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Charity won’t begin at home for non-profit cos

I-T Sops Misuse Concerns Prompt Tougher Disclosure & Compliance Standards for Section 25 Companies

Gireesh Chandra Prasad......... NEW DELHI

   COMPANIES that claim income-tax relief for pursuing public good are in for a tougher regulatory regime. The government wants Good Samaritans registered under Section 25 of the Companies Act to be more accountable and transparent in their dealings.
   These non-profit or charitable firms do business like any other company, but their profits are meant for furthering the social cause they espouse in their charter. On paper, this might include providing subsidised education or uplift of the poor.
   The law prevents Section 25 companies from distributing profits to promoters. But the finance ministry suspects many such companies do business for their promoters to make a profit.
   The ministry of corporate affairs is planning to introduce tougher disclosure and compliance standards for these companies in the proposed new company law. The idea is to ensure the concessions availed by these firms are not abused. “Section 25 companies make money by doing businesses such as running a hospital or a pharmacy. They get income-tax exemption for three-fourths of their earnings, which is to be used for furthering their stated goal. If they fail to utilise their earnings in a year, they are allowed to accumulate the money for five years and make a one-time expenditure,” explained accounting regulator ICAI’s former president Sunil Talati.
   The corporate affairs ministry is also introducing a more intensive incorporation process and meticulous scrutiny of the antecedents of directors for all classes of companies. The new law will require more detailed disclosure about promoters and directors at the time of incorporation to prevent people with questionable credentials floating companies to raise money from the public.
   The government will also lay down a detailed procedure to inform the registrar of companies when a director resigns. The move would also ensure the director is spared of any legal liability that the company may incur after his/her resignation.

NO MERCY

Charitable firms do business like any other company, but their profits are meant for furthering the social cause they espouse in their charter
Law prevents Section 25 cos from distributing profits to promoters. But finmin suspects many cos do business for their promoters to make a profit
Also on cards: a more intensive incorporation process and scrutiny of antecedents of directors for all classes of companies

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