If we purchase land for school using FCRA fund and the school is constructed using local funds and CSR do we have to maintain separate FCRA utilisation account for receipts and payments of that school income and expenditure and report to MHA ?
Or we can maintain a normal bank account for school project and show in audit and ITR
Land purchased from FC funds to be accounted for in FCRA books and reported in FC 4. Building constructed to be accounted for in local books and both land and building reflected in consolidated financials.
The question to answer is whether land by itself could have generated income although without land a building could not be created to earn the income. In our understanding, building substantively generates the income and therefore it could be assigned fully to local books. Please also check whether any clause in donor contract for funding land is contained on income generation to be sure.
A second view is based on the FC law mandating that income generated from FC funds is also FC (deemed FC). In this case, if land which is from FC funds is used to generate income, it will be deemed FC. Please ascertain the ratio of land and building cost and allocate revenues and expenditures from operations proportionately. The accounting and recording would be complex. Also, the building would depreciate over time and the ratio may have to be calculated every year. Further, if the land cost in the total infra cost i.e. land and building put together is minimal, the proportionate sharing of income and expenditure may again not serve much purpose.
If this question were to be looked at by MHA, the view in point 3 would be upheld.
Dear Sharadji, This is very well articulated. We have to be extremely mindful when an asset has both the FC and NFC funding components. I would also like to bring in one point. In case the FCRA of the NPO is cancelled / suspended for some reasons, the consequences that it would have on the asset per se also have to be looked into. Purely from a risk management perspective.
Sure, NPOs with fixed assets cannot afford cancellations. If FCRA COR is cancelled, assets vest in the prescribed authority (Govt) and if 12A cancelled, exit tax on value of assets will kick in.