In 2014, an Indian tax court considered a claim against Gospel for Asia and Believers’ Church. According to a court filing dated December 12, 2014, Gospel for Asia and Believers Church spent more of their income than allowed on purposes not related to the reason they were formed. Doing so made that income taxable. Gospel for Asia and Believers’ Church together appealed the assessment of tax, saying that the use of the funds were given to related organizations which had charitable purposes. The court found that funds were still being used for unintended purposes and remanded the matter back to the tax assessor. I have been unable to find any documentation of how much GFA and BC had to pay or if the matter has been resolved.
You can read the whole thing at this Indian site where public records are archived. I have pulled out the relevant portions below:
Shri M Anil Kumar, the ld.DR submitted that both the assessees are registered as charitable trust u/s 12AA of the Act. During the year under consideration, the assessing officer found that both the assessees have given loan to other trusts from the unutilised portion of the income which exceeded more than 15%. Referring to section 13(1)(d)(i) of the Act, the ld.DR submitted that the assessee trust invested its funds in the form/mode otherwise than prescribed in section 11(5) of the Act. Therefore, according to the ld.DR, there was violation of section 11(2) r.w.s. 13(2)(d) of the Act. According to the ld.DR, the assessee is not entitled for any exemption.
Assessees refer to Believers’ Church and Gospel for Asia. Both are registered as charitable trusts. Both groups had income during the 2010-2011 tax year and loaned more than the allowed 15% to other charitable trusts related to GFA and BC. Originally, the tax assessor considered those loans improper investments which meant that the income invested was not exempted from tax. The original complaint of the tax assessor was eventually set aside in favor of another interpretation by the tax court and remanded back to the tax assessor for reassessment of tax.
GFA and BC had the following interpretation of tax law. The “ld.representative for the assessee” refers to GFA’s and BC’s representative.
On the contrary, Shri Venkitachalam, the ld.representative for the assessee submitted that both the assessees advanced funds to other registered trusts which have similar objects. According to the ld.representative, the assessee advanced funds to BCMET for construction of hospital building. BCMET is also a registered trust u/s 12AA of the Act. The ld.representative further submitted that Carmel Education Trust also a registered charitable trust u/s 12A of the Act was given funds by the assessee to carry out their charitable activities. According to the ld.representative, when the funds were advanced to other similarly placed charitable trusts, amounts to application of income; therefore, the provisions of section 11(2) are not applicable. The ld.representative further submitted that advancing money to similarly placed charitable trusts does not amount to investment or deposit. Therefore, there is no violation of section 11(5) of the Act also.
GFA and BC “advanced funds” to related trusts, one involved in building Believers Church Medical College Hospital and the other an educational trust which operates various schools. I don’t know for certain, but it sounds like the educational trust was given funds to help fund operating expenses. The BC’s hospital was given money for construction of the state of the art facility. Thus, BC and GFA took income on donor money and used it to fund the hospital and engineering school.
The court considered both sides and concluded that “substantial income” of GFA and BC was not used for “the purposes for which they were formed.”
We have considered the rival submissions on either side and also perused the material available on record. It is not in dispute that substantial income of the assessee trust was not used by both the assessees for the purposes for which they were formed. (emphasis added)
The court said there is no question that GFA and BC misused the funds. The main question was about how to treat those funds for tax purposes. After going through an evaluation of Indian law relating to the facts of the case, the court ruled as follows:
Therefore, in view of the latest development of law with effect from 01-04-2003 if the income is paid or credited to another trust or institution even though they are registered u/s 12AA or approved u/s 10(23C) of the Act, the same has to be treated as income of the assessee.
Since GFA and BC loaned/advanced more than allowed by law, that income has to be treated as income of the two organizations. The court then sent the matter back to the tax assessor to figure out what GFA and BC owed.
I can’t find any additional cases or appeals so the matter might still be active. I asked GFA what happened in the case but, as usual, received no answers.
Donors have questions but all they are getting are assurances that their donations are going for the purposes intended. This case provides one more basis to question that claim.
This case adds one more item to the growing list of concerns about GFA’s financial affairs.