TaxTMI 
TaxTMI 
2024 (5) TMI 1010
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....aimed under section n of the Act, on the ground that the activities 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 s....
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.... first limb of section 2(15) of the Act or activities such as advancement of any other object of general public utility or any other activity, 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 o....
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....p groups, etc which co-ordinate with the individuals and are the point of contact with the assessee. Thus, the assessee makes little or meagre surplus on the earnings from interest. The fact remains that 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 ....
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....them as charitable activities. xxi. The ld. A.R. placed reliance on the decision of the Hon'ble Jurisdictional Bangalore Tribunal in the case of ADIT(E) v. BHARATHA SWAMUKHI SAMSTHE in ITA No. 1121/Bang/2008 dated 24.12.2008 (28 DTR 13) (Bang. Trib) xxii. The ld. A.R. placed further 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 suc....
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....ts administrative expenses and to protect itself from bad loans maintains a meagre margin in the loan disbursed to downtrodden people. iv. The ld. A.R. submitted that the loans are disbursed to people who do not have any collateral and are living below the poverty line, thus, the risk of default is at the higher end. v. The ld. A.R. submitted that irrespective 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 be....
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....ill not cease to be one existing solely for educational purposes. 4.2 The ld. A.R. submitted that the assessee is not hit by the proviso to section 2(15) of the Act and is eligible for exemption under section 11 & 12 of the Act-Grounds of appeal No.(6) & (7): i. The ld. A.R. submitted that it has been fulfilling the objectives of the trust of being charitable in nature, by financing individuals below the poverty line and extending 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....
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....acted here under; Sec 2. (15) "charitable purpose" includes relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic 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, 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; ....
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.... has been made on the activities of the assessee and its impact on the beneficiaries. xxi. The ld. A.R. submitted that private money lenders often charge exorbitant interest from the weaker section of the society which results in suicides being committed by the desperate people. xxii. Without prejudice to the above, the ld. A.R. submitted that the proviso to section 2(15) would apply to those entities whose object of 'advancement of general public utility' is only a colourable device to hide the true purpose of trade, commerce, or business. xxiii. Thus, the activity carried by the assessee is in the nature 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 amendme....
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....mmercial activity. xxvi. The ld. A.R. placed reliance on the decision of the Hon'ble Jurisdictional Tribunal in the case of M/s Janodaya Trust v. ACIT(E) in ITA No.763/Bang/2016 dated 16.02.2021. xxvii. Thus, the ld. A.R. submitted that the facts in the case of Janodaya Trust(supra) are similar to its case and that the decision of the Hon'ble Jurisdictional Tribunal is in its favour. xxviii. The ld. A.R. placed further reliance on the decision of the Visakhapatnam Tribunal in the case of SPANDANA (Rural and Urban Development Organisation) in ITA No. 364/Vizag/2009 dated 17.2.2010, wherein it was held; "19. In the aforesaid case assessee was mainly engaged in micro financing activities 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 act....
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.... considered as charitable activities and exemption u/s 11 of the Act cannot be granted to the assessee. 6. We have heard the rival submissions and perused the materials available on record. In this case, the assessee has advanced loans to members of Self-Help Groups (SHGs) and not to all poor members of society. It works with poor bankable. The assessee is not providing relief for the poor in the sense that it is not providing food, shelter, clothes to the poor people in the time of need. The ld. AO given ample opportunity of hearing to the assessee to provide details for providing relief in times of natural and other calamities to the people, improvement of basic amenities like water supply, electricity rates, women and child welfare etc. as mentioned in its object'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-....
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....granted u/s 12AA of the Act has not been cancelled, as such, the exemption u/s 11 of the Act to be granted. 6.3 We find that after going through the activities carried on by the assessee, which is in very commercial manner with the high profit motive. Further granting of approval u/s 12AA of the Act is not automatically entitle the assessee to claim exemption u/s 11 of the Act and the ld. AO while framing the assessment is at liberty to look into the activities carried on by the assessee whether it falls within the purview of section 2(15) of the Act r.w. provisions thereto. It is seen that assessee has been created u/s 25 of the Companies Act. 6.4 It is also noted that assessee has been granted the registration u/s 11 of the Act vide section 12AA & 80G of the Act w.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 o....
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....nd to generally promote and assist in the implementation of social welfare and consumer protection measures and to engage in public charitable activities, which shall not be restricted to any area or class or persons. (B) THE OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN OBJECTS: 1. To purchase, take on lease or exchange, hire or otherwise acquire any real or personal estate which may be deemed necessary or convenient for any of the purposes of the Company. 2. To construct, maintain and alter any houses, buildings or works necessary or convenient for the purposes of the Company. 3. To take any gift or property, whether subject to any special trust or not, for any one or more of the objects of the Company. 4. To take such steps by personal or written appeals, public meetings or otherwise, as may from time to time be 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, mo....
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....e welfare of the employees or ex-employees as of the Company or their wives, families or dependents by grants of pensions, gratuity, bonus, payment towards insurance or other payment or by creating from time to time, subscribing or contributing to, aiding or supporting provident funds or conveniences and by providing, subscribing or contributing towards places of instruction or recreation, hospitals and dispensaries, medical and other assistance as the Company shall think fit. 20. To do all such other lawful things as are incidental or conducive to the attainment of the above objects or any of them. 21. To devise incentive schemes or reward system for the supporting staff belonging to administration, finance, purchase, marketing and other related sections, so that they can effectively contribute towards the attainment of the Company's objectives. 22. To encourage and support participation of economists, financial experts, bankers and research scholars 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 wel....
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....ent of its being wound up while he is a member or within one year afterwards for payment of the debts or liabilities of toe Company contracted before he ceases to be member and of the costs, charges and expenses of winding up and for adjustment of the rights of the contributories among themselves such amounts as may be required not exceeding a sum of Rs. 1,000/(Rupees one thousand only). VII. True accounts shall be kept of all sums of money received and expended by the Company and the matters in respect of which such receipts and expenditures take place, and of the property, creditors and liabilities of the Company, and the subject to any reasonable restrictions as to the time and manner of inspecting the same that may be imposed in accordance with the regulations of the Company for the time being in force, the accounts shall be open for inspection of the members. Once at least in every year the accounts of the cc shall be examined and the correctness of the balance sheet and the income and expenditure account ascertained by one or more properly qualified Chartered Accountant. VIII. If upon winding up or dissolution of the Company, there remains, after the satisfa....
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.... "charity" and the activities of the society is solely to be considered as "commercial", since the activities of the assessee has resulted in huge profits, which is not expected from this kind of assessee though the element of profit is not strange to the provisions of section 11 of the Act. However, profit motive cannot be predominant object of the assessee as in the present case. Thus, the activity of microfinancing is activity in the nature of trade/commerce/business, which cannot be considered as "Charitable". The proviso to section 2(15) of the Act further clarifies that even if the income generated is ploughed back into its own microfinance activity or for any other activity with the intention to make profit as stipulated in its object clause, it cannot be considered as charitable. Here in this case, the surplus/profit is applied to earn more income by ploughing it back into microfinance activity. In other words, the surplus earned from microfinance activity cannot be exempt, no matter how the surplus has been applied. The issue what we have to see is whether assessee is engaged in charitable activities or not. In the present case, by going through the microfinance activity o....
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.... hold that the business of micro finance is incidental to the above stated objects of the assessee's trust. "Incidental" means offshoot of the main activities; inherent by a by product of principal activities. Activities to compliment and support the main objectives are not in the nature of incidental to the business. 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. 6.7 In the present case, from the details given in the assessment order, it is seen that the assessee was charging interest @ 18% to 20% per annum from its clients. The assessee admitted that they were taking loan from commercial banks at an interest rate be....
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....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 18% to 20% 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. 6.11 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. In this order, the Tribunal considered the micro finance activities as charitable activities as the assessee was charging interest at 15% per annum. In the order 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 Act. 6.12 The assessee relied on the fol....
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....enditure. Initially, the assessee was in loss and it is only in the year under consideration some surplus is with the assessee trust. The facts and circumstances show that the assessee is carrying out its charitable activities and the surplus funds are used for charitable purposes. So, the CIT (A) was justified in holding that the assessee is engaged in charitable activities and qualify for exemption under section 11." (B) Further, the ld. A.R. relied on the decision of the Delhi Bench of the Tribunal in the case of Disha India Micro Credit v. CIT 120111 Tax Pub (DT) 873 (Del-Trib)/38(II) ITCL 301, where the assessee was a micro finance company registered under section 25 of the Companies Act, 1956. It had applied for registration under section 12A in Form No. 10A. The assessee's application for registration under section 12A was rejected by the CIT. The CIT had observed that the various clauses of the Memorandum of the company would clearly show that the assessee had a motive of profit also, along with the stated motive of service to the poor and needy people as claimed by the assessee. He further observed that such profit even if to be ploughed back as claimed by the....
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....om the Government and semi- Government concerns, the interest received is not beyond the permissible market rates in order to render surplus to the assessee to hold a view that the assessee is conducting the business of earning Interest." It was again noted that the Hon'ble ITAT, Cuttack Bench, Cuttack again has been consistent with the various other rulings, in both the above cases the facts and circumstances did not reflect surpluses made from MFI activity to justify profit intent. The observation, "the interest received is not beyond the permissible market rates in order to render surplus to the assessee to hold a view that the assessee is conducting the business of earning interest" The Judgment of the Hon"ble ITAT, Cuttack in these two cases makes it clear that two conditions should be complied with; firstly, the rate should be comparable with the market and secondly, it should not be such that it generates profit at the cost of the beneficiaries."'] The appellant has cited the Supreme Court ruling in CIT v. Thanthi Trust [2001J 247 ITR 785. In this case the Hon'ble Apex Court held that income from incidental business was permissible if the amount....
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.... the activities of those assessee companies are in consonance with the objects. However, in the present case, the activity carried on by the assessee is of microfinance activity with the predominant intention of making profit and no activity other than microfinance activity was conducted by the assessee in the nature of charity. Therefore, the facts of that case is not similar to the facts of the present case before us. (E) Hon'ble Supreme Court in the case of Surat Art Silk Cloth Mfrs. Association cited (supra) has held that main test to find out whether an institution is run for charitable purpose is to find out what is the dominant or primary purpose of the assessee. It was observed by Hon'ble Supreme Court that it is necessary to analyse whether the purpose was to promote commerce and trade in Art Silk etc. or the advancement of the object of the 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....
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....ved that the assessee has availed loans from banks, financial institutions etc at interest rate ranging from 9.5% to 11.50% and it has charged interest on the loans given by it @ 14%. The AO has also observed that the assessee has charged Rs. 200/- - Rs. 300/- over and above the interest rate of 14%. Accordingly he has held that the effective rate of interest would work out to 17% to 18%. As contended by Ld A.R, the AO has not given the basis for observing that the effective rate of interest would work out to 17% to 18%. Hence, we are of the view that it is merely a surmise entertained by the AO. The question is whether the rate of interest of 14% charged by the assessee is an exorbitant rate?. The Ld A.R submitted that the assessee is constrained to charge interest at a higher rate than the cost of borrowing, so that it can absorb administrative and allied expenses and also possible defaults by the borrowers, which is an inherent risk in the financing activities. The Ld A.R submitted that the assessee has charged interest @ 14%, which is normal interest charged by commercial banks for lending during the period under consideration. Accordingly the ld A.R has contended that the rate....
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....view of the above, this reasoning would also fail." As seen from the above judgement, ld. AO has not given basis for observing that the rate of interest would work out to 17 to 18% and it was only surmise. It was also noted by the Tribunal that assessee has been utilizing income derived from property held under the trust for its charitable activities, as such exemption u/s 11 of the Act cannot be denied. It was also noted by the Tribunal that profit motive was absent and the activities of that assessee cannot be considered as involving trade, commerce or business. But in the case of present assessee, the ld. AO clearly brought on assessee is charging interest at 18 to 20% after borrowing the same @ 10 to 11.75% and made huge profit from year to year, after analyzing the facts of the assessee's case and his finding is not surmice or conjecture. (H) The ld. A.R. placed further reliance on the decision of the Visakhapatnam Tribunal in the case of SPANDANA (Rural and Urban Development Organisation) in ITA No. 364/Vizag/2009 dated 17.2.2010, wherein it was held; "19. In the aforesaid case assessee was mainly engaged in micro financing activities and the money ....
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....ctions of the society in which the assessee has to incur a lot of expenditure. Moreover, when a loan was given to the poor women, they do not have any surety or guarantee to stand and most of the times the loan could not be recovered from them and that aspect Is also to be taken into account by the assessee while granting a loan to the poor woman. Suppose a loan was given to some of the poor women and they would not be in a position to repay the loans what the assessee will do. He cannot enforce the recovery of the loan by other means and ultimately he has to write off the loan. Meaning hereby, in these types of micro finance activities most of the times the assessee could not recover the loans granted to the poor women as no one stood as the guarantor for them at the time of advancement of the loan. No doubt assessee is that charging higher rate of interest from the poor women or the downtrodden or socio-economically weaker section of the society. The reason behind is that most of the time the assessee could not recover the loan from these poor and weaker sections of the society, besides incurring heavy expenditure In maintaining the organised sector. These poor and weaker section....
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....xorbitant interest. Further, the assessee was also running a seminar in rural area to make the poor ladies aware of the scheme and to encourage their participation. It was noted that in the above case the assessee was sustaining losses in all the previous years and therefore the, Hon'ble ITAT rightly upheld the charitable character of the assessee as there was no reason to believe that the assessee was benefiting at the cost of the beneficiaries and there was profit intent. Again, the fact and circumstances of this case do not provide any credible support to the claim of the assessee regarding the charitable character of activities due to its high profit margin maintained consistently for several years. 6.12 Further, specifically in the case of Navodaya Grama Vikas Charitable Trust cited (supra) relied by the assessee counsel, there was a specific finding by the Tribunal that funds are utilized to the benefit of the poor and also carrying out various charitable activities and assessee was running various activities like animator activities, donations, payment of Health insurance premiums, Shantwana training, Uniform giving, SHG formation, Sahaya Dhana, Insurance premium paym....
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....nnot be the basis to come to the conclusion that the assessee is in money lending acitivty. The assessee is running various activities like Animator activities, Donations, Health Insurance premiums, Santhwana, Training, Uniform, SHG Formation, Sahayadhana, Insurance Premium & Scholarship for students in rural area to make the poor ladies aware of the scheme and to encourage their participation as the principle objects of the trust. All these things need some expenditure. The facts and circumstances show that the assessee is carrying out its charitable activities and the surplus funds are used for charitable purposes." 6.13 However, in the present case, surplus funds are not at all used for charitable purpose and used for carrying out further microfinance activities as such ratio of that order cannot be applied. 6.14 Further, the High Court of Bombay ruling in the case of Commissioner of Income-tax v. Agricultural Produce and Market Committee [2007] TAXMAN 359 (BOM.). In this ruling, it was held that even if there was some profit in activity carried on by trust/institution, so long as dominant object was of general public utility, it cannot be said that said trust/ institution....
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.... a charitable organization cannot be allowed to run its primary activity on commercial principles with profit intent. The incidental activity may generate income and feed the primary activity but if the primary activity is with profit intent then there will be no primary purpose left for the organization. The primary activity may have profit but cannot have profit intent to benefit out of the beneficiaries. 6.17 In the case of ITO (Exemption), Madurai Vrs. Kalanjiam Development Financial Services reported in [2015] 64 taxmann.com 255, the assessee is a micro finance company registered u/s.25 of Company Act and also u/s.l2AA of IT. Act, 1961 operating as a financial Intermediary between the banks and SHGs. The main objective of the company Is to bridge the gap in microfinance to SHGs. The A.O. observed that the assesses company took credit facilities from different banks at interest rate up to 11% and charged interest from SHGs at much higher rate so much so that net profit out of the above operations was 20.4% in the F.Y. 2009-10. The assessment was completed by assessing the income at Rs. 30,33,950/- by denying exemption u/s. 11 and 12 and by invoking provisions of sec.2(15) on....
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....he 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 exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in....
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....tute. 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 Situation contemplated under the second limb [cl. (b) J stands entirely on a different pedesta....
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....ade, 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 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 possible to hold that the business of micro finance is incidental to the above stated objectives of t....
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....s of the AO and this view of ours is squarely covered by the decision of the Tribunal in the case of Janalakshmi Social Services (supra). The assessee relied on various Judgments, which cannot be applied to the facts of the present case, as the assessee is carrying on micro finance business in a commercial manner so as to earn profit and there is no iota of charity carried on by the assessee so as to grant exemption under sec.11 of the Act . Accordingly, we are inclined to uphold the order of the AO and reverse the order of the CIT(A). 9. In the result, the appeal of the revenue is allowed." 6.18 Further, same view was taken by Cochin Bench of Tribunal in the case of Shalom Charitable Ministries of India Vs. ACIT in ITA Nos.79 & 80/coch/2017 & SP Nos.17 & 18/Coch/2017 dated 25.4.2018. 6.19 Further, in the case of Sreema Mahila Samity Vs. DCIT reported 167 ITD 420, wherein held as under: "Amendment came into force by the Finance Act 2008, wherein proviso was added to section 2(15) states that the advancement of any other object of general public utility shall not be charitable purpose if it involves carrying on any activity in the nature, trade, commerce or b....
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....plains that the advancement of any other object, general public utility shall not be charitable purpose. In Tribunal opinion that the AO and the CIT-A opined that the assessee conducted its activities on commercial line in the nature of trade, -commerce or business. Therefore, they rightly denied the exemption by following statutory provisions. Tribunal do not find any infirmity in the impugned order of the CIT-A. Tribunal find that the ratio laid down by the decisions as relied upon by the Id.AR are not applicable to the facts of this case. Tribunal uphold the same. This issue of the assessee is dismissed. (Para 23) Conclusion: Where assessee conducted its activities on commercial line in nature of trade, commerce or bus/ness, therefore, addition made on account of income from micro finance justified." 6.20 Further, in the case of Janalakshmi Social Service Vs. DIT (Exemptions) reported in 27 CCH 618 (2008) (Bang.), wherein held that "where assessee being a company registered u/s 25 of the Companies Act, was engaged in providing microfinance to traders charging interest at 25% on commercial lines, there being no charitable activity, it is not entitled to regis....
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....ent case, it is not the case. 6.23 It has been observed that the proviso to section 2(15) which restricts incidental business activities to Rs. 25 lakh per year, in Asst. Year 2011-12, gets attracted if the organisation is engaged in business activities or the charitable activities are masked commercial activities. The explanatory Circular No. 11/2008 [F.No.l34/34//2008-TPL on proviso to Section 2(15) has provided the clarification regarding its applicability. It provides that the entities which run commercial activities under the mask of charitable activities are also covered. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of charitable purpose. 6.24 In our opinion, whether the assessee has for its object the advancement of any other object of general public utility is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service In relation to trade, commerce or business, it would not be entitle....
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....uced herein below:- "2. The Micro finance sector 2.1. Microfinance is an economic development tool whose objective is to assist the poor to work their way out of poverty. It covers a range of services which include, in addition to the provision of credit, many other services such as savings, insurance, money transfers, counselling, etc. 2.2. For the purposes of this report, the Sub-Committee has confined itself to only one aspect of Microfinance, namely, the provision of credit to low income groups. 2.3 The provision of credit to the Microfinance sector is based on the following postulates: a) It addresses the concerns of poverty alleviation by encouraging the poor to work their way out of poverty. b) It provides credit to that section of society that is unable to obtain credit at reasonable rates from traditional sources. c) 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....