TMI Blog2016 (7) TMI 827X X X X Extracts X X X X X X X X Extracts X X X X ..... business in a commercial manner so as to earn profit and there is no iota of charity carried on by the assessee so as to grant exemption under sec.11 of the Act. Hence, in our opinion, the CIT(A) not justified in granting exemption u/s.11 of the Act to the assessee. Accordingly, we reverse the order of the Ld.CIT(A) and restore the order of the AO. - Decided against assessee Allowance of bad debts - Held that:- CIT(A) is not justified in granting deduction as bad debts as that business of assessee trust, which is not continuing during the relevant period and in case of discontinued business, the claim of assessee u/s.36(1)(vii) cannot be allowed. - Decided against assessee Addition to the capital account of the assessee Trust - Held that:- The assessee took a plea befoe the AO that this impugned amount has been received on transfer of capital asset from M/s.Grama Vidiyal Trust to M/s.Grama Vidiyal Micro Finance Ltd. Contrary to this observation of the AO, the CIT(A) observed that there is no transfer of any asset, as such there is no levy of capital gain tax at ₹ 8,24,15,000/-. This findings of the CIT(A) is not based on any positive material. Hence, the facts brough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.345/Mds./2013 by Revenue (for A.Y 2009-10) On perusing the appeal, we find that the AO had filed the appeal with delay of 14 days. The learned AO has submitted a Petition dated 01.07.2015 seeking condonation of delay and the AO stated in this petition that the delay of 14 days in filing the appeal before this Tribunal is on account of mixing up of papers in his office and it took time to locate the same and as soon as he traced the records, he filed the appeal on 26.02.2013. In our opinion, the reasons explained by the AO for filing the appeal belatedly is bonafide. Accordingly, the delay is condoned. 2.2 ITA No.1437/Mds./2014 by Revenue (for A.Y 2010-11) There was a delay of 18 days in filing this appeal. Consequent to this, the ld. Assessing Officer filed a condonation petition dated 20- 05.2014 for condoantion of delay. We have gone through the condonation petition stating that the delay was occurred on the reason that the AO assigned work of Election duty as observer for the assembly constituencies Vijayawada West, Vijayawada Central, Andhra Pradesh from 12.04.2014 to 09.05.2014 and AO joined duty only on 12.05.2014. Thereafter only he was able to prepare the paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same idea and the Trust continued the same till December, 2007. Credit was given at an affordable cost, considering the cost of fund and operation cost, surplus if any which was left over has been spent on education of the poor and needy. 4.1 During the assessment year 2009-10, i.e. the year under consideration, the Assessing Officer has treated this Trust as business entity and taxed accordingly, stating that the micro credit activity carried out by the Trust are not of charitable nature which is defined under Section 2(15) of the Income tax Act. The Authorised Representative of the appellant aggrieved on the decision taken by the Assessing Officer in his submissions made before the undersigned stated that the Grama Vidiyal Trust is working among the poor women to alleviate their poverty and to create self employment scheme for their lively hood by lending money to thousands of poor women at nominal rate of interest. 4.2 The main object of the appellant Trust is stated as under: 1) To introduce a non-traditional credit and savings system, to help the rural poorest of the poor women. 2) To promote self-reliance among women groups (community based organizations) by sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 2008, he withdrew the exemption u/s.11 of the Act and accordingly, the income of assessee was assessed at maximum marginal rate. Aggrieved, the assessee carried the appeal before the CIT(A). 5. On appeal, the CIT(A) observed that the assessee trust has been carrying on micro financial activities to rural poor women. If the AO has failed to prove that the trust members have misused the funds of the Trust for their personal benefit or could not find any material on record for having acquired any asset in their names out of the funds of the Trust. Since the Trust uses the funds or deposits for its charitable activities, which can be utilized for the next five year from the date of receipt of the funds in discharging towar5ds charitable activities, the Trust has neither sold nor transferred any asset either tangible or intangible including goodwill or technical knowhow attracting the provisions of capital gains tax. The AO failed to bring anything on record for any asset sold/transferred by the Trust during the year under consideration warranting levying of capital gains in the hands of the assessee trust. Therefore, the AO is directed to delete the addition made on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer for the amount written off claimed by the appellant Trust at ₹ 10,75,525, the CIT(A) observed that this amount has been written off in the books of accounts of the appellant Trust after making efforts to recover the amounts of loan given to self help groups being a part of micro financing activity. The Authorised Representative of the appellant further submitted that the Trust is lending moneys to poor women and self help groups in expectation of repayment of the loans taken from the Trust. But in certain circumstances the amounts of loans taken by the women self help groups are not able to be recovered due to natural calamity such as floods, drought and also due to sudden death of the beneficiary family I breadwinner of the women groups, borrower may not be able to repay the loan to the appellant Trust. Under the circumstances, as a charitable measure the Trust will not be able to collect the amount of loan given to women groups and the loans have to be written off, sometimes adjust these irrecoverable loses against the surplus to help the poor women self help group families. As the appellant Trust failed to recover ₹ 10,75,525, the same has been written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anuary 2008. But before CIT(A) the trust took a totally opposite stand stating that the trust is still carrying micro- financing activity and no opportunity was given by CIT(A) to A.O. to explain this dichotomy. Ld.D.R submitted that the assessee trust is carrying out microfinance activities in subsequent years because the assessee trust passed a resolution in the Executive Board stating that all the lending activities carried out by Grarna Vidiyal Trust will be transferred to Grama Vicliyal Micro Finance (P) Ltd. from January 2008 onwards and in fact a copy of resolution was filed before A.O. during assessment proceedings. Further, ld.D.R submitted that the assessee s micro-financing activity has been transferred to a company in which the same activity is treated as business. The very fact that assessee has treated the activity as business in the hand of company in subsequent assessment years shows that the micro-finance is not a charitable activity in nature and it is the self admission of assessee, that it is pure business activity. Further, ld.D.R mentioned that the CIT(Appeals) has erred in, accepting the assessee s contention that the trust has neither sold or transferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled to appreciated that the issue of the activities relating to the micro finance in relation Trustees to the provisions in section 11 of the Act would be academic in nature and ought to have appreciated that in the light of the application of the receipts/income earned/generated by the Assessee/Respondent herein for the objectives of the Assessee/Respondent Trust, the contradiction in the stand as well as the findings should not be construed as fatal to the exemption as prescribed in section 11 of the Act. 4. The CIT(Appeals)/DCIT failed to appreciated that the lull in the charitable activities/the minimum charitable activities carried out in the previous year relating to the Assessment Year under consideration consequent to transformation/hiving off the mirco finance activities would not disentitle the Assessee/Respondent Trust from making the claim for exemption within the scope of section 11 of the Act. 5. The CIT(Appeals)/DCIT failed to appreciated that in any event the activities of the Assessee/Respondent Trust would not fall within the last limb of the definition provision in section 2(15) of the Act and ought to have appreciated that the activities even though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lves the carrying on of 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charitable activity. In other words, it was contended 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 analyze 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 impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered as activities of medical relief 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, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Janalakshmi Social Services (33 SOT 197) (Bang.). The assessee relied on various judgments, which cannot be applied to the facts of the present case, as the assessee is carrying on micro finance business in a commercial manner so as to earn profit and there is no iota of charity carried on by the assessee so as to grant exemption under sec.11 of the Act. 9. Further, the same view was taken by this Tribunal in the case of Kalanjiam Development Financial Services for assessment year 2009-10 in ITA No. 625/Mds/2015 vide order dated 07.08.2015. 10. Hence, in our opinion, the CIT(A) not justified in granting exemption u/s.11 of the Act to the assessee. Accordingly, we reverse the order of the Ld.CIT(A) and restore the order of the AO. 11. Regarding allowing of bad debts ₹ 10,75,525/-, in our opinion the CIT(A) is not justified in granting deduction as bad debts as that business of assessee trust, which is not continuing during the relevant period and in case of discontinued business, the claim of assessee u/s.36(1)(vii) cannot be allowed. This ground is rejected. 12. The Revenue raised one more ground is with regard to deletion of 8.24 crores, which was credited to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso perused the material available on record. We have also gone through the provisions of section 32 of the Act which provides for depreciation. Depreciation has to be allowed on the cost of the asset. In this case, the cost of the asset was allowed u/s 11 of the Act as application income since the assessee is a charitable institution entitled for exemption u/s 11. Therefore, the cost of the asset becomes NIL. When the cost of the asset becomes NIL, there is no question of allowing any depreciation. If the depreciation is allowed then it would amount to double deduction. The income of the charitable institution has to be computed on commercial principle in case the assessee is not claiming exemption u/s 11 of the Act. The assessee can also claim depreciation in case the exemption u/s 11 was denied by the Assessing Officer. Whatever may be the reasons, since the cost of the asset is NIL as the cost was already allowed as application of income, this Tribunal is of the considered opinion that the assessee is not entitled for depreciation. Section 32 of the Act falls in Chapter IV under computation of business income, however, section 11 falls in Chapter III which provides for incomes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.11 of the Act. Hence, Cross objections filed by the assessee is dismissed. 17. In the result, appeal of Revenue in 345/2013 is partly allowed for statistical purposes and Cross Objection by assessee is dismissed. 18. ITA No.1437/Mds/2014 ITA No.392/Mds./2015 (A.Y 2010-11 2011-12) : In these assessment years under consideration, assessee carried on micro insurance business in addition to micro finance business. In view of our findings in ITA No.345/Mds./2013 in para Nos.8 to 9, we are of the opinion that the assessee is not entitled for exemption u/s.11 of the Act. Accordingly, this ground of the Revenue in both the appeals is allowed. 18.1 The next ground is relating to receipt of corpus donation of ₹ 3.7 crores in the assessment year 2011-12. This issue is remitted to the file of AO withr similar direction given in para No.15 in ITA No.345/Mds./2013 for assessment year 2009-10. 18.2 The other ground is with regard to allowability of depreciation on assets as application of income. This ground is also dismissed as discussed in para No.13.2 in ITA No.345/Mds./2013 for assessment year 2009-10. 19. In the result, the appeal of the Revenue in ITA No.345/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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