Finance

Education remains one of the most important ministries of the Church in India.  However, there is a lack of clarity regarding the line of authority and role and responsibilities of the different officials responsible for the running of the institution, be it school or college. Here I attempt to clarify these. However, I attempt to present a role clarity from a Jesuit point-of-view. Readers may adapt it according to their specific situation and practices.

The Governing Body of the registered society, under whose authority the school functions, is the top-most legal body responsible for the policies, decision-making and running of the institution. Thus, as the ex-officio President of the Governing Body, the Provincial/Bishop remains the head. The President exercises his/her authority in line with the Memorandum and Bye-laws of the registered society. However, he/she exercises this authority through the local Superior, who in some cases, may be the ex-officio Vice-President of the registered society, where that’s the only institution run by the society.

Fr Alex G SJ

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Dear Readers, till last year we were reaching out to the financially poor schools of other societies by giving donations to the mother society. In the light of the Government restriction on inter-society donations, here I am presenting a way to deal with the situation.  Without transferring the property, we transfer only the operation and control of the school under an agreement.  Here the need for the financial support of the school is genuine and we are within the provisions of the Income Tax Act. Hence, it may be wise to execute such an agreement and a handover resolution of the giver, and a takeover resolution of the receiver of the school. The same could be followed for any unit, other than the school.

 This AGREEMENT is made on …(date)… between:

(1) The First Party, … (name)…whose address is …(address)… and (2) The Second Party, …(name)…, whose address is …(address).

WHEREAS, the First Party is the absolute and sole owner of …………..,  both the property and the school with the hostels therein, referred to as the School hereinafter, located at ………………

It is agreed as follows:

1. Aim

1.1 This is a Transfer of Operation and Control Agreement.

1.2 The Governing Body of the First Party enters into this Agreement in order to enable better running of ……….. School and the boys’ and girls’ hostels therein, hereinafter referred to as “The School” with better facilities.

1.3 This Agreement sets out the arrangements and primary terms and conditions whereby the Governing Body of THE FIRST PARTY transfers the operation and control of the School to the Governing Body of THE SECOND PARTY:

Fr Alex G SJ

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As we all know, we are in an era of ever-increasing finance related statutory compliance. As days go by, the volume of compliance keeps increasing so much that quite many of us are at a loss. As a help for those who may need, here I have tried to list them, some old provisions but many new changes, so that we are familiar with the list and learn to comply.

Income Tax-related Compliance

1. As per section 12AB, once every 5 years charitable and religious trusts registered u/s 12A have to get their 12A, henceforth 12AB, renewed.
2. Trusts registered under 12A (12AB) get tax exemption on all their income, if 85% of the annual income is spent [except corpus donation (section 11(1)(d)] in India on their objectives spelt out in their Memorandum of Association [section 11(1)].
3. As per section 139(4A), if income of the trust is beyond the basic exempt income, which is Rs 2.5 lakhs for now, the accounts have to be audited and Income Tax Return has to be filed.
4. As per section 139(1), IT exemption is denied ipso facto if form 10 is not filed before the due date u/s 139(1).
5. No modification of the objects of the trust without permission from Commissioner of Income Tax.
6. Corpus donation made to another trust cannot be claimed as an application (cannot be part of the 85% application). However, a trust can make a corpus donation to another trust from its 15% savings of the current year’s income.

Fr Alex G SJ

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The recent Notification No. 7/2023, issued on 21st February 2023, by the Central Board of Direct Taxes (CBDT) mandates the use of new audit reports, namely Form 10B and Form 10BB, for charitable and religious trusts. It is essential to determine which of these forms applies to our organization. Previously, Rule 16CC required Form 10BB for organizations under section 10(23C) and Rule 17B required Form 10B for those under section 12AB. This has now been completely changed. Understanding this change is crucial for complying with the updated regulations and managing our income accordingly.

Common Form depending on certain criteria

Rule 16CC and Rule 17B of the Income-Tax Rules, 1962 have been substituted with effect from 1^st April 2023 through the Income-tax (3^rd Amendment) Rules, 2023.  As per the amended Rules, common forms have been prescribed for organizations registered under section 12AB and those registered under section 10(23C) subject to fulfillment of certain criteria.

Fr Alex G SJ

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The Principal/Headmistress/Headmaster serves as the top authority in educational institutions, both from a legal and Church perspective. In the Church setup, they answer to Superiors, Provincials, and Bishops, while legally, they are the heads of the institution. This dual role can sometimes be challenging to navigate. This article aims to clarify their distinct roles and responsibilities and highlight the positive impact they can have during their tenure. Note that “Principal” includes “Headmistress” or “Headmaster.”
From the Church’s Point of View
From the Church’s perspective, a religious or priest Principal operates under the authority of their Superior, Provincial, or Bishop. They report to and are accountable to these higher authorities, seeking approval when necessary. The Principal works in coordination with other community officials like the Superior, Minister, Administrator, and Treasurer. Major decisions are made in consultation with the Superior. In essence, the Principal represents the interests of the Congregation/Diocese, the registered society, and the community, rather than pursuing a personal or autocratic agenda. Their approach is one of entrusted responsibility, emphasizing collective responsibility for the institution by the entire Congregation/Diocese, registered society, and community.

Fr Alex G SJ

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When we think of financial administration of a registered society, we don’t mean just administering finance; rather it is much wider than the finance; it includes the organizational structure, officials and their roles, Governing Body, financial policy, monitoring, audit, reporting, record keeping, etc. Here is an attempt to understand the role of each of these in financial administration.

1. Organizational set-up: We run all our institutions and activities under the umbrella of a registered society. This is to say that all our institutions and activities are run as units of the registered society. Thus, the registered society is the owner of all these institutions and activities and that one income tax return is filed consolidating the accounts of all units. The return is filed in the name of the registered society, using the society’s PAN. If so, the income and expenditure of all units is the income and expenditure of the society and the society may use the income of all its units for any of its units, but in line with its objectives. Till last year, we were free to give donations to any registered society with similar objectives and with 12A within the Province or Diocese and the entire amount donated could be taken as application of income for the income tax purpose and treated tax exempt. But no more. From April 2023, only 85% of the donated amount could be taken as application of income, making the balance 15% as accumulation under section 11(2) or as taxable income. As a way out of this problem, we can re-organize our organizational set-up of each society. We can regroup our institutions and activities under each society in such a way that each society has financially well to-do and dependent institutions too, so that we can claim 100% utilization (application of income) for the entire amount spent on any unit within the society’s structure. Besides, where possible, we can take the purchase bills of the revenue expenditure directly in the name of the society which wants to support its sister organizations under another registered society.

Fr Alex G SJ

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Investment is a very important part of financial management. It is only common sense that whatever extra funds (other than what is needed for the short-term) we have are kept invested. Investment is done in order to earn interest, an additional income to support our needs. It is also meant to beat inflation.

Goal oriented investments: Any investment is done for a specific goal.  A financial goal is a very important and necessary element of investment. We may have many financial goals such as buying a school bus for Rs 20 lakhs, setting up a computer lab costing Rs 10 lakhs, putting up a new block for Rs 6 crores, setting up a poor students’ scholarship fund of Rs 5 lakhs, etc.

Kinds of Investment: Investment can be of different types such as fixed deposit (FD), bonds, mutual funds, shares, etc. Each category is meant for a specific purpose. We know what a fixed deposit is. It is an assurance given by a bank or company which accepts a fixed amount from an investor for a fixed duration of 1 year or 3 years or 5 years with a promise to pay a fixed percentage of interest. A bond is an assurance given by the issuing party, usually the government, which borrows money from its lenders, the public, for a duration of 10 years or 15 years to pay a fixed percentage of interest. A mutual fund is a fund managed by a company which pools together the money of the investors, invests the same in specified stocks of the stock market and earns profit on its investments and distributes the same to the investors proportionately. Here, neither the duration of investment nor the percentage of income (return) is fixed. However, we need to remember the exit load (penalty paid if exited before the expiry of the load period) levied by funds for various categories of funds. Return on the mutual funds depends on the performance of the specific stocks in the stock market. Unlike investment in a mutual fund, investment in stocks is a direct investment in the stock market where an investor invests his/her money directly in a stock (buys shares of a stock with the price per share of the stock at that particular moment) and duration of his/her choice (sells the shares bought earlier at a current price of the stock per share). The difference between the purchase price and sale price of the shares of the stock is calculated as the gain or loss for the investor.

Fr Alex G SJ

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Financial planning is a critical component of managing finances and involves budgeting, income/spending calculations, resource generation, saving, investment, tax planning, asset acquisition, borrowing, and repayment. Budgeting, although central to financial planning, is not the sole focus. Each person’s budget is unique and tailored to their specific needs and priorities.

Procedure for financial planning:

1. Financial goal setting: Any planning is done in line with one’s goal, with an idea of reaching one’s destination. You take the bus or train depending on where you want to go. You don’t board the train and then decide where you want to go to! Similar is the concept of goal setting. Any planning that involves finance is the financial goal.

When you think of financial goal setting, you have to remember the following important principles:

1. Your goal has to be SMART, i.e., it has to be Specific, Measurable, Achievable, Realistic and Time-bound. It is not enough to have a goal, but it should have all the above five elements. If your goal is vague then it will only remain a dream. On the contrary, if the goal is specific enough, it will motivate you to save for it. It is not enough to say “we want to increase our saving”; but you have to spell it out as “we want to save Rs 20 lakhs out of this year’s income to set up a staff welfare fund and we will do it by reducing the expenses on entertainment by 10%”. The former statement will remain a dream and the latter statement, which is SMART, becomes an achievable goal. It is only after determining such concrete goals that you can think of making a budget that will enable you to achieve the financial goal.
2. The next principle to keep in mind is to start from where you are and with what you have now. DO NOT TRY TO START WITH WHERE YOU WANT TO REACH OR WITH WHAT YOU DO NOT HAVE NOW. If what you have is only a cycle, then do not try to start your journey with a car! An unrealistic desire will never take off.
3. Don’t compare or imitate others, for each one’s life situation and needs are different. Remember what is said in the first para that copying in the exam of life will be useless as each one has a different question paper.
4. Plan how best to utilize the available resources to reach your destination. Efficiency and success depend on how efficiently you can achieve your target with the minimum use of resources.

 Fr Alex G SJ

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(Part I was published in the April Issue.  Part II consists of Annexures I, II, III and Schedule I)

Annexure 1: Special conditions

1. Foundation and Plinth:- Foundation and plinth shall be 1:2:3 cement concrete.
2. Damp Proof Course and Termite-proof:- D.P.C. shall be 2.5 cm thick cement concrete 1:2:3, mixed with one kg of tape create/Dr Fixit per bag of cement or other standard water proofing materials as specified and painted with two coats of bitumen.
3. Superstructure:- Superstructure shall be of first class with 1:6 cement mortar. Lintels over doors and windows shall be of R.C.C. ratio of 1:2:3
4. Roof :- Roofs shall be of R.C.C slab with an insulation layer and lime concrete terracing above, supported over R.C.C beams as required. The height of the rooms shall not be less than 11’.
5. Flooring:- All flooring for the school and hostel will be cement floor with skirting up to 6”.
6. Finishing:- Inside and outside shall be of 12 mm cement plaster 1:5 and the ceiling 1:4.
7. For Other materials:- Rain water pipes of PVC shall be provided. Building shall be provided with durable and stainless water fittings and quality electrical installation.

 Annexure II: Details of the construction work: General Specifications for Construction

Civil and Brick Work:

Ultratech/ACC/JK Cement of 43 grade to be used for all wall work.

All external walls shall be of 10” thickness with intermittent RCC columns. They will have cement mortar in the ratio 1:6 (1 cement: 6 coarse sand). The joints shall be cleared of excess mortar from both sides. The brickwork shall not proceed to more than 3’ height in one session.

Basement and ground floor external walls will have plaster mixed with tape-create on the internal and external side.

Similarly, basement raft (tie beam) shall have a double layer of plaster with sandwitch layer of tape-create.

All 4½” thick brickwork shall be done with cement mortar in the ratio 1:4 (1 cement:4 coarse sand) ratio.

Flooring shall be 4” thick cement concrete in 1:4:8 over well compacted earth. It will be a cement floor.

A 3’ wide drainage plinth protection around the building with saucer drain, rain water pipes and fitting to be provided.

 Fr Alex G SJ

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(Part two with Annexures I, II, and III along with Schedule I will be printed in the next issue).

In our Church set-up, we put up so many buildings, but often remain ignorant of the materials and the quality of the work.  Hence, I thought of sharing the following Construction Agreement as a sample for our use at the Province/Diocese level:

CONSTRUCTION AGREEMENT

THIS AGREEMENT is made on   (Date)   Between:  (the Province/Diocese), hereinafter called the TRUSTEE, which term shall include his/her assigns and successors.

AND

(Name of Contractor), hereinafter called the BUILDING CONTRACTOR, which term shall include his assigns and successors.

Whereas the Trustee possesses a plot of land at   (place/site) and is desirous of constructing a building in the said plot of land as per the approved plan and the specifications, rates and quantities, enclosed and forming part of this agreement.

NOW, THIS AGREEMENT IS AS FOLLOWS:

1. The Building Contractor shall act in consideration of the money to be paid in the manner set forth below to execute and complete the works as per the plan and specifications enclosed to the satisfaction of the undersigned Trustee and his/her Representative, residing at  (place).                          .
2. This contract covers the entire construction (civil, electrical, plumbing). The total built-up area of the building is ( __ ) sq ft, costing Rs (Rupees only), including GST. This payment is to carry out the work in respect of the entire construction of the said building, including electrical and plumbing, as per the architectural and structural drawings and as per items mentioned in the schedule attached here. TDS of 1% shall be deducted on each running bill before adding GST.
3. The term Trustee shall mean the Governing Body member, who has been authorized by the society to represent the society and execute this agreement.
4. The term Representative shall mean (name) residing at (place), and or his/her representatives, appointed by him/her for site supervision.

Fr Alex G SJ

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