistic in this write-up, but you be the judge. We are pouring our heart and soul in this project, because the precious smiles that we see on the faces of students and parents are priceless. [/FONT]


[FONT=Georgia, serif]We need your help in realizing our dream of producing hundreds of engineers, doctors, worthy gazetted officers [/FONT][FONT=Georgia, serif]and good human beings [/FONT][FONT=Georgia, serif]from Kalirawan and surrounding villages. We sincerely hope you will act and extend a well-deserved helping hand. [/FONT]

 

[kapdal]

Sir,

What a sad state of affairs. Your pessimism is understandable - after all the hard work and hard-earned money put for a good, not-for-profit cause, it is impossible to see such a scenario in any positive light. I am just thinking of what options anyone would have in such a situation. I hope this doesn't take away anything from the seriousness and objective of your post and that certainly isn't my intention. If you do feel my post isn't apt, please let me know and I shall remove it.

1. Get someone to lean on the concerned officials so that they back off. This could be done overtly (petitioning local MLA/MP/leaders, etc.) or covertly (via connections). I guess with all the members here, someone's connections should be able to help. Everyone reading your post should make an effort anyways, howsoever little the chances are. I am going to do so.

You'd potentially have to get involved in a showdown with the concerned officials in an overt operation - silver lining is that these guys don't appear to be that senior. While in a covert operation, there is a risk of getting potentially nosy questions from those "helping" you and you'd need to be careful not to create any unnecessary obligations to those "helping" you. Overt or covert, this may be the quickest way of "sorting" things out.

2. Blow a whistle on the culprits - either using the media or some NGOs like Janagraha which runs a campaign http://ipaidabribe.com/. You can also quiz the govt. on all the "unanswered queries" by the ITO via an RTI [like I couldn't understand why income tax has to be paid on cost of construction or evaluation of the building and on what basis they calculated the income tax, if the expenses > income]. This method would go into pure activism and someone from your side would have to be very actively involved. Other members may be aware of local NGOs or someone more helpful.

3. As you said, appoint an attorney and fight it out in the court. Very time consuming and I am not sure if the govt would have to bear your costs in case you won - some lawyer may shed light on this.

Don't know if there are other options. Of course, theoretically, there are 2 other cases [pay the bribe and move on / abandon the project in disgust], but I am guessing you don't want to go on either of those lines.

I sincerely hope this gets resolved to your satisfaction at the earliest.

 

[bhalout]

Way to go...

I read the whole article and would proudly say that I would still do the charitable work in India.

No matter what the problems or hurdles I'll face but if I am committed I'll stick to my belief and move forward.

Let them do what they think is right but you stay on course.

I would advice you to register a non-profit organization here in USA and tie your dream charitable projects in India with it. Also let the American Embassy know about your projects, and if possible invite someone fromembassy to visit there. If they accept your invitation inform the local administration about their visit and half of your problem will be gone within a weeks time. If you are honest, the books are clean and well maintained nobody can do any harm to the organization.

Let me pen down a small experience: 4 years back when I was in India, one day my Uncle (Foofa) said let us go and visit Hridwar and Rishikesh. While driving in the hilly area, being an old man he was driving slow and a bit on safer side from the slope (Khai). The people driving behind him got very irritated and started honking from behind and I was a bit confused and requested my uncle to give them side and let them go. First he laughed, then said bhai mein na doo side. Manaa ke marna hai khai ke taraf ja ke. They can't do anything or they can't just come out of their car and beat me up because I am ahead of them, so let them bark or honk I don't care.

So you are ahead of everybody...don't let these incidents offset your noble ideas and their implementation for your mother land.

Hope Jatland members in India can take this further and help you out.

Regards
Vir Singh from Bhalout, Rohtak
Now in Michigan, USA.

I was born and brought up in village Kalirawan, Hisar, Haryana. My family owned some land, but it was arid; therefore the family was not well-to-do. Up to 8[SUP]th[/SUP]grade, I attended the village school before graduating near the top of my class (2[SUP]nd[/SUP]position) from Punjab Engineering College in 1966. To support my studies, my parents had to regularly borrow money from moneylenders.


After teaching for four years at CR Polytechnic Rohtak, I came to the US for higher studies. Instead of going back after five years, as promised to my mother, my wife, Santosh, and I decided to stay a little longer. That little longer stretched to quite a few years and then probably to forever.


After working for consulting firms for a few years as a Structural Engineer, I got into the real estate development business in 1985.With financial independence, brought about by the flourishing business, came thoughts of doing something for uplifting our village.So after a long and thoughtful planning, we decided to start a school in Kalirawan, because I was aware that since I graduated in 1966, not a single child from Kalirawan had gone on to become an engineer,doctor, or a gazetted officer – civil or military. We hoped to change that by providing quality education at this non-profit school.The School that started in 2001 with 60 students admits only 4-5 year olds.


We had a few problems in setting up the school. Although not insurmountable, these hurdles were high enough to drive away a lot of well-meaning philanthropists. Obtaining the FCRA approvals was one such energy sapping experience. However, over the years we have been lucky enough to gather a team of very dedicated unselfish people to help us run the school. The excellent results of 10[SUP]th[/SUP]grade CBSE examination of last year (our first one) bears testimony to the hard work put in by teachers and students. All Management Committee members and trustees are volunteers, and don't even claim traveling or other incidental expenses from school.


As a non-profit Trust/Society running the school, we had to register under section 80-G of the Indian Tax Code, which, inexplicably, took two long years. It took a lot of effort and time to convince the local officials that this is genuinely a not-for-profit venture, and they should abandon the hopes of illegally benefiting from it


Last year, the Income Tax Officer from Hisar opened an inquiry into the school's finances for the year 2004-5. We were told that this is a routine inquiry for any institution receiving foreign currency, but we became suspicious when the officer asked us to submit all those documents again that were submitted at the time of registration.Since the ITO could not find anything worth objecting to in the records asked for, he sent the case to Jaipur for evaluation of the building construction. Jaipur officials visited the school, and told our accountant that their regular ‘fee’ for this kind of work is 2% of the construction cost. They also stated that if we did not pay them 6 lacs (2% of our actual coast of 2.9 crore) the building will be evaluated at 5 crores. The officials could not explain why we would spend more but show less, especially when the construction has been totally paid from our income-tax-paid earnings in the US.


The School still runs in annual deficit to the tune of Rs. 8 to 15 lacs.Santosh and I not only cover the deficit and the cost of capital improvements but also spend 5 to 6 weeks every year at the school to stay involved with every aspect of it. Moreover, we request our friends in the US to volunteer in the school for the benefit of the students. Dr. Birbal Singh, an IIT Bombay graduate and now a professor in Canada spent 3 weeks last summer to prepare the students for engineering competitive exams. He has committed to volunteer for 4 to 6 weeks every year. Another young student from New Jersey volunteered for 10 days in November last year. Other friends have set up scholarships for the students at this school.


After waiting for about a week, the official from Jaipur sent the case to Rohtak for evaluation as he was not going to get any illegal benefit from us. Three officials from Rohtak came to the school at our expense. I was in the school that day. They evaluated the building at 4.46 crores. ITO Hisar rightaway sent a letter demanding an income tax of Rs 14.40 lacs for the year 2004-5. We had sent only about Rs 28 lacs in 2004-5. His letter calculated the unreported income of 0.6 times the actual and with income tax and penalties we owe the above amount. Of course, now we have to hire an expensive attorney and an independent evaluator, so we can file an appeal. Even if our appeal for 2004-05 case is upheld, we fear that we might have to go through the same process for 2005-06 and onwards. Government evaluators use estimation tables compiled by CPWD , which are influenced by personal interests of multiple parties such as private contractors and officers. Our construction had the benefit of directly bought materials, some voluntary labour, and my personal experience as a civil engineer and business owner.


Most NRIs have a great love for their motherland and want to extend all help they can, but treatment such as above holds them back. Many well-intentioned philanthropists don't want to deal with hassles like the above, because they fear being second-guessed and insinuated of ulterior motives. Who wants to spend time, mental peace and money to go through the courts to prove that they did not do anything wrong in trying to help the community?


I might have sounded too pessimistic in this write-up, but you be the judge. We are pouring our heart and soul in this project, because the precious smiles that we see on the faces of students and parents are priceless.


We need your help in realizing our dream of producing hundreds of engineers, doctors, worthy gazetted officers and good human beings from Kalirawan and surrounding villages. We sincerely hope you will act and extend a well-deserved helping hand.

 

[spdeshwal]

Respected Arya ji

Please don't get disheartened! you are our role model and hundreds of young people have got inspiration from you! The institution you are nurturing is shaping the lives of hundres of underprivilaged childern. You will overcome the challanges thrown by these unscrupulous bearocrats! The system is so rotten that can not be changed overnight.
Nevertheless, you may take some of the actions suggested by dear kapil Dalal! I believe, you have known Chief Minister Hooda and could take up this issue with him!
I strongly believe that you wouldn't give up so easily!

With warmest regards and best wishes!

 

[arvindc]

Sir, Please also give due consideration that even the IT department would need some document/proof of the amount spent on construction.
Normally, a certified architect can evaluate and give the cost of construction. Their fees does very from 0 to 2%.

May be you can get the construction evaluated from some university departments, like IIT or NIIT and re-present your case to the IT department.
Suggest speaking with a legal person on this matter and complete all that is required even if it is costing you more then what is being demanded.

These procedural hurdles and archaic laws are the core reasons why India is still poor. Only strong and brave people like you are able to withstand the sheer amount of pressure and finally succeed. Kudos to you and your team.

Wish you best of luck!

 

[ravinderjeet]

राम आर्या जी नमस्कार ,इब्ब में जो बताउंगा, या बात कई भाइयां ने अर केरा आप ने भी भुंडी लागेगी ,पर स कती प्रेक्टिकल | मन्ने ते इस्से बरगी भुंडी कई रिश्वतखोर सरकारी अफसरां की गेल कर राखी स ज्यां तें कहूँ सूं | सलाह ----- आप ने गाम आल्याँ का ट्रस्ट बन्या राख्या स | उन् ताहीं कहो अक उन् इनकम टेक्स अफसरां ने नेगोसिएसन खातर बुला ल्यो | अर आप उड़े रहो मत दिल्ली या हिसार चाले जाओ | जित नेगोसीएट करो उड़े लुकोये होड़ कमरे ला दयो | अर केश भी उन् के आगे धरवा दयो | मीडिया ने बुला ल्यो |२०-२५ कुंगराँ ने माड़ी सी दूर खड़े कर दयो भाले बरछे अर पट्रोल ले के ने | जब उन् की रिकोर्डिंग हो ज्या ते पिस्से देवन तें नाट जाओ अर उड़े तें उन् ने भजा दयो | जब वे बाहर आवें ते मीडिया आल्याँ ने गेल ला दयो अर सी.डि मीडिया ताहीं दे दयो | जो कुंगर खड़े सें उन् ने कह दयो अक जब मीडिया उन् ने घेरे ते तले तार के ने उन् की जीप में आग ला दयो | सारे फ्रूफ हो ज्यां गे वे न्यू नि कह सकदे अक हाम नहीं गए थे ,मीडिया में बात उछल जा गी फेर किहे ताहीं कहन की जरूत ना स ,फेर हुड्डा भी आप की गेल-गेल हान्डेगा | आप के सकूल कानी आगले ४०-५० साल कोई आँख ठा के भी ना देखे अर सारे पर्मिस्सन एक हफ्ते में आज्यांगे | यु हिन्दुस्तान स ,इतने भुंडे की गेल भुंड नहीं कर ल्योगे इतने उन् के समझ में कोणी आवे | इब्ब आप न्यू सोचोगे अक यु ते भलमनसाहत (जेंटल मेनशिप) का काम कोणी | पर कांडे तें-ए कांडा लिकड्या करे |----साद- भावनाओं सहित |

 

[ramsarya]

Dear Kapil, Virender, Deshwal Saheb, Arvind and Ravinder:
Thanks for the comments and suggestions. I would like to reply each one separatelyy.
Kapil: We have to continue the appeal process because of the technicalities. Instead of seeking political (MLA/MP) help, wouldn't bureaucrats and media be a better option? We are thinking to send our story to concerned ministries, CVC etc (blowing the whistle). Would like jatland members to suggest contact details of all the people whom we should send this.
Virender: We already have a charitable tax-deductible non-profit organization "North American Jat Charities, Inc." thru which all donations are channeled. Involving American Embassy there is a good idea. I will follow up on that as well as involving Indian Embassy here. May be Deshwal Saheb can throw some light on it. Every penny has been sent thru proper channels and accounted for and audited financials are filed every year with FCRA. Harm to the organization and the philanthropic attitudes is already done by discouraging others to get involved in charitable work in India.
Deshwal Saheb: Thanks for your sentiments. I definitely will make Mr Hooda aware of our plight but IT officials are Central Gov't employees and State has no control over them. I don't plan to give up without a fight, specially when people like you are providing the moral and other support.
Arvind: That 2% was the bribe asked for by the Jaipur official to match his evaluation to the actual construction costs. Now we have to hire an evaluation expert to dispute the official version in front of the appeals commissioner (Mr. Gopi Nath in Rohtak). I can't understand the IT's officials thinking - why would anybody spend more than whatever is shown on paper, specially when every penny is hard earned and US taxed income that we have utilized for this charitable work. Reverse can be true that people might show more than what they actually spent and pocket the rest income tax free. We have no intention of taking any profit or income from endeavor and would not permit anybody else to personally benefit including any family member. As already written, school runs in deficit still and we provide for the shortfall every year.
Ravinder: Your suggestion is probably the quickest solution. No matter how much I like it or not, I am not in India all the time and would not get involved in any kind of voilence.
Thanks everybody again and let the suggestions keep coming.

 

[vikasgulia]

Sir,

What a sad state of affairs. .....

[like I couldn't understand why income tax has to be paid on cost of construction or evaluation of the building and on what basis they calculated the income tax, if the expenses > income].

Even I could not fathom what IT act they used to demand income tax. Nevertheless, if it is possible to lobby the beneficiaries (villagers), then a pressure can be built up on the local representatives to get the things sorted out. Panchayaat chahe to sab kuchh kar sakati hai.

 

[ygulia]

The only solution is that you retain a good Tax Lawyer and proceed with your appeal. If you have obeyed the law and maintained and audited your accounts properly then you do not need any help or advice. I do not think you will get any advantage of writing on this forum.

 

[vicky84]

Sir,

Apart from other suggestion from the fellow Jatlanders, you may also want to consider the following:

1. Approach Khap Panchayats in the village where you are building school.

2. You may raise this issue on pravasi bharatiya divas when Chief Minister addresses NRI for investment.

3. Approach NRI cell of Haryana which look into NRI foreign investment.

 

[virj]

Even I could not fathom what IT act they used to demand income tax.

because when a building is erected over a land the land value increase and you pay a tax on the building + land in essence.

Govt do their own valuation however you can challenge their valuation easily but normally their valuation is OK.

It doesnt matter how much money you saved in construction what matter is what is the fair value it has in current market. It keeps fluctuating. Some people often find themself on the wrong side of the law but that is what it is. Overall it is fair

 

[vikasgulia]

because when a building is erected over a land the land value increase and you pay a tax on the building + land in essence.

Govt do their own valuation however you can challenge their valuation easily but normally their valuation is OK.

It doesnt matter how much money you saved in construction what matter is what is the fair value it has in current market. It keeps fluctuating. Some people often find themself on the wrong side of the law but that is what it is. Overall it is fair

Writing at the expense of going off topic.

With my little understanding on tax, the tax liability will be only when the value is unlocked (property is sold) and realized.

 

[virj]

Not really. I wish you were true. What you are refering to is CGT which is not the case here.

Coming back to the issue, I dont know the details involved but the Govt (tax dept) has the right to reopen any case upto certain years probably which they did. If it was undervalued that time then certainly tax liability arise. But few question also arise. Normally Govt do their own valuation within a year why this wasnt done? Is the building exempt?

They cannot harass anyone on this. This is very simple case valuation can be challenged easily and normally doesnt vary much (1-2% vaiance possible). Bribe shouldnt be paid here as it is only a temporary solution. There is risk of case being reopend again by another officer. I would probably pay the tax if need be and do the right thing and shut the case for ever. For the concern that it will happen each year since 2006. Yes it will they will revalue if it was undervalued but again I dont know the full details but I think schools used to get tax exemptions that time for this in some scenarios.

 

[virj]

I can't understand the IT's officials thinking - why would anybody spend more than whatever is shown on paper

Many people do this. Reasons are to save on stamp duty, land taxes etc. Tax department look each transaction at arm's length transaction. Onus is always on the parties involved to prove tax dept. wrong. In such cases its not that someone is overpaying something(in some cases you may if you have emotional value attached etc.) but mostly the case is he/she is undervaluing(by showing less in paper) something to save tax. So they pay what is fair value but in paper show less so less tax payable.

 

[kapdal]

Tax Department Booklet on Charitable Institutions

Sir,

Please see below a booklet from income tax department on "Assesment of Charitable Trusts". It was ostensibly created for helping the general public with the complex procedures. Maybe it can help answer some of your questions on the "assessment". It also provides all the relevant forms in one place.

http://www.incometaxindia.gov.in/archive/assessment_charitabletrusts_institutions.pdf

This site is also helpful, if you need to see the exact tax clauses.

http://indiankanoon.org/doc/1321037/

Not knowing the precise facts of your case, it is difficult to say which sections are relevant for you. Some bits that may be pertinent:

1. Apparently, tax exemptions have to be sought within 1 year of registration. However, there is room for exceptions.
"Section 12A enacts that provisions of section 11 and section 12, regarding exemption of income, will not be applicable to an institution etc., unless an application for its registration is made to the CIT/DIT(E) within a period of one year from the date of its creation. The CIT/DIT(E) may condone the delay for good and sufficient reason."

2. Looking at the definitions, it should be rather easy to prove the charitable & educational nature, which is the key to get various exemptions.

3. Looking at section 5, all your donations to the school are counted as "income". However, both capital and running expenses are deductible from income for tax purposes. In fact, to some extent, tax need not be paid even on "surpluses" - although that case never arose in your situation. Also, the law even provides for personal income tax deductions on Indian income if that is donated for charitable purposes! (again doesn't look pertinent to your situation).

If you have the necessary exemptions, it is hard to understand how Income Tax department is making any case from a higher valuation, as that would mean even higher capital expenditure. Even otherwise, I don't see how you could be violating the intent of the law [truly charitable, no personal benefits, etc.]

As Einstein said, Income Tax is the hardest thing to understand in the world. But this should be a bread & butter case for some tax attorney.

 

[kapdal]

Overseas Indian Facilitation Center (OIFC)

Apparently, GoI has a Overseas Indian Facilitation Centre (OIFC), that counts amongst its objectives - "will serve as the single window for the overseas Indian community to engage in philanthropic activity in India". Maybe it is time to check their commitment to the cause. This lists a certain joint secretary that can be contacted.
http://moia.gov.in/pdf/IDF.pdf


There was a press release in 2010 about "tax concessions to overseas Indians for philanthropic activities in India".
http://www.oifc.in/Article/Tax-concessions-to-overseas-Indians-for-philanthropic-activities-in-India

So they want to get overseas Indians tax relief in their resident countries on donations to Indian causes. Surely, they should be able to help with unfair taxation within India!

OIFC's CEO's contact details are here:
http://moia.gov.in/services.aspx?id1=205&id=m1&idp=205&mainid=196

Even this ministry of overseas Indians is a valid target for seeking remedies.

 

[kapdal]

Few other cases..

Sir,

Here are some other legal cases on taxation of not-for-profit schools, where you may see some common themes vis-a-vis your situation. I am neither lawyer nor accountant; but my sense from these is that as long as the charitable nature can be proved [rural area, poor people, etc.]; there is no personal benefit; there are no systematic surpluses that are not being put back into the school and the activities are purely educational; with no discrimination on religious/caste grounds - the law and the courts don't want to charge tax.

http://indiankanoon.org/doc/1223100/
http://indiankanoon.org/doc/1972723/
http://www.indiankanoon.org/doc/1178393/

The last one has some relevant material on "school building", though the case is very different. I understand that this school took donations for school building from parents and then gave its own family construction company the construction contract (with no tenders). It was alleged that using the objective of construction of the building, "the actual purpose for collection of the fund was to generate surplus and to cam profits by siphoning it off through the construction work."

Even in this case, the ruling was that it was within school's non-for-profit mandate to do so! Basically, in the absence of any evidence of personal profit, mere suspicion of the income tax officer can't be grounds for taxation. Please see below (emphasis mine):

With regard to the claim of the revenue that the collection of the fund was beyond the legitimate needs of the assessee, it is seen that this objection was raised by the revenue without going into the details and reasons for which these collections were made by the assessee. The assessee in this case submitted before the revenue authorities that the collections were made to pay off the loans taken earlier for the construction of the building. Even otherwise the Governing Body is given power to mobilise that resources for the promotion of the objects and to facilitate attainment of the objects of the Society. The assessee is not an aided school. It has to bear all the expenses including the infrastructure for establishing schools a and maintaining the same. It has already opened and run two schools a Mayur Vihar. The assessee intends to open new branches over and above the existing schools. In such a case, the assessee has to raise corpus fund! for building the infrastructure and construction of the building and the facilities required formining the school. Unless the projects set out by the Society is examined, it cannot be said that the assessee collected funds beyond the legitimate needs merely because there was accumulation of funds. It is also seen that the revenue authorities did not point out any case where any part of the profit/income was diverted for a purpose other than for the educational purposes. There is no evidence of any part of the fun(finding its way to the pocket of any individual member or members of the Society. There is unanimity of the Bench in this regard that there was diversion of the fund by the Society. The revenue authorities raise(objection in regard to the award of contract for the construction of the school building to a concern which is a family concern in which the Members of the Society have substantial interest. It is, however, pointed out that there was no evidence that that concern namely Ahluwalia; Construction Co. derived any undue profit out of the construction work. It is also seen that the assessee neither distribute any profit nor applied the profits for the benefits of the Managing Committee. In such a case, mere suspicion cannot replace hard facts as pointed out by the learned Vice President (the Accountant Member) in the order. In that view of the matter, the excess funds accumulated by the assessee can be said to be not incidental to the lawful activity of the Society.

 

[ramsarya]

Just an update on this case. We are filing an appeal tomorrow in Rohtak with Appeals Commissioner. I appreciate everybody's input and ideas about this case.
Now, I understand it a little better as to why IT Dept thinks everybody is a tax dodger and a cheat just like themselves. Education is a big business in India and lots of people have lots of undeclared income and spend it on construction of infrastructure and then derive financial benefits from that facility. Our case is different and it is hard for most of the people including IT department (and some jatlanders) to understand why anyone would do what we are doing without a financial or ulterior motive. Our only motive is the educational and thus hopefully overall uplifment of that rural area as a payback for all the help that my villagers and teachers provided during my childhood and schooling. Once the people understand this concept, they really provide all sorts of help and I am proud to have gathered a good team of dedicated people who understand this and are volunteering their time and services.
Any help in circulating and letting people understand that there are exceptions to the rule will be a service to the society in general and to us in particular.
As I said in my first post, I might have sounded too pessimissimistic, not bitter, but I am stating the facts. This kind of treatment does discourage lots of people of Indian origin who want to get involved in all sorts of charity and other projects in their motherland but shy away after hearing about this. I may assure our jatlanders that we are not giving up and hopefully truth will prevail sooner than later.

 

[drrajpalsingh]

...... Education is a big business in India and lots of people have lots of undeclared income and spend it on construction of infrastructure and then derive financial benefits from that facility. Our case is different and it is hard for most of the people including IT department (and some jatlanders) to understand why anyone would do what we are doing without a financial or ulterior motive. Our only motive is the educational and thus hopefully overall uplifment of that rural area as a payback for all the help that my villagers and teachers provided during my childhood and schooling. Once the people understand this concept, they really provide all sorts of help and I am proud to have gathered a good team of dedicated people who understand this and are volunteering their time and services.
Any help in circulating and letting people understand that there are exceptions to the rule will be a service to the society in general and to us in particular.......

Respected Arya Sahib,

You have rightly analysed the position of so called charitable cause in the name of education which makes the real philanthropists suspects in the eyes of law enforcing agencies. This causes a lot of inconvenience to the genuine investors like you.

It is heartening to note that you "are not giving up and hopefully truth will prevail sooner than later."

Please keep it up. Cheers!

 

[ramsarya]

TRUTH & JUSTICE PREVAIL

Please recall the income tax case appeal by Sukh Ram Gram Vikas Trust, Kalirawan (appellant) to the Appeals Commissioner, Rohtak. The Commissioner made a decision on August 13, 2012. It is a very detailed and well-analyzed decision consisting of 13 pages. While reaching the decision, the Commissioner commented and decided on each and every point raised by Income Tax Officer (ITO) Hisar, or the appellant. The decision favored the appellant on each and every point.

I had met the Appeals Commissioner first on March 12, 2012 in Rohtak at the first hearing of the appeal. He was very perceptive and cognizant of the circumstances under which the appeal had reached him. He understood how genuine our cause was and the necessity of our appeal. He took his time to render a decision providing ample opportunities to all the parties concerned.

Brief Description of the Case:

The Income Tax Department's officer had assessed the school buildings’ construction costs at Rs. 4.46 crores. This sum was much above the actual costs of 2.82 crores. The ITO, Hisar, without giving us the opportunity to review the assessment report, declared any amount over 2.82 crores as undeclared income and imposed tax, interest and penalties. The hands of the ITO were supposedly tied as the statute of limitations was expiring within days and he had to act based on the report. A registered assessor of construction costs, representing Sukh Ram Gram Vikas Trust, had calculated the school’s building construction costs at 2.81 crores and pointed out the errors in the Income Tax Department’s assessor’s report. Thus we had filed the appeal. After reviewing our assessor’s comments, the Income Tax Department’s assessor recalculated the construction costs at 2.95 crores, a sum indicating much less disparity between the estimated and actual costs.

Lessons Learned:

I would like to point out a few things that I experienced and learned from this case, which might be helpful to other philanthropists doing work in India.

1. I neglected to seek the best available accounting and legal help up front. If I had, it is possible that this kind of trouble would have been avoided or handled by the professionals easily. Do not assume that you will not face hurdles just because you are performing an unselfish community service.

2. Take every communication from the IT department seriously. Never assume it to be a routine letter. Discuss with professionals the consequences of neglecting to reply properly.

3. Everyone, including the IT department officials, knows what kind of profitable and many times unscrupulous businesses are running in the name of non-profit schools/colleges in India. Without knowing the facts it is difficult for officials and for the public in general to understand your motive and genuineness of your particular project. Make it a point to explain it at every opportunity you get or create, especially to the officials concerned. Explaining about your project is not an ego boosting exercise to get plaudits for your philanthropic work but paving the way for available help in case of some hurdles.

4. Most of us were born, raised and educated in India and then migrated to our present country. Our memories of India and what it stands for are frozen at a time-frame when we left the country and we further idealized those memories over the years. It is a whole new world out there and we really have to filter out and ponder the Indian responses before reaching a conclusion. Do not expect everybody, especially the professionals, to adhere to the same ethical standards we are accustomed to here.

5. Indian Law and its implementation process is a little different than what we might be used to here. Do not be lulled by the Indian attitude of 'sab chalta hai', it can be dangerous. Follow the law of the land in spirit at least. When you run into hurdles/problems, and believe me you will, which might make you feel disheartened and disappointed, please do not give up the cause. First – truth will ultimately prevail as someone along the line might even go out of his/her way to help and recognize the genuineness of your cause. And secondly – the people who are the real beneficiary of your philanthropic work will suffer for no fault of theirs.

Conclusion:

Please don't be disheartened by these kinds of hiccups. Eventually, truth and justice will prevail. Keep plugging away with earnest at whatever you are doing. For us, this might not be the end yet. It is possible you will hear from me again. There are lots of people who are there to help if need be. Once I met and explained the situation, I received full cooperation from the Income Tax office, Hisar, guidance from Tax Commissioners and friends. However, the Indo-American Associations, Indian Consulates/Ambassador, Charitable Organizations except one, the so-called protectors of our interests, never even acknowledged my request for help, that I know of. These people will trample over each other if a photo-op is presented but don't even have the decency to talk to or guide a person with genuine problem.

Request:

A lot of my friends and well-wishers had widely circulated my appeal for any kind of guidance and help in February of this year. I would request you to do the same with this email to let the people know about the results. Thanks everyone.