AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (1) TMI 1902
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....y the Ld. DIT(E) has resulted in withdrawing the benefit under sections 11 & 12 of the Act by the Ld. AO, and relevant to the appellate proceedings thereon, the case in ITA No.410/Mds./12 related to the issue of cancellation of registration under section 12AA(3) of the Act is taken up first for adjudication. 3. The assessee aggrieved by the order of the Ld. DIT(E) has taken up sixteen elaborate grounds before us, however, the crux of the issue is that the Ld. DIT(E) had erred by cancelling the registration granted to the assessee under section 12AA of the Act invoking the provisions of the sec.12AA(3) of the Act, which is opposed to the law, facts and circumstances of the case. 4. The brief facts of the case is that the assessee, M/s.Microcredit Foundation of India, ( in short 'MFI') is a company, registered under section 225 of the Companies Act, and registration under section 12AA of the Income Tax Act, 1961 was granted by the Ld. DIT(E) dated 17.09.2012 vide order No.2(594)/2001-02. 5. The main objects of the assessee-company as per clause III.A. of the memorandum of articles are as under:- (i) To help channelize funds from banking and non-banking sources inclu....
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....by the members of the SHG. v) The assessee is not charging any fee from the members of SHG but they were receiving service charges from the financial institutions. vi) The fees collected from the bank and financial institutions are only to meet the expenses of the assessee and to meet the repayment of the loan in default. 8. However, Ld. DIT(E) after examining the agreements between the assessee company and the financial institutions and the insurance companies, arrived at a conclusion that the interest charged by the financial institutions for the loan extended to the SHG is much higher due to which the financial institutions grants the assessee fees. Therefore, it could be easily inferred that the assessee is conducting business and sharing the profits with the financial institutions. Further, the assessee company was promoting the interest of insurance companies. For the aforesaid reasons it was held by the Ld. DIT(E) that the activities of the assessee company were not charitable in nature and therefore invoked the provisions of sec.12AA(3) of the Act and cancelled the registration granted u/s12AA of the Act. 9. Before us, ld.A.R reiterated the submissions made b....
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....cts for general public utility and if such activity involves any element in the nature of trade, commerce or business then the same cannot be considered as charitable activity within the scope of section 2(15) of the Act if the aggregate receipts exceeds the limit prescribed in the second proviso. However if the assessee charges exorbitant rate of interest, or calculate interest in a manner which results in high rate of interest other than the normal rate of interest charged by Nationalized Banks, then the aforesaid activities cannot be considered as objects for general public utility. 13. In this outlook, it would be relevant to examine the decisions cited by the Ld. A.R supra. (i) CIT Vs.Sarvodaya Ilakkiya Pannai [2012] 343 ITR 300 (Mad.) Held, that under section 12AA, the Commissioner is empowered to grant or refuse the registration and after granting registration, would be empowered to cancel it, but only on the two conditions laid down under section 12AA(3). Whether the income derived from such transaction would be assessed to tax and whether the trust would be entitled to exemption under section 11 are entirely the matters left to the Assessing Officer to....
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....on'ble Bangalore Bench of ITAT in the case of ADIT(Exemption) v. Bharatha Swamukhi Samsthe in ITA No.1121/Bangalore/2008 in which it has been held that the assessee is entitled to registration under section 12AA as well as approval under section 80G of the Act." In this case, the finding of theTribunal was that the assessee was utilizing its resources to help the weaker sex, poor, socially and economically weaker sections of the society. Further, there was nothing to suggest that the interest charged by the assessee was exorbitant. The facts in the relevant case before us do not have such findings. (iii) Disha India Micro Credit Mohalla, Mandir JI-Vs CIT- 2011- TIOL-119- ITAT-DEL "Whether the activities of promoting micro finance services, as permitted from time to time by the Reserve Bank of India, exclusively to large number of poor persons, in their villages, town etc. for income-generation; and thus to help them and their family to rise out of poverty not with the motive of profit, can be considered to be charitable purpose within the meaning of sec 2(15) of the Act. Sec.2(15) of the Act defines "charitable purpose" to include the expres....
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....bjects, and in the case of dissolution, any property remaining after meeting out the liability shall be transferred to the association having similar object. Therefore, the rejection of the registration of trust on this score is also unjustified." In this case also, there was a specific finding by the Tribunal that the funds were utilized to benefit & uplift the poor by extending micro finance without charging exorbitant rates. Such finding is absent in the relevant case before us. (iv) Self Help Group women Enterprises Vs. Director of IT -ITA No.1546/Mds./2012 dt.22.02.2013. "6. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. The undisputed facts of the case are that the assessee-trust was constituted by a trust deed dated 18.12.2011 and applied for registration in Form 10A on 25.11.2011. The DIT(E) refused registration to the assessee-trust on the ground that the activity and objects of the assessee-trust were conducting of micro finance business where the fees to be collected from self help groups and also from banks and financial institutions to whom the services will be rendered a....
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....oric interest,] and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity:] [Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year;]" Both provisos are applicable from 01.04.2009. If we look at first proviso, no doubt it can be said that advancement of object of general public utility shall not be a charitable purpose, if it involved activity of trade, commerce or business or any service rendered in relation to any trade, commerce or business for a consideration. However, the second proviso, which was added by Finance Act, 2010, again with retrospective effect from 1.4.2009, brought in c....
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....using Board(supra) and Gujarat Cricket Association (supra). We are, therefore, of the opinion that ld.DIT(E) fell in error in cancelling the registration granted to the assessee under section 12A(a) of the Act." In the relevant case before us, the Ld. DIT(E) had made a categorical finding from the activities of the assessee company that the assessee company had not carried out any charitable activity. It is apparent that the fact in the above cited case is not identical to the facts of the case before us. 14. At this juncture, we are also reminded of the decision rendered by Hon'ble Bombay High Court cited in 343 ITR 023 in the case of Sinhagad Technical Education Society Vs. Commissioner of Income Tax And Another wherein it was held that the Revenue has powered to cancel the registration in view of the amended provisions of the Act invoking sec.12AA(3) of the Act. Further, it is pertinent to mention that the decision rendered by the Hon'ble Uttarakhand High Court in the case of Commissioner of Income Tax V. National Institute of Aeronautical Engineering Educational Society [2009] 315 ITR 428 (Uttarakhand) wherein it is held:- Held: allowing the appeal, that section ....
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.... It enables women's empowerment by routing credit directly to women, thereby enhancing their status within their families, the community and society at large. d) Easy access to credit is more important: for the poor than cheaper credit which might involve lengthy bureaucratic procedures and delays. e) The poor are often not in a position to offer collater(..ll !t~ seCllre the credit. f) Given the imperfect market in which the sector operates and the small size of individual loans, high transnction costs are unavoidable. However, when communities set up their own institutions, such as SHG federations and co*operative the transaction costs are lower. g) Transaction costs, can be reduced through economies of scale. However, increases in scale cannot be achieved, both for individual operations and for the sector as a whole in the absence of cost recovery and profit incentive. 2.4 Given the above considerations, the essential features of credit for Microfinance which have evolved are as under:- a) The borrowers are low-income groups. b) The loans are for small amounts. c) The loans are without collateral. ....