3.––Commercial activities by registered non-profit organisation

Business undertaking held as property.

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Where the property held by a registered non-profit organisation includes a business undertaking, and where a claim is made that the income of any such undertaking is eligible for benefits under this Part, then the Assessing Officer shall have the power to determine the income of such business undertaking as per the provisions of this Act.

Explanation

Section Summary:

This section addresses how the income from a business undertaking owned by a registered non-profit organization (NPO) is treated for tax purposes. It grants the Assessing Officer the authority to determine the income of such a business undertaking in accordance with the provisions of the Income Tax Act, particularly when the NPO claims that the income is eligible for tax benefits under this Part of the law.

Key Changes:

• New Provision: This section explicitly empowers the Assessing Officer to assess the income of a business undertaking held by a registered NPO, especially when the NPO claims tax benefits for that income.
• Clarification of Authority: Previously, the treatment of income from business undertakings by NPOs may have been less clear or subject to varying interpretations. This section provides a clear framework for the Assessing Officer to evaluate such income.

Practical Implications:

• For NPOs: Registered non-profits that operate or hold business undertakings must ensure that the income from such activities is properly accounted for and reported. The Assessing Officer now has explicit authority to scrutinize and determine the taxable portion of this income.
• For Tax Authorities: This section strengthens the ability of tax authorities to assess and regulate income from business activities conducted by NPOs, ensuring that tax benefits are only granted to eligible income.

Critical Concepts:

• Business Undertaking: Refers to any commercial activity or enterprise operated by the NPO, even if the primary purpose of the organization is non-profit.
• Eligible for Benefits: Refers to income that qualifies for tax exemptions or deductions under the relevant provisions of the Income Tax Act, typically tied to the NPO's charitable or non-profit objectives.
• Assessing Officer's Role: The Assessing Officer is responsible for determining whether the income from the business undertaking qualifies for tax benefits and ensuring compliance with the law.

Compliance Steps:

1. Accurate Reporting: NPOs must accurately report income from business undertakings in their tax filings.
2. Documentation: Maintain detailed records of income and expenses related to the business undertaking to substantiate claims for tax benefits.
3. Engage with Assessing Officer: Be prepared to provide necessary information and documentation if the Assessing Officer requests it during the assessment process.

Examples:

• Scenario 1: An NPO registered under Section 12A operates a small café as part of its activities to fund its charitable programs. The income from the café is claimed as exempt under the NPO's tax benefits. The Assessing Officer reviews the café's income and expenses to determine if the income qualifies for exemption.
• Scenario 2: A registered NPO owns a rental property and claims that the rental income is used for its charitable purposes. The Assessing Officer assesses whether the rental income is eligible for tax benefits under the relevant provisions of the Income Tax Act.

This section ensures that income from business activities conducted by NPOs is properly evaluated, balancing the organization's non-profit objectives with the need for tax compliance.