TMI Blog2011 (1) TMI 693X X X X Extracts X X X X X X X X Extracts X X X X ..... in promoting its objects and it is prohibited from making any payment of dividend to its members The expression “Relief of the poor” has been explained by the Board in its Circular No.11 of 2008 dated 19th December, 2008 - The learned CIT has also given one more reason that it is not comprehensible as to why not the assessee got itself registered as a society - It is not necessary that in order to do public charity, any one association is to be registered as a society or a trust – Accordingly held that mere because the assessee association is registered as company under sec. 25 of the Companies Act, that by itself cannot be a ground to refuse registration under sec. 12A/12AA of the Act - In the result, the appeal filed by the assessee is allowed - I.T. A. No.1374/Del/2010 - - - Dated:- 28-1-2011 - SHRI C.L.SETHI, SHRI K.G. BANSAL, JJ. Appellant by: S/Sh. P.C. Yadav Ravi Gupta, Advocate. Respondent by: Ms. Y.S. Kakkar, Sr. DR. O R D E R PER C.L. SETHI, JUDICIAL MEMBER: The assessee company is in appeal against the order dated 28.01.2010 passed by the learned Commissioner of Income-tax, Muzaffarnagar under section 12AA of the Income-tax Act, 1961 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as allowed under Income Tax Act, 1961 and Companies Act, 1956 in or upon any investments or properties and where so ever situated and turn to account, exchange or transpose any investment or properties of the company to attain the main objects . S.NO.V(4) Nothing is this clause shall prevent the payment by the company in good faith of reasonable remuneration to any of its officers or servants (not being members) or to any other person (not being a member) in return for any services actually rendered to the company . All these clauses clearly sow that the company has a motive of profit also alongwith the stated motive of the service of poor and needy people as claimed by the assessee. Such profit even if to be ploughed back as claimed by the assessee, is liable to tax under Income Tax Act. 2. It is incomprehensible as to why not assessee got itself registered as a society; if the motive was to do activities of public charity!! 3. The assessee company has relied on the case Director of Income Tax v/s Bharat Diamond Bourse (2003) 259 ITR 280 (SC). The facts of the case are different because the Bharat Diamond Bourse Company is an apex body, comprising of various diamonds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to the Commissioner. Sec. 12AA provides that the Commissioner, on receipt of an application for registration of a trust or institution made u/s 12A, shall call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such enquiries as he may deem necessary in this behalf, and after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he shall pass an order in writing registering the trust or institution, or shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant. 6. In the light of the conditions specified u/s 12AA for granting registration to the trust or institution, we have to see the object of the present institution and genuineness of its activities. 7. It is not in dispute that the present assessee is a company registered u/s 25 of the Companies Act, 1956. Under sub-sec. (1) of sec. 25 of the Companies Act, 1956, it has been provided that where it is proved to the satisfact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out without obtaining prior approval/no objection certificate from the concerned authority wherever required. 3) None of the objects will be carried out on commercial basis. 9. On perusal of the aforesaid main objects to be pursued by the assessee company, the main objects of the assessee company would be to promote 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 families rise out of poverty not with the motive of profit. It is also provided therein that no objects of the company will be carried out without obtaining prior approval/no objection certificate from the concerned authorities wherever required, and none of the objects will be carried out on commercial basis. From the objects, it is thus clear that the assessee has been pursuing its objects not with the motive of profit and on commercial basis. The learned CIT in his order has reproduced the only objects which are incidental or ancillary to the attainment of the main object specified in Part-B of Para III of the Memorandum of Association. The learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, scientific and managerial techniques in keeping with the national aspirations, reduction of poverty in a sustainable way and the company shall be mindful of its social responsibilities to the employees, share-holders, the local community, lenders and society in general. 11. We further find that the Regional Director of Ministry of Corporate Affairs, Northern Region, Noida, UP has also granted a licence u/s 25 of the Companies Act to the assessee association after being satisfied that the assessee association is to be registered as a company under the Companies Act for promoting objects of the nature specified in sec. 25, sub-sec.(1), clause (a) of the said Act and that it intends to apply its profits, if any, or other income in promoting its objects and to prohibit the payment of any dividend to its members. In the licence, it has been clearly provided that the income and the property of the assessee company when so ever derived, shall be applied solely for the promotion of the objects as set forth in its Memorandum of Association and that no portion thereof shall be paid or transferred, directly or indirectly by way of dividend, bonus or otherwise by way of profit, to perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions stipulated under section 11(4A) or the seventh proviso to section 10(23C)which are that (i) the business should be incidental to the attainment of the objectives of the entity, and (ii) separate books of account should be maintained in respect of such business. Similarly, entities whose object is education or medical relief would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above. 17. On perusal of the aforesaid meaning of relief of the poor, it is clear that it encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy people. It would 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 sec. 11(4A) or the seventh proviso to sec. 10(23C) of the Act. 18. At this stage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was undertaking only business of micro financing and had not done any activity to show that it had been done as a charitable act. This case is totally distinguishable on facts from the facts of the present case. In the present case, it is not a case, where the assessee has been providing finance to a particular section of the society. The present case is not a case, where the assessee has been providing loan to individual beneficiaries not directly but through some mediator. It is also not a case where the assessee has been charging exorbitant rate of interest along with processing and service charges. In the present case, we find that the assessee has been providing micro-financial services as per the guidelines given by the Reserve Bank of India. The Reserve Bank of India has given guidelines about the nature of micro credits and the interest rates applicable thereto. In the present case, the assesee made application for financial assistance under micro scheme to Small Industries Development Bank of India, who by order dated March 2, 2009, was pleased to sanction to the assessee a loan not exceeding Rs.200 lakh only for financing the project under micro credit scheme with ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. This proposition laid down by the Hon ble Bombay High Court is squarely applicable to the facts of the present case, where the profit or surplus remaining with the assessee was used for carrying out the objects of the assessee association and it was neither distributed as profit or dividend amongst the members nor accumulated as profits for distribution. 24. The learned CIT has also given one more reason that it is not comprehensible as to why not the assessee got itself registered as a society, if the motive of the assessee was to do activities of public charity. This reason given by the CIT is found, in our considered view, to be improper. It is not necessary that in order to do public charity, any one association is to be registered as a society or a trust. In the case of CIT vs. Agricultural Produce and Market Committee (supra), the Hon ble Bombay High Court Nagpur Bench has held that there is no requirement under the Act that an institution constituted for advancement of any object of general public utility must be registered as a trust. Therefore, in the present case before us, mere because the assessee association is registered as company under sec. 25 of the Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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