TaxTMI 
TaxTMI 
2017 (12) TMI 1218
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....ter, on the case was selected for scrutiny and the assessment was completed u/s 143(3) of the Act on 02.11.2011, determining the total income at Rs. 20,05,605/- denying exemption u/s 11 of the Act. The society carried on various charitable activities over a period of time and has been granted exemption u/s 11 till the A.Y.2009-10. The Assessing Officer(AO) during the assessment proceedings observed that in view of amendment made to section 2(15) by insertion of proviso to the effect that, if the activities carried on involve any trade or commerce then the activity which is otherwise charitable will lose the character of being charitable in nature, and accordingly denied the exemption u/s 11. 3. Taking the cue from the observations of the AO, in the assessment order for the A.Y.2009-10, the Ld.CIT initiated proceedings for cancellation of registration u/s 12AA(3) of the Income Tax Act, 1961. The Ld. CIT observed that as per the Memorandum of the Society dated 14.3.1988, the society's aims and objectives are to educate, organize and activise the youth, particularly Rural youth to make use of their strength, knowledge and skill for the all-round development of the rural India speci....
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....es, membership fee, micro insurance expenses, rural development training centre expenses, office maintenance, office rent, postage and telegrams, printing and stationery, repairs and maintenance, AMC paid to software provider, staff recruitment expenses, stamp duty, telephone charges, travelling expenses, vehicle fuel expenses, vehicle insurance, vehicle maintenance and visitors expenses the total of which comes to Rs. 1,20,82,457/-. The main source of income is interest income from banks and interest from debtors, etc. A fair perusal of the expenditure incurred indicates that the assessee incurred nothing even miniscule element of expenditure towards the avowed objects. The society also retained its discretion to advance the money by obtaining security or without security and it may advance the amounts for any purpose, which it deems fit. There is every possibility of misuse of the discretionary clause for commercial usage. It was also noticed by the CIT that the assessee has adjusted some funds to the Secretary of the Society, viz. Sri V. Prabhu Das during the assessment year 2009-10 in violation of 13(1)(c) of I.T.Act. 6. The assessee explained to the Ld. CIT that the assesse....
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.... To encourage dairy animal husbandry, livestock rearing, fisheries, etc. 5. Promoting cottage industries such as leather, craft, embroidery, dress making, weaving, carpentry etc. 6. To encourage the women activities for their welfare and awakening. 7. To take care of the needs of the children. 8. To take care of the helpless, aged and destitute. 9. To encourage community health, nutrition Training and education. 10. To help in every way to meet the physical and mental needs of the people. 11. To provide relief in case of Natural disasters like floods, fire accidents, drought, cyclone, tidal wave, earthquake and epidemics etc. 12. To eradicate illiteracy and ignorance by giving basic literacy and useful education. 13. To help the poor people in getting assistance from Banking institutions, Government and Non Government agencies for poverty eradication. 14. To eradicate social problems like poverty, unemployment, dowry system, beggary, untouchability, alcoholism, etc. 15. To acquire movable and immovable properties and to hold, manage, purchase, sell, lease, rent, mortgage or other deal....
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.... (i) The business should be incidental to the attainment of the objectives of the entity and Separate books of account should be maintained in respect of such business. 9. Since the assessee is in the micro finance activity, the activity itself is a charitable activity as held by ITAT, Visakhapatnam in the case of Spandana (Rural and Urban Development Organization) Vs. ACIT (ITAT-VSP) (40 DTR 153). The same view is upheld by Hon'ble jurisdictional High Court in ITTA No.304/2013 dated 10.07.2013. Therefore, the Ld.AR argued that the issue with regard to the micro finance activity is charitable activity or not is put at rest by Hon'ble High Court in the judgements cited supra. Section 2(15) also supports the same view. Ld.AR submitted that for attaining objects, micro finance activity is a source of income to carry out the objects of the society. 9.1 With regard to the second objection of the Ld. CIT the A.R submitted that though the assessee is not registered u/s 25 of Company's Act and not an institution as envisaged in section 11, 12 and 13 of the I.T.Act, there is no such requirement under the provisions of I.T.Act and the society is also eligible for registration u/s 12A....
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.... Vocational training and encourage self-employment. 3. To promote agricultural development through irrigation, land reclamation and adoption of better methods to provide advisory services in agriculture. 4. To encourage dairy animal husbandry, livestock rearing, fisheries, etc. 5. Promoting cottage industries such as leather, craft, embroidery, dress making, weaving, carpentry etc. 6. To encourage the women activities for their welfare and awakening. 7. To take care of the needs of the children. 8. To take care of the helpless, aged and destitute. 9. To encourage community health, nutrition Training and education. 10. To help in every way to meet the physical and mental needs of the people. 11. To provide relief in case of Natural disasters like floods, fire accidents, drought, cyclone, tidel wave, earthquake and epidemics etc. 12. To eradicate illiteracy and ignorance by giving basic literacy and useful education. 13. To help the poor people in getting assistance from Banking institutions, Government and Non Government agencies for poverty eradication. 14. To eradicate socia....
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....Court upheld the order of Tribunal. The assessee also established that it is advancing loans to the poor and needy which is discussed in the subsequent paragraphs. Respectfully, following the order of the Hon'ble High Court, we hold that micro finance activity of borrowing and lending to the poor people is charitable activity. 11. The next objection of the CIT is that the assessee is not lending the monies to the poor and needy and there is no evidence with regard to the advancement of the loans to the poor and needy for their urgent needs. The Ld.AR placed the paper book with the loan applications and also the house hold cards. These evidences were also placed before the AO for remand report for the assessment year 2009-10. On going through the applications, we observe that the applicants are rural poor with the meagre income of Rs. 10,000 to Rs. 20,000/- per annum. The applications placed before us establish that the advances were made to the rural poor. The DR could not controvert the above facts. Therefore, on this ground, the observation of the CIT, that the assessee failed to prove the advances and loans to the poor is without any foundation, hence unsustainable. 12. Th....