Section 353: other violations

Introduction

The section sets a tax consequence for listed compliance failures. Regular income becomes taxable regular income after only the expenditure allowed by subsection (3); specified and residual income may also be taxable under Section 334.

Key takeaways

What triggers Section 353

Sub-section (1): where a registered non-profit organisation, during any tax year -

• Fails to maintain books of account under Section 347, or
• Fails to get its books of account audited under Section 348, or
• Fails to furnish its return of income under Section 349, or
• Being an organisation carrying out advancement of any other object of general public utility, carries out commercial activity in contravention of Section 346

What happens to its income

its regular income for that tax year, reduced by the expenditure referred to in sub-section (3), becomes "taxable regular income", chargeable to tax under Section 334.

Sub-section (2): notwithstanding Section 338, any specified income and residual income not covered by sub-section (1) is also chargeable to tax under Section 334.

What expenditure can be deducted

Sub-section (3): the expenditure referred to in sub-section (1) is expenditure incurred in India (other than capital expenditure) for the organisation's objects, subject to all of the following conditions:

• The expenditure is incurred in India
• It is for the objects of the registered non-profit organisation
• It is not made from the corpus standing to the organisation's credit as on the end of the preceding tax year
• It is not funded out of any loan or borrowing
• No depreciation is claimed on an asset whose acquisition has already been claimed as application of income (in the same or any other tax year)
• It is not in the form of a contribution or donation to any person
• It does not involve a payment (or aggregate of payments) to a person in contravention of Section 36(4), (5), (6) or (7)
• The payment is allowable under Section 35(b)(i)

No other deductions allowed

Sub-section (4): no set-off, deduction or allowance for any application or expenditure, other than the expenditure described in sub-section (3), is allowed while computing tax under this section.

Step-by-step flow for applying Section 353

1. 1

   Did the registered non-profit organisation commit any default in Section 353(1) during the tax year?

   (a) books not maintained under Section 347; (b) books not audited under Section 348; (c) return not furnished under Section 349; or (d) for an organisation advancing any other object of general public utility, commercial activity in contravention of Section 346.

   • No: Section 353 does not apply.
   • Yes: Go to the next step.
2. 2

   Identify the expenditure that may be deducted

   Under Section 353(3), only expenditure incurred in India (not capital expenditure) for the organisation's objects counts, and only if it meets all of conditions (a) to (h): not from the corpus at the end of the previous tax year, not out of a loan or borrowing, no depreciation on an asset already claimed as application, not a contribution or donation to any person, not a payment in contravention of Section 36(4) to (7), and allowable under Section 35(b)(i).

3. 3

   Compute taxable regular income

   Regular income for the year less the Section 353(3) expenditure is taxable regular income, chargeable under Section 334. No other set off, deduction or allowance is given (Section 353(4)).

4. 4

   Add specified income and residual income

   Under Section 353(2), irrespective of Section 338, specified income and residual income not included under Section 353(1) are also chargeable under Section 334.

Practical checklist

Frequently asked questions