In continuation of the Finance column in the February issue, this article explains “objective clause” more thoroughly.
The “object clause” forms the heart of the Memorandum of Association (MA) or Trust Deed (TD). The main reason for the entity coming into existence is to carry out the purposes/objects laid down in the object clause. The objects should be drafted in a very simple, clear and unambiguous language. The objects should clearly portray the intentions of the subscribers to the MA and the settlor of the Trust. Much attention and thought should be invested in drafting the objects.
OBJECT CLAUSE UNDER THE INCOME TAX ACT
Under the IT Act 1961, it is necessary for the entity to be registered under sections 10(23) and/or 12A to be designated as a notified or approved entity. This registration entitles the society or trust to file its return as a charitable / religious / public utility entity and avail the benefits thereunder. The registration under the above sections is granted based solely on the objects of the entity. The income tax officials will thoroughly examine the objects and then classify the entity as charitable / religious / public utility. Once this registration is granted, then the entity acquires the identity and tag noted in the certificate. As 12A is a basic registration, the classification it receives matters.
Once the 12A registration is completed, the entity is obliged to utilise its funds only for carrying out the objects noted in the MA and TD. An entity cannot utilise its funds for objects not mentioned in its object clause. An entity cannot subsequently enlarge the scope of objects, on its own accord, without first amending the object clause.
Fr Trevor D’Souza OFM
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