2008 (12) TMI 310 - AT - Income Tax

Exemption u/s 11 - micro credit to poor women for their poverty alleviation and for the benefit of the socio-economically weaker sections of the society - Charitable activity u/s 2(15) or not? - assessee-trust based on the registration granted u/s 12A was filing return of income and claiming exemption. HELD THAT - In case, the credits are available at lower interest to the poor women in question then they were free to avail the same. There was no compulsion over parties to avail credit at higher rate of interest, in case they have option to avail loan at lower rate of interest. The assessee can carry out its activity only after charging marginal higher rate of interest to run its activities. The assessee is organising seminar in rural area to make the poor ladies aware of the scheme and to encourage their participation. All these things need some expenditure. Initially, the assessee was in loss and it is only in the year under consideration some surplus is with the assessee-trust. The facts and circumstances shows that the assessee is carrying out its charitable activities and the surplus fund are used for charitable purposes. So, the CIT(A) was justified in holding that the assessee is engaged in charitable activities and qualifies for exemption u/s 11. We uphold the same. As a result, the appeal filed by the Revenue is dismissed. Renewal of registration u/s 80G rejected - micro credit facilities - Charitable activity u/s 2(15) or not? - The object of the trust is mainly to constitute alleviation of bottom line poor rural and urban women and their families by means of micro credit facilities. The programme is known as BSS Micro Loan Project which is presently extending its help to all poor women. The assessee-trust has found that the rural and urban poor women have benefited from the trust's funding activities and were about to come out of the depths of their poverty to a great extent to be able to lead a normal life like any other citizen. This goes to show that the relief to the poor has been aimed at by the trust's micro loan and this is clearly a charitable purpose conforming to the provisions of section 2(15) both as relief to the poor as well as the object of general public utility. While granting recognition u/s 80G in 1997-98 and also during the renewal of recognition of previous year, which was granted by the Joint CIT, after carefully examining all the relevant facts, the assessee is running similar activities since its inception. So, there is nothing on record to justify the disqualification of trust for recognition u/s 80G. With regards to objection that loans are obtained on a very low interest ranging from 9.5 per cent. per annum by hypothecating the book debts and movable assets and lending at a substantially higher rate of interest to the beneficiaries is concerned, we find that the loans given by the financial institutions and banks are at the rates normally charged to any other micro credit organization and there is nothing on record to suggest that special benefit has accrued to the assessee-trust from the loans. In fact, the benefit has accrued to the women who are served with financial inputs for their vocations under an organized and orderly micro credit programme. The micro credit programme has received place of priority even by the Government of India and other bodies concerned with the financial well being of rural women. There is nothing on record to suggest that these poor women are capable of receiving loan at lesser interest than offered by the assessee. In case, there is availability of funds/loans at lower rate of interest, nobody including the assessee can force these poor women for such alleged higher rate of interest on the loans. There is nothing on record to suggest that the funds of the trust are used or misused for personal benefit of the trustees or their relatives or near and dear ones. The Revenue has brought nothing on record that surplus generated in the abovesaid activities are not ploughed back into the organisation for the benefit of poor. The financial sustainability as a method of achieving our ultimate objectives, should not be termed as profit motive , because the organisation aims and works to alleviate poverty of poor women. It is not out of context to mention here that Dr. Ramesh Bellam Konda, trustee and project director, is a medical doctor by background and was in medical practice abroad till March, 1997. He has left his practice in foreign to serve his Mother Land and is engaged in poverty alleviation programme with all sincerity and was inspired by the work of Prof. Muhammed Yunus and Grameen Bank of Bangladesh involving himself mainly by observing the day-to-day activities of the trust. Therefore, it is not justified to hold that the assessee-trust is financially exploiting the poor women, but in fact the trust is rendering great service to the society by the abovesaid poverty alleviation programme. Hence, we hold that the assessee should be granted renewal of recognition u/s 80G. The AO directed accordingly. In the result, the appeal filed by the Revenue is dismissed and that of the assessee is allowed.

Issues Involved:
1. Whether the assessee-trust conducted charitable activities during the assessment year 2005-06.
2. Whether the assessee-trust qualifies for exemption under section 11 of the Income-tax Act.
3. Whether the interest rate charged by the assessee-trust was exorbitant and exploitative.
4. Whether the assessee-trust should be granted renewal of recognition under section 80G of the Income-tax Act.

Detailed Analysis:

1. Charitable Activities During Assessment Year 2005-06
The Revenue argued that the assessee had not conducted any charitable work during the relevant assessment year. The Commissioner of Income-tax (Appeals) (CIT(A)) noted that the assessee-trust had been granted registration under section 12A of the Income-tax Act and had been recognized under section 35AC for receiving donations. The CIT(A) found that the trust was involved in micro-credit programs aimed at poverty alleviation, particularly targeting poor women in rural areas. The CIT(A) concluded that the activities of the trust were indeed charitable.

2. Qualification for Exemption Under Section 11
The Revenue contended that the assessee-trust did not qualify for exemption under section 11, as its activities were not charitable. The CIT(A) observed that the Department had accepted the returns of the assessee for many years, allowing exemption under section 11. The CIT(A) emphasized that the trust's activities, such as lending money to poor women for income-generating activities, were charitable. The ITAT upheld the CIT(A)'s decision, stating that the trust's activities were charitable and that the exemption under section 11 was justified.

3. Exorbitant and Exploitative Interest Rates
The Revenue argued that the interest rate of 28% per annum charged by the trust was exorbitant and exploitative. The CIT(A) found no evidence from the Assessing Officer (AO) to substantiate this claim. The CIT(A) noted that the interest rates charged were lower than those charged by local money lenders and that the trust incurred costs for obtaining loans from banks and administrative expenses. The ITAT agreed with the CIT(A), stating that the interest rate was necessary for the trust to sustain its micro-credit program and that there was no compulsion for beneficiaries to take loans from the trust if lower rates were available elsewhere.

4. Renewal of Recognition Under Section 80G
The Director of Income-tax (Exemptions) had rejected the renewal of recognition under section 80G, arguing that the trust's activities were not charitable and were guided by profit motives. The ITAT examined the trust's objectives and activities, noting that the primary aim was poverty alleviation through micro-credit programs. The ITAT found that the trust's activities conformed to the definition of "charitable purpose" under section 2(15) of the Income-tax Act. The ITAT also noted that the trust did not misuse funds for personal benefits and that the surplus generated was reinvested for charitable purposes. The ITAT concluded that the trust should be granted renewal of recognition under section 80G.

Conclusion
The ITAT dismissed the appeal filed by the Revenue and allowed the appeal filed by the assessee. The ITAT upheld that the assessee-trust's activities were charitable, justified the exemption under section 11, and directed the renewal of recognition under section 80G of the Income-tax Act.

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