Income Tax department revokes charitable organisation tax exemption of PFI

The department recently cancelled the registration of the Popular Front of India granted under section 12AA (3) of the Income Tax Act

The Income Tax Department has revoked the tax exemption benefit given to Islamic organisation PFI after it found that its activities were allegedly "not genuine" as required to be undertaken by a legally notified charitable organisation.

The department recently cancelled the registration of the Popular Front of India (PFI) granted under section 12AA (3) of the Income Tax Act, 1961. This was granted to the organisation in August 2012.

An order issued by the department in March said the tax benefit for the PFI is being "cancelled/withdrawn" with effect from assessment year 2016-17.

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The order effectively means that the PFI will now have to pay income tax and those who donate to it will not enjoy income tax exemption. It can also go in for an appeal against the order before a higher authority of the department followed by the courts.

The PFI, formed in 2006 in Kerala and headquartered in Delhi, has been under the probe scanner of various state police departments as well central agencies like the Enforcement Directorate and the National Investigation Agency on alleged charges of its and its members' involvement in money laundering crimes and terrorist activities.

The department has taken away the tag of the PFI being a charitable institution as defined under section 12A read with section 12AA of the Income Tax Act and also under section 80G under the same law.

While section 12A/12AA specifies the scheme of taxation exemption in respect of income of charitable or religious trusts or institution, section 80G allows income tax deduction to an individual who donates to such a notified charitable or religious institution.

The department, the order said, found that the PFI "was not carrying out its activities as per objects of memorandum of association (MoA) of the assessee trust or institution" and that it allegedly violated provisions of section 13(1)(b) on "account of beneficiaries of assessee belonging to one particular religious community."

The order also alleged that the activities of the organisation were "not genuine."

The PFI, while reacting to income tax proceedings, had earlier told PTI in a statement that it was "a registered organisation with lawful and transparent financial dealings and it abides by all statutory requirements, and annual income tax returns have been regularly filed before the authorities."

It had said the contents of the tax department show cause notice earlier issued to it in this context were "highly prejudiced and indicative of the well-orchestrated agenda of the central government against the religious minority groups that refuse to dance to the tune of authoritarianism and communal fascism."

The tax department order said that the PFI filed its income tax returns regularly between assessment year 2013-14 to 2020-21 and its MoA stated that it will undertake and promote "national integration, communal amity and social harmony and uphold the democratic setup, secular order and the rule of law in the country."

Another of its notified MoAs states that it will "identify and check the menace or casteism, communalism and fascism."