A division bench of the Supreme Court has upheld the constitutional validity of the recent amendments made in the Finance Act, 2020 in relation to the new provisions regarding the registration of charitable and religious trusts under the Income Tax Act, 1961.
The Finance Act, 2020 introduced various amendments related to the registration of Charitable trust and Religious trust for availing the exemption under sections 11 and 12 of the Income Tax Act, 1961.
Reverting to the challenge to the insertion of Section 12A vide the Amendment Act of 2020, a bench of Justice A.M. Khanwilkar, Justice Dinesh Maheshwari and Justice C.T. Ravikumar observed that the provision mandates that the person concerned who seeks prior permission or prior approval under Section 11, or makes an application for grant of certificate under Section 12, including for renewal of a certificate under Section 16, to provide an identification document, the Aadhaar number of all its office bearers or Directors or other key functionaries.
“The Statement of Objects and Reasons of the Amendment Act is testimony about the past experience of abuse of foreign contribution receipts and spending on activities not connected with the purposes for which it was so permitted. It had been noticed that the inflow of foreign contributions had almost doubled between the years 2010 and 2019 and many of the registered associations had failed to comply with basic statutory formalities necessitating cancellation of certificates of registration of more than 19,000 registered organisations. This is a staggering (substantial) number indicative of gross violations by a large number of registered associations. More so, this amendment had been necessitated to safeguard the sovereignty and integrity of the country, and public order, including in the interests of the security of the State and of the general public,” the bench observed.
It was further added that “It is a law made by the Parliament which is competent to make such a law concerning the activities related to foreign donations and more particularly about its acceptance in prescribed manner and utilisation for the purposes defined in the certificate/permission granted by the competent authority. It has a legitimate purpose and nexus sought to be achieved with the objective underlying the Principal Act and the subject amendment. It is not open to argue that associations desirous of obtaining a certificate of registration under this Act need not furnish official identification document pertaining to its key functionaries.”
While concluding, the bench held that “Regardless of the above, the provision (Section 12A) envisages that a copy of the Passport can also be provided as identification document of all its office bearers or Directors or other key functionaries or Overseas Citizen of India Card, in case of a foreigner. The underlying purpose of this provision is merely to identify the key functionaries of the registered association so that they can be made accountable for violations if any. We are of the view that as the Passport in the case of a foreigner is accepted as a sufficient identification document, there is no reason why such a Passport of an Indian national cannot be relied upon for the same purpose. Thus understood, the challenge to this provision being unreasonable need not detain us nor is required to be taken any further. Whereas, we hold that the provision needs to be construed as permitting furnishing of the Indian Passport of the key functionaries of the applicant who are Indian nationals, for the purpose of their identification.”
To sum up, we declare that the amended provisions vide the 2020 Act, namely, Sections 7, 12(1A), 12A and 17 of the 2010 Act are intra vires the Constitution and the Principal Act, for the reasons noted hitherto. As regards Section 12A, we have read down the said provision and construed it as permitting the key functionaries/office bearers of the applicant (associations/NGOs) who are Indian nationals, to produce an Indian Passport for the purpose of their identification. That shall be regarded as substantial compliance with the mandate in Section 12A concerning identification.
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