2011 (1) TMI 693 - AT - Income Tax

Registration u/s 12A - The assessee company namely, M/s. Disha India Micro Credit, is a company registered under sec. 25 of the Companies Act, 1956 - The assessee claimed that they will provide collateral free credit to poor persons through their solidarity groups and secondary to borrow or raise money on interest or otherwise from banks, financial institutions, term ending institution, corporate person or organizations in India or abroad and in such manner as the Company may think fit for the purpose of financing the activities of the company - In the present case, it is not in dispute that the Central Government has directed that the assessee association is to be registered as a company with limited liability - It is also provided therein that no objects of the company will be carried out without obtaining prior approval/no objection certificate from the concerned authorities wherever required, and none of the objects will be carried out on commercial basis - Section 25 of the Companies Act, 1956, also provides that the company shall apply its profit, if any, or other income in promoting its objects and it is prohibited from making any payment of dividend to its members The expression Relief of the poor has been explained by the Board in its Circular No.11 of 2008 dated 19th December, 2008 - The learned CIT has also given one more reason that it is not comprehensible as to why not the assessee got itself registered as a society - It is not necessary that in order to do public charity, any one association is to be registered as a society or a trust Accordingly held that mere because the assessee association is registered as company under sec. 25 of the Companies Act, that by itself cannot be a ground to refuse registration under sec. 12A/12AA of the Act - In the result, the appeal filed by the assessee is allowed

Issues Involved:
1. Entitlement of the assessee to registration under Section 12A of the Income-tax Act, 1961.
2. Examination of the objects and activities of the assessee company in light of Section 12AA.
3. Interpretation of "charitable purpose" under Section 2(15) of the Income-tax Act.
4. Applicability of the decision in the case of Bharat Diamond Bourse and other relevant case laws.

Detailed Analysis:

1. Entitlement of the Assessee to Registration Under Section 12A:
The primary issue is whether the assessee company is entitled to registration under Section 12A of the Income-tax Act, 1961. The assessee company, registered under Section 25 of the Companies Act, 1956, applied for registration under Section 12A in Form No. 10A. The Commissioner of Income-tax, Muzaffarnagar, rejected the application, citing the profit motive evident in the company's Memorandum of Association. The Tribunal, however, noted that the main objects of the company, as specified in Part-A of Para III of the Memorandum, are to promote microfinance services to poor persons for income generation without a profit motive. The Tribunal held that the Commissioner failed to properly consider these main objects and instead focused on incidental or ancillary clauses.

2. Examination of the Objects and Activities of the Assessee Company in Light of Section 12AA:
Section 12AA mandates the Commissioner to call for documents or information to verify the genuineness of the activities of the trust or institution. The Tribunal observed that the assessee company is registered under Section 25 of the Companies Act, which inherently implies that it is formed for promoting commerce, art, science, religion, charity, or any other useful object, and prohibits the payment of any dividend to its members. The Tribunal found that the Commissioner did not properly apply his mind to the main objects of the assessee company, which are charitable in nature and not profit-oriented.

3. Interpretation of "Charitable Purpose" Under Section 2(15) of the Income-tax Act:
Section 2(15) defines "charitable purpose" to include relief of the poor, education, medical relief, and advancement of any other object of general public utility. The Tribunal noted that the assessee's activities of promoting microfinance services to poor persons fall within the ambit of "relief of the poor," as explained by the CBDT Circular No. 11 of 2008. The Tribunal emphasized that entities with such objects are eligible for exemption even if they incidentally carry on a commercial activity, provided the business is incidental to the attainment of the objectives and separate books of account are maintained.

4. Applicability of the Decision in the Case of Bharat Diamond Bourse and Other Relevant Case Laws:
The Tribunal referred to the decision in the case of Asstt. Director of Income-tax (Exemption) vs. Bharatha Swamukhi Samsthe, where the ITAT, Bangalore Bench, held that lending money to poor women for income-generating activities qualifies as a charitable object. The Tribunal distinguished this case from the decision in Janalakshmi Social Services vs. Director of Income-tax (Exemption), where the activities were found to be commercial. The Tribunal found that the assessee in the present case was providing microfinance services as per RBI guidelines and not charging exorbitant interest rates, thus aligning with the charitable purpose.

Conclusion:
The Tribunal concluded that the assessee company has no profit motive in pursuing its objects and activities. The Tribunal directed the Commissioner of Income-tax to grant registration under Section 12A/12AA of the Income-tax Act to the assessee, as the company's activities qualify as charitable under Section 2(15). The appeal filed by the assessee was allowed.

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