2021 (9) TMI 107 - HC - Income Tax

Entitled to registration u/s 12AA and approval under Section 80G - Allegation of charging higher rate of interest from the self help groups in the name of charitable activity - Commercial activity - HELD THAT - When the activity of the assessee, which grants relief to the poor is not in dispute, the genuinity of the claim made by the assessee for registration ought not to have been rejected solely on the ground that certain service charges are being collected. Admittedly, women of the self help groups are people, who come from the marginalized society and they are poor rural women, who do not have the wherewithal to approach the nationalized banks for availing loan. If the assessee does not carry on such activity by rendering financial assistance to the women of self help groups, they will have to be under the mercy of the private financiers, who are charging exorbitant rate of interest. Considering all these aspects, the Tribunal granted relief to the respondent assessee. In our considered view, there is no question of law much less substantial question of law arising for consideration in this appeal, as the entire matter is factual and much of the factual position with regard to the genuinity of the assessee have not been disputed either by the Tribunal or the CIT. Revenue submits that the CIT recorded a finding that the interest charged would be 35% - we find that there is nothing on record to show that the assessee has charged 35% interest. The interest charged is at 15% per annum and 20% is charged as service charges and obviously, the service charges cannot be on recurring basis. Therefore, the said conclusion arrived at by the CIT is not based on any material - Decided against revenue.

Summary

Issues:
1. Whether the society is entitled to registration under Section 12AA and approval under Section 80G of the Income Tax Act?
2. Whether the society's activities constitute engaging in the business of microfinance?
3. Whether the society's activities fall under the charitable purpose as per the Income Tax Act, post the amendment to Section 2(15) by the Finance Act, 2008?

Analysis:
1. The respondent society applied for registration under Section 12AA of the Income Tax Act, which was rejected by the Commissioner of Income Tax. The Tribunal allowed the appeal, noting the society's engagement in microfinance for rural women below the poverty line. Both State and Central Governments funded the society, and it provided loans to self-help groups along with other activities like constructing latrines. The Tribunal found the society's activities genuine, benefiting 2700 beneficiaries. The High Court upheld the Tribunal's decision, emphasizing the society's relief to the poor and marginalized without disputing its genuineness.

2. The Commissioner rejected the society's registration based on charging interest and service fees, alleging it was not engaged in charitable activities. However, the High Court disagreed, highlighting the necessity of the society's microfinance activities for marginalized rural women who lacked access to nationalized banks. The Court noted the interest charged was 15%, with an additional 20% as service charges, which were not on a recurring basis. The Court found no basis for the Commissioner's conclusion that the interest charged was 35%.

3. The High Court dismissed the Revenue's appeal, emphasizing the factual nature of the case and the absence of any substantial legal questions. The Court reiterated the importance of the society's activities in providing financial assistance to vulnerable groups and upheld the Tribunal's decision, ruling in favor of the society. The Court found no grounds to interfere with the Tribunal's order and answered the substantial questions of law against the Revenue, thereby dismissing the tax case appeal without costs.