TaxTMI 
TaxTMI 
2013 (11) TMI 1270
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....09. 2. All the appeals are directed against the orders passed by the Commissioner of Income-tax (Appeals)-IX at Chennai on 29-2-2012. The appeals arise out of the assessments completed under section 143(3) of the Income-tax Act, 1961. 3. The assessee is a prominent NGO working among the rural folk in different parts of India, with the aim of raising the living standard of poor villagers, especially scheduled casts, tribes and other backward communities. The assessee trusts are registered, in these cases in Tamil Nadu, to manage Self-Help-Groups (SHGs for short). These SHGs are group of villagers and their families numbering around ten to fifteen and they undertake a particular programme of generating income for the benefit of the members of that SHG. The assessee trust SMBT is leading and managing about ten to twenty SHGs in their activities. The assessees SMBT, around twenty to thirty in numbers, working in Tamil Nadu, are under the common umbrella of M/s. Sarvodaya Nano Banking Finance Company Limited (SNBFCL for short). SNBFCL is approved by the Reserve Bank of India for carrying out the activities of micro financing. SNBFCL obtains loans from statutory corporations like S....
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....national nodal agency engaged in the upliftment of rural people through programmes designed for sustainable development. In that way, the national apex body ASSF is a charitable institution by the nature of the work carried on by it. Needless to say, it is a non-profit organization. 6. It is under the overall guidance and policy formulation of ASSEFA that field organizations like SNBFCL, the assessee-trusts and individual SHGs are working. SHGs are working at grassroot level in villages. The assessee-trusts arrange finance to these grassroot level SHGs by availing funds from SNBFCL. As already stated, SNBFCL arranges the finance from statutory institutions and nationalized banks. 7. The issues involved in all these appeals, which are common, arise out of the scenario of activities explained in the above paragraphs. 8. As already stated, because of the differential plans of charging of interest, the assessee trusts are generating surplus in their hands. They are distributing 95 per cent of the surplus to member SHGs, as mandated by the by-laws of the assessee-trusts, and they retain 5 per cent of the surplus. 9. In the course of the assessments of these assessee-trusts, ....
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....come-tax (Appeals) anyhow confirmed the taxing of 5 per cent of surplus retained by the assessee trusts. 12. Regarding deduction of tax at source and application of section 40(a)(ia), the Commissioner of Income-tax (Appeals) held that interest expenses in the hands of the assessee trusts are deductible under section 28 itself and, therefore, section 40(a)(ia) does not apply, as that section covers only the expenses claimed by an assessee under sections 30 to 38. He accordingly deleted those disallowances made by the assessing authority under section 40(a)(ia) of the Act. 13. These two modifications granted by the Commissioner of Income-tax (Appeals), stated in the above paragraphs, are the two issues raised by the Revenue in all these appeals presented before us. The first issue is whether 95 per cent of the surplus distributed by the assessee trusts to SHGs is taxable or not. The second issue is whether the assessee trusts are bound to deduct tax at source while making payments of interest to SNBFCL. 14. The circumstances of all these cases are similar and the issues are common. Therefore, the grounds raised by the Revenue in all these appeals are exactly similar. 15. ....
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....fifteen members. The details of every member belonging to a SHG are available on record. The details of loans availed by the various SHGs are properly recorded and further distribution of funds by SHGs to their individual members are also properly documented. It is on the basis of these documentations and details that interest is computed and paid off. The assessee trusts are returning back 95 per cent of the surplus to the various SHGs working under them for the purpose of ultimately distributing among the members. There cannot be a case, in such circumstances, that the share of every SHG, or the share of every individual member is indeterminate. That is a finding of fact arrived at by the assessing authority without any basis. The assessee trusts are not distributing the 95 per cent of the surplus to a large crowd at their own whims and fancy. The assessee trusts are distributing the 95 per cent of surplus on the basis of proper accounts, formula and procedure. Every beneficiary is identified. The share of every beneficiary is quantified. Therefore, we find that the Commissioner of Income-tax (Appeals) is justified in coming to the conclusion that the assessee trusts and the SHGs....
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....profits and gains of business or profession, it means that different expenses that may be claimed by an assessee shall be considered for deductions under those respective sections arranged in between sections 30 to 43D. Section 36 specifically provides for other deductions allowable to an assessee. Section 36(1)(iii) provides for deduction of interest paid by an assessee. Section 37 provides a residuary provision for deducting other expenditure incurred in carrying on of the business, but not specified elsewhere. All these things show that law has provided a comprehensive system for deciding what are profits and gains of business or profession and how profits and gains of business or profession will be computed. When such an exhaustive provision is made in the Act, it is not possible to hold that section 28 itself provides for expenditure and, therefore, the assessee can claim the expenditure of interest payment as an expenditure deductible at source itself under section 28. We disagree with the legal proposition laid out by the Commissioner of Income-tax (Appeals) and his legal conclusion on that point is set aside. 21. Now, coming to the facts of the case, we agree with the Co....