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

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 services. The tribunal found that the trust's activities were aimed at providing relief to the poor, justifying the consultation charges and rejecting the disallowances. Consequently, the tribunal directed the AO to grant Section 11 & 12 benefits to the trust for both assessment years.

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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.

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