Income Tax 2025

Appearance

5.––Violations

Specified violation. ​

351(1) ​

The following shall constitute specified violation by a registered non-profit organisation:––

  • (a) where any income of the registered non-profit organisation has been applied, other than for its objects; or
  • (b) it carries out any commercial activity in contravention of the provisions of section 345; or
  • (c) where it has applied any part of its total income for private religious purposes, which does not enure for the benefit of the public; or
  • (d) where a registered non-profit organisation, created or established after the commencement of this Act for charitable purpose, has applied any part of its income for the benefit of any particular religious community or caste other than the Scheduled Castes or the Scheduled Tribes or backward classes or women and children; or
  • (e) where any activity being carried out by the registered non-profit organisation is not genuine or is not being carried out in accordance with all or any of the conditions subject to which it was registered; or
  • (f) the registered non-profit organisation has not complied with the requirements under section 332(7) and the order, direction or decree, holding that such non-compliance has occurred, has either not been disputed, or has attained finality; or
  • (g) the application referred to in section 332(1) contains any false or incorrect information.

351(2) ​

Where during any tax year,––

  • (a) the Principal Commissioner or Commissioner has noticed occurrence of one or more specified violations;
  • (b) the Principal Commissioner or Commissioner has received a reference from the Assessing Officer under section 270(13) for any tax year; or
  • (c) a registered non-profit organisation has been selected as per the risk management strategy formulated by the Board, the Principal Commissioner or Commissioner shall— (i) call for such documents or information from the registered non-profit organisation, or make such inquiry as he thinks necessary in order to satisfy himself about the occurrence of any specified violation; (ii) pass an order,–– (A) either cancelling the registration of such registered non-profit organisation, after affording a reasonable opportunity of being heard, for such tax year during which such specified violation took place and all subsequent tax years, if he is satisfied that one or more specified violations have taken place; or (B) not cancelling the registration of such registered non-profit organisation, if he is not satisfied about the occurrence of any specified violation; and (iii) forward a copy of the order passed under clause (ii) to the Assessing Officer and such registered non-profit organisation.

351(3) ​

The order under sub-section (2)(ii), shall be passed before the expiry of six months, calculated from the end of the quarter in which the first notice is issued by the Principal Commissioner or Commissioner, calling for any document or information, or for making any inquiry, under clause (i) of the said sub-section.

Explanation

Section Summary: ​

Section 351 of the new income tax law outlines what constitutes a "specified violation" by a registered non-profit organisation (NPO) and the consequences of such violations. It also details the process for the Principal Commissioner or Commissioner to investigate and take action, including potential cancellation of the NPO's registration. This section ensures that NPOs adhere to their stated charitable purposes and comply with the conditions of their registration.

Key Changes: ​

  1. Definition of Specified Violations: The section explicitly lists actions that qualify as violations, such as misusing income, engaging in prohibited commercial activities, or failing to comply with registration conditions. This is a more detailed and structured approach compared to earlier laws.
  2. Risk-Based Scrutiny: The section introduces a risk management strategy formulated by the Board, which can trigger investigations into NPOs.
  3. Timeline for Action: The Principal Commissioner or Commissioner must pass an order within six months from the end of the quarter in which the first notice is issued, ensuring timely resolution.

Practical Implications: ​

  1. For NPOs:
    • NPOs must ensure that their income is used strictly for their stated charitable objectives and not for private or restricted purposes.
    • They must avoid engaging in commercial activities that violate Section 345.
    • Compliance with registration conditions and accurate reporting in applications (e.g., under Section 332) is critical to avoid penalties or cancellation of registration.
  2. For Tax Authorities:
    • The section empowers tax authorities to investigate and take swift action against NPOs that violate the law.
    • The risk management strategy allows for targeted scrutiny of NPOs based on potential risks.

Critical Concepts: ​

  1. Specified Violations: These are specific actions or failures by an NPO that breach the conditions of its registration or misuse its income. Examples include using income for private religious purposes or providing benefits to restricted groups (other than Scheduled Castes, Scheduled Tribes, backward classes, women, or children).
  2. Risk Management Strategy: A system developed by the tax board to identify NPOs that may be at higher risk of non-compliance or violations.
  3. Cancellation of Registration: If an NPO is found guilty of specified violations, its registration can be canceled for the tax year in which the violation occurred and all subsequent years, effectively revoking its tax-exempt status.

Compliance Steps: ​

  1. Maintain Proper Records: NPOs must keep detailed records of how their income is used and ensure it aligns with their charitable objectives.
  2. Avoid Prohibited Activities: NPOs should refrain from engaging in commercial activities that violate Section 345 or using income for private or restricted purposes.
  3. Accurate Reporting: Ensure all information provided in registration applications (e.g., under Section 332) is accurate and complete.
  4. Respond to Notices: If the Principal Commissioner or Commissioner issues a notice, the NPO must provide the requested documents or information promptly and participate in any inquiries.

Examples: ​

  1. Misuse of Income: An NPO registered for educational purposes uses part of its income to fund a private religious event. This would qualify as a specified violation under clause (c) of Section 351(1).
  2. Commercial Activity: An NPO registered for environmental conservation starts a for-profit business selling eco-friendly products without complying with Section 345. This would be a violation under clause (b) of Section 351(1).
  3. False Information: An NPO provides incorrect details about its activities in its registration application. This would be a violation under clause (g) of Section 351(1), potentially leading to cancellation of its registration.