Minting money, but registered as a non-profit? Beware! This is what may happen soon
As per sources aware of the development, “Government will ask companies to prove that they are non-profit. If the companies fail to satisfy, then they will be deregistered as a section 8 company”. This means they will lose income tax exemption and other benefits, like stamp duty relief etc.
Big hospitals and school colleges charging hefty fee and registered as non-profit company under Companies Act may face the music soon. Government is considering a plan to verify the real profitability status of such companies. As per sources aware of the development, “Government will ask companies to prove that they are non-profit. If the companies fail to satisfy, then they will be deregistered as a section 8 company”. This means they will lose income tax exemption and other benefits, like stamp duty relief etc., will also be withdrawn. Once deregistered, Income Tax department will have the right to demand tax on the earnings and profits of such companies. Other authorities will also be able to seek their dues and ask for compliances once company is deregistered from section 8. Even they will be able to investigate the affairs of such companies.
The government has been receiving inputs that the section is widely misused by various institutions, which are minting money but are registered as a non-profit company. The source said, ‘Mainly such allegations are against hospitals, educational institutes and top cricket boards/associations and sports associations which claim promotion of sports and also earn heavily via branding , telecast rights and other means but claim to be non profit”. Government thinks there is need to relook in giving relief to such companies.
Under section 8 relief is granted to nonprofit companies if their object is to promote arts, commerce, science, sports, education, social welfare, charity, protection of environment etc. Or they intend to apply its profits, if any, or other income in promoting its objectives. Also, such companies are prohibited from payment of any dividend to its members.
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Government has enough power to take action against such companies in case of default. As per provisions of the Section 8 of Companies Act, If a company makes any default in complying with any of the requirements laid down under the section, the company shall be punishable with fine which shall not be less than Rs 10 lakh but which may extend to Rs 1 crore. Also the directors and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than Rs 25,000 but which may extend to Rs 25 Lakh, or with both. Provided that when it is proved that the affairs of the company were conducted fraudulently not even that every officer in default shall be liable for action under section 447.