9911796707
TMI Blog2020 (8) TMI 502X X X X Extracts X X X X X X X X Extracts X X X X ..... These appeals at the instance of the assessee are directed against two orders of the CIT(A), both dated 09.08.2019. The relevant assessment years are 2010-2011 and 2011-2012. The assessee has also filed stay applications seeking to stay the recovery of outstanding tax arrears. 2. Since common issue is raised in these appeals, they were heard together and are being disposed of this consolidated order. 3. The solitary issue that was argued, is whether the CIT(A) is justified in confirming the A.O. s action in denying the benefit of claim of deduction u/s 11 of the I.T.Act. 4. The brief facts of the case are as follows : The assessee is a trust claiming exemption u/s 11 of the I.T.Act. For the assessment years 2010-2011 and 2011-2012, the assessments were completed denying the claim of exemption u/s 11 of the I.T.Act. The reasoning of the Assessing Officer to deny the claim of exemption was that the assessee was engaged in micro finance activities, wherein it was charging exorbitant interest from its beneficiaries and there was no charitable activities involved in micro finance activities. Accordingly, the income claimed as exempt u/s 11 of the I.T.Act was assessed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration irrespective of the nature of use or application or retention of the income from such activity. The AO has taken a stand that by virtue of the amendment as above, the assessee is not entitled to exemption u/s.11 of the Act. 8.1 The ld. AR submitted that, the idea and understanding of the AO with regard to the scope of amendment to sec.2(15) is thoroughly wrong and misconceived. There is no trade or business in the activities pursued by the assessee in running of micro finance business and will not take it outside the purview of charity and hence, that the proviso added to sec.2(15) of the Act, is not at attracted to the case in hand. He also submitted that the statute, as it stood earlier, had clarified the charitable purpose mentioned in sec.2(15) of the Act, had clarified the charitable purpose mentioned in s. 2(15) by the words not involving the carrying on of any activity for profit . By virtue of the existence of these clarifying words, if there was any element of profit it was enough liable to be reckoned as c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended by the ld. DR that the assessee carried on activities in a business oriented manner, it will definitely come within the fourth limb of the amended sec.2(15) of the Act, where the prohibition of activity in the nature of trade, commerce or business for any activity of rendering service or any other consideration, irrespective of the nature of the use or application or retention of the income of such activity is specified and hence, not entitled to any exemption. 8.4 To analyse the activities carried on by the assessee, we have to go through the nature of activities pursued by the assessee and perusal of that activities carried on by the assessee, cannot be oust the involvement of trade, commerce or business or any service in connection with trade, commerce or business as contemplated under the statute. Further, we note that there is substantial variation in the statutory position as it existed earlier to 1st April, 2009, where the assessee has been given exemption under section 11 of the Act and the position available after amendment to section 2(15) of the Act, brought into effect from 1st April, 2009. Yet another important aspect to be noted in this context is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lief or education or relief of the poor. It is true that the activities carried on by the assessee take care of the poor people also. But those activities cannot be classified under any of the specific activities of relief of the poor; education or medical relief. The correct way to express the nature of the activities carried on by the assessee is to say that the assessee is carrying on 'advancement of any other object of general public utility'. When that is the case, the assessee is hit by the proviso given under section 2(15). The proviso reads that 'advancement of any other object of general public utility' shall not be a charitable purpose, if it involves carrying on any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business for consideration, irrespective of the application of the money. Therefore, the case of the assessee is hit by proviso to section 2(15) and the assessee is not entitled for the benefit of section 11 for that part of income generated in the hands of the assessee from running its micro finance business. Alternatively, one has to look into section 11(4A). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % above the rate at which they have borrowed from the banks. In Kerala there is a specific law which is called as The Kerala Money Lenders Act, 1958 (Act 35 of 1958) to provide for the regulation and control of the business of money lenders in the State of Kerala. In this Act the maximum amount of interest which can be charged on lending money is prescribed. The rate is prescribed in section 7 of the said act which is as under: 7. Interest and charges allowed to money lenders No money lender shall charge interest on any loan at a rate exceeding 2% above the maximum rate of interest charged by commercial banks on loans granted by them. 8.8 For the previous year relevant to the assessment year 2007- 08 the rate of interest as per section 7 of the Kerala Money Lenders Act cannot exceed more than 18%. However, in the present case the assessee was charging 29% interest which is far above the rate prescribed by the law i.e. The Kerala Money Lenders Act. This shows that the assessee is in the business of lending at 29% per annum to the poor, which is not as envisaged in the assessee-Trusts s objects. By collecting interest at such a higher rate the assessee has deviated fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is a gap of 17% between borrowing and lending the amount to the public. The assessee claimed it as a charitable activity by placing reliance on the report of the sub-committee of the Central Board of Directors of Reserve Bank of India to study issues and concerns in the MFI sector(Malegam Committee Report). For the purpose of determining appropriate margin cap, the Committee examined the financials for the year ended 31st march 2010 of large MFIs and small MFIs as under: a) for the larger MFIs the effective interest rate calculated on the mean of the outstanding loan portfolio as at 31st March, 2009 and 31st march, 2010 ranged between 31.02% and 50.53% with an average of 36.79% for the smaller MFIs the average was 28.73%. 8.9.2 According to the Ld. AR, it was recommended by the sub-committing to charge interest from the public at 24% per annum since there was administrative expenditure incurred by the micro finance institutions. Even going by the Malegam Committee Report of the RBI, the interest charged by the assessee is 29% which is very high. Hence, the activity carried on by the assessee cannot be considered as charitable so as to grant exemption u/s. 11 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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