9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2008 (8) TMI 606 - AT - Income TaxRejection for registration u/s 12A - Exemption u/s. 11 - nature of microfinance activity carried on by the appellant - relief to poor - business activists or not? - charitable purpose within the definition of section 2(15) or not. HELD THAT - If the object of the institution falls within the definition of charitable purpose and the institution is genuinely carrying on such objects, the Commissioner is obliged to register the institution. The jurisdictional High Court in the case of Sanjeevamma Hanumanthe Gowda Charitable Trust v. Director of Income-tax (Exemptions) 2006 (3) TMI 91 - KARNATAKA HIGH COURT had an occasion to consider the procedure for granting of registration. The jurisdictional High Court held that for the purpose of registration u/s 12AA, the authorities have to satisfy themselves about the genuineness of the activities of the Trust or Institution and how the income derived from the trust or applied to charitable or religious purpose and not the nature of the activity by which the income was derived by the Trust. Hence, we are satisfied that for the purpose of registration u/s 12AA of the Income-tax Act, DIT(E) was to satisfy himself about the genuineness of the activities. In the instant case, the assessee company has not obtained any assistance or grant. It has raised loans on commercial lines. The DIT(E) during the course of examination of activities of the society has noticed that the assessee company is providing advance at the rate of 24 per cent. It is providing finance to a particular section of the society, i.e., traders dealing in vegetables and fruits and making purchases from Safal. It is true that the potential that micro finance holds in a country like India is immense. Various banks are associating themselves with such micro finance activities. ABN Amro Bank has also offered micro finance in India. Micro finance can be a business as well as a charitable activity. In order to become a charitable activity, the institution must have subsidized funds. The promoters if they are ready to take the establishment cost then micro finance can become a charitable activity. But if it is done on commercial lines, then it is not a charitable activity but an activity to expand the finance business by contracting a new section of the society. The learned DIT(E) has found that the assessee company is undertaking only the business of micro finance and has not done any activity to show that it has been done as a charitable act. During the course of proceedings before us, it was submitted that the assessee company requires funds for carrying out the objects as mentioned in main object No. 1. Until and unless the assessee company carried out objects as mentioned in object No. 1, the activities as carried out by the assessee company and as noticed by the DIT(E), cannot be termed as charitable activity. Such activities fall under section 11(4A) of the Income-tax Act. Therefore, looking to the activities carried out by the assessee company and as noticed by the learned DIT(E), we feel that the learned DIT(E) was justified in refusing registration. However, this will not debar in applying a fresh registration in case the assessee company carries out micro financing activities and helps the poor people by providing finance at the reasonable rate. It may carry out micro finance as a business as well as a charitable object. With this observations, we feel that the learned DIT(E) was justified in not allowing registration to the assessee-company for the year under consideration. In the result, the appeal is dismissed.
Issues Involved:
1. Rejection of application for registration under section 12A of the Income-tax Act, 1961. 2. Determination of whether the appellant's objectives qualify as charitable under section 2(15) of the Income-tax Act, 1961. 3. Examination of the genuineness of the appellant's activities and whether they are commercial in nature. Issue-wise Detailed Analysis: 1. Rejection of application for registration under section 12A of the Income-tax Act, 1961: The appellant filed an appeal against the order of the Director of Income-tax (Exemptions) [DIT(E)] rejecting its application for registration under section 12A of the Income-tax Act, 1961. The appellant argued that the DIT(E) erred in rejecting the application and not appreciating that the objectives were of general public utility and not profit-driven. 2. Determination of whether the appellant's objectives qualify as charitable under section 2(15) of the Income-tax Act, 1961: The appellant's objectives included micro financing activities, providing credit facilities to Self Help Groups (SHGs) and others, and promoting the economic well-being of the urban and rural poor. The DIT(E) observed that the core activity of the company was micro financing, which was carried out as a business. The appellant argued that micro financing aimed at mitigating poverty and enhancing economic capabilities should be considered a charitable activity under section 2(15) of the Income-tax Act, 1961. The appellant cited the Privy Council decision in All India Spinners Association v. CIT [1944] 12 ITR 482 to support the claim that economic assistance to the poor is equivalent to relief of the poor. 3. Examination of the genuineness of the appellant's activities and whether they are commercial in nature: The DIT(E) required the appellant to provide details of its activities and agreements with other companies. The DIT(E) found that the appellant was charging high-interest rates (24% per annum) and various service charges, indicating a profit motive. The DIT(E) concluded that the appellant's activities were commercial rather than charitable. The DIT(E) also noted that the appellant's activities were carried out through NGOs and SHGs, further indicating a commercial nature. The appellant's argument that being registered under section 25 of the Companies Act implied charitable nature was rejected by the DIT(E), who emphasized the need to examine the actual activities and objects. Conclusion: The Tribunal upheld the DIT(E)'s decision, stating that for registration under section 12AA, the DIT(E) must be satisfied about the genuineness of the activities and the charitable nature of the objectives. The Tribunal noted that the appellant's activities were primarily commercial, with high-interest rates and service charges, and did not demonstrate a genuine charitable purpose. The Tribunal dismissed the appeal, allowing the appellant to reapply for registration if it could demonstrate charitable activities in the future.
|
