Help guide for NGOs



BUDGET 2003-04
Income tax
Finance Minister Jaswant Singh’s Budget 2003-2004 has little impact with regard to the income tax provisions pertaining to charitable organizations. There is a slight amendment in section 11.
It is proposed that a second provision be inserted in section 11(3A) so as to provide that in case the trust or institution, which has invested or deposited its income in accordance with the provisions of section 11(2)(b) is dissolved, the Assessing Officer may allow application of such income for the purposes referred to in section 11(3)(d) in the year in which such trust or institution was dissolved.
Service Tax
Service tax has been increased from 5% to 8% and 20 new categories of services have been added.
To enable levy of tax on services as a specific and important source of revenue, an amendment to the Constitution is proposed. This constitutional amendment and the consequent legislation (proposed Service Tax Act) would give the Central Government the power to levy the tax and both the Central and the State Governments sufficient powers to collect the proceeds. Please refer to  ‘Philanthropy’ (September – October 2002) for article on the applicability of ‘Service Tax’ to voluntary organizations).
Other highlights
  • The Finance Minister has given high priority to ‘Poverty eradication’
  • Rate of depreciation for life saving medical equipment has been increased to 40% from 25%
  • Customs duty of certain life saving equipment has been reduced to 5% from 25% with exemption from CVD
  • Income tax exemptions will be available to corporations set up for welfare of ex-servicemen
  • Custom duty exemptions will be available for drinking water supply projects.
     







Registering and Managing Voluntary Organisations - Background

India has an ancient and rich tradition of philanthropy. There are virtually hundreds of thousands of charitable organizations (registered and unregistered) operating all over India. In Maharashtra alone, there are over four lakh charitable organizations registered with the office of the Charity Commissioner.

"Charity" being a state subject, different states in India have separate Acts to govern and regulate charitable organizations. For example, all public charitable trusts in the state of Maharashtra are governed by the Bombay Public Trusts Act, 1950. The same Act, with minor changes, is also operational in the state of Gujarat. Rajasthan, too, has a trusts Act of 1959, while Madhya Pradesh has an Act of 1951. In certain southern states like Andhra Pradesh, there are endowment Acts, while a number of northern and north-eastern states in India have no trust Act at all. Even the capital of India- New Delhi-has no trust Act.

The Societies Registration Act, 1860, however, is an All-India Act, with each state adopting certain modifications.






Trust Or Society

There are fundamental differences between trusts and societies. Let us examine some of them.

A trust can be established by two or more individuals and registered under the Trusts Act of the state. The main instrument of trust is the trust deed which is executed on non-judicial stamp paper.

Trustees generally hold office for life, unless otherwise provided in the trust deed. New trustees are generally appointed by invitation by the surviving trustees. The minimum and maximum number of trustees should be specified in the trust deed.

A trust is generally irrevocable.

A society, on the other hand, can be established by seven or more individuals and registered under the Societies Registration Act, 1860. In Maharashtra and Gujarat, all societies must also simultaneously be registered as trusts under the Bombay Public Trusts Act, 1950. The main instrument of a society is the memorandum and articles of association which need not be executed on stamp paper.

Members of the managing committee/governing body generally hold office for a certain period of time and may stand for re-election, if necessary.

A society may also be wound up if three-fifths of the members of the general body of the society so desire.

A society, in other words, is a more flexible and democratic set-up.

A charitable organization may also be registered as a section 25 company under the Indian Companies Act, 1956 by seven or more individuals.

Whether a trust, society or a section 25 company, the Income Tax Act gives all three categories equal treatment, in terms of exempting their income u/s 11 and 12 and granting 80G certificate.






Why Register?

Registering a charitable organization has several advantages. Besides lending general credibility to the organization, it also provides a corporate identity.

Charitable organizations often feel burdened and stifled by the various legislation and authorities governing them. For example, at the state level, it is the charity commissioner of the Registrar of Societies. At the federal level, it is the Income Tax Act. If the organization receives foreign contribution, the Home Ministry also begins to exercise its jurisdiction. Perhaps a Central Act on charities, the Home Ministry also begins to exercise its jurisdiction. Perhaps a Central Act on charities with "single window/one-stop service" could be the answer to the burdened trustee's prayers.

Also, the various Trusts Act and the Societies Registration Act have, to an extent, become archaic. For example, the Societies Registration Act is even older than the Indian National Congress and has been a product of the historic Revolt of 1857. Both the Acts are simply not designed to cover the wide and varied activities of modern developmental organizations.






Managing The Organisation

The task of managing a charitable organization is not easy. It requires commitment, dedication and working knowledge of, at least, some of the main statutes affecting charities.

The term "trustee" is a compendious one. It covers a large number of relationships involving different obligation and it may be said that every man is a trustee to whom is entrusted the duty to manage and control the property of others, even though the ownership of the property is not transferred to him.

Trustees of charitable organizations usually fall into the following broad categories.

A.  those who take on the onerous responsibility as a labour of love and for discharging a social obligation to society;
B.  those who merely drift into this responsibility, either by way of routine succession (hereditary) or request of friends;
C.  those who grab these positions for wielding power, gaining publicity and furthering one's own interest.

Obviously, a trustee falling in the first category is the most desirable. The one belonging to the second category could have the potential to filter into the first category, over time, and with proper motivation and other inputs. However, the one belonging to the last category is the very antithesis of a trustee.

The issues discussed here are mainly for the benefit of trustees belonging to category A and B. A trustee belonging to category A may be first class social worker, with decades of experiences and expertise in the welfare of the blind or the uplift of the crippled. He may be totally committed to the cause of the blind or to any other cause. But expertise in and commitment to a particular cause is not enough. Trusteeship also involves leadership, smooth and sound administration and consciousness of one's moral and legal responsibilities and duties. Discussed here below are some of the moral and legal responsibilities of a trustee. They are not necessarily in the order of priority. Also, most of them are general principles and would apply to all charitable organizations anywhere in India.




Knowing the organization

One of the first duties of a trustee is to acquaint himself, as soon as possible, with the nature and particularly, with the aims and objects of the trust. He should make a thorough study, of the trust deed or the memorandum and articles of association and rules and regulations, as the case may be. A trustee must know what the instrument of trust requires him to do. He has to carry out scrupulously, the terms of the trust. If he fails or neglects to carry out these terms, he commits a breach of trust. Trustees often believe that a breach of trust is committed only if they misappropriate trust property. This is not so. Not giving effect to the aims and objects of the trust and indulging in other activities, howsoever charitable in nature or of profit to the trust, also constitutes breach of trust. It is a well-established fact that where the intention of the trust, also constitutes breach of trust. It is a well-established fact that where the intention of the founders can be given effect to, no trustees or even a court of law has the authority to sanction a change from the intention expressed by the settlor/s on the grounds of expediency, and the court cannot exercise the power of applying the trust property, or its income, to other purposes, simply because it considers them to be more expedient, or more beneficial, than what the settlor had directed.






No personal interest

In Halsburg's Laws of England (2nd edition, vol. 33, pg. 220) it is observed, " A trustee must not, in any way, make use of the trust property or of his position as trustee for his own interest or private advantage, nor may he enter into engagements in which he has or can have a personal interest which conflicts or possibly may conflict with the interest of those whom he is bound to protect".

It is a general rule of equity that a trustee should administer the trust gratuitously, and this rule applies even though the completion of his understanding involves considerable loss of time and much personal inconvenience.

Even a solicitor-trustee is not entitled to charge for non-contentious business, except costs out of pocket.

Voluntary service is the foundation underlying all trusteeship and the law precludes a trustee from making a profit, or acquiring a benefit, from his office as trustee.

The Madras High Court in S.Veeraraghura Achariar vs. Parthsarathy Iyengar (A.I.R 1925 Mad.1970) has observed:

"It is highly regrettable that trusteeship of temple and similar institutions should be looked upon as places of prestige and profit and that people should be found who are desperately anxious to be elected to such places or to continue to stick to them in spite of the onerous and serious responsibilities thereof. The true spirit in which such offices should be accepted or retained is the spirit of service and sacrifice in the interest of the public and of the institutions.

So long as such offices are regarded not as posts of duty and responsibility but as opportunities of personal aggrandizement, the affairs of such institutions are bound to be unsatisfactory. Once a person accepts an office of trusteeship, the one governing consideration in his mind, the ruling motive for all action, the one principle by reference to which all his acts should be determined, is the interest of the institution and that alone and in our judgement, persons who though holding a fiduciary position allow their actions to be prompted by any other considerations, motives or principles are as much guilty of misappropriating property belonging to the trust."






Joint Responsibility

It is not unusual to find one trustee from a board of many, being referred to as a "managing trustee", meaning a trustee who actively entrusts himself in the trust affairs and whose decisions are merely endorsed by the co-trustees. In law, however, there is no concept of a "managing trustee". Trustees on the board of any trust are "jointly and severally responsible". This principle is well summarized in Underhill's 'Law of Trusts and Trustees' (11th edition, pg. 557). " Each trustee is, in general, liable for the whole loss when caused by the joint default of all the trustees even though all may not have been equally blameworthy and a decree against all may be enforced as against one or more only".

It is an accepted principle that a trustee of a religious or charitable trust should take proper care of the trust property just as a man of ordinary prudence does, in respect of his personal property.

No matter how the organization is structured or the degree of authority delegated to staff or committees, it is ultimately the trustees who are accountable and responsible.






Delegation of Duty

In principle, a trustee cannot delegate any of his duties, functions and powers to a co-trustee, or any other person, unless the instrument of trust so provides or the delegation is necessary or the delegation is in the regular course of business. However, appointing an attorney/proxy to carry out functions that are merely ministerial is not considered delegation of duty.

As a general rule, executive acts may be delegated, but where a trustee has to exercise discretion, he must exercise the discretion and cannot delegate it.






Administrative Care and Supervision

  • Trustees should regularly check the books of account, particularly, the bank and cashbooks, ledgers, petty cash books, receipt books, voucher files and other registers of record, etc.;
  • Separate books of account should be maintained if the trust has any business income or receives foreign aid;
  • Vouchers must be maintained for every single expenditure and receipt should be issued for income like donations, rent, sale of products, etc.
  • Bank reconciliation statements should be drawn up every month, if possible, to check errors;
  • Investment of trust funds should be in accordance with the Trusts Act, read with section 11 (5) of the Income Tax Act;
  • Loans and advances raised by the trust should have the approval of the charity commissioner and no trustee should take loans for himself, from the trust property;
  • If the trust operates in more than one region with regular branch offices, the accounts of all such branches should either be consolidated or separate accounts should be maintained;
  • All major policy decisions should be supported by resolutions passed by circulars or at board meetings;
  • Minutes book should be maintained and trustees should meet as often as required, or as directed in the trust deed;
  • In case of a difference of opinion on a policy matter, the majority view may prevail. The dissenting trustees may record their dissent, but accept the majority view with grace or resign;
  • Good work being carried out by an organization is no excuse for default in submission of accounts or meeting various other requirements under the Trust and Income Tax Act;
  • A trustee is generally protected from liability for errors of judgements, as long as he/she acts responsibly and in good faith and with the basic interest of the trust as the foremost objective;
  • Administrative costs should be kept within reasonable limits. If the trust spends Rs 50,000/- on the objects of the trust and spends Rs. 1,00,000/- on establishment expenses, it is time to sit up and correct the situation;
  • If the organization is a welfare body and wishes to promote its image, it should not indulge in unethical publicity and promotion. In particular, it should not lend itself to exaggerated or misleading claims.

Nancy Axelrod in 'A guide for New Trustees' states: " An ideal trustee is a man or woman with the versatility of Leonardo da Vinci, the financial acumen of Bernard Baruch and the scholarly bent of Erasmus."

The ideal is often difficult, almost impossible, to achieve. One can, however, aspire. As the late Mr. J.R.D. Tata used to say, " If you aspire for perfection, you will achieve excellence. IF you merely aspire for excellence, you will achieve neither."

So with Nancy Axelrod's ideal in mind, let us ponder over our legal and moral responsibilities as trustees and work towards putting our respective organizations on the top of the charts. Few are called upon to serve and fewer still are blessed to serve good causes. Let us always keep that uppermost in our mind.







NEED FOR INNOVATION, SKILL AND PERSISTENCE

Report On The Two Days' Workshop On Fund Raising
Jointly Organised By CAP And SOSVA

"India's priority should be towards creating more wealth. Unless more wealth is generated, there will continue to be a slump in resource distribution for welfare and development," said noted industrialist, Darius M. Forbes, at the inauguration of the two days' workshop on Fund Raising, jointly organised by the Centre for Advancement of Philanthropy and Society for Service to Voluntary Agencies on 17th and 18th August 2000. There were 45 participants representing a wide range of voluntary organisations in Bombay and Poona.

Mr. Forbes stressed the need for government to create an "enabling environment for the country to create wealth". He also expressed disappointment over the country's increasing dependence on "foreign funds". "It is the path of least resistance," he felt.

He felt 'philanthropy' covered a wider human interest than just working for or among the "poor and the needy". He explained that when he met the trustees of the Mitsibishi Foundation in Japan some years ago, he asked them what they were doing with their millions in wealth. He was informed that they were funding research to develop "fuel efficient and environmentally friendly automobile engines". Mr. Forbes felt, "Here is a classic case of prudent use of wealth, where all (rich and poor) can benefit. After all, "environment" is an issue that affects all classes and groups of people globally.

Giving an example of "Corporate Social Responsibility", he said, "When my company purchased land from the farmers in Poona, we realised that they would be "cash rich" for only a short period of time. So we decided to create employment opportunities for them through proper training, especially for their children. We also started a hospital and began to undertake several community development programmes. We were not doing anyone a favour. We were simply giving back to society what we gained from them."

Coming to the topic of fund raising, he said, "India has a 'middle class' population of 300 million. Have we ever thought of tapping this resource in a systematic way?"

Participants later had an opportunity to interact with Mr. Saraf, managing trustee of the Bombay Community Public Trust (BCPT). In its eight years of operation, the Trust has extended financial support aggregating Rs.2.29 crores to 78 NGOs involved in a wide range of welfare and developmental work. Incidentally, BCPT is an institution launched by the Centre for Advancement of Philanthropy.

Mr. Saraf indicated that an important source of funds is income derived by way of interest and dividends through judicious investment of funds. He also felt it was necessary for NGOs to think in terms of building their "corpus fund". He felt "corpus funds" enhance sustainability. However, he recognised the constraint that funding organisations usually prefer to give for "programmes" and "projects" and seldom for corpus. He felt there was a need to "educate donors" on the need for contributing, at least partly, towards "corpus".

Referring to the qualities of a good fund raiser, Noshir Dadrawala, executive secretary, Centre for Advancement of Philanthropy, said, "Belief in the cause (for which funds are being raised) is very important. Add to that, the fund raiser should be "innovative", an "effective communicator" and "persistent".

Agreeing with Mr. Forbes, he said that in the USA the largest contribution towards philanthropy does not come from corporates or the big foundations but "individuals". Dadrawala felt, "Even in India, the "individual" probably is or can be made one of the largest contributors, provided NGOs work strategically and in a spirit of complete transparency and accountability."

He also felt companies would respond better if NGOs could appeal to their "bottom line". "Don't approach corporates with a begging bowl. Go to them with a business proposal to forge a partnership." He said, "Make your donor a partner in your cause and not one who simply writes out a cheque."

Speaking on proposal writing he said, "Let your appeal be realistic. You cannot solve all the problems - be specific about target groups and set realistic goals."

Addressing the issue of effective communication in fund raising, Anthony Samy, CEO, ALERT-India, emphasised the need for every NGO to present the problem it professes to address in "simple language, without exaggeration and with conviction." Engaging the participants in an interactive dialogue, Samy very successfully helped participants discover their own strengths and weaknesses in communication.

Mrs Parinita Kanitkar, senior manager, SOSVA, identified government (central and state), foreign funding agencies, banks, trusts (public, family and religious), public and private sector companies as some of the main sources of funding. She also felt the "individuals", especially the non-resident Indians (NRIs) are a potentially untapped source. The spirit of volunteerism also needs to be galvanised and properly channelled, she felt.

Kanitkar also shared with participants SOSVA's experience with the sale of greeting cards, direct mail and other techniques.

Mrs. Veera Rao, director - fund raising, ALERT-India, focussed on the topic of "fund raising through events". She felt "events" like "charity shows" (film premiers, ghazal nites, etc.) enhance public relations and build awareness about the work of the NGO in whose support the event is organised. "Events are a good 'launching pad' for NGOs," Rao felt. She felt that the goodwill one builds up with a good event can help leverage funds from other sources with other techniques. Events also provide an opportunity for corporate involvement (through sponsorships, advertisements, etc.) and mobilising volunteers.

Mrs. Rao took participants through an exercise in identifying the inputs required for organising a successful event, including "choosing the right time (avoid examination periods, monsoons, etc.), venue, media involvement, statutory requirements/permissions, etc. She felt, "Events can be qite risky if not planned and executed properly. It is best handled by experienced professionals."

In the panel discussion chaired by Mr. K.M. Desai, charity commissioner, Maharashtra state (Retd.), Mr.D.M. Sukthankar, chief secretary to the Governor of Maharashtra (Retd.) and chairman, Shri Sai Baba Sansthan, Shirdi, said, "Devotees on an average contribute 28 to 30 lakhs rupees per week in the Hundi (charity box) at the Shirdi Sai Baba temple."

The temple trust has a corpus of about 90 crores and generates, on an average, an income of 35 crores rupees per annum.

Mr. Sukhtankar explained that the court has framed a scheme for managing the trust, and collection at the temple includes donations put in the hundi, donations received against official receipt, apparels and ornaments given as offering (and subsequently auctioned).

The temple wealth is mainly used for repairs, maintenance and promoting the values and teachings of Sai Baba. A cafetaria (Prasadalay) is also run in the temple complex where any one can have a good meal for a subsidised amount of just Rs.4/-. It also runs a 120-bed hospital and dharamshala in Shirdi. For all these activities, it employs a staff of 200. It also runs two secondary schools and a training centre. The trust proposes to expand the hospital's capacity to 200 beds, introduce a blood bank and run an information technology institute. "There is also accumulation of wealth for worthwhile capital expenses," he said.

Some years ago, Mr. Sukthankar mooted the proposal to provide a third of the temple's surplus income to good accredited NGOs. He expressed disappointment that after some years, the scheme began to breed corruption with political interference.

Mr. V. Srinivasan (IAS), managing director, SICOM (Retd.), World Bank consultant and CEO of SOSVA, expressed the need for "accredition" of NGOs. He also briefed participants about the "Bridge Loan Fund" SOSVA proposed to initiate.

Mr. Srinivasan felt, "Innovation is the engine of development. NGOs need to constantly innovate and break new paths."

Mr. K.M. Desai felt there was a need to organise more such seminars and workshops so that NGOs can understand and appreciate each others' work better and work in the spirit of harmony in an enabled network.

During the open forum, a number of interesting issues and questions were raised, including topics such as "contribution to be paid to the charity commissioner's office", "business income", "corpus donations", etc.

Overall, it was an interesting and stimulating two days' workshop. Says Ms. Rachna Atre of Paraplegic Foundation, "It was a pleasure to attend this workshop as a participant and, I must admit, that the proceedings and information-sharing were, indeed, very thought-provoking. All the points raised were of a great help in expanding our thinking on the subject.

Adds J.R. Behlihomji, hon. treasurer of the Central Society for the Education of the Deaf, "Thank you for the very lively and informative workshop on fund raising."

And Mr. Sadashiv Rajpurohit of Raichur (Karnataka) felt, "The topics covered were sufficient, the quality of resource persons and choice of venue were excellent."