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2023 (9) TMI 256 - AT - Income TaxExemption u/s. 11 - nature of microfinance activity carried on by the appellant - relief to poor - business activists or not? - commercial gins with predominant objective to make profit - the appellant is charging 50% higher rate of interest for the loans provided to SHG when compared to the borrowing cost - AR contended that registration u/s. 12AA granted to the assessee has not been rejected for the year under consideration HELD THAT:- We note that Microfinance is lending carried out with small borrowers. The targets of microfinance are low-income individuals/families who require small quantities of short term finance for purposes such as agriculture, marriage, debt redemption, medical emergencies, etc. These loans are extended without collateral security ‘Microfinancing’ penetrates into the rural sectors to serve the poor. We also note that the strict lending criteria, terms, and conditions that banks insist, cannot always be met by borrowers belonging to the weaker economic sector. And therefore microfinancing activity is considered to be a practical and workable source of funds. We note that there is a broad line of distinction between the micro financing activities being carried out on commercial basis and for charitable purpose. If the micro financing facility is extended by charging exorbitant rate of interest and for a particular group of society which may be affluent and is using micro financing mode to fund their working capital, undoubtedly, the micro financing activity would be commercial in nature. In the present facts of the case, it seen that the assessee procures loans from SCDCC Bank and lend it to needy members of the SHG’s. These loans are being procured on interest by the assessee and, the assessee was charging interest on these amounts lent to the beneficiaries. The assessee trust has been borrowing money from SCDCC Bank on interest and thereafter lends the same to various SHG’s by charging interest on the amounts lent. These SHG’S further utilises the money advanced by the assessee for its members or to any others who are in need of such funds. Hence, in our view, this activity of the assessee clearly gets covered under "Advancement of General Public Utility" and not under "relief of poor" as defined in Sec.2(15) of the Act. We find that the main focus of the objects of the assessee before us is alleviation of poverty by extending micro credits to poor rural women. The brief description regarding the services rendered to SHG’s by the assessee has been reproduced. In addition, several other objects which are of Public charitable in nature such as providing training and support programmes for poverty alleviation, education are also listed as its other aims and objects. The For all these activities of the assessee small SHG’s are formed who are provided with finance assistance by the assessee to carry out the objects of the trust. The assessee has been accumulating the income year by year by providing financial assistance to the beneficiaries of the self help group. Further from the balance sheet it is noted that assessee has obtained loans and advances from SDCC bank amounting to Rs. 15.51 crores approximately and the loans advanced to SHG is Rs. 38.60 crores approximately. This itself reveals that the entire money is sourced from corpus fund, general fund and loans and advances received by assessee during the year. Coming to the objection of the Ld.DR that assessee has been charging interest at 15% as against 10% at which assessee itself pays interest, it is noted that the assessee does not demand any security towards the loans advanced by it to the SHG members considering the social and economic conditions of the SHG members. The ratio expressed in case PANDANA RURAL AND URBAN DEVELOPMENT ORGANISATION [2013 (7) TMI 1216 - ANDHRA PRADESH HIGH COURT] objection of the Ld.DR that the main purpose of the public charitable activity undertaken by assessee has to be looked into as a dominant purpose test and that collection of money for micro financing in the form of interest on the loans advanced to the self help group members will not defeat the real object in order to deprive of the exemption. The assessee is running various activities like Animator activities, Donations, Health Insurance premiums, Santhwana, Training, Uniform, SHG Formation, Sahayadhana, Insurance Premium & Scholarship for students in rural area to make the poor ladies aware of the scheme and to encourage their participation as the principle objects of the trust. All these things need some expenditure. The facts and circumstances show that the assessee is carrying out its charitable activities and the surplus funds are used for charitable purposes. Therefore the argument advanced by the Ld. DR that micro financing activity is merely a money lending activity without any charitable object cannot be accepted. There is nothing on record brought by the Ld. DR or the authorities below that the objects of the assessee is not towards advancement of any other object of general public utility. Lower authorities are not justified in holding that the assessee is not engaged in charitable activities and denying exemption under section 11 - Decided in favour of assessee.
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