In Asstt. CIT v. Suman Construction (2009) 27 (II) ITCL 329 (Pune 'A'-Trib), the assessing officer had noticed that the assessee had claimed salary to partners of Rs. 2,20,000. However, in his opinion as per the partnership deed filed along with the return in the past assessment year, there was no specification of this salary payable to the partners. According to assessing officer, there was neither the quantification of the salary payable to the partners nor it was prescribed the manner in which such quantification would be done. By referring CBDT Circular No. 739, dated 25-3-1996 the assessing officer said that the provisions of payment of salary have been made clear and since there was no specified quantification therefore, assessee was not entitled for claim of deduction under section 40(b) of the Act regarding salary to partners.
It was held that by Finance Act, 1992 with effect from 1-4-1993 an insertion was made in section 40 vide clause (b) which prescribes that in the case of a firm assessable as such any payment of remuneration to any partners who is a working partner, if not authorized by the terms of the partnership deed shall not be entitled for deduction in computing the income chargeable under the head "Profits and gains of business or profession". This section also contains sub-clause (v) which prescribes that any payment of remuneration to any partner who is a working partner who is authorized by and is in accordance with the terms of the partnership deed, then the amount of such payment of partnership should not exceed the aggregate amount as prescribed in this sub-clause. Meaning thereby that section 40, clause (b), sub-clause (ii) and another sub-clause (v) prescribes that a deduction in the case of a firm can be allowed in respect of salary or remuneration to working partners if it is duly authorized by the terms of a partnership deed, however, to the extent of prescribed limit as has also been prescribed in the statute. Therefore, on plain reading of this section, it is understood that the section does not make it mandatory to quantify the amount of salary in one of the clauses of the partnership deed because of the main reason that the monetary limit or ceiling is otherwise prescribed in the statute itself.
The statute has used the term "authorize" and not used the term "quantify". On the other hand, the AO had made the disallowance mainly because of the reason that the amount of salary was not quantified in the clause of the partnership deed and in support he had relied upon CBDT Circular No. 739, dated 25-3-1996. Since the statute has used the term "authorize", therefore, the CBDT had no jurisdiction to substitute the term "authorize" by the term "quantify". While interpreting the clause of a statute there is no scope for importing into the statute some other words which are not there. Such an interpretation, if any, made by any of the authority would amount to an amendment in the statute which is a prerogative of the legislative body, i.e., Hon'ble Members of the Parliament. Even if there be a situation of casus omissus even then the defect can be cured only by a proper legislation and not by any interpretation. There appears no justification to deviate from the general principles of interpretation according to which the intention of the legislature is to be interpreted from the terms used or the words contained in a statute. It is not permissible to add words into a taxing provisions which are not there or exclude words which are there. So, the words contained in a provision must be given a natural meaning as commonly understood in legal parlance.
Monday, June 29, 2009
Thursday, June 18, 2009
Care Required to make declaration u/s 58A of Comapnies Act.
CARE REQUIRED IN MAKING DECLARATION UNDER SECTION 58A OF THE COMPANIES ACT, 1956 TO AVOID ADDITION UNDER SECTION 68 OF THE INCOME TAX ACT.
Declaration under section 58A of the Companies Act, 1956:
Section 58A of the Companies Act, 1956 governs acceptance of deposits by companies. Some deposits are exempted, subject to declaration as to own funds. In this write-up we are concerned with declaration made by a depositor who is in case of private company
a) Any Director of private company,
b) Any relative of a Director of private company, (recently added)
c) Any member of the company, ('member' substituted for 'shareholder')
And in case of a limited company is a Director of the company at the time of making the deposit with the company.
The deposits of money made by such persons with the company are not considered as a public deposit, if it is out of own funds and not from borrowing. This is vide exemption granted vide Rule 2 (b) (ix) of the Companies (Acceptance of Deposits) Amendment Rules, 2004 which was recently amended vide Notification dated 12.3.2004 (2004) 120 Company Cases 79 (St.). Vide this amendment; the scope of eligible persons has been extended to a relative of Director of private limited companies. And restriction has been made so as to entitle only 'members', as against any 'shareholder' to be an eligible person in case of private company who can make deposit out of own funds without attracting restrictions applicable to public deposits.
DECLARATION NECESSARY FOR EXEMPTION:
The condition for exemption from being treated is that the eligible person being the director, relative of the director or a member, as the case may be, give declaration in writing, at the time of making deposit to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting (loan or deposit of money) from others.
The restriction is on accepting or borrowing money from others, therefore, money withdrawn from capital account of proprietary concern or partnership firm will not be money received from others hence can be given to the company with a declaration. However, suppose the proprietary concern or partnership firm has already used capital contributions for business purposes, and on the day of withdrawal by the proprietor or the partner the concern borrow money from others, then inference may be drawn that the money deposited by the director, relative of director or member is out of borrowed funds and the proprietary concern or the firm has been used as a tool or conduit to give impression that the money belongs to the depositor.
Similarly money withdrawn from bank account on overdraft facility against fixed deposit made by director, relative of director or member as the case may be cannot be considered as own money as it has been borrowed from the bank against over draft facility. The transaction of making fixed deposit and obtaining loan by way of over draft facility being two different transactions.
Section 68 of the Income-tax Act, 1961:
As per section 68, any sum found credited in the books of account of the assessee can be deemed to be income if the assessee is unable to explain the source and nature of the same satisfactorily. Being well known popular provision, an elaborate discussion is not made for sake of brevity. To establish that any sum found credited in the books of account and credited, as a loan, advance, deposit, or gift from any person is not income, the assessee is required to establish the source and nature of the sum so found credited. For that purpose not only the identity but also capability of the person who made such loan, deposit, advance, or gift is also required to be established to the satisfaction of the Assessing Officer.
A WRONG DECLARATION MAY ATTRACT SECTION 68 OF I.T.ACT:
Suppose, by mistake a declaration as to own fund has been made by the director, relative of director or member, as the case may be then such declaration may go against the assessee and the borrowing may be deemed as income- For instance in case the Assessing Officer of the director, relative or member as the case may be, comes to know that a declaration as to 'own fund' has been given to the company or the company has not treated the amount as public deposit, leading to an inference of own fund, or he obtain copy of declaration and then on scrutiny of books of account he find that the money has been given out of borrowed funds by the director, relative or member. The A.O. may draw the conclusion that the amount of deposit is out of undisclosed income of the declarant and therefore the borrowings shown in his books of account are bogus or the lenders are just name lenders and therefore he may treat the amount of those borrowings as undisclosed cash credit and treat the same as income under Section 68 of the Income Tax Act, 1961 because the assessee himself has admitted or declared that he made deposit out of 'own fund.
Besides such addition under section 68 of the Income-tax Act, 1961 the exempted deposit shall no longer be an exempted one, but will be treated as public deposit. Therefore, the purpose of declaration will fail, and may lead to violation of deposit Rules and the declarant, the company, and any officer including director may be liable to penalty and prosecution under The Companies Act, read with relevant rules for making false declaration, violating deposit rules etc.
CONCLUSION
Care should be taken while giving declaration as to own fund and it should not be taken in a mechanical and routine manner without verifying the exact position in the books of accounts of the declarant. As the case of deposits received by company will be generally in house transaction related with director, relative or member, it would always be advisable to reconfirm from the director, relative or member (in practice from their accountant) to recheck the personal cash book and ensure that the declaration is correct.
Source : www.taxmanagementindia.com
Acceptance of Public Deposits u/s 58A of Companies Act - FAQ's
ACCEPTANCE OF DEPOSIT U/S 58A OF THE COMPANIES ACT, 1956
Frequently asked questions on acceptance of Deposits under Section-58A
Question:1 As per section 3(1)(iii)(d) of the Companies Act, 1956 a Pvt. Limited Company is prohibited from inviting or accepting deposits from persons other then its members, directors or their relatives. In the background of the term deposit not being defines under section 2 or 3(1)(iii) but defines u/s 58A. What the term used in section-3(1)(iii) implies?
Can a Pvt. Company borrow any amount specified under exempted categories in Rule 2(b)(i) to (xi) of deposit rules?
Answer:1 The term deposit is not defined u/s 2 or 3(1)(iii) of the Companies Act, 1956. It is defined in Deposit Rules, 1975. Pvt Company is governed by sec. 58A and rules there under. The same meaning is extended for the purpose of Section 3(1)(iii).
Yes, a Pvt. Co. can borrow any amount specified under exempted categories in Rule 2(b)(i) to (xi) of deposit rules, 1975. Also a Pvt. Co. can borrow inter corporate Deposit.
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Question:2 Subsequent to the amendment in sub clause (xi) of rule 2b w.e.f. September 25, 2002, the exemption available to public companies in respect to the acceptance of deposit from director was withdrawn. In case of a Public Company is already holding deposits from director, what is the legal provision in this regard. Whether the company is required to repay the amount and in what period? In case the company is not in a position to repay, whether the company can file the
Answer:2 In case a public company is already holding public deposits from director, till the time of maturity the company is under no compulsion to repay the deposited amount. But in case no maturity period is specified the company has to refund the deposit amount within a reasonable period say, 6 months or at earliest possible time. If in case the company is not in a position to repay, the company has to file the
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Question:3 A Pvt Co. has accepted deposits from Shareholder/Director of the company. In case subsequent to the acceptance the depositor cease to be the shareholder/Director of the Company can Company continue to hold the deposit up to the completion of the tenure of the deposit.
Answer:3 A Pvt. Co. has accepted deposits from Shareholder/Director of the company and after acceptance of deposit, the depositor cease to be the Shareholder/Director of the company. The company can continue to hold the deposit up to the completion of the tenure of the deposit. It is even difficult for the company to repay the deposit since the funds are invested by the company keeping the maturity date in view.
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Question:4 In case of Joint holders, can a private company accept deposit from all the Joint holders or only the Joint holder or only the first name holder.
Answer:4 No unanimous consensus arrived till date. Some of the learned members were of the view that all Joint holders are members so company can accept from all Joint holders. But others disagree. According to them for the purpose of Companies Act, 1956 only first named holder is recognized for the purpose of Dividend, Voting rights etc. so company can accept deposit from only first named holder.
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Question:5 If a Company has financial problem which lead to default in the payment of deposits or violation of any provision of Section-58A. Can a company seek any relief under the provisions of the said section? What are the procedural requirements under Companies (Application for extension of time or exemption under section 58A) Rules?
Answer:5 Under section-58A (8), the Central Government may, if it considers it necessary for avoiding any hardships or for any other just and sufficient reason, by order, issued either prospectively or retrospectively from a date not earlier then the commencement of the Companies (Amendment) Act, 1974, grant extension of time to a company or class of companies to comply with, or exempt any company or class of companies from, all or any of the provisions of this section.
Thus, under section 58A (8) relief can be sought by the company by making an Application to the Central Government.
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Question:6 After accepting deposit the company has incurred losses due to which the company’s reserve and paid-up capital is depleted. As a result the deposit accepted have crossed maximum permissible limit. Is there a violation?
Answer:6 The company’s reserve and paid-up capital is to be considered only at the time of acceptance of Deposits. Moreover, as per DCA Circular No. 3/17/79-cl-X dated 30/06/1979 there is no contravention of provisions where due to losses deposits exceeds limits.
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Question:7 Mr. A has given a deposit of Rs. 15,000/- along with one of his friend as a joint holder. His friend also has given a deposit of Rs. 15,000/- along with Mr. A as a joint holder. That’s how both of them treat themselves as small depositors. Is this view correct?
Answer:7 As per section-58AA which deals with the concepts of small depositors both Mr. A and his friend are treated as small depositor.
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Question:8 A small depositor means a depositor who has invested in a financial year a sum not exceeding Rs. 20,000 in a company and includes his successors, Nominees and legal representatives. Who will be considered as a successor and legal representative since nothing has been specified?
For example Mr. A has given a deposit of Rs. 15,000/- in his own name and deposit of Rs. 15,000/- each in the names of his wife, son, daughter, son-in-law, daughter-in-law and two grand children. Which all deposit are to be aggregated to arrive at his status of small depositor?
Answer:8 Successor and his legal representative is not defined in the Companies Act, 1956. Since Mr. A has given a deposit of Rs. 15,000/- in his own name he is considered as a small depositor as defined in section-58AA. His wife and son will be treated differently. This is only when Mr. A dies who will be his successor and his legal representative is decided.
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Question:9 Section-58AA prohibits the company to accept further deposits from small depositors if the default in payment persists. Does it mean that inspite of the default the company can accept deposits of value of more than Rs. 20,000/-?
Answer:9 Under Section-58A (2) no company shall invite any deposit unless the company is not in default in the payment of any deposit/part thereof and any interest thereupon in accordance with the terms and conditions of such deposits. Since, section prohibits only to invite deposits in cases of defaults. Further Company Law Board (CLB) in such cases may allow company to accept deposits as restriction is only on invitation.
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Question:10 Sub section (7) of Section 58AA states that where a company had accepted deposits from small depositors and subsequent to acceptance of deposits obtains loans for the purpose of working capital from any bank, it shall first utilize the funds so obtained for the repayment of the small deposits before applying any such funds for any other purpose. What does this section imply, whether the company is required to utilize the funds to repay the deposits if they are due for payments or otherwise in case the company has defaulted in repayment of the principal or interest to the small depositors the section will apply?
In such a case whether the bank can take any action against the company for diversion of funds as loan was obtained for the business requirements and not for repayments of deposits.
Answer:10 Under Section 58AA (7), the company is required to utilize the funds to repay the deposits if they are due for payment. Generally unsecured loans, which are short term loans, are part of working capital. The bank and customer have cordial relationship. If bank is convinced he allows returning deposits otherwise the company has to borrow from elsewhere and repay the deposits and then utilize the balance amount as working capital.
Yes, indeed the bank can take action against the company for diversion of funds as loan was obtained for the business requirements and not for repayment of deposits.
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Question:11 Acceptance of Deposits through commercial paper whether fall within the preview of deposits under section 58A of the companies Act, 1956
Answer:11 Acceptance of Deposits through commercial paper are exempted vide Notification No. GSR 1075(E) dated 29/12/1989.
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Forum where aggrieved deposit holder can approach for relief:
The depositor can approach Company Law Board (CLB) in the prescribed Form No- 4 mentioned in Companies Regulation along with prescribed fee s. And CLB depending on the case direct company to repay within the period prescribe by CLB.
Why do we call it BLACK MONEY ?
Why black? That's what I can't figure out. For Indians, at least for those of us who can afford the luxury of choice, the preferred colour of most things - skin, sugar, bread, you name it - is white. So how come we call it black money? All countries, to a greater or smaller percentage, have what is known as a parallel, or cash, economy that operates outside the legitimate loop. But India
Black money is not a synonym for the cash economy. For instance, there are several transactions which have to be carried out in cash: Municipal tax, passport fees, purchase of government stamp paper, opening a bank account. Is the money that you perforce have to use in such dealings, which often involve the sarkar, black money? God forbid. Or, better still, Chidambaram forbid.
The origins and current disposition of black money are as mysterious as its name. No one that you and I know has ever had, or indeed would ever have, any truck with black money, of course. I wouldn't touch the damn thing with a double-length bargepole. And you say you wouldn't either. Honest Injuns, both. As is everyone else you and I know. So how come the darn thing is everywhere? In media reports, scams, defence deals, buying and selling property, funding elections, making Bollywood movies.
I tell you, I ordered a coir mattress, not a cash mattress. I'm a victim of sharp practice. I'll take it up with Common Cause. I'll take it up with the appropriate ministry. What's that? I am the appropriate ministry? You don't say.
How did the first black money become black? Like all money, it started life in a sarkarimint, all spruced up and spiffy. Face and knees well scrubbed, shoes shined, laces knotted neatly, it got a valedictory pat on the head from the RBI governor and was sent out to make its way in the world. So where and how, after this immaculate conception, did it suddenly become black? Nagarwala? Bofors? Sukh Ram? Who dat?
There's another problem with black money. It's like a chameleon. It keeps changing colour. Suppose X, who has black money, goes and spends some of it having a meal at a 5-star eatery. All at once, X's black money becomes the eatery's white money. Better than Fair & Lovely.
This changeability of complexion suggests that, at some point, all the money in supply was or will be black, and vice versa. So is the only way to get rid of black money to get rid of all money and replace it with cheques and credit cards? The next time you flog a year's collection of old STOIs to the raddiwala ask for payment via Amex.
There is a cautionary children's tale of the two Unclejis. One Uncleji was poor, and morose, and ulcerous and suffered from insomnia. He was the Uncleji who not only paid his taxes but also paid taxes on his taxes and couldn't sleep at night because he was afraid they might put a tax on that as well.
The other Uncleji was prosperous, and jolly, and had the digestion of an army mule and slept the sleep of the just and righteous, even though his bed was lumpy thanks to all the boodle shoved inside it. Which Uncleji would be the sensible child's role model? Maybe that's why they call it black money. Because black's the colour of the ink they use on the credit side of the ledger.
Source : www.economictimes.com
Sunday, June 14, 2009
How to Form A Pvt Ltd. Company
Persons desirous of forming a company must adhere to the step by step procedure as discussed below:-
1. Selection of type of the company.
2. Selection of name for the proposed company.
3. Apply for Directors Identification Number and Digital Signatures.
4. Drafting of Memorandum and Articles of Association.
5. Stamping, digitally signing and e-filing of various documents with the Registrar.
6. Payment of Fees.
7. Obtaining Certificate of Incorporation.
8. Preparation and filing of Prospectus/Statement in lieu of Prospectus and e-Form 19/20 (in case of public companies) for obtaining the certificate of commencement of business.
9. Obtaining Certificate of Commencement of business (in case of public limited companies).
1. Selection of the type of company
The Promoters of a company may be individual entrepreneurs or body corporate engaged in efforts to incorporate a company. They have the power of defining the object of the company and deciding various matters for the company proposed to be incorporated. It is depending upon, the purposes for which the company is to be incorporated, proposed scale of operations, capital involved, etc. The promoters can select type of the company as they wish to form themselves into viz. private company, public company, non-profit making company, etc.
2. Selection of name
Six names are required to be selected in order of preference after taking notes of numerous provisions, clarifications, circulars and rules made by the Ministry of Corporate Affairs, etc. In case key word is required, significance of each key word should be given in the e-Form 1A.
2.1 Applying for ascertaining the availability of the selected name
The promoters are required to make an application to the concerned Registrar of Companies to be submitted electronically to the Ministry of Corporate Affairs on the portal of MCA. An application shall be in e-Form 1A as prescribed by Notification No. GSR 56(E) dated 10th Feb., 2006 duly digitally signed by any one promoter or managing director or director or manager or secretary of the company along with the required fee for ascertaining whether the selected name is available for adoption by the promoters of the proposed company.
2.2 Approval of the name
After receipt of completed application in e-Form 1A, the Registrar shall intimate whether the proposed name is available for adoption or not. The confirmation of the name made available by the Registrar shall be valid for a period of six months.In case, if the promoters fail to submit all the required documents for incorporation within that period, then they are required to submit another application after payment of requisite fees.
3. Requirement for having DIN
As per proviso to section 253 of the Companies Act, 1956, inserted by the Companies (Amendment) Act, 2006, w.e.f. 1-11-2006, no company shall appoint or re-appoint any individual as director of the company unless he has been allotted a Director Identification Number under section 266B.
New section 266A has been inserted by the Companies (Amendment) Act, 2006 which provides that every individual, intending to be appointed as director of a company shall make an application for allotment of Director Identification Number (DIN) to the Central Government in the prescribed DIN Form. Therefore, before submission of e-Form 1A all the directors of the proposed company must ensure that they are having DIN and if they are not having DIN, it should be first obtained.
Specific care should be taken that a person cannot have more than one DIN, therefore, a DIN once obtained shall serve the requirement for all the companies in which he is a director or intended to be a director.
3.1 Requirement for having digital signatures
After 16th Sept., 2006, every documents prescribed under the Companies Act, 1956 is required to be filed with the digital signature of the managing director or director or manager or secretary of the Company, therefore, it is compulsorily required to obtain digital signatures of at least one director to sign the e-Form 1A and other documents. It may be noted that if the director or other persons covered are having digital signatures, their signatures may be used for the above said purpose and there is no need take new signature again.
4. Preparation of the Memorandum of Association (MOA) and Articles of Association (AOA)
Drafting of the MOA and AOA is generally a step subsequent to the availability of name made by the Registrar. It should be noted that the main objects should match with the objects shown in e-Form. These two documents are basically the charter and internal rules and regulations of the companies. Therefore, they must be drafted with utmost care with the experts advise and the other object clause should be drafted in a very broader sense.
5. Filing of documents with the Registrar
Next step for the promoters is to file the following documents with the Registrar for incorporation of the company. The following documents shall be submitted to the Registrar alongwith the adequate filing fees as applicable for registration of the company online with in a period of six months from the date of intimation of availability of name:-
1. Memorandum of Association, duly signed by the subscribers and witnessed, showing the number of shares against their names electronically attached in PDF file. It should also be properly stamped as per the stamp duty applicable in the State, where the registered office of the company is to be situated.Simultaneously original stamped copy of the Memorandum of Association shall be submitted with the Registrar of Companies concerned.
2. Articles of Association should be duly signed by the subscribers and witnessed, showing the number of shares against their names electronically. It should be properly stamped according to the authorized share capital as per the stamp duty applicable in the state, where the registered office of the company to be situated. Simultaneously original stamped copy of the Memorandum of Association shall be submitted with the Registrar of Companies concerned.
3. Copy of the agreement, if any, which the company proposes to, enter in to with any individual for appointment as its managing or whole-time director or manager shall be attached in the PDF file.
4. Declaration in e-Form 1 by an advocate or company secretary or chartered accountant engaged in whole time practice in India or by a person named in the Articles as a director, manager or secretary of the company, that all the requirements of the Companies Act, 1956 and the rules made thereunder have been complied with in respect of registration and matters precedent and incidental thereto, which may be accepted by the Registrar as sufficient evidence of such compliance. It should be carefully noted that details of all the companies in which directors are also director should be given and the names, addresses and other particulars of directors and promoters should be matched with the information provided in the DIN application Form. [ Section 33(2)] (Appendix 2).
5. Power of Attorney for should be furnished by all the subscribers in favour of any one subscriber or any other person authorising him to file these documents and to with the Registrar and to obtain certificate of incorporation. The power of attorney should be given on Non-Judicial stamp paper of appropriate value and shall be submitted to the Registrar. (Appendix 3).
6. Other agreement if any, which has been stated in the Memorandum or Articles of Association shall also be filed in the PDF file with the Registrar because in such cases the agreement will form part of this basic document.
7. E-Form 18 is to be filed with the Registrar electronically with the digital signatures in regard to location of the registered office. E-Form 18 shall also be certified by the company secretary or chartered accountant or cost accountant in whole –time practice. [ Section 146 (2)] (Appendix 4)
8. E-Form 32 is required to be filed with the Registrar electronically for filing particulars of directors. The personal details should match with the information provided in the DIN. Following additional details are also required to given in e-Form 32:
(a) Name and CIN of all the companies in which they are directors;
(b) Names of partnership concerns in which they are partner;
(c) Names of proprietorship concerns in which they are proprietor;
In case if the field provided in the e-From 32 is not sufficient, an annexure may also be enclosed for the required details. As an e- Form 32 provides fields for three directors only, e-Form 32AD i.e. Addendum to e-Form 32 shall be submitted for additional appointments. E-Form 32 AD, if any is also required to be certified by the company secretary or chartered accountant or cost accountant in practice digitally before filing with the Registrar. Consent to act as director on plain paper and authorization to submit e-Form 32 from all the director should be attached with the e-Form 32.
E-form 32 is required to be digitally signed by the director or managing director or manager or secretary of the company. E-Form 32 shall be filed along with the adequate filing fee as prescribed under Schedule XIII of the Companies Act, 1956, However, no separate filing fee is required to be paid on the addendum of e-Form 32.( Appendix 5).
6. Payment of registration fees for a new company
The fees payable to the Registrar at the time of registration of a new company varies according to the authorized capital of a company proposed to be registered as per Schedule X to the Act. Fees can be calculated by the MCA portal.
7. Certificate of Incorporation (section 33 and 34)
On the satisfaction of the Registrar that the requirements specified in sections 33(1) and 33(2) have been complied with by the company, he shall retain the documents and register the MOA, AOA and other documents. Section 34(1) cast an obligation on the Registrar to issue a Certificate of Incorporation, normally within 7 days of the receipt of documents.
8. Commencement of Business
A Private limited company and a company not having share capital may commence its business activities from the date of its incorporation. However, a public Limited Company having share capital is required to take certificate of commencement of business before it can commence business.
1. Selection of type of the company.
2. Selection of name for the proposed company.
3. Apply for Directors Identification Number and Digital Signatures.
4. Drafting of Memorandum and Articles of Association.
5. Stamping, digitally signing and e-filing of various documents with the Registrar.
6. Payment of Fees.
7. Obtaining Certificate of Incorporation.
8. Preparation and filing of Prospectus/Statement in lieu of Prospectus and e-Form 19/20 (in case of public companies) for obtaining the certificate of commencement of business.
9. Obtaining Certificate of Commencement of business (in case of public limited companies).
1. Selection of the type of company
The Promoters of a company may be individual entrepreneurs or body corporate engaged in efforts to incorporate a company. They have the power of defining the object of the company and deciding various matters for the company proposed to be incorporated. It is depending upon, the purposes for which the company is to be incorporated, proposed scale of operations, capital involved, etc. The promoters can select type of the company as they wish to form themselves into viz. private company, public company, non-profit making company, etc.
2. Selection of name
Six names are required to be selected in order of preference after taking notes of numerous provisions, clarifications, circulars and rules made by the Ministry of Corporate Affairs, etc. In case key word is required, significance of each key word should be given in the e-Form 1A.
2.1 Applying for ascertaining the availability of the selected name
The promoters are required to make an application to the concerned Registrar of Companies to be submitted electronically to the Ministry of Corporate Affairs on the portal of MCA. An application shall be in e-Form 1A as prescribed by Notification No. GSR 56(E) dated 10th Feb., 2006 duly digitally signed by any one promoter or managing director or director or manager or secretary of the company along with the required fee for ascertaining whether the selected name is available for adoption by the promoters of the proposed company.
2.2 Approval of the name
After receipt of completed application in e-Form 1A, the Registrar shall intimate whether the proposed name is available for adoption or not. The confirmation of the name made available by the Registrar shall be valid for a period of six months.In case, if the promoters fail to submit all the required documents for incorporation within that period, then they are required to submit another application after payment of requisite fees.
3. Requirement for having DIN
As per proviso to section 253 of the Companies Act, 1956, inserted by the Companies (Amendment) Act, 2006, w.e.f. 1-11-2006, no company shall appoint or re-appoint any individual as director of the company unless he has been allotted a Director Identification Number under section 266B.
New section 266A has been inserted by the Companies (Amendment) Act, 2006 which provides that every individual, intending to be appointed as director of a company shall make an application for allotment of Director Identification Number (DIN) to the Central Government in the prescribed DIN Form. Therefore, before submission of e-Form 1A all the directors of the proposed company must ensure that they are having DIN and if they are not having DIN, it should be first obtained.
Specific care should be taken that a person cannot have more than one DIN, therefore, a DIN once obtained shall serve the requirement for all the companies in which he is a director or intended to be a director.
3.1 Requirement for having digital signatures
After 16th Sept., 2006, every documents prescribed under the Companies Act, 1956 is required to be filed with the digital signature of the managing director or director or manager or secretary of the Company, therefore, it is compulsorily required to obtain digital signatures of at least one director to sign the e-Form 1A and other documents. It may be noted that if the director or other persons covered are having digital signatures, their signatures may be used for the above said purpose and there is no need take new signature again.
4. Preparation of the Memorandum of Association (MOA) and Articles of Association (AOA)
Drafting of the MOA and AOA is generally a step subsequent to the availability of name made by the Registrar. It should be noted that the main objects should match with the objects shown in e-Form. These two documents are basically the charter and internal rules and regulations of the companies. Therefore, they must be drafted with utmost care with the experts advise and the other object clause should be drafted in a very broader sense.
5. Filing of documents with the Registrar
Next step for the promoters is to file the following documents with the Registrar for incorporation of the company. The following documents shall be submitted to the Registrar alongwith the adequate filing fees as applicable for registration of the company online with in a period of six months from the date of intimation of availability of name:-
1. Memorandum of Association, duly signed by the subscribers and witnessed, showing the number of shares against their names electronically attached in PDF file. It should also be properly stamped as per the stamp duty applicable in the State, where the registered office of the company is to be situated.Simultaneously original stamped copy of the Memorandum of Association shall be submitted with the Registrar of Companies concerned.
2. Articles of Association should be duly signed by the subscribers and witnessed, showing the number of shares against their names electronically. It should be properly stamped according to the authorized share capital as per the stamp duty applicable in the state, where the registered office of the company to be situated. Simultaneously original stamped copy of the Memorandum of Association shall be submitted with the Registrar of Companies concerned.
3. Copy of the agreement, if any, which the company proposes to, enter in to with any individual for appointment as its managing or whole-time director or manager shall be attached in the PDF file.
4. Declaration in e-Form 1 by an advocate or company secretary or chartered accountant engaged in whole time practice in India or by a person named in the Articles as a director, manager or secretary of the company, that all the requirements of the Companies Act, 1956 and the rules made thereunder have been complied with in respect of registration and matters precedent and incidental thereto, which may be accepted by the Registrar as sufficient evidence of such compliance. It should be carefully noted that details of all the companies in which directors are also director should be given and the names, addresses and other particulars of directors and promoters should be matched with the information provided in the DIN application Form. [ Section 33(2)] (Appendix 2).
5. Power of Attorney for should be furnished by all the subscribers in favour of any one subscriber or any other person authorising him to file these documents and to with the Registrar and to obtain certificate of incorporation. The power of attorney should be given on Non-Judicial stamp paper of appropriate value and shall be submitted to the Registrar. (Appendix 3).
6. Other agreement if any, which has been stated in the Memorandum or Articles of Association shall also be filed in the PDF file with the Registrar because in such cases the agreement will form part of this basic document.
7. E-Form 18 is to be filed with the Registrar electronically with the digital signatures in regard to location of the registered office. E-Form 18 shall also be certified by the company secretary or chartered accountant or cost accountant in whole –time practice. [ Section 146 (2)] (Appendix 4)
8. E-Form 32 is required to be filed with the Registrar electronically for filing particulars of directors. The personal details should match with the information provided in the DIN. Following additional details are also required to given in e-Form 32:
(a) Name and CIN of all the companies in which they are directors;
(b) Names of partnership concerns in which they are partner;
(c) Names of proprietorship concerns in which they are proprietor;
In case if the field provided in the e-From 32 is not sufficient, an annexure may also be enclosed for the required details. As an e- Form 32 provides fields for three directors only, e-Form 32AD i.e. Addendum to e-Form 32 shall be submitted for additional appointments. E-Form 32 AD, if any is also required to be certified by the company secretary or chartered accountant or cost accountant in practice digitally before filing with the Registrar. Consent to act as director on plain paper and authorization to submit e-Form 32 from all the director should be attached with the e-Form 32.
E-form 32 is required to be digitally signed by the director or managing director or manager or secretary of the company. E-Form 32 shall be filed along with the adequate filing fee as prescribed under Schedule XIII of the Companies Act, 1956, However, no separate filing fee is required to be paid on the addendum of e-Form 32.( Appendix 5).
6. Payment of registration fees for a new company
The fees payable to the Registrar at the time of registration of a new company varies according to the authorized capital of a company proposed to be registered as per Schedule X to the Act. Fees can be calculated by the MCA portal.
7. Certificate of Incorporation (section 33 and 34)
On the satisfaction of the Registrar that the requirements specified in sections 33(1) and 33(2) have been complied with by the company, he shall retain the documents and register the MOA, AOA and other documents. Section 34(1) cast an obligation on the Registrar to issue a Certificate of Incorporation, normally within 7 days of the receipt of documents.
8. Commencement of Business
A Private limited company and a company not having share capital may commence its business activities from the date of its incorporation. However, a public Limited Company having share capital is required to take certificate of commencement of business before it can commence business.
Pre-requisite of a Genuine Gift Transaction
Prerequisites of a genuine gift transaction
Merely because assessee has been able to file documents showing the form of the transactions such as affidavits, deeds, statements and transactions of gift through banking channels, it cannot be said that in substance, the gifts are acceptable; for a gift to be genuine, surrounding circumstances, human probabilities and reality of human life are to be considered for determining genuineness of the gifts; the realities of human life in which a person would be motivated to give gift to another include the relationship between the donors and the donees, and emotional bondages, reciprocity showing that the two sides, one that of donor and the other that of donee are, in normal course, exchanging gifts of similar amounts on different occasions
ITAT, LUCKNOW BENCH ‘B’, LUCKNOW
Krishna Mohan Agrawal
v
ITO
ITA No. 811/Luc/05
November 7, 2008
RELEVANT EXTRACTS:
** ** ** ** ** ** ** ** ** ** ** **
25. We have considered the rival submissions and the material on record. In our considered view, the gifts so received by the assessee or his grandsons could not be said to be genuine. The reasons are that in all these cases, the donors are persons of low income group and do not have any capital or asset. There is no evidence on record to show how they build up capital. Even though identity of the donors is proved, but creditworthiness is not established.
Creditworthiness is established by showing the balance sheet and capital account filed by them in the income tax return. It has to be shown how the capital was lying with the donors and what is immediate source of money gifted and after giving gift or loan, how much was left with them.
In addition to identity and creditworthiness, the assessee is also required to show relationship, occasion and reciprocity. The three additional elements are discussed by Hon’ble Delhi High Court in the case of ACIT vs Rajeev Tandon (supra) which was affirmed by the Hon’ble Supreme Court subsequent by dismissing the SLP of the assessee. In nutshell, we find following common factors in the cases of all these gifts:
(i) All the donors are ladies. All of them are claiming of doing work of knitting, embroidery, tailoring and tuition,
(ii) All of them have practically filed their return for the assessment years 2000-01 to 2001-02 on nominal income. In the first year income is shown just below taxable limit. In the second year income is shown about Rs.80,000/- plus. In case of genuine people having taxable income, such coincidence is not possible. They are all ladies, doing almost the same work, earning almost the same income and filing the return almost in the same pattern i.e in assessment year 2000-01 in which the income was below taxable limit and in the second year i.e. assessment year 2001-02 at Rs.80,000/- plus and thereafter no return.
(iii) Husbands of all the ladies are doing petty work and earning small salary of Rs.2000-4000 per month and everyone decides to give gift to assessee/grandsons of the assessee and not to anybody else i.e their sons, daughters, their husbands, their brothers, sisters-in-law. Assessee and his grandsons get top most priority over alt other close relatives, their dear sons and daughters and beloved husband. These instances in respect of 14 ladies are not believable to happen. It can happen only when it is designed and planned, clearly for avoiding/evading taxes
(iv) All the ladies seems to have decided to give gift almost in the same period in the month of August and September. Some of them opened bank account with small sum, deposited cash in the bank account and gave gift to the grandsons of the assessee and thereafter the bank account became almost blank.
(v) There is no evidence of any relationship. In fact, no such claim has been made. There is also no evidence of any strong acquaintance which would prompt the ladies to part away their hard earned money if at all it was earned by them to the assessee or to his grandsons. There is no evidence of any bondages, emotional or otherwise which would prompt them to give gifts to the assessee or his grandsons.
(vi) There is no evidence of any occasion wherein assessee or his grandsons might have received gifts from any of their own relations, acquaintances and close friends. There is no reason to believe as to what prompted these ladies to come forward to give gift to the assessee or his grandsons.
(vii) There is also no reciprocity. It is not claimed that assessee or his sons or his grandsons gave any gift to any of the donors or to their family members even though donors are persons of no means and living in comparatively poor conditions. In fact, these gifts are flowing from poor to riches.
26. Thus, a design is apparent when we look at the identity of the donors, their sources of income, their filing of return showing almost similar income, none of them considering to gift the money to their own sons and daughters or their parents or parents-in-law, none of them having creditworthiness of any extent to create semblance of belief that they could give gift.
27. In our considered view, under section 68 what is required to be seen in addition to identity and creditworthiness, the genuineness of the transaction which is a judgment to be arrived at by looking into all the surrounding circumstances and considering the very crucial test whether such transaction could happen in real life. Merely because assessee has been able to file documents showing the form of the transactions such as affidavits, deeds, statements and transactions of gift through banking channels, it cannot be said that in substance, the gifts are acceptable.
35. From the above decisions it is quite clear that for a gift to be genuine, surrounding circumstances, human probabilities and reality of human life are to be considered for determining genuineness of the gifts.; The realities of human life in which a person would be motivated to give gift to another include the relationship between the donors and the donees, and emotional bondages, reciprocity showing that the two sides. One that of donor and the other that of donee are, in normal course exchanging gifts of similar amounts on different occasions. In this context, importance of occasion cannot be undermined when gifts are given. If there is no occasion on which a person could receive gifts from friends and relatives then onus is heavier on the assessee to show as to what prompted the donors to express his affection or love towards donees un-occasionally and why only strangers got prompted to give gift to the donee when close/blood relations of the donee who are apparently much richer chose to sit quietly and did not feel giving gift to the donee ? Why not, in the present case, father of the minors or their grandfather bestowed their love and affection on the minors by giving gifts to their out of their capital? Why capital (in the form of gifts) migrated from capital less persons to capital rich people? These donees or their family had not shown any love and affection towards donors or their family in the past. Accordingly, we are of the view that there is no basis to treat the gifts as genuine but apparently it is a case of procuring gifts by his own accounted money by the assessee. Once gifts are not proved as genuine, the question of holding that minors could lend their money to grandfather is also not believable
Merely because assessee has been able to file documents showing the form of the transactions such as affidavits, deeds, statements and transactions of gift through banking channels, it cannot be said that in substance, the gifts are acceptable; for a gift to be genuine, surrounding circumstances, human probabilities and reality of human life are to be considered for determining genuineness of the gifts; the realities of human life in which a person would be motivated to give gift to another include the relationship between the donors and the donees, and emotional bondages, reciprocity showing that the two sides, one that of donor and the other that of donee are, in normal course, exchanging gifts of similar amounts on different occasions
ITAT, LUCKNOW BENCH ‘B’, LUCKNOW
Krishna Mohan Agrawal
v
ITO
ITA No. 811/Luc/05
November 7, 2008
RELEVANT EXTRACTS:
** ** ** ** ** ** ** ** ** ** ** **
25. We have considered the rival submissions and the material on record. In our considered view, the gifts so received by the assessee or his grandsons could not be said to be genuine. The reasons are that in all these cases, the donors are persons of low income group and do not have any capital or asset. There is no evidence on record to show how they build up capital. Even though identity of the donors is proved, but creditworthiness is not established.
Creditworthiness is established by showing the balance sheet and capital account filed by them in the income tax return. It has to be shown how the capital was lying with the donors and what is immediate source of money gifted and after giving gift or loan, how much was left with them.
In addition to identity and creditworthiness, the assessee is also required to show relationship, occasion and reciprocity. The three additional elements are discussed by Hon’ble Delhi High Court in the case of ACIT vs Rajeev Tandon (supra) which was affirmed by the Hon’ble Supreme Court subsequent by dismissing the SLP of the assessee. In nutshell, we find following common factors in the cases of all these gifts:
(i) All the donors are ladies. All of them are claiming of doing work of knitting, embroidery, tailoring and tuition,
(ii) All of them have practically filed their return for the assessment years 2000-01 to 2001-02 on nominal income. In the first year income is shown just below taxable limit. In the second year income is shown about Rs.80,000/- plus. In case of genuine people having taxable income, such coincidence is not possible. They are all ladies, doing almost the same work, earning almost the same income and filing the return almost in the same pattern i.e in assessment year 2000-01 in which the income was below taxable limit and in the second year i.e. assessment year 2001-02 at Rs.80,000/- plus and thereafter no return.
(iii) Husbands of all the ladies are doing petty work and earning small salary of Rs.2000-4000 per month and everyone decides to give gift to assessee/grandsons of the assessee and not to anybody else i.e their sons, daughters, their husbands, their brothers, sisters-in-law. Assessee and his grandsons get top most priority over alt other close relatives, their dear sons and daughters and beloved husband. These instances in respect of 14 ladies are not believable to happen. It can happen only when it is designed and planned, clearly for avoiding/evading taxes
(iv) All the ladies seems to have decided to give gift almost in the same period in the month of August and September. Some of them opened bank account with small sum, deposited cash in the bank account and gave gift to the grandsons of the assessee and thereafter the bank account became almost blank.
(v) There is no evidence of any relationship. In fact, no such claim has been made. There is also no evidence of any strong acquaintance which would prompt the ladies to part away their hard earned money if at all it was earned by them to the assessee or to his grandsons. There is no evidence of any bondages, emotional or otherwise which would prompt them to give gifts to the assessee or his grandsons.
(vi) There is no evidence of any occasion wherein assessee or his grandsons might have received gifts from any of their own relations, acquaintances and close friends. There is no reason to believe as to what prompted these ladies to come forward to give gift to the assessee or his grandsons.
(vii) There is also no reciprocity. It is not claimed that assessee or his sons or his grandsons gave any gift to any of the donors or to their family members even though donors are persons of no means and living in comparatively poor conditions. In fact, these gifts are flowing from poor to riches.
26. Thus, a design is apparent when we look at the identity of the donors, their sources of income, their filing of return showing almost similar income, none of them considering to gift the money to their own sons and daughters or their parents or parents-in-law, none of them having creditworthiness of any extent to create semblance of belief that they could give gift.
27. In our considered view, under section 68 what is required to be seen in addition to identity and creditworthiness, the genuineness of the transaction which is a judgment to be arrived at by looking into all the surrounding circumstances and considering the very crucial test whether such transaction could happen in real life. Merely because assessee has been able to file documents showing the form of the transactions such as affidavits, deeds, statements and transactions of gift through banking channels, it cannot be said that in substance, the gifts are acceptable.
35. From the above decisions it is quite clear that for a gift to be genuine, surrounding circumstances, human probabilities and reality of human life are to be considered for determining genuineness of the gifts.; The realities of human life in which a person would be motivated to give gift to another include the relationship between the donors and the donees, and emotional bondages, reciprocity showing that the two sides. One that of donor and the other that of donee are, in normal course exchanging gifts of similar amounts on different occasions. In this context, importance of occasion cannot be undermined when gifts are given. If there is no occasion on which a person could receive gifts from friends and relatives then onus is heavier on the assessee to show as to what prompted the donors to express his affection or love towards donees un-occasionally and why only strangers got prompted to give gift to the donee when close/blood relations of the donee who are apparently much richer chose to sit quietly and did not feel giving gift to the donee ? Why not, in the present case, father of the minors or their grandfather bestowed their love and affection on the minors by giving gifts to their out of their capital? Why capital (in the form of gifts) migrated from capital less persons to capital rich people? These donees or their family had not shown any love and affection towards donors or their family in the past. Accordingly, we are of the view that there is no basis to treat the gifts as genuine but apparently it is a case of procuring gifts by his own accounted money by the assessee. Once gifts are not proved as genuine, the question of holding that minors could lend their money to grandfather is also not believable
Friday, June 12, 2009
What is C Form & its utility ?
What is C Form & its utility ?
C form is used when a registered dealer (having TIN no.) of one state purchases goods from registered dealer of any other state. C form is used for getting the benefit of concessional rate of CST in inter-state trade.
Example :
M/s A of Maharashtra wants to purchase some commodity from M/s B of Rajasthan. In Rajasthan The rate of Sales tax on that commodity is 12.50%.
Now if A gives B a C-form (which is issued by Sales tax dept of Maharashtra) B will charge 2% CST on its Bill.If A does not give C-form to B the B will charge 12.50% CST on his bill.Thus for getting the benefit of concessional CST rate, C form is compulsory.
C form will not be required if the rate of tax on said commodity in Rajasthan is below 2%, in that case CST will automatically be the lesser amount. There will be no need to submit the C form.
C form is used when a registered dealer (having TIN no.) of one state purchases goods from registered dealer of any other state. C form is used for getting the benefit of concessional rate of CST in inter-state trade.
Example :
M/s A of Maharashtra wants to purchase some commodity from M/s B of Rajasthan. In Rajasthan The rate of Sales tax on that commodity is 12.50%.
Now if A gives B a C-form (which is issued by Sales tax dept of Maharashtra) B will charge 2% CST on its Bill.If A does not give C-form to B the B will charge 12.50% CST on his bill.Thus for getting the benefit of concessional CST rate, C form is compulsory.
C form will not be required if the rate of tax on said commodity in Rajasthan is below 2%, in that case CST will automatically be the lesser amount. There will be no need to submit the C form.
Thursday, June 11, 2009
How to Verify the Name of a PAN Number
Sometimes we need to verify the PAN data or atleast verify a PAN no. given by somebody, whether it is correct or not. Though earlier there is a facility provided by incometax department to verify PAN name but now a days such facility is withdrawn because similar service is being introduced by NSDL or UTI for some payment of fees.
However, we can still verify the PAN through this indirect method.
Just follow the link Income Tax Epayment
This is a link to make payment of income tax & tds online.
Click on this page the caption "Please Click here". This will take you to epayment page.
Now click on Challan no. ITNS 280, this will further open the page of epayment where you can enter the PAN no., fill the assessment year as 2009-10, In the name coloumn, fill dummy details such as x, in address column fill dummy details i.e. x, fill any state as per drop down, check the self assessment tax point, select any bank from drop down list and then submit.
Next page will appear and on the second last line, PAN name as per Income Tax Department will appear. This is a make-shift way to verify the PAN name from the PAN number.
However, we can still verify the PAN through this indirect method.
Just follow the link Income Tax Epayment
This is a link to make payment of income tax & tds online.
Click on this page the caption "Please Click here". This will take you to epayment page.
Now click on Challan no. ITNS 280, this will further open the page of epayment where you can enter the PAN no., fill the assessment year as 2009-10, In the name coloumn, fill dummy details such as x, in address column fill dummy details i.e. x, fill any state as per drop down, check the self assessment tax point, select any bank from drop down list and then submit.
Next page will appear and on the second last line, PAN name as per Income Tax Department will appear. This is a make-shift way to verify the PAN name from the PAN number.
How to Start A New NGO of Your Own
How to Start a New NGO of your Own ?
NGO may be formed and registered as
- Trust
- Society
- Company
Formation as a Trust :
- What is trust ?
A trust is a convenient method whereby a limited number of persons may hold property on behalf of other persons, who may be a large group or individual persons or minors and they may include the persons which are not yet born.
Trust, which means “Faith”, “Vishvas” (as in hindi) detonates that one appoints somebody to hold any sum or property for the benefit of a third person.
The person who appoints somebody is called “Author/Settler” of the trust.
The person who is appointed is called “Trustee”.
The person for whose benefit the trustee is appointed is called “Beneficiary”.
The Author of the Trust can also be the Trustee.
- Conditions for Creation of Trust
- The settler has to give up ownership and all beneficial interest in the sum or property which he is putting into the trust.
- The property should be clearly described.
- The objects of trust should be clearly indicated.
- Formal deed or written instrument is not necessary but for all PRACTICAL purposes, there must be a written instrument called trust deed.
- The settler must be a person competent to contract.
- Where to go for Registration of a Trust
For public trust involving moveable or immovable property, registration is optional but always desirable. A registered trust deed has following advantages.
- It becomes an official document which carries support and force of law.
- Under the Income Tax Act of India, to claim exemption in case of public charitable trust, it must be duly registered.
- It serves all the practical purposes in various government offices and departments.
- Registration of Trust
Registration of a trust is required at two levels.
- Registration under State Act under Indian Trusts Act, 1882.
As discussed earlier, registration under state act is desirable to give the created trust a legal shape for all practical purposes. It involves following process.
- Decide the name, address, objects, settlers, trustees and beneficiaries and property of the trust.
- Draft trust deed on stamp paper of requisite value.
- Register that trust deed with local registrar office which involves
- Trust deed on stamp paper and a zerox copy of the same.
- Passport size photographs of settler and trustees.
- Signature on all the pages of trust deed of the settler and trustees with two witnesses.
- Submit both original and photocopy to the registrar.
- Registrar will keep the photocopy and return the original after affixing his official seal and signature.
- Registration under Income Tax Act (Applicable only for Public Charitable Trusts)
Registration of charitable trusts under Indian Income Tax Act, 1961 involves two way process. It starts with application for Permanent Account Number (PAN) of the trust.
- Registration under section 12AA of Income Tax Act.
- Application in form 10A to be submitted before the commissioner of income tax before the expiry of one year from the date of creation of trust.
- Application must be accompanies by certified copies of trust deed and annual accounts of the trust.
- If it is a new trust, then annual accounts need not be submitted.
- Registration will be granted on recommendation of assessing officer of the area of the address of trust.
- Registration under Section 80G of Income Tax
- Application in form 10G to be filed with commissioner.
- Other process is same as above.
Thus from income tax departments two separate certificates is to be received on registration of trust. One is certificate u/s 12AA which will entitle the trust exemption from income tax on any income earned by the trust. Second is certificate u/s 80G which will entitle the donor who donates any sum to the trust deduction u/s 80G of the Income Tax act.
NGO may be formed and registered as
- Trust
- Society
- Company
Formation as a Trust :
- What is trust ?
A trust is a convenient method whereby a limited number of persons may hold property on behalf of other persons, who may be a large group or individual persons or minors and they may include the persons which are not yet born.
Trust, which means “Faith”, “Vishvas” (as in hindi) detonates that one appoints somebody to hold any sum or property for the benefit of a third person.
The person who appoints somebody is called “Author/Settler” of the trust.
The person who is appointed is called “Trustee”.
The person for whose benefit the trustee is appointed is called “Beneficiary”.
The Author of the Trust can also be the Trustee.
- Conditions for Creation of Trust
- The settler has to give up ownership and all beneficial interest in the sum or property which he is putting into the trust.
- The property should be clearly described.
- The objects of trust should be clearly indicated.
- Formal deed or written instrument is not necessary but for all PRACTICAL purposes, there must be a written instrument called trust deed.
- The settler must be a person competent to contract.
- Where to go for Registration of a Trust
For public trust involving moveable or immovable property, registration is optional but always desirable. A registered trust deed has following advantages.
- It becomes an official document which carries support and force of law.
- Under the Income Tax Act of India, to claim exemption in case of public charitable trust, it must be duly registered.
- It serves all the practical purposes in various government offices and departments.
- Registration of Trust
Registration of a trust is required at two levels.
- Registration under State Act under Indian Trusts Act, 1882.
As discussed earlier, registration under state act is desirable to give the created trust a legal shape for all practical purposes. It involves following process.
- Decide the name, address, objects, settlers, trustees and beneficiaries and property of the trust.
- Draft trust deed on stamp paper of requisite value.
- Register that trust deed with local registrar office which involves
- Trust deed on stamp paper and a zerox copy of the same.
- Passport size photographs of settler and trustees.
- Signature on all the pages of trust deed of the settler and trustees with two witnesses.
- Submit both original and photocopy to the registrar.
- Registrar will keep the photocopy and return the original after affixing his official seal and signature.
- Registration under Income Tax Act (Applicable only for Public Charitable Trusts)
Registration of charitable trusts under Indian Income Tax Act, 1961 involves two way process. It starts with application for Permanent Account Number (PAN) of the trust.
- Registration under section 12AA of Income Tax Act.
- Application in form 10A to be submitted before the commissioner of income tax before the expiry of one year from the date of creation of trust.
- Application must be accompanies by certified copies of trust deed and annual accounts of the trust.
- If it is a new trust, then annual accounts need not be submitted.
- Registration will be granted on recommendation of assessing officer of the area of the address of trust.
- Registration under Section 80G of Income Tax
- Application in form 10G to be filed with commissioner.
- Other process is same as above.
Thus from income tax departments two separate certificates is to be received on registration of trust. One is certificate u/s 12AA which will entitle the trust exemption from income tax on any income earned by the trust. Second is certificate u/s 80G which will entitle the donor who donates any sum to the trust deduction u/s 80G of the Income Tax act.
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