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TMI Blog2011 (1) TMI 693X X X X Extracts X X X X X X X X Extracts X X X X ..... along with the stated motive of service to the poor and needy people as claimed by the assessee. He further observed that such profit even if to be ploughed back as claimed by the assessee, is liable to income-tax under Income-tax Act. The order of the learned Commissioner of Income-tax runs as under:- "1. On perusal of Memorandum it is noticed that:- S.No.8, the objects are described as "To borrow or raise money pm interest or otherwise from banks, financial institutions, term lending institution, corporate person or organizations in India or abroad and in such manner as the Company may think fit for the purpose of financing the activities of the company". S.NO.15 "To create any reserve funds, sinking funds, insurance fund or any other special fund whether for depreciation, for repairing, improving, extending or maintaining any of the property of the company or for any other purpose conducive to the interest of the company". S.No.17 "To sell, lease, mortgage, or otherwise dispose of the undertaking of the company or any part thereof for such consideration as company may think fit and in particular for share, debentures or securities of any other company ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee company is not doing any activity of public utility. The assessee claimed that they will provide collateral free credit to poor persons through their solidarity groups and secondary to borrow or raise money on interest or otherwise from banks, financial institutions, term ending institution, corporate person or organizations in India or abroad and in such manner as the Company may think fit for the purpose of financing the activities of the company. The loan distribution on interest on higher rate from the banks does not come under purview of section 2(15) i.e. Relief to poor and for public utility work that woo on its own conditions and at higher rate of interest from the Rural banks. This activity is not a charitable work. The memorandum of the company also not able to establish that company is a non-profit organization. From the above discussion, I am in view of that the assessee "Disha India Micro Credit" a company also does not come under purview of "Institution" as envisaged in section 11, 12 and 13 of Income Tax Act. It is also not able to establish that the assessee company's work is for Relief to poor and for public utility. Therefore, I hereby reject the application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that event, the association may be registered accordingly, and on registration, the association shall enjoy all the privileges, and (subject to the provision of sec. 25 of the Companies Act) be subject to all the obligations, of limited companies. In the present case, it is not in dispute that the Central Government has directed that the assessee association is to be registered as a company with limited liability. It is thus proved that this association has been formed as a limited company for promoting commerce, art, science, religion, charity or any other useful objects and it intended to apply its profit if any, or other income, in promoting the aforesaid objects. The assessee is also prohibited from making payment of any dividend to its members. Therefore, prima facie the assessee association registered as a limited company under sec. 25 of the Companies Act, has been formed for charity or any other useful object as so provided under sec 25(1) of the Companies Act. 8. The assessee has produced before us a copy of Memorandum of Association. The objects for which the company was established u/s 25 of the Companies Act, 1956, are specified in Para III of the Memorandum. Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT has observed that all these clauses clearly sow that the company has a motive of profit also, along with the stated motive of the service of poor and needy people but at the same time, the assessee has a motive of profit. This observation of the CIT is purely based on his assumption inasmuch as in the main object, it has been clearly stated and specified that the assessee shall promote micro finance services, as permitted from time to time by the Reserve Bank of India, exclusively to a large number of poor persons to help them and their families to rise out of poverty not with the motive of profit. In the main object under Item No.(1), it has been clearly stated that the assessee has been pursuing its objects not with the motive of profit. Section 25 of the Companies Act, 1956, also provides that the company shall apply its profit, if any, or other income in promoting its objects and it is prohibited from making any payment of dividend to its members. Therefore, the question of pursuing the objects of the company with a profit motive does not arise. We therefore, hold that the assessee company has no motive of profit in pursuing its objects as provided in the Memorandum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany but shall be given or transferred to such other company or institution registered under sec. 25 of the Act having objects similar to the objects of assessee company, to be determined by the members of the company at or before the time of dissolution or in default thereof, by the High Court of Judicature that has or may acquire jurisdiction in the matter. 13. In the light of the facts and reasons discussed above, we, therefore, hold that the assessee company has no motive of profit in pursuing its objects and activities. 14. Now, the question arises as to whether the activities of promoting micro finance services, as permitted from time to time by the Reserve Bank of India, exclusively to large number of poor persons, in their villages, towns etc. for income-generation; and thus to help them and their family to rise out of poverty not with the motive of profit, can be considered to be charitable purpose within the meaning of sec. 2(15) of the Act. 15. Sec. 2(15) of the Act defines "Charitable purpose" to include the following:- (i) Relief of the poor, (ii) Education, (iii) Medical relief, and (iv) The advancement of any other obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk. There was nothing on record to show that the interest charged by the assessee was exorbitant. In the light of these facts, it was held by the Tribunal that the assessee's object of using money for micro credit to poor women for their poverty alleviation and for the benefit of the sociohttp:// economically weaker sections of the society is charitable object qualifying for exemption under sec. 11 of the Act. This decision is squarely covers the present case. 19. However, the learned DR on the other hand, placed reliance upon the decision of ITAT, Bangalore Bench `B' in the case of Janalakshmi Social Services Vs. Director of Income-tax (Exemption), Bangalore, order being dated August 22, 2008 reported in (2009) 33 SOT 197 (Bang.), to contend that micro financing if done on commercial lines is not a charitable activity. The learned DR therefore, contended that the learned CIT has rightly refused registration to the assessee association by holding that the assessee's activities are not charitable activities within the meaning of sec. 2(15) read with sec. 12AA of the Act. 20. We have carefully perused the aforesaid decision in the case of Janalakshmi Social Services (supra). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bangalore Bench in the case of Bharatha Swamukhi Samasthe (supra) and no by the decision in the case of Janalakshmi Social Services (supra). 22. 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 the objects of the trust notwithstanding the profit and gain involved therein. In this respect, a reference may be made to the decision of Hon'ble Supreme Court in the case of Asstt. CIT vs, Thanthi Trust (2001) 247 ITR 785 (SC). 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 the Memorandum of Association and Articles of Association, it has been clearly provided that the profit shall not be distributed amongst the members but shall be utilized towards its objects, and in the case of dissolution, any property remaining after meeting out the liability shall be transferred to the association having similar object. Therefore, the rejection of the registration of trust on this score is also unjustified. 23. Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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