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2016 (11) TMI 1759 - AT - Income TaxExemption u/s 11 - scope of amended provisions of section 2(15) of the Act - assessee is a society registered u/s 12A was, inter alia, engaged in the activity of micro finance - assessee secured loan from banks and advanced loan to Self Help Groups, thus generated surplus and also profit from income generation programmes - deduction u/s. 11 denied on the ground that the activity was carried out in commercial lines - CIT(A) deleted addition - HELD THAT - As in view of the decisions of the Tribunal in the case of Bharatha Swamukhi Samsthe 2008 (12) TMI 310 - ITAT BANGALORE and Spandana (Rural Urban Development Organisation) 2010 (2) TMI 1166 - ITAT VISAKHAPATNAM the activity under consideration falls under the expression relief to poor as envisaged under section 2(15) of the Act. Therefore, in my considered view simply because an activity undertaken in commercial line in pursuance to furtherance of the object of society to poor does not make the activity non-charitable within the meaning of section 2(15) of the Act. No good reason to interfere with the conclusion of the ld. CIT(A). Hence, this ground of the revenue is dismissed. Addition made on account of violation of provisions of section 40(a)(ia) by not deducting tax at source on advertisement expenses when the assessee is not eligible for exemption u/s. 11 of the Act in view of the violation of the proviso to section 2(15) of the Act - HELD THAT - As decided in MAHATMA GANDHI SEVA MANDIR 2012 (5) TMI 396 - ITAT MUMBAI section 40(a) will only go to enhance the business profit of an assessee whose income is assessable under section 28 and not otherwise. Hence, provisions of section 40(a) are not applicable in case of charitable trust or institution where income and expenditure is computed in terms of section 11 - Decided against revenue.
Issues Involved:
1. Exemption under Section 11 of the Income Tax Act in light of amended provisions of Section 2(15). 2. Disallowance under Section 40(a)(ia) for non-deduction of TDS on advertisement expenses. Detailed Analysis: Issue 1: Exemption under Section 11 of the Income Tax Act in light of amended provisions of Section 2(15) The primary issue revolves around whether the micro-finance activities carried out by the assessee society, registered under the Societies Registration Act, 1860, and under Section 12A of the Income Tax Act, 1961, qualify as charitable activities under Section 2(15) of the Act, thus making it eligible for exemption under Section 11. The Assessing Officer (AO) argued that the society's micro-finance activities, which involved securing loans from banks and lending to Self Help Groups (SHGs) at higher interest rates, constituted a commercial activity, generating substantial surplus, and thus should be taxed as business income. The assessee contended that its micro-finance activities fell under the first limb of the definition of "charitable purpose" within Section 2(15), specifically "relief of the poor," as elucidated by CBDT Circular No. 11 dated 19.12.2008. The assessee argued that the activities were aimed at the welfare of economically and socially disadvantaged women, providing them with collateral-free loans, training, and market support, which were essential for their economic upliftment and poverty alleviation. The surplus generated was reinvested into similar charitable activities. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the assessee's claim, referencing past decisions and analyzing the nature of micro-finance activities. The CIT(A) noted that the activities, despite generating surplus, were non-commercial in intent and content, falling within the definition of "advancement of general public utility" under Section 2(15). The CIT(A) emphasized that the interest rates charged by the assessee were within acceptable limits and not extortionate, aligning with the principles of ethical micro-lending. The Tribunal concurred with the CIT(A), affirming that the micro-finance activities were indeed charitable, aimed at "relief of the poor," and thus eligible for exemption under Section 11. The Tribunal referenced similar decisions from other ITAT benches, reinforcing the view that activities carried out in furtherance of charitable objectives, even if conducted on commercial lines, do not lose their charitable nature. Issue 2: Disallowance under Section 40(a)(ia) for non-deduction of TDS on advertisement expenses The second issue concerned the disallowance of Rs. 1,31,687/- under Section 40(a)(ia) due to non-deduction of TDS on advertisement expenses. The AO disallowed the expense, asserting that the assessee was not eligible for exemption under Section 11 and thus the surplus was assessable as business income. The CIT(A) reversed this disallowance, holding that since the assessee was eligible for exemption under Section 11, the provisions of Section 40(a)(ia) were not applicable. The CIT(A) relied on the ITAT Mumbai decision in M/s. Mahatma Gandhi Seva Mandir vs. DDIT (E), which held that Section 40(a) enhances business profit only for entities whose income is assessable under Section 28, not for charitable institutions where income and expenditure are computed under Section 11. The Tribunal upheld the CIT(A)'s decision, confirming that the provisions of Section 40(a)(ia) do not apply to charitable institutions eligible for exemption under Section 11, thus dismissing the revenue's appeal on this ground. Conclusion: The Tribunal dismissed the revenue's appeal and the assessee's cross-objection, affirming the CIT(A)'s decisions that the assessee's micro-finance activities qualify as charitable under Section 2(15) and are eligible for exemption under Section 11, and that the disallowance under Section 40(a)(ia) was not applicable.
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