2016 (12) TMI 1920 - HC - Income Tax

Charitable trust's microfinance loans to poor women qualify as relief under Section 2(15)

THE COMMISSIONER OF INCOME TAX (EXEMPTIONS) Versus SOCIETY FOR RURAL IMPROVEMENT

The Kerala HC dismissed the Revenue's appeal challenging the Income Tax Appellate Tribunal's order for AY 2011-2012. The case involved whether a ... Assessment of trust - charitable trust's activity of advancing loans to poor women - scope of definition of charitable purpose in Section 2(15) - falling within the meaning of the 1st limb of the definition of 'charitable purpose' u/s 2(15) or within the ambit of 'any other object of general public utility', the 4th limb - ITAT confirmed that the respondent trust is entitled to be treated as a charitable institution within the meaning of the 1st limb of the definition of 'charitable purpose' u/s 2(15) of the I.T.Act. HELD THAT:- Reading of Section 2(15) of the Act provision shows that relief to the poor is incorporated as first limb of the Section to qualify as a charitable activity. Insofar as this case is concerned, reading of the order impugned itself show that the activity of the assessee is advancing loans to poor women from the villages. Such an activity, to our mind, qualifies to be relief to the poor is to be included in the first limb of the Section. If that be so, the finding of the Tribunal in confirming the order passed by the First Appellate Authority cannot be said to be illegal. We are not satisfied that any question of law arises from the order impugned, to be considered by this court. The Kerala High Court, in an appeal filed by the Revenue against the Income Tax Appellate Tribunal's order for assessment year 2011-2012, considered whether a charitable trust's activity of advancing loans to poor women qualifies as a 'charitable purpose' under Section 2(15) of the Income Tax Act. The Assessing Officer classified the activity under the 4th limb-'advancement of any other object of general public utility,' while the Tribunal and First Appellate Authority held it falls under the 1st limb-'relief of the poor.'Key legal issues included whether the trust's microfinance activity constituted charitable relief or a business/trade activity disqualifying it as charitable, especially given allegations of high-interest rates akin to commercial money lending.The Court analyzed Section 2(15), noting that 'relief of the poor' is explicitly the first limb of the definition of charitable purpose. Since the trust advanced loans to poor women in villages, the Court held this activity qualifies as relief to the poor under the first limb. It upheld the Tribunal's finding that the activity is charitable and dismissed the Revenue's appeal, stating: 'the finding of the Tribunal... cannot be said to be illegal' and 'we are not satisfied that any question of law arises.'In sum, the Court affirmed that microfinance loans to poor women constitute 'relief of the poor' under Section 2(15)(1), rejecting the Revenue's contention that it was a commercial money lending activity outside charitable purposes. The appeal was dismissed.