2017 (8) TMI 1640 - AT - Income Tax

Tribunal grants Section 11 & 12 benefits to Trust providing microfinance services

M/s. Mahasemam Trust Versus The Income Tax Officer, Ward II (4), Madurai

The tribunal overturned the Assessing Officer's decision to withdraw the benefit of Section 11 & 12 of the Act from a Trust engaged in micro finance ... Exemption u/s 11 - Revenue had withdrawn the benefit of Section 11 & 12 of the Act to the assessee only for the reason that the assessee’s activity is micro-financing by obtaining loan from bank and lending them to SHGs at a higher interest - HELD THAT:- When the assessee has utilized its entire funds for micro-financing in order to uplift the poor then the benefit of Section 11 & 12 cannot be denied to the assessee just because the assessee has charged some markup in its lending rates of interest. It is pertinent to mention that some markup in the lending rates is essential to cover up the administration cost and bad debts arising out of the advances. As also a well-known fact that to obtain loan from Banks is a cumbersome process which any ordinary persons cannot succeed. Entities such as the assessee Trust only has a potential to reach out to such persons and effectively avoid loss of capital and yet lift the poor and the downtrodden. The assessee Trust has rendered service in the nature of ‘providing relief to the poor’ as envisaged in the Act and therefore the benefit of Section 11 & 12 of the Act cannot be denied - we hereby set aside the Order of the Ld.A.O and the Ld. CIT(A) and further direct the Ld.AO to grant the benefit of Section 11 & 12 of the Act, to the assessee. As examined the various extensive activities conducted by the assessee Trust and the considerable time spent by the trustees as well as their relatives and is of the considered view that the consultation fee ranging from ₹ 4 lakhs to ₹ 12 lakhs paid to the Trustees is quite reasonable. Therefore, we do not find the assessee’s trust to have violated any of the provisions of the Act. - Appeals filed by the assessee for both the assessment years are allowed. Issues:1. Withdrawal of benefit under Section 11 & 12 of the Act.2. Disallowance of consultation charges under Section 13(2)(c) r.w.s. 40A(2) of the Act.Issue 1: Withdrawal of benefit under Section 11 & 12 of the Act:The assessee, a Trust engaged in providing micro finance services to self-help groups, filed returns for assessment years 2011-12 & 2012-13. The Assessing Officer (AO) withdrew the benefit of Section 11 & 12, disallowing consultation fees as deductions. The AO concluded that the trust's micro-finance activity was a business, not public charitable activity. The Commissioner of Income Tax (Appeals) upheld this decision, stating the trust's main activity was micro-financing, not relief to the poor. However, the tribunal found no evidence that the trust serviced the rich, emphasizing the trust's efforts to uplift the poor. The tribunal noted the trust's surplus was used for its objectives, concluding the trust provided relief to the poor, entitling it to Section 11 & 12 benefits.Issue 2: Disallowance of consultation charges under Section 13(2)(c) r.w.s. 40A(2) of the Act:The AO disallowed consultation charges paid to trustees, deeming them unreasonable. The AO argued the trust's activity did not align with relief to the poor, as interest rates were higher than banks'. The tribunal, however, found the fees reasonable, considering the trustees' professional contributions. It noted the trust's efforts to help SHGs earn livelihoods, concluding the trust's micro-financing activities aimed at uplifting the poor. The tribunal emphasized that some markup in lending rates was necessary to cover costs and bad debts. It held that the trust's activities aligned with relief to the poor, warranting Section 11 & 12 benefits. The tribunal allowed the appeals for both assessment years.In conclusion, the tribunal set aside the orders of the AO and CIT(A), directing the AO to grant Section 11 & 12 benefits to the trust. The tribunal found the trust's activities aimed at providing relief to the poor, justifying the consultation charges and rejecting the disallowances.