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2021 (2) TMI 676 - AT - Income TaxExemption u/s 11 - assessee is a charitable Trust and it was granted registration u/s 12A - Denial of exemption as assessee is charging exorbitant interest rates on the loan given to the women - HELD THAT:- It is merely a surmise entertained by the AO. The question is whether the rate of interest of 14% charged by the assessee is an exorbitant rate?. The Ld A.R submitted that the assessee is constrained to charge interest at a higher rate than the cost of borrowing, so that it can absorb administrative and allied expenses and also possible defaults by the borrowers, which is an inherent risk in the financing activities. The Ld A.R submitted that the assessee has charged interest @ 14%, which is normal interest charged by commercial banks for lending during the period under consideration. Accordingly the ld A.R has contended that the rate of interest charged by the assessee cannot be considered to be exorbitant. We find merit in the said contentions. As submitted by Ld A.R, the rate of interest of 14% is the normal rate charged by the banks for its lending and hence the said rate cannot be considered to be at exorbitant rate, as observed by the tax authorities. Assessee is running a women’s hostel charging rent of ₹ 5,300/- per month for twin sharing room and ₹ 4000/- per month for four sharing room - We notice that the AO does not appear to have confronted the inspector’s report with the assessee. No comparable cases to prove the above said submission has also been brought on record. In any case, the Ld A.R submitted that the above said rate includes three times meals, electricity charges, water charges etc. Under these set of facts, in the absence of any other comparable case, we are of the view that there is merit in the submissions made by Ld A.R on this issue. Assessee is generating surplus year after year - The important point to be noted here is that, so long as the assessee has been utilizing its income derived from the property held under the trust for its charitable objectives, the provisions of sec.11 do not deny exemption to a charitable trust. Hence, mere generation of surplus cannot be a reason to deny exemption u/s 11 of the Act. The AO might have highlighted this aspect to drive the point that the activities of the assessee are carried on commercial lines and hence the proviso to sec.2 (15) would be hit - As decided in AHMEDABAD URBAN DEVELOPMENT AUTHORITY [2017 (5) TMI 1468 - GUJARAT HIGH COURT] when the profit making was neither the aim nor object of the trust, then the incidental surplus generated while carrying on its activities would not render any activity in the nature of trade, commerce or business. Hence, this reasoning of the AO would also fail. Assessee has not got approval from DIT (E) for the amendment made to the trust deed - In any case, there is no dispute with regard to the fact that the assessee was having registration u/s 12A of the Act during the year under consideration. In that case, the proposal of the AO, if accepted, would apply to the future years only. Hence the exemption u/s 11 should not have been denied by the AO for the year under consideration on this reasoning. We are of the view that none of the reasons given by the AO would enable him to reject the exemption u/s 11 of the Act. Accordingly, we are of the view that the Ld CIT(A) was not justified in confirming the assessment order passed by the AO for the year under consideration. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to grant exemption u/s 11 of the Act to the assessee for the year under consideration. - Decided in favour of assessee.
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