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TMI Blog2017 (10) TMI 727X X X X Extracts X X X X X X X X Extracts X X X X ..... ings the AO opined that the assessee carried money lending business through its 11 branches in Nadia District and provided loan to general public and self help group (SHG) to a sum of Rs. 11,76,58,642/- and earned interest income of Rs. 3,15,52, 949/-. The AO was of the opinion that the assessee carried an activity in the nature of trade, commerce or business and not being the charitable object, show caused why the profits generated in the form of interest from money lending business shall not be treated as income. For which, the assessee filed written submission and placed reliance on the decisions in the cases of Disha India Micro Credit Vs. CIT of Delhi Tribunal (ITAT,Delhi) Spandana Vs. ACIT reported in (2010) 40 DTR 153 (visakha) (Trib), ADIT (E) Vs. Bharatha Swamukhi Samasthe [2009] 28 DTR 13 (Bangalore Tribunal] and Thiagarjar Charitis Vs. ACIT (1997) 092 Taxman 152 (SC) Barda Samity and Tia Gaja Charitis of Hon'ble Supreme Court. Relevant portion of AO's order is reproduced herein below:- 5. Assessee's reply. Sri S.N.Saha, the A/R, submitted one written statement as below: "With reference to your show cause notice No. DCIT/Nadia/2011-12/286 dated 11.11.2011, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, charitable purpose within the meaning of sec lion 2 (15). It is well settled that when a profit is used towards the achievement of the charitable objects of the trust, it would be considered to be incidental to the achievements of objects of the trust notwithstanding the profit and gain involved therein. Merely, because there was a surplus from the activity of micro financing, that by itself could not be a ground to say that the assessee did not exist for charitable purpose particularly when under the Memorandum of Association and Articles of Association, it has been clearly provided that the profit would not be distributed amongst the members but shall be utilized towards its objects. 2) The Visakhapatnam, Income Tax Appellant Tribunal in the case of SPANDANA Vs ACIT (2010) 40 DTR 153 (Visakha) (Trib) held that microfinance activity is a charitable activity as it alleviates poverty and also benefits socio-economically weaker sections of the society. The Tribunal held that the Microfinance activity was charitable in nature because of the following reasons :- i) The loan is advanced to weaker sections of the society to meet their urgent needs. ii) Even if reasonabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee has charged. It is also not in dispute that the assessee incurs financial costs for obtaining loans from banks. The assesses also have to make payment towards salaries and other administrative activities of the Trust. There is nothing on record to suggest that the assets and income of the trust were available for the personal benefit of the trustee and the board members. These are only used for micro credit to poor women for their poverty alleviation and for the benefit of the socio-economically weaker sections of the society. It is well settled that when a profit is used towards the achievement of the charitable objects of the trust, it would be considered as charitable activities of the samity notwithstanding the profit and gain involved therein. In this respect, a reference may be made to the decision of Hen' ble Supreme Court in the case of Asstt. CIT Vs. Thanthi Trust (2001) 247 ITR 785 (sq. Thus, mere because there was a surplus from the activity of micro financing, that by itself, cannot be a ground to say that the assessee does not exist for charitable purpose particularly when under Memorandum of Association and Articles of Association, it has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order in respect of addition made on account of interest income before the CIT-A. Before him the assessee reiterated the same submissions as made before the AO. The CIT-A opined that the facts of the present case are similar to the facts of the case in Janalakshmi Social Services Vs. Director of Income-tax (Exemption) of Bangalore Tribunal reported in 33SOT 197(Bang) and held that loans have been raised in commercial lines and profit is generated by financing small help groups at higher rates and interest earned on commercial lines and confirmed the order of the AO. Relevant finding of the CIT-A is reproduced herein below:- "4.2 In the case of the appellant also the borrowing is not made directly to the beneficiaries. In fact financing is done to various SHG's. Here also no assistance or grant has been received for micro financing. The loans have been raised on commercial lines. Profit is generated by financing the SHG's at a higher rate. Therefore the micro financing business is run on commercial lines. Appellants reliance on Disha India Micro Credit vs. ClT, Muzaffarnagar ITA No. 1374/De1l2010 and other cases is misplaced. In those cases the issue was whether registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of amended section 2 (15) has been clarified in a circular, stating the conditions to be fulfilled. Accordingly, as has been stated in the Circular no.11 of2008 dated 19.12.2008:- "2. The following implications arise from this amendment- 2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(1.5), i.e. relief of the poor, education or medical relief Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute "charitable purpose" even if it incidentally involves the carrying on of commercial activities. 2.2 "Relief of the poor" encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociety where nobody exploits or feels exploited and the mission is holistic development by acting locally, thinking globally. The assessee chosen the way of financing to the members of the groups directly to keep track on the individual loanee/borrower and their repayment habit. In support of which, he referred to paras 11, 12 & 13 of the written submissions and further argued that the assessee disbursed the loans on specific eligibility criteria. The assessee fixed the rate of interest of lending on the basis of RBI guidelines between the margin of lending and cost of fund that does not exceed 12% p.a. and must not exceed 26% p.a of the poorer. The ld.AR of the assessee also referred to paras 18-26 of the written submission basing on the procedures contemplated therein the assessee disbursed small amount of loan of Rs. 5,000/- to Rs. 15,000/- to the poor women of the said 11 branches of Nadia District. The ld.AR also submits that because of higher interest is charged, then the activities of the assessee cannot be held uncharitable because the cost of recovery is very high and the possibility of bad debt is also high. The funds are given without any surety or guarantee. 11. The ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 214/170 Taxman 612 (SC), the ld.AR argued the Supreme Court held that once registration is provided then the AO cannot probe into the objects of the society. 15. In the case of Hiralal Bhagwati reported in (2000) 246 ITR 188(Guj), the ld.AR argued that once the registration u/s. 12A(a) was granted, the grant of benefit/exemptions could not be denied. 16. In the case of U.P Forest Corprn reported in (2008) 297 ITR 1/165 Taxman 533(SC), Ld. AR argued that the Hon'ble SC held that once an order of registration u/s. 12AA is passed by the CIT, the entire income of the trust becomes exempt under the provisions of sections 11 and 12 of the Act, because registration of a Trust is a condition precedent for claiming benefit u/s. 11(1)(a) of the Act. 17. The ld.AR of the assessee placing his reliance in the case of Ahmedabad Urban Development Authority Vs. DCIT (Exemption) reported in (2011) 335 ITR 575/ (2010) 233 CTR 407 (2010) 40 DTR 76 (Guj-HC) argued that if the 12A registration was not withdrawn on the date of assessment order then the income of the assessee was exempt in entirety. 18. The ld.AR of the assessee further relied on proposition of rule of consistency of the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to trade, commerce or business. Therefore, the exemption is not available in view of adding of proviso to section 15 particularly the 4th limbs definition of the charitable purpose. We find that the assessee did not lend loans to beneficiaries directly as it was advanced to various self help groups. The said loans also raised on commercial lines and the profit was being generated by levying higher rate of interest and CIT-A by distinguishing the case laws held that the said micro financing as conducted by the assessee was on commercial lines and confirmed the order of the AO denying the exemption in view of adding proviso to section 2(15) of the Act. The CIT-A also discussed and distinguished the decisions in the case of Disha India Micro Credit of Delhi Tribunal with that of Janalakshmi Social Services and held that the facts of Janalakshmi Social Services are clearly applicable to the case of hand and held that the assessee undertaken only business of micro financing and had not done any activity to show that it had been done as charitable act. 23. Before us the ld.AR placed his reliance on the decisions of various High Courts and Supreme Court and argued that the AO has no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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