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2016 (7) TMI 827 - ITAT CHENNAI

2016 (7) TMI 827 - ITAT CHENNAI - TMI - Exemption u/s.11 entitlement - assessee trust has been carrying on micro financial activities to rural poor women - charitable or non charitable purpose - Held that:- The assessee is lending money at commercial rate prevailing in the market. By advancing loans at that rate of interest, it cannot be considered as an activity carried on by the assessee as charitable and for the benefit of the public. When the assessee carried on micro finance activity in a c .....

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hich 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. - 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 - Allowanc .....

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yal 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 brought on record not enough to give any findings on this issue. Therefore, the entire issue is remitted to the file of AO for fresh consideration after giving opportunity of hearing to the asses .....

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e Trust created, partly or wholly, for charitable purpose, then in term of sec.2(24)(iia) of the Act it forms the part of the corpus fund of the Trust and it is a capital receipt. In the present case, since we have observed that assessee is not a charitable trust, it is engaged in the commercial activity and is not entitled for exemption u/s.11 of the Act. The assessee is required to give details of receipt of ₹ 3.70 crores and it is to be proved by assessee that it is not a revenue receip .....

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ant : Mr.Durai Pandian, Additional CIT DR For The Respondent : Mr.S.Sridhar,Advocate ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER These three Appeals and cross objections for A.Y 2009-10 filed by the Revenue and the Assessee respectively are directed against the different orders of the Learned Commissioner of Income Tax(A), Tiruchirapalli dated 07.11.2012, 29.01.2014 & 03.11.2014 pertaining to the assessment years 2009-10, 2010-11 & 2011-12 respectively. Since issues involved in all thes .....

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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 2 .....

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ur opinion, the reasons shown are justified and hence, delay in filing the appeal belatedly for 18 days before the Tribunal is condoned and appeal is admitted for adjudication. 2.3. C.O. No.78/Mds./2013 by assessee (for A.Y 2009-10) There was a delay of 14 days in filing this Cross Objections by the assessee. Consequent to this, the ld.A.R filed a condonation petition dated 20.06.2016 for condoantion of delay stating that the said delay in filing the CO is neither willful nor deliberate but due .....

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r 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 shall not be treated as object of general public utility . 3.2 The assessee has raised grounds in its C.O in support of the order of the Ld.CIT(A) and also raised the grounds that income generated from the micro finance used for the purpose of charitable activities, as such it cannot be said that assessee trust is no .....

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fect from the assessment year 1998-99 from the Commissioner of Income Tax- 1,Trichy and also registered u/s.80G of the Act. The Trust has been established with the ideology of poverty elimination through empowerment of women. Micro Credit programme has been started with the 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 po .....

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a 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 supporting programme of sustainable develo .....

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ike watershed, irrigation and herbal plants development, etc. k) Training the members of village women association towards awareness, economic development, education and empowerment progress in all respect. 4.3 The AO observed that for financial year 2008-09 in page No. 2 of the assessment order is as under:- i) That the Grama Vidiyal Trust has not been doing the micro finance loan to (SHGs) during the FY 2008-09. ii) The new company called Grama Vidiyal Microfinance P. Ltd., registered with a R .....

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yal Trust stated to have passed one resolution in the executive board meeting stating all lending activities carried out by GV Trust will the transferred to Grama Vidiyal Microfinance Ltd from 2008 onwards. vii) When the issue of resolution passed in the executive board meeting brought to the knowledge of the Authorised Representative of the appellant who strongly objected the version of the Assessing Officer and filed paper book containing the objectives of Grama Vidiyal Trust which contains ge .....

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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 .....

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al gains of ₹ 8,24,15,000/-. Trust has received contribution from various institutions governmental, conventional and non-conventional in the form of subscriptions, grant, donations, loans, and gift from donors from India and abroad and also received similar assistance from NBFC also and such contribution have been kept as deposits in the banks for subsequent utilization in carrying out the Trust objectives. Therefore, the contention of the Assessing Officer in treating the Trust activitie .....

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having similar objectives such as lending microfinance self help groups / NGOs /Trusts I Societies and other Association of Persons, formed for activities undertaking for the economic social and educational upliftment of its members. These objectives of the appellant Trust for giving donations or contribution to the similar objective Trusts such as ASA can be seen from the objective clause of the appellant Trust in its supplementary Trust deed [clause 8M(m)]. The Authorised Representative of the .....

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of 80G exemption. On verifying the submissions made by the Authorized Representative of the appellant and also objectives of the Trust, the contribution / donation given to the ASA Trust is in tune with the objectives of the appellant Trust and therefore the CIT(A) directed the Assessing Officer to allow the claim of the appellant Trust. 5.2 As far as the disallowance made by the Assessing Officer for the amount written off claimed by the appellant Trust at ₹ 10,75,525, the CIT(A) observe .....

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le 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 .....

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n the books of accounts as a part of main Trust activity of micro-financing. 5.3 As far as the claim of depreciation made by the appellant Trust at ₹ 64,07,747, the CIT(A) observed that the claim of depreciation is a normal expenditure and the depreciation is calculated according to the Income Tax Act, 1961. The depreciable asset have been acquired on account of capital expenditure in the previous year as well current year. According to CIT(A), the claim of depreciation is an allowable exp .....

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r consideration, irrespective of the nature of use or application shall not be treated as object of general public utility . Further, he submitted that the assessee s activity of micro-financing is a business and it collects interest, therefore, the assessee s activity cannot not be treated as charitable purpose . The rate of interest collected is as per normal banks lending procedure. Since the assessee is in financial business, CIT(A) should have affirmed the stand of A.O. The ld.D.R further p .....

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ore 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. .....

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t 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 any asset either tangible or intangible including goodwill or technical knowhow attracting the provisions of capital gains and also that the assessee s representative has admitted during the assessment proceedings that the trust has received ₹ 8.24 crore from Grama Vidiya Micro Finance Ltd. towatds the transformatio .....

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le in nature and also the assessee cannot write off an amount of 10,75,525/- since the assessee trust is not continuing the business during the relevant period. Further, ld.D.R submitted that the assessee had claimed the entire expenditure prior to previous year relevant to assessment year 2009-10, as application of income. In other words, the assessee has claimed the cost of capital asset as revenue expenditure in earlier year and hence again claiming depreciation would be double deduction. Hen .....

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aised in the present Cross Objections is contrary to law, facts, and in the circumstances of the case. 2. The CIT (Appeals)/DCIT erred in not considering the statement of total income which formed part of the return of income filed for the Assessment Year under consideration and further erred in not noticing the fact of application of the income/receipts generated in the previous year relating to the Assessment Year under consideration as per the prescription of section 11 of the Act without ass .....

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ot 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 .....

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eals)/DCIT failed to appreciate that the power of withdrawal of exemption u/s 11 of the Act in the process of framing the assessment was narrow as well as limited and hence ought to have appreciated that the action of withdrawing such exemption in treating the status of the Assessee/Respondent Trust as AOP on the consideration of the facts of the case was wrong, incorrect, unjustified, erroneous and not sustainable both on facts and in law. 7. The CIT(Appeals)/DCIT failed to appreciate that in a .....

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oper opportunity given before passing the impugned order as well as the assessment order and any order passed in violation of the principles of natural justice is nullity in law. 8. We have heard both the parties and perused the material on record. Sec. 11 of the Act stipulates that the income from property held for charitable or religious purpose shall not be included in the total income of the previous year of the person in receipt of the income to be given effect in the manner as specified th .....

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2009 as follows : "Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves 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 virtu .....

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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 element of profit it was enough liable to be reckoned as charitable purpose right from the inception of the Act in 1961 till 1st April, 1984, when th .....

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es relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under 'charitable purpose'. Obviously, this was not the intention of Parliament and hence I propose to amend the law to exclud .....

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een brought back and that is all. This however will not tilt the balance in any manner in the case of the assessee so as to take the activities outside the charitable purpose, particularly in view of the fact that micro finance business will not constitute any trade or business. According to the ld. AR, to perform charity, income is inevitable and contended that the activities being pursued by the assessee may constitute a trade or business, if it is not applied for the purposes of charity. Cont .....

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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 invol .....

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s that, after the amendment by incorporating proviso to section 2(15), the 4th limb as to the advancement of "any other object of general public utility" will no longer remain as charitable purpose, if it involves carrying on of : (a) any activity in the nature of trade, commerce or business, (b) any activity of rendering any service in relation to any trade, commerce or business for a cess or a fee or any other consideration, irrespective of the nature of use or application or retenti .....

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ce or business, it has to be examined whether the words "any trade, commerce or business" as they appear in the second limb of cl. (b) are in connection with the service referred to the trade, commerce or business pursued by the institutions to which the service is given by the assessee. If the said words are actually in respect of the trade, commerce or business of the assessee itself, the said clause [second limb of the stipulation under cl. (b)] is rather otiose. Since the activity .....

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. (b) in relation to the service rendered by the assessee, the terms "any trade, commerce or business" refers to the trade, commerce or business pursued by the recipient to whom the service is rendered and in such circumstances, the activities carried on by the assessee cannot be considered as charitable activities. 8.6. The activities carried on by the assessee cannot be considered as activities of medical relief or education or relief of the poor. It is true that the activities carri .....

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ncement 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 .....

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ute on the fact that the assessee is carrying on the business of micro finance. The assessee is maintaining separate accounts for the above business activities. But, the crucial question is whether running of micro finance is a business incidental to the attainment of the objectives of the trust or not. By any stretch of imagination, it is not possible to hold that the business of micro finance is incidental to the above stated objectives of the assessee-trust. "Incidental" means offsh .....

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of poor, it was not possible to conclude that running of business in the form of micro finance is incidental to carrying on of main objective of the assessee-trust and it is the main business of the assessee. Therefore, the assessee is not protected by the provision stated in section 11 (4A), either. 8.7. The assessee is lending money at commercial rate prevailing in the market. By advancing loans at that rate of interest, it cannot be considered as an activity carried on by the assessee as cha .....

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shmi 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. 62 .....

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im 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 capital account of the assessee Trust by the CIT(A), though it was treated as revenue receipt by the AO. 12.1 The facts of the issue are that the assessee had shown ₹ 8,24,15,000/- under the head capital fund in the balance sheet. The assessee given explanation to the AO that this amount represents transformati .....

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e is no material to suggest that the assessee had transferred any asset so as to levy capital gain and he deleted the addition. Aggrieved by the order of CIT(A), Revenue is in appeal before us. 12.2 We have heard both the parties and perused the material on record. 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) obs .....

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sets on which the entire cost of assets has been allowed as application of income in earlier assessment years. 13.2 We have heard both the parties and perused the material on record. In our opinion, this issue came for consideration before this Tribunal in the case of M/s Kongunadu Arts & Science College Council Gnanambigai Mills Post Coimbatore 641 029 in I.T.A.No.2097/Mds/2014 vide order dated 26-06-2015 for assessment year 2010-11. The Co-ordinate Bench of this Tribunal held as follows:- .....

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sset 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 ap .....

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I of the Act, it cannot claim depreciation u/s 32 of the Act. Therefore, we are unable to uphold the order of the CIT(A). Accordingly, the order of the CIT(A) is set aside and that of the Assessing Officer is restored. In view of this, there is no question of allowing any depreciation in the assessment year under consideration on the assets which Written down value (WDV) had become Nil . Thus, this ground of the Revenue is allowed. 14. The other ground raised in appeal of Revenue in ITA No.392/M .....

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orms the part of the corpus fund of the Trust and it is a capital receipt. In the present case, since we have observed that assessee is not a charitable trust, it is engaged in the commercial activity and is not entitled for exemption u/s.11 of the Act. The assessee is required to give details of receipt of ₹ 3.70 crores and it is to be proved by assessee that it is not a revenue receipt and if it is in the field of capital receipt, capital receipt would not be liable for the exemption u/s .....

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