TaxTMI 
TaxTMI 
2020 (8) TMI 502
X X X X Extracts X X X X
X X X X Extracts X X X X
....xemption u/s 11 of the I.T.Act. For the assessment years 2010-2011 and 2011-2012, the assessments were completed denying the claim of exemption u/s 11 of the I.T.Act. The reasoning of the Assessing Officer to deny the claim of exemption was that the assessee was engaged in micro finance activities, wherein it was charging exorbitant interest from its beneficiaries and there was no charitable activities involved in micro finance activities. Accordingly, the income claimed as exempt u/s 11 of the I.T.Act was assessed as business income. 5. Aggrieved by the order passed by the Assessing Officer for assessment years 2010-2011 and 2011-2012, the assessee preferred appeals to the first appellate authority. The CIT(A) dismissed the appeals of the assessee and affirmed the view taken by the Assessing Officer. The CIT(A) in doing so, noted the order of the Tribunal in assessee's own case for assessment years 2007-2008 and 2009-2010 in ITA o.79 & 80/Coch/2017 (order dated 25.04.2018). 6. Aggrieved by the orders of the CIT(A), the assessee has filed these appeals before the Tribunal. The learned Counsel for the assessee fairly conceded that the issue in question is covered against the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rity and hence, that the "proviso" added to sec.2(15) of the Act, is not at attracted to the case in hand. He also submitted that the statute, as it stood earlier, had clarified the charitable purpose mentioned in sec.2(15) of the Act, had clarified the charitable purpose mentioned in s. 2(15) by the words "not involving the carrying on of any activity for profit". By virtue of the existence of these clarifying words, if there was any element of profit it was enough liable to be reckoned as charitable purpose right from the inception of the Act in 1961 till 1st April, 1984, when the words "not involving the carrying on of any activity for profit" were deleted. Thus the contention is that after 1st April, 1984, there is no allergy to profit and if the profit feeds charity, it stands cleared for exemption under s. 11 of the Act. 8.2 To analyse the scope and object of the amendment, we have gone through the "Budget Speech" of the Minister for Finance in the Finance Bill 2008, reported in (298 ITR (St.) 33 at page 65 : "180. 'Charitable purpose' includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e or business" or "any service in connection with trade, commerce or business" as contemplated under the statute. Further, we note that there is substantial variation in the statutory position as it existed earlier to 1st April, 2009, where the assessee has been given exemption under section 11 of the Act and the position available after amendment to section 2(15) of the Act, brought into effect from 1st April, 2009. Yet another important aspect to be noted in this context is that, after the amendment by incorporating proviso to section 2(15), the 4th limb as to the advancement of "any other object of general public utility" will no longer remain as charitable purpose, if it involves carrying on of: (a) any activity in the nature of trade, commerce or business, (b) any activity of rendering any service in relation to any trade, commerce or business for a cess or a fee or any other consideration, irrespective of the nature of use or application or retention of the income from such activity. 8.5 The first limb of exclusion from charitable purpose under cl. (a) will be attracted, if the activity pursued by the institution involves any trade, commerce or business. But the situati....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business for consideration, irrespective of the application of the money. Therefore, the case of the assessee is hit by proviso to section 2(15) and the assessee is not entitled for the benefit of section 11 for that part of income generated in the hands of the assessee from running its micro finance business. Alternatively, one has to look into section 11(4A). Sub-section (4A) provides that exemption shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the assessee and separate books of account are maintained by such trust or institution in respect of such business. In the present case, there is no dispute on the fact that the assessee is carrying on the business of micro finance. The assessee is maintaining separate accounts for the above business activities. But, the crucial question is whether running of micro finance is a business incidental to the attainment of the objectives of the trust or not. By any stretch of imagination, it is not pos....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t as per section 7 of the Kerala Money Lenders Act cannot exceed more than 18%. However, in the present case the assessee was charging 29% interest which is far above the rate prescribed by the law i.e. The Kerala Money Lenders Act. This shows that the assessee is in the business of lending at 29% per annum to the poor, which is not as envisaged in the assessee-Trusts's objects. By collecting interest at such a higher rate the assessee has deviated from its objective of doing charity, especially in view of the fact that the difference of interest over deposits and disbursement in cases of banks and non banking financial companies is less than 10%. As such the micro finance activity conducted by the assessee is strictly commercial in nature and with profit motive. The assessee had even collected penal interest from their defaulter which clearly shows that the trust was not even considerate with the poor loanees and was purely acting just as any money lender. From the above the activity of the assessee is business in nature and there is no element of charity involved in the activities of the assessee and it is purely commercial. In view of this, the action of the lower authorities in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rding to the Ld. AR, it was recommended by the sub-committing to charge interest from the public at 24% per annum since there was administrative expenditure incurred by the micro finance institutions. Even going by the Malegam Committee Report of the RBI, the interest charged by the assessee is 29% which is very high. Hence, the activity carried on by the assessee cannot be considered as charitable so as to grant exemption u/s. 11 of the Act. 8.9.3 The Ld. AR relied on various judgments of Tribunals and Supreme Court. The Ld AR relied on the decision of the ITAT, Visakhapatnam in the case of Spandana (Rural & Urban Development Organisation) vs. ACIT in ITA No. 364/Vizag/2009 dated 17/02/2019 which is related to grant of approval u/s. 12AA of the Act. The Tribunal considered the micro finance activities as charitable activities as the assessee was charging interest at 15% per annum. In the judgment of the ITAT, Delhi Benches in the case of Disha India Micro Credit vs. CIT in ITA No. 1374/Del/2010 dated 28/01/2011, the issue was related to approval u/s. 12AA of the Act and not with regard to granting of exemption u/s. 11 of the Act while passing assessment order u/s. 143(3) of the ....