2019 (5) TMI 1116 - AT - Income Tax

Registration U/s 12AA - Exemption u/s 11 - charitable activity OR business - assessee U/s 8 company in providing micro finance to economically and financially weaker section without any discrimination as to caste, creed, religion or sex for earning their livelihood at nominal rate of interest on their personal guarantee only - HELD THAT - Primary and predominant object of the assessee are to promote the welfare of the economically weaker and destitute persons of the society by way of providing finance at concessional rate of interest and without asking for any security. Thus prima facie the object of the assessee are charitable in nature in terms of Section 2(15). CIT(E) has conducted inquiry through AO and the assessee was not given an opportunity to reply to such adverse inquiry against the assessee. CIT(E) has also not considered the very purpose of formation of the assessee U/s 8 of the Companies Act with charitable object. Section 8 of the Companies act provides the registration of companies with charitable objects and also ensures that the activity as well as the funds of the company cannot be used for the individual benefit but it should be strictly as per the objects of the company. Even in the case of winding up/ dissolution of the company if any asset remains after satisfaction on debt and liability the same shall be transferred to another company register U/s 8 of the Companies Act therefore, ample safeguard has been provided U/s 8 of the Companies Act to prevent to misuse of the funds and activity of such company. CIT(E) has not considered all these aspect while passing the impugned order, therefore, in the facts and circumstances of the case, we set aside this matter to the record of the ld. CIT(E) for considering all the relevant facts as well as the contentions of the assessee and also to give an opportunity to the assessee of hearing and present its case to explain each and every objection of the ld. CIT(E) before passing fresh order. - Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
1. Refusal of registration under section 12AA of the IT Act by invoking provisions of Section 12AA(1)(b) of Income Tax Act.
2. Consideration of objects of the assessee as charitable for registration under Section 12AA of the IT Act.

Analysis:
1. The appeal was against the order of the ld. CIT(E) refusing registration under section 12AA of the IT Act. The assessee contended that the refusal was based on considering the charitable company as a business/services entity for earning interest. The ld. CIT(E) found the assessee's activities commercial due to major receipts from interest, rejecting the registration application.

2. The assessee aimed to provide unsecured loans to economically weaker sections, seeking registration under Section 12AA of the IT Act. The ld. AR argued the charitable nature of providing loans at concessional rates, emphasizing no profit motive and application of surplus for objectives. The interest charged was minimal, focusing on aiding poor and destitute individuals without security.

3. The Tribunal noted the company's registration under Section 8 of the Companies Act, implying charitable objectives. It emphasized assessing charitable nature and genuineness of activities for 12AA registration. The ld. CIT(E) concluded activities as non-charitable, focusing on financial assistance to economically weaker sections, especially women. However, the Tribunal highlighted the charitable purpose under Section 2(15) of the Act, benefiting the public or a section, not individuals.

4. The ld. DR supported the ld. CIT(E)'s inquiry, considering the activities as trade/business. Gross receipts exceeding 20% indicated non-charitable activities. The Tribunal emphasized the charitable nature of the company's formation under Section 8 of the Companies Act, ensuring funds' proper usage for objectives.

5. Ultimately, the Tribunal set aside the matter for reconsideration by the ld. CIT(E) to evaluate all relevant facts and the assessee's contentions, granting an opportunity for the assessee to address objections. The decision highlighted the charitable nature of the company's activities and the need for a thorough assessment before rejecting registration under Section 12AA of the IT Act.

This detailed analysis of the judgment outlines the key issues, arguments presented, and the Tribunal's decision, emphasizing the importance of assessing the charitable nature of activities for registration under the IT Act.