2011 (5) TMI 1143 - AT - Income Tax

Summary

Issues involved:
The judgment deals with the issue of revocation of registration u/s.12AA of the Income-tax Act, 1961 based on the amended provisions of Section 2(15) and the interpretation of whether the activities of the assessee trust, involving microfinance business, qualify as charitable for exemption u/s.11 of the Act.

Summary:

Issue 1: Revocation of registration u/s.12AA
The appeal was against the order of the Commissioner of Income-tax u/s.12AA(3) revoking the registration of the assessee trust. The Commissioner held that the trust, engaged in microfinance business, was no longer eligible for exemption u/s.11 due to amended provisions of Section 2(15). The trust argued that the Commissioner's objection was premature and ill-founded, as the nature of its activities remained charitable. The trust contended that the surplus generated from interest income was utilized for charitable purposes, and the Commissioner misinterpreted the proviso to exclude such surplus from tax exemption. The trust cited precedents where microfinance activities were considered charitable. The Tribunal held that the Commissioner had wrongly linked interest earnings to non-charitable activities, and the trust's activities were indeed charitable, directing the Commissioner to grant registration to the trust.

Issue 2: Nature of activities and surplus identification
The Department argued that earning interest was not a charitable activity and that the trust's activities resembled financial business rather than charitable work. The Department supported the Commissioner's decision to revoke the trust's registration based on the amended proviso. However, the Tribunal found merit in the trust's argument that interest income was not surplus from non-charitable activities but part of the funds utilized for charitable purposes. The Tribunal noted that the trust had received grants for charitable work and managed its surplus in line with its charitable objectives. The Tribunal concluded that the trust's activities were indeed charitable, and the registration should not have been revoked.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, directing the Commissioner to grant registration to the trust and cancel the impugned order of revocation.