TMI Blog2014 (1) TMI 1902X X X X Extracts X X X X X X X X Extracts X X X X ..... of sec.2(15) of the Act or activities such as advancement of any other object of general public utility or any other activity which falls outside the scope of the sec.2(15) of the Act. The assessee company is engaged in any activity predominantly beyond the scope of Sec.2(15) of the Act and intents to grab the benefits of the relevant provisions of the Act under the garb of charity as a colorable device, Ld. DIT(E) shall be at liberty to invoke the provisions of Sec.12AA(3) of the Act. Appeals of assessee are allowed for statistical purposes. - ITA No.410/Mds./2012 & I.T.A. No.075 /Mds/2013 - - - Dated:- 9-1-2014 - SHRI A. MOHAN ALANKAMONY AND SHRI S.S.GODARA, JJ. Appellant by : Shri R.Vijayaraghavan,Advocate Respondent by : Shri S.Das Gupta, JCIT D.R. Shri Anirudh Rai, CIT D.R. ORDER A.MOHAN ALANKAMONY, J. These two appeals are filed by the assessee, one against the order of the Director of Income-tax (Exemptions) dated 21.12.2011 in the case No. DIT(E) No.2(594)/12AA(3)/2011-12 passed u/s 12AA(3) of the Act wherein the ld.DIT(E) had cancelled the registration invoking sec.12AA(3) of the Act and the other against the order of the Learned Commissioner of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of income earned where fees receipt from ICICI Bank ₹ 85.64 lakhs , fees receipt from Madura Micro Finance Ltd ₹ 3.37 crores, insurance commission received from ICICI Prudential Life Insurance ₹ 15.61 lakhs, insurance commission received from Bajaj Allianz ₹ 7.27 lakhs, interest received ₹ 1.81 crore and Misc. income ₹ 60.13 lakhs (ii) MOU with ICICI Bank, MOU with Madura Micro Financ ltd., MOU with insurance companies. From the above activities, Ld. DIT(E) opined that the assessee was engaged only in the business of micro-finance, earning professional fees by rendering these services. He further opined that all the activities of the company was in the nature of business venture which was further explicit from the audit report filed in Form No.3CD as per the provisions of section 44AB of the Act. 7. Before the Ld. DIT(E), the Ld. A.R had submitted as follows:- i) The main activity of the assessee is relief to the poor by organizing self-help groups and imparting training to the members of the self-help groups in various vocational activities. ii) The assessee company acts as a conduit between the banks and financial inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scertain as to whether the poor were actually benefitted from the activities conducted by the assessee company. If the assessee company had extended its service to the poor, definitely such activities will fall within the first limb of the sec.2 (15) of the Act i.e., relief to the poor , thereby the first proviso to the sec.2 (15) of the Act cannot be invoked. However if the assessee company has been indulging only in commercial activities on the garb of rendering services to poor, then the assessee cannot derive benefit U/s. 11 12 of the Act and further deserves the registration granted U/s. 12AA to be cancelled by invoking the provisions U/s. 12AA(3) of the Act. Ld. DIT(E) has failed to examine the entire facts considering these aspects, though we do not find any infirmity in the findings of the Ld. DIT(E) with respect to the nature of fees received, and commercial activities embedded in the agreement executed by the assessee company and financial institutions and insurance companies. 12. On examining the activities of the trust, it can be seen that the first object of the trust clearly provides for channelizing the funds to individuals, who are urban poor. This activity de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee in the nature of charity. Therefore, the facts of the case before us are not similar to the facts of the above said decision rendered by Hon ble High Court. (ii) Kurinji Social Welfare Society Vs.ACIT ITA No.1594/Mds./09 dt.03.12.10. Keeping all these facts and circumstances of the case, we are of the considered opinion that the assessee society is engaged in extending financial help to women self-help groups through nationalized banks. The assessee is using money in micor-credit to poor for poverty alleviation and for the benefit of socio-economic weaker section of the society which, in our opinion, is a charitable work qualifying for exemption/s 11 of the Act. There is nothing on record to show that the interest charged by the assessee society is exorbitant. We are convinced that the poor women in rural areas have no option but to avail credit at lower interest from other sources, rather it is other way round. It goes without saying that the assessee is running campus in rural areas to make the poor women aware of the scheme and to encourage their participation. This activity involves some expenditure. The overall situation shows that the assessee society is not doi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RBI. The RBI has given guidelines about the nature of micro credits and the interest rates applicable thereto. In the present case, the assessee 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 ₹ 200 lakhs only for financing the project under micro credit scheme with certain conditions and stipulations which had been duly complied with by the assessee. As per the conditions, the loan was to be disbursed in need-based installments and on recommendation of project Advisory Committee. Therefore, the facts of the present case are on quite different footing; 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. Thus, merely because there was a surplus from the activity of micor financing, that by itself, cannot be a ground to say that the assessee does not exist for charitable purposes particularly when under Memorandum of Associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o his file to adjudicate the issue afresh after considering the above cited decisions relied on by the assessee before us, as per law. He shall allow reasonable opportunity of hearing to the assessee before adjudicating the issue afresh. Thus, the grounds of appeal of the assessee are allowed for statistical purposes. In this case the matter is remitted back to the file of Ld. DIT(E) for considering certain decisions relied on by the assessee, and therefore, not applicable to the facts of the case before us.- (v) Madras Motor Sports Club Vs.DIT(E) [2013] 141 ITD 1(Chennai) 6. The only reason why the DIT(E) chose to cancel the registration was that assessee was hit by substituted Section 2(15) of the Act. By virtue of substitution of Section 2(15) by Finance Act, 2008, with effect from 01.04.2009, there was a change, which placed on an object for advancement of general public utility, certain constraints. The said Section 2(15) was further amended by Finance Act, 2010, with retrospective effect from 1.4.2009. Section 2(15) as it stands now reads as under:- 2(15) charitable purpose includes relief of the poor, education, medical relief, [preservation of environm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e receipts of nature mentioned in first proviso exceeded ₹ 10 lakhs, assessee will not be eligible for exemption under Sections 11 and 12 of the Act. It will not mean that an otherwise charitable object of general public utility will become a noncharitable one only for a reason that the aggregate receipts exceeded ₹ 10 lakhs. 7. As already mentioned by us, order of ld. DIT(E) has clearly mentioned that assessee s objects were in the nature of advancement of object of general public utility coming within the ambit of Sec 2(15) of the Act. He had cancelled the registration only for the reason that the receipts exceeded ₹ 10 lakhs. If the receipts exceeded ₹ 10 lakhs and if such receipts were of nature mentioned in the first proviso to Sec 2(15) of the Act, the Assessing Officer would, no doubt be justified in denying exemption under sections 11 12 of the Act. However, this will not be a sufficient reason for cancelling the registration ranted tot eh assessee under section 12A(a) of the Act. If in the very next year, assessee s ,in other words, nature of objects of the assessee cannot fluctuate in tandem with the quantum of receipts mentioned in the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a charitable purpose and the Commissioner has to satisfy itself as provided under section 12AA of the Act before allowing the registration. The order of the Commissioner was justified. 15. We have also taken into account of the Report of the Sub-committee of the Central Board of Directors of Reserve Bank of India issued during the year January, 2011 produced before us by the Ld. A.R which is reproduced herein below:- 2. The Micro finance sector 2.1. Microfinance is an economic development tool whose objective is to assist the poor to work their way out of poverty. It covers a range of services which include, in addition to the provision of credit, many other services such as savings, insurance, money transfers, counselling, etc. 2.2. For the purposes of this report, the Sub-Committee has confined itself to only one aspect of Microfinance, namely, the provision of credit to low income groups. 2.3 The provision of credit to the Microfinance sector is based on the following postulates: a) It addresses the concerns of poverty alleviation by encouraging the poor to work their way out of poverty. b) It provides credit to that section of society th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case and our observations supra and in Para Nos. 11 12, we are of the considered view that the matter has to be remitted back to the file of Ld. DIT(E) who shall examine the conduct of the assessee with respect to its activities performed during the relevant previous year and if they fall beyond the scope of Sec.2(15) and its objects, in this case, objects being relief to the poor , the Ld. DIT(E) may pass appropriate order as per law by canceling the registration invoking the section 12AA(3) of the Act. In doing so, the Ld. DIT(E) shall also take note of Report of the Subcommittee of the Central Board of Directors of Reserve Bank of India issued during the year January, 2011and the decisions of the Hon ble Bombay High Court in the case of Sinhagad Technical Education Society Vs. CIT and Uttarakhand High Court in the case of CIT V. National Institute of Aeronautical Engineering Educational Society reproduced herein above in order to assess whether the activity conducted by the trust falls under the first limb of sec.2(15) of the Act or activities such as advancement of any other object of general public utility or any other activity which falls outside the scope ..... X X X X Extracts X X X X X X X X Extracts X X X X
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