TaxTMI 
TaxTMI 
TaxTMI 
2024 (5) TMI 1010
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....ities of the appellant are hit by the proviso to section 2(15) of the Act on the facts and circumstances of the case. 4. The authorities below failed to appreciate that the activities of the appellant fell under "relief to poor" and thus charitable, on the facts and circumstances of the case. 5. The authorities below were not justified in holding that the activity of providing financial assistance to poor people would fall within the limb "advancement of any other object of general public utility" and does not come within the ambit of 'relief of the poor' on the facts and circumstances of the case. 6. The learned CIT(A) erred in denying claim of deduction u/s 11 & 12, though admitting that the micro finance Activity is Charitable activity in the advancement of GPU and erroneously concluded that the appellant was hit by the Proviso to section 2(15), when the said proviso is only applicable to the incidental revenues generated and not the primary activity, on the facts and circumstances of the case. 7. The authorities below have erred in not allowing the exemption claimed under section 11 of the Act on the grounds that the appellant has made surplus from its activ....
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....ty, which falls outside the scope of section 2(15) of the Act. Hence, we consider the entire arguments made by assessee in a cumulative manner instead of addressing each ground individually. 4. The brief facts of the case are as follows: i. The Assessee is a trust registered under section 12A of the Act vide certificate issued by the Commissioner of Income Tax, Karnataka - II, Bangalore in No. TRUST/18/A-1/S-742/98-99/CIT-II dated 18.12.1998. the assessee has also been granted 80G vide order in F.No. DIT(E) BLR/80G/200/AAECS0038H/ITO(E)- 3/Vol.2010-11, dt: 16/08/2010. The said certificate u/s 12A and 80G have been both renewed on 24/09/2021. ii. The Assessee Trust was formed with the objectives as reproduced in the order of assessment and the assessee has been carrying out activities to fulfil the objectives. The assessee has over the years consciously and in fulfilment of its objectives, lent monies to the downtrodden, who have no option of availing loans and has provided the means to install themselves as earning members of the community. iii. The assessee has advanced monies to individuals and others in order to develop a belief of entrepreneurship and to inculcate a feel....
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....the surplus is due to the multiplicity of the funds being repaid by the individual members. The assessee also provides capacity building training to members or borrowers, i.e. to make use of the credit facilities, which is an added cost to the assessee. x. In other words, the assessee is lending to individuals through NGO, SHG, etc who in the regular course of their daily lives would not be eligible to avail a loan and at concessional rates of interest compared to the prevailing rate of interest from private financial institutions / NBFC. xi. Without prejudice to the above, the ld. A.R. stated that the assessee does not receive any funds as donations, grants, etc and has to operate solely on the borrowings to fund the demand, which is on a higher scale and thus the necessity to avail loans and the markup on the loans availed are necessary to cover the cost of overheads, travelling, conducting camps, recovery drives, litigation, etc. xii. The assessee has by being prudent in its lending and effective control of the disbursements, ensured that there was a surplus in the years, which cannot be construed to be a profit motive and the activities of the assessee was being conducted....
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....urther reliance on the decision of the Hon'ble Delhi Tribunal 'B' Bench in the case of Disha India Micro Credit in ITA No.1374/Del/2010 dated 28.01.2011, wherein it was held; "14. Now, the question arises as to 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, towns 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. 15... 16... 17. On perusal of the aforesaid meaning of relief of the poor, it is clear that it encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy people. It would include within its ambit, purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, t....
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....ctive of whether it receives the interest, principal from the people, it has to regularly honour its loan instalment to maintain its credible image. vi. The ld. A.R. submitted that mere profit in the financial statement shall not be a yard stick to draw an inference that the assessee in undertaking activities for the purpose of profit. vii. The ld. A.R. further submitted that the surplus generated by the assessee year after year would not dis-entitle it from claiming exemption under section 11 of the Act, when the surplus are used for the object of the trust. viii. The ld. A.R. placed reliance on the parity of reasoning of the decision of the Hon'ble Apex court in the case of ACIT v. Surat Art Silk Cloth Manufacturer Association reported in [1978] 121 ITR 1, wherein the constitutional bench held; 17... "The test which has, therefore, now to be applied is whether the predominant object of two activities involved in carrying out the object of general public utility is to subserve this charitable purpose or to earn profit. Where profit making is the predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpo....
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.... a line of credit to ensure that loans are available to the poorest of the poor, which is not extended by commercial banks and NBFC. ii. The assessee is lending a helping hand to such individuals who need a second chance and to such people who do not have the ability to avail a loan by providing security towards the loan. iii. The assessee is rendering a much needed service to the individuals by infusing credit into the system, which is required to revive the rural economy, without which it would be difficult for the individuals to join the main stream of the economy. iv. The learned Assessing Officer has merely relied upon the figures as appearing in the financials, has arrived at the conclusion that the assessee was not carrying on charitable activity, without appreciating the nature of the work carried on, by the assessee. v. He submitted that the nature of charitable activity cannot be construed by a mere glance at the financial data, but the AO ought to have appreciated the purpose and the intent behind the activities being undertaken by the assessee. vi. The AO ought to have appreciated that the assessee's activity was to be appreciated by considering the surroundin....
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....mmerce 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, unless- (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year; xiv. The ld. A.R. submitted that it borrows money from banks and financial institutions and advances to the needy people. The learned assessing officer has also concurred at para 5.9 of page 6 in the impugned order of assessment that the assessee does not have its own corpus. The relevant portion is extracted hereunder; 5.9 ...Further, the assessee has raised secured loans and unsecured loans at the rate of from banks. Thus, it means it has raised loans to advance to customer by paying interest and the assessee is not having own corpus in a formal ca....
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....ture of relief of the poor and the proviso to section 2(15) is not attracted under the facts of the case. xxiv. The ld. A.R. further submitted that the Central Board of Direct Taxes ("CBDT") vide its Circular No. 11/2008, dated 19.12.2008 has stated that the proviso to section 2(15) will apply only to those entities whose purpose is 'advancement of general public utility' and not in respect of the first three limbs of section 2(15) of the Act. The relevant portion is extracted hereunder; 2. The following implications arise from this amendment - 2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute 'charitable purpose' even if it incidentally involves the carrying on of commercial activities. 2.2. 'Relief of the poor' encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapp....
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....ctivities and the money was lent to its project members at a rate of interest higher than that of the rate of interest the loan was borrowed. In that case also assessee has borrowed the funds either from the bank or other financial institutions and was lent to the project members. The Tribunal has taken a view that this micro finance activity was undertaken to alleviate the poverty and for the benefit of socio-economically weaker sections of the society and for doing this activity a proper organized sector is required in which lots of expenses are to be incurred. To meet that expenses, assessee is bound to charge higher rate of interest from the project members. Otherwise, assessee could not undertake the microfinance activities at the same rate of interest. The similar is the position in the instant case. Since the Tribunal has taken a view in a particular set of facts and held that micro finance activity is a charitable activity as it alleviates the poverty and also for the benefit of the socioeconomically weaker sections of the society, we find no reason to take a contrary view in this appeal with regard to the nature of activity undertaken by the assessee. We therefore hold tha....
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....bject's clause of the assessee, which has not been produced. The assessee has focused on micro finance activities through SHGs. It is a network of 70 branches and it has run professionally. The assessee so as to expand the business of microfinance, it offers incentives of 1% to 2% to the NGO & SHG and incurred expenditure of Rs. 70,17,226/- during the financial year 2015-16 and Rs. 1,61,84,245/- in the financial year 2017-18. The assessee has charged about 6% to 8% over and above the bank rate of interest to the members of SHG which works out to 18% to 20% as against the borrowable rate of 10% to 11.75% p.a. As a result of professional management, assessee has earned profit of 28.76% in assessment year 2016-17 and 24.94% in the assessment year 2018-19 and also reserves surplus of Rs. 34,01,24,035/- in the assessment year 2016-17 and Rs. 45,91,43,949/- in the assessment year 2018-19. Thus, the assessee has not lend any money to its borrowers at subsidized rate. On the other hand, it charged exorbitant rate to its borrowers and there has been no relief to the poor. 6.1 Now the contention of the assessee before us is that the assessee is a Charitable Institution carried business of m....
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.....e.f. 8.12.1998 vide approval dated 8.12.1998 and 16.8.2010 respectively. The objects of the assessee for which it has been formed are as follows have been approved by the competent authority while granting the approval u/s 12AA of the Act: (A) "THE MAIN OBJECTS TO BE PURSUED BY THE COMPANY ON ITS INCORPORATION ARE. (a) to carry out and undertake the financing and providing credit on interest or otherwise to group of persons belonging to the poorer sections joined together based on the concept o Self Help Groups (SHGs) both in rural and urban areas with active support of Non- Government Organisations (NGOs) based in India and abroad (b) To Provide consultancy and the required infrastructural and training facilities to the group members. (c) To receive money on deposit at interest and provide financial and other support to the members of SHGs. 2. ..... (a) To organise survey and investigation for assessing the scope and expansion of existing rural industries and establishment of new industries for the benefit of group members. (b) To formulate plans for providing required credit to the group members. (c) To raise necessary funds for carrying out the objectives ....
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....e deemed expedient for the purposes of procuring contributions to the funds of the Company in the shape of donations or otherwise. 5. To print and publish any newspapers, periodicals, books or leaflets that the Company may think desirable for the promotion of its objects. 6. To manage, lease, mortgage, dispose of or otherwise deal with all or any part of the property of the Company. 7. To create a charge over all or any of the assets of the Company whether moveable or immovable by mortgage, hypothecation, pledge or otherwise for purposes of securing the repayment of any moneys borrowed. 8. To borrow and raise money in such manner as the Company may think fit. 9. To invest the monies of the Company not immediately required for its purposes in or upon such investments/securities and in the modes specified under the provisions of Section 13(1)(d) read with Section 11(5) of the Income Tax Act. 1961 as amended from time to time. 10. To undertake and execute any trusts or any agency which may seem directly ir indirectly conducive to any of the objects of the Company. 11. To subscribe to any local or other charities and to grant donations for any public purposes and t....
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....rs in the conferences, seminars and exhibitions in India and abroad for activities relating to the areas of interest to the Company. 23. To promote, develop and improve exchange of knowledge as well as technical cooperation between institutions, associations, bodies and agencies having objects similar to that of the Company. 24. To conduct conferences, refresher course, lectures, seminars, demonstrations and exhibitions, relating to the areas of interest to the Company. (B) THE OTHER OBJECTS NOT INCLUDED IN (A) AND (B) ABOVE: Provided that the Company shall not support with its funds or endeavour to impose on or procure to be observed by, its members or others, any regulation or restrictions which, if any object of the Company, would make it a Trade union. II. The objects of the Company extend to the whole of India III. 1. The income and property of the Company, whensoever derived, shall be applied solely for the promotion of its objects as set forth in this Memorandum. 2. No portion of the income or property aforesaid shall be paid or transferred directly or indirectly, by way of dividend, bonus or otherwise by way of profit, to persons who at any time are ....
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....rtered Accountant. VIII. If upon winding up or dissolution of the Company, there remains, after the satisfaction of all the debts and liabilities, any property whatsoever, the same shall not be distributed amongst the members of the Company but shall be given or transferred to such other Company having objects similar to the objects of this Company, to be determined by the members of the Company at or before the time of dissolution or in default thereof, by the High Court of Judicature that has or may acquire jurisdiction in the matter. IX. We, the several persons whose names, addresses, designations and occupations are hereunto subscribed are desirous of being formed into a Company not for profit, in pursuance of this Memorandum of Association:" 6.5 As seen from the above object clause along with income and expenditure account of the assessee for these assessment years, assessee has carried on object clauses 1 & 2 only and it has not carried out any charitable activities stated in clause 3 & 4 of the Articles of Association. Therefore, we are not in agreement with the argument of the ld. A.R. that the lower authorities have ignored the approval to the assessee u/s 12AA of ....
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....aged in charitable activities or not. In the present case, by going through the microfinance activity of the assessee, which is carried on in a commercial manner and to be considered as a commercial activity as defined in section 2(15) of the Act, the provisions of section 13(8) becomes operative. Exemption u/s 11 of the Act cannot be granted unless assessee is engaged in charitable activities. 6.6 On the contrary, the ld. A.R. made an argument that microfinance activity carried on by the assessee takes care of the poor people who cannot step into the commercial banks for availing financial assistance. In our opinion, the activity carried on by the assessee cannot be considered as an activity of medical relief or education or relief to the poor and it does not fall under any specific activity to relief of the poor, education, medical relief. The correct way to express the nature of activities carried on by the assessee is to say that the assessee is carrying on "advancement of any other object of general public utility". When that is the case, the assessee is hit by the proviso given u/s 2(15) of the Act. The proviso reads that "advancement of any other object of general public ut....
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....ents. The assessee admitted that they were taking loan from commercial banks at an interest rate below 11.75% per annum for disbursing these loans. Therefore, the difference between these rates was 6% to 8% which is very substantial. As per the Trust Deed, the main object of the assessee is shown as providing finance to the poor. If that is the real object, they would have provided loans at interest rate below bank rates or by taking a nominal margin on the money they borrowed from banks. This shows that the assessee is in the business of lending at 18% to 20% per annum to the poor, which is not as envisaged in the assessee-Trust'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 12%. As such the micro finance activity conducted by the assessee is strictly commercial in nature and with profit motive. The assessee had even collecting overdue interest from their defaulter which clearly shows that the trust was not even considerate with the poor loanees and w....
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....ile passing assessment order u/s. 143(3) of the Act. 6.12 The assessee relied on the following judgements which we will consider one by one. (A) The Bangalore Bench of the Tribunal in the case of ADIT(E) v. Bharatha Swamukhi Samsthe [2009] 28 DTR 13 (Bangalore - Tribunal) has held that the work of lending money to poor women for income generating activities was charitable in nature as there was nothing on record to show that the interest charged by the assessee was exorbitant, which is missing in present case. The following extract from the case is crucial to understand the statutory and judicial interpretations in this regard: "It is not in dispute that the assessee's work is lending money to the poor women for income generating activities. The loan given to project members are borrowed from bank; the beneficiaries are poor families. If the women in the assessee's project have to borrow money from the money lenders they have to pay many times higher interest than what the assessee has charged. It is also not in dispute that the assessee incurs financial costs for ling loans from banks. The assessees also have to make payment towards salaries and other administrative a....
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....served that such profit even if to be ploughed back as claimed by the assessee, liable to income-tax under IT Act. It was held that merely because there was a surplus from the activity of micro financing, that by itself, cannot be a ground to say that the assessee did, not exist for charitable purpose particularly when under the Memorandum of Association and Articles of Association, it had been clearly provided that the profit shall not be distributed amongst the members but shall be utilized towards its objects, 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 was also found by the Hon'ble Tribunal as unjustified. This case Disha India Micro Credit also does not help the assessee as it is about treating micro finance a charitable activity at the time of 12A registration, which in any case is not disputed. At the assessment stage only the application and charitable nature is seen. (C) The ld. A.R. further referred to the decision of the Cuttack Bench of the Tribunal in the case of Bharat Integrated Social v. C....
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....ntal business was permissible if the amount was applied for charitable purposes. The appellant has totally misunderstood the ruling and nowhere it suggests that the primary charitable activity can be run for profit on commercial principles. The ruling was specifically confined to sub section (4A) of section 11 which regulates incidental businesses and therefore not relevant." (D) In the case of Sakhi-Saheli Micro finance Forum reported in [2019] 108 taxmann.com 435 (Jaipur-Trib.), wherein it was held; "5....Further, the ld. CIT(E) has arrived to the conclusion that the activities of the assessee are not charitable in nature by considering the nature of objects and activities being providing finance to weaker and destitute persons of the society and primarily to the economically weaker women. Therefore, the primary object of the assessee is to provide micro finance assistance to the weaker section of the society at concessional rate of interest and without any security. The activity of the assessee has to be analyzed in light of the objects of the assessee that the formation of the assessee company with charitable objects and not with profit motive. The expression charitable....
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....hat if the purpose of an institution is the advancement of an object of general public utility, it is that object and not its accomplishment which must not involve the carrying on of any activity for profit. So long as the dominant purpose of the institution does not involve the carrying on of any activity for profit, it is immaterial how the money for achieving that purpose is found, whether by carrying on an activity for profit or not. The Hon'ble Supreme Court has emphatically clarified that the primary activity cannot be run for profit, once the primary activity is not run with profit motive the organization can have other activities which may generate profit. There is a fundamental difference between running the primary activity for profit and having incidental profit-making activities. Hence, the argument of ld. A.R. is that microfinance activity is itself a charitable activity cannot be accepted as the activity of the assessee carried on by it with a predominant and principal object of making profit and no charitable activity has been carried out and it also cannot be said that it was carried on towards advancement of any other object of general public utility. Hence, ra....
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....ed by the assessee cannot be considered to be exorbitant. We find merit in the said contentions. As submitted by Ld A.R, the rate of interest of 14% is the normal rate charged by the banks for its lending and hence the said rate cannot be considered to be at exorbitant rate, as observed by the tax authorities. Hence the case laws relied upon by the tax authorities, viz., Kalanjiam development financial services (supra) and Janalakshmi Social Services (supra) are distinguishable on facts. 17. The next reason given by the AO is that the assessee is generating surplus year after year. Further, its income from financing activities has been increasing year after year. The important point to be noted here is that, so long as the assessee has been utilizing its income derived from the property held under the trust for its charitable objectives, the provisions of sec.11 do not deny exemption to a charitable trust. Hence, mere generation of surplus cannot be a reason to deny exemption u/s 11 of the Act. The AO might have highlighted this aspect to drive the point that the activities of the assessee are carried on commercial lines and hence the proviso to sec.2 (15) would be hit. Before u....
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....est higher than that of the rate of interest the loan was borrowed. In that case also assessee has borrowed the funds either from the bank or other financial institutions and was lent to the project members. The Tribunal has taken a view that this micro finance activity was undertaken to alleviate the poverty and for the benefit of socio-economically weaker sections of the society and for doing this activity a proper organized sector is required in which lots of expenses are to be incurred. To meet that expenses, assessee is bound to charge higher rate of interest from the project members. Otherwise, assessee could not undertake the microfinance activities at the same rate of interest. The similar is the position in the instant case. Since the Tribunal has taken a view in a particular set of facts and held that micro finance activity is a charitable activity as it alleviates the poverty and also for the benefit of the socioeconomically weaker sections of the society, we find no reason to take a contrary view in this appeal with regard to the nature of activity undertaken by the assessee. We therefore hold that the micro finance activity in the instant case is a charitable activity.....
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....ncement of certain funds by the assessee to other organisations who were also engaged in similar type of activities are concerned, by advancing a fund on interest to other organisations, assessee has accomplished its of microfinance to the socio-economically weaker sections of the society and to alleviate poverty beside collecting the interest on the advancement loan. Moreover, this fund was advanced for a shorter period and the assessee has also earned an interest thereon which was utilised in micro financing activity to the poor people. By joining hands with the banks or financial institutions for procuring funds/loans for its advancement to poor or needy people exemption under section 11 cannot be denied. While rejecting the claim of the assessee, the Revenue has not taken into account these factors that by doing this activity, assessee is helping the needy people or the socio-economically weaker sections of the society as no one is going to finance them to meet their requirements. By doing this, the assessee is at least helping the poor and weaker sections of the society in meeting their urgent needs." It is evident that the society was facing non-recovery of loan and ther....
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....o encourage their participation, which are the principal objects of the assessee trust. Further, there was a clear finding that assessee is carrying out its charitable activities and surplus funds are used for charitable purpose., which is evident from the following para of that order. "38. To sum up, in our opinion, it is undisputed that the assessee was granted registration under s. 12A w.e.f. 8th July, 2004. The Department also accepted the returns for the last many years allowing exemption under s. 11. It is only for the asst. yr. 2017-18, the Department is taking a different view. It is not in dispute that the assessee's work is lending money to the poor women for income generating activities. The financial assistance given to Self Help Group (SHG) members are borrowed from bank to certain extent. The beneficiaries are poor families. If the SHG members have to borrow money from the moneylenders, they would have to pay many times higher interest along with security than what the assessee has charged. It is also not in dispute that the assessee incurs financial costs for obtaining loans from banks. The assessee also have to make payment towards salaries and other administr....
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....at existence of some profit or charging of fees could not be a reason for denying 12AA registration as long as the dominant objects remained charitable. In this case the court relied on the Supreme court decision in Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1 (SC) where held that the main test to find out whether an institution is run for charitable purposes is to find out what is the dominant or primary purpose of the assessee - whether the purpose was to promote commerce and trade in art silk, etc., or the advancement of an object of general public utility. It was also held if the primary or dominant purpose of an institution is charitable, another object which by it may not be charitable but which is merely ancillary or incidental to the dominant purpose would not prevent the institution from being a charitable institution. It was further held that if the purpose of an institution is the advancement of an object of general public utility, it is that object and not its accomplishment which must not involve the carrying on of any activity for profit. So long as the dominant purpose of the institution does not involve the carrying on of any activity for pro....
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.... object of public utility. The CIT(Appeals) granted exemption u/s. 11 & 12 of the Act by holding that the assess is carrying on charitable activities u/s. 2(15) of the Act. The Revenue was in Appeal before Hon'ble Tribunal, Chennai Bench-C, and Chennai. The Hon'ble Tribunal set aside the order of the CIT(Appeals) and decided the issue in favour of the Revenue by following thus:- "8. We have heard both the parties and perused the material on record. Sec. 11 of the Act stipulates that the income from property held for charitable or religious purpose shall not be included in the total income of the previous year of the person in receipt of the income to be given effect in the manner as specified therein: The term 'charitable purpose' has not been defined under the statute; but for the inclusive nature of the term as specified under s. 2(15) of the Act, which as existed before the amendment is as follows : 'Sec. 2(15): "Charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility.' As per Finance Act, 2008, the said provision was amended adding a 'proviso' w.e.f 1st Apr....
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....t the intention of Parliament and hence I propose to amend the Law to exclude the aforesaid cases. Genuine charitable organizations will not in any way is affected (Emphasis supplied). 8.3 The learned counsel points out that, the amendment was brought about as a measure of rationalization and simplification, streamlining the definition of charitable purpose and not as a measure of taxation. It is also stated that the concept of charity in India is wider, simultaneously adding that, by virtue of the amendment, the position that existed prior to 1st Feb., 1984 has been brought back and that is all. This however will not tilt the balance in any manner in the case of the assessee so as to take the activities outside the charitable purpose, particularly in view of the fact that micro finance business will not constitute any trade or business. According to the Id. AR, to perform charity, income is inevitable and contended that the activities being pursued by the assessee may constitute a trade or business, if it is not applied for the purposes of charity. Contrary to this, the Id. DR submitted that though the object of the assessee is to carry on charitable activities, but it does not ....
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.... examined whether the words "any trade, commerce or business" as they appear in the second limb of cl. (b) are in connection with the service referred to the trade, commerce or business pursued by the institutions to which the service is given by the assessee. If the said words are actually in respect of the trade, commerce or business of the assessee itself, the said clause [second limb of the stipulation under cl. (b)J is rather otiose. Since the activity of the assessee involving any trade commerce or business, is already excluded from the charitable purpose by virtue of the first limb [cl. (a)] itself, there is no necessity to stipulate further, by way of cl. (b), adding the words "or any activity of rendering any service in relation to any trade, commerce or business.............", As it Stands so, giving a purposive interpretation to the statute, it may have to be read and understood that the second limb of exclusion under cl. (b) in relation to the service rendered by the assessee, the terms "any trade, commerce or business" refers to the trade, commerce or business pursued by the recipient to whom the service is rendered and in such circumstances, the activities carried on ....
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....ness. They are supporting activities, at the maximum. The genesis of incidental activities must be from the principal activities themselves. There cannot be one source for the principal activities and another source for incidental activities. In the present case, even if activities of the assessee were stated to be relief of poor, it was not possible to conclude that running of business in the form of micro finance is incidental to carrying on of main objective of the assessee-trust and it is the main business of the assessee. Therefore, the assessee is not protected by the provision stated in section 11(4A), either." 8.7 In the present case, the assessee is having reserves and surplus at Rs. 50,89,576/-. Contrary to this, the assessee is having revolving fund at Rs. 66,33,800/-, which was availed by hypothecation of their debt to various necessary banks. Further, the assessee raised secured loans and unsecured loans @ 11%, totalling to Rs. 16,35,54,090/-. Thus, it means that it has raised loans to advance to the customers by paying interest and the assessee is not having own corpus in a formal capital so as to advance the loan. The assessee is providing loans by association wit....
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....We find that the assessee did not lend loans to beneficiaries directly as it was advanced to various self-help groups. The said loans also raised on commercial lines and the profit was being generated by levying higher rate of interest and CIT-A by distinguishing the case laws held that the said microfinancing as conducted by the assessee was on commercial lines and confirmed the order of the AO denying the exemption in view of adding proviso to section 2(15) of the Act. The CIT-A also discussed and distinguished the decisions in the case of Disha India Micro Credit of Delhi Tribunal with that of Janalakshmi Social Services and held that the facts of Janalakshmi Social Services are clearly, applicable to the case of hand and held that the assessee undertaken only business of micro financing and had not done any activity to show that it had been done as charitable act. (Para 22) Before Tribunal the Id.AR placed his reliance on the decisions of various High Courts and Supreme Court and argued that the AO has no power to deny the exemption as registration u/s 12AA is in force. Tribunal find that the registration u/s. 12AA is granted subject to fulfillment of certain conditions cont....
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....g of business in form of micro finance was incidental to carrying on of main objective of Assessee and it was main business of Assessee. Assessee was not protected by provision stated in s. 11(4A). (Para 8.6) Assessee was lending money at commercial rate prevailing in market. By advancing loans at that rate of interest, it could not be considered as activity carried on by Assessee as charitable and for benefit of public. When Assessee carried on micro finance activity in commercial line, then it was not charitable activity but activity to expand finance business by contracting weaker section of public and it did not involve any charitable activity. Assessee carrying on micro finance business in commercial manner so as to earn profit and there was no iota of chanty carried on by Assessee so as to grant exempt/on u/s. 11. (Para 8.7) CIT(A) not justified in granting exemption u/s. 11 to Assessee. Regarding allowing of bad debts CIT(A) was not justified in granting deduction as bad debts as that business of Assessee trust, which was not continuing during relevant period and in case of discontinued business, claim of Assessee u/s.36(l)(vii) could not be allowed. (Para 11) Concl....
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.... be decided on its own facts and no generalization is possible. Assessees, who claim that their object are charitable purpose within the meaning of section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business. 6.25 In our opinion, the AO is required to see whether the assessee eligible to claim application under section 11 and whether the proviso to section 2(15) gets attracted in the light of commercial nature of activities. Particularly, if the primary activity of the organization is in the nature of trade or business, then it is important to ensure that there is no dominant profit motive involved and it is not used as a mask for commercial activities and benefitting at the hands of the beneficiaries. If an organisation which has no source of generating surplus from its activity other than the beneficiary then existence of consistent and substantial surplus does raise a question regarding the commercial nature of the activity. If this question is not successfully defended and justified by the assessee then the invocation of the proviso to section 2(....
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....on 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. d) The loans are generally taken for income-generating activities, although loans are also provided for consumption, housing and other purposes. e) The tenure of the loans is short. f) The frequency of repayments is greater than for traditional commercial loans. 2.5 The players in the Microfinance sector can be classified as falling into three main groups a) The SHG-Bank linkage Model accounting for about 58% of the outstanding loan portfolio b) Non-Banking Finance Companies accounting for about 34% of the outstanding loan portfolio c) Others including trusts, societies, etc, accounting for the balance 8% of the outstanding loan portfolio. Primary Agricultural Co-operativ....