Charitable status for microfinance denied where interest-bearing lending and commercial elements showed a business-like activity.

Microfinance activities carrying commercial elements and interest-bearing lending were treated as business-like rather than charitable for income-tax purposes. Under Section 2(15) of the Income-tax Act, 1961, relief of the poor and advancement of general public utility qualify as charitable purposes, but the proviso excludes trade, commerce or business, or services for consideration once the statutory threshold is crossed. The petitioner did not disclose the lending model, rate of interest, or other operational particulars, and the proposed microfinance was not shown to be free from commercial considerations. On those facts, the Calcutta HC upheld rejection of exemption or registration.

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Issues: Whether microfinance activities, carried on with commercial elements and interest-bearing lending, could be treated as charitable activity so as to sustain approval or registration under the Income-tax Act, 1961.

Analysis: The petitioner's objects included providing microfinance and credit to poorer sections for socioeconomic development. Under Section 2(15) of the Income-tax Act, 1961, charitable purpose includes relief of the poor and advancement of any other object of general public utility, but the proviso excludes activities in the nature of trade, commerce or business, or services rendered for consideration, where the activity crosses the statutory threshold. The recorded findings showed that the petitioner did not disclose the lending model, rate of interest, or other operational particulars, and the proposed microfinance was not shown to be free from commercial considerations. On that basis, the activity was treated as business-like rather than charitable.

Conclusion: Microfinance activities, on the facts found, were not charitable in nature and the rejection of exemption or registration was justified.

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