2008 (12) TMI 310 - AT - Income Tax

Tax Tribunal Affirms Charitable Status for Trust's Micro-Credit Programs, Grants Exemption & 80G Recognition Renewal.

Bharatha Swamukti Samsthe. Versus Director Of Income-Tax (Exemption).

Bharatha Swamukti Samsthe. Versus Director Of Income-Tax (Exemption). - [2009] 319 ITR (A. T.) 422 Issues Involved:1. Whether the assessee-trust conducted charitable activities during the assessment year 2005-06.2. Whether the assessee-trust qualifies for exemption under section 11 of the Income-tax Act.3. Whether the interest rate charged by the assessee-trust was exorbitant and exploitative.4. Whether the assessee-trust should be granted renewal of recognition under section 80G of the Income-tax Act.Detailed Analysis:1. Charitable Activities During Assessment Year 2005-06The Revenue argued that the assessee had not conducted any charitable work during the relevant assessment year. The Commissioner of Income-tax (Appeals) (CIT(A)) noted that the assessee-trust had been granted registration under section 12A of the Income-tax Act and had been recognized under section 35AC for receiving donations. The CIT(A) found that the trust was involved in micro-credit programs aimed at poverty alleviation, particularly targeting poor women in rural areas. The CIT(A) concluded that the activities of the trust were indeed charitable.2. Qualification for Exemption Under Section 11The Revenue contended that the assessee-trust did not qualify for exemption under section 11, as its activities were not charitable. The CIT(A) observed that the Department had accepted the returns of the assessee for many years, allowing exemption under section 11. The CIT(A) emphasized that the trust's activities, such as lending money to poor women for income-generating activities, were charitable. The ITAT upheld the CIT(A)'s decision, stating that the trust's activities were charitable and that the exemption under section 11 was justified.3. Exorbitant and Exploitative Interest RatesThe Revenue argued that the interest rate of 28% per annum charged by the trust was exorbitant and exploitative. The CIT(A) found no evidence from the Assessing Officer (AO) to substantiate this claim. The CIT(A) noted that the interest rates charged were lower than those charged by local money lenders and that the trust incurred costs for obtaining loans from banks and administrative expenses. The ITAT agreed with the CIT(A), stating that the interest rate was necessary for the trust to sustain its micro-credit program and that there was no compulsion for beneficiaries to take loans from the trust if lower rates were available elsewhere.4. Renewal of Recognition Under Section 80GThe Director of Income-tax (Exemptions) had rejected the renewal of recognition under section 80G, arguing that the trust's activities were not charitable and were guided by profit motives. The ITAT examined the trust's objectives and activities, noting that the primary aim was poverty alleviation through micro-credit programs. The ITAT found that the trust's activities conformed to the definition of 'charitable purpose' under section 2(15) of the Income-tax Act. The ITAT also noted that the trust did not misuse funds for personal benefits and that the surplus generated was reinvested for charitable purposes. The ITAT concluded that the trust should be granted renewal of recognition under section 80G.ConclusionThe ITAT dismissed the appeal filed by the Revenue and allowed the appeal filed by the assessee. The ITAT upheld that the assessee-trust's activities were charitable, justified the exemption under section 11, and directed the renewal of recognition under section 80G of the Income-tax Act.