M/S.SHALOM CHARITABLE MINISTRIES OF INDIA vs. THE DEPUTY COMMISSIONER OF INCOME TAX

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ITA/319/2019HC KeralaKLHC01080893201805 December 2022Bench: HONOURABLE MR.JUSTICE S.V.BHATTI,HONOURABLE MR.JUSTICE BASANT BALAJI9 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the Income Tax Appellate Tribunal had not omitted to consider any of the grounds or arguments presented by the assessee. The court found that the assessee's case did not fall under the heads of relief of the poor, education, or medical relief. The Tribunal's consideration of the assessee's activities as not a charitable purpose, particularly the last limb of Section 2(15), was deemed correct. The court agreed with the Tribunal's conclusion and reasoning, stating that the questions formulated by the assessee were not substantial questions of law but rather findings of fact. Therefore, the questions were answered in favour of the revenue and against the assessee. The appeals were dismissed.

What were the facts?

The assessee, M/s. Shalom Charitable Ministries of India, is a trust engaged in running schools and providing microfinancing to women's self-help groups. The trust borrows funds from nationalized banks and financial institutions for this purpose. The revenue authorities, including the Assessing Officer, Commissioner of Income Tax (Appeals), and the Income Tax Appellate Tribunal (ITAT), have determined that the assessee's activities primarily constitute microfinancing and real estate business, and therefore, are not entitled to exemption under Section 11 of the Income Tax Act, 1961. The appeals before the High Court challenge these findings for assessment years 2007-2008 and 2009-2010.

What were the issues?

1. Whether the Appellate Tribunal erred in holding that the appellant is not entitled to the benefit of exemption under Section 11 of the Income Tax Act, 1961, considering the proviso to Section 2(15) introduced by the Finance Act, 2008, effective from April 1, 2009? (Question of law) 2. Whether the Appellate Tribunal ought to have held that microfinance activity is a charitable activity? (Question of mixed law and fact) 3. Whether the Appellate Tribunal erred in disallowing the amount towards provision for bad and doubtful debts in the income and expenditure account? (Question of mixed law and fact) 4. Whether the Appellate Tribunal erred in disallowing 20% of expenses supported by self-vouchers? (Question of mixed law and fact) Assessee's arguments: - The proviso to Section 2(15) applies to assessment year 2009-2010, making the denial of Section 11 benefit illegal. - Microfinance activities fall under the limb of 'advancement of any other object of general public utility' as defined in Section 2(15). Revenue's arguments: - The assessee's microfinance services do not qualify as 'advancement of any other object of general public utility'. - The nature of the activity, involving borrowing from banks and lending with a substantial increase in the prior lending rate (29%), indicates a commercial venture. - The benefit of the proviso to Section 2(15) does not arise if the activity is not charitable in the first place.

Which sections of the Income-tax Act were involved?

Section 11,Section 2(15)

AI-generated summary — verify with the full judgment below

I.T.A.Nos.315 & 319 of 2019 -1-

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI MONDAY, THE 5TH DAY OF DECEMBER 2022 / 14TH AGRAHAYANA, 1944 ITA NO. 315 OF 2019 AGAINST THE ORDER IN ITA 79/2017 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT:

M/S.SHALOM CHARITABLE MINISTRIES OF INDIA, SHALOM NAGAR, GOPALAPURAM ROAD, CHITTUR, PALAKKAD- 678101, REPRESENTED BY ITS MANAGING TRUSTEE, K.T.THOMAS.

BY ADVS. HARISANKAR V. MENON SMT.MEERA V.MENON SMT.K.KRISHNA RESPONDENTS:

1 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-I, PALAKKAD- 678001. 2 THE COMMISSIONER OF INCOME TAX, PALAKKAD- 678001.

BY ADVS. SRI.P.K.RAVINDRANATHA MENON (SR.) SRI.JOSE JOSEPH, SC, FOR INCOME TAX OTHER PRESENT:

SR ADV P.K.R. MENON THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 05.12.2022, ALONG WITH ITA.319/2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

I.T.A.Nos.315 & 319 of 2019 -2-

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI MONDAY, THE 5TH DAY OF DECEMBER 2022 / 14TH AGRAHAYANA, 1944 ITA NO. 319 OF 2019 AGAINST THE ORDER IN ITA No.80/2017 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT:

M/S.SHALOM CHARITABLE MINISTRIES OF INDIA SHALOM NAGAR, GOPALAPURAM ROAD, CHITTUR, PALAKKAD- 678 101, REPRESENTED BY ITS MANAGING TRUSTEE, K.T.THOMAS.

BY ADVS. HARISANKAR V. MENON SMT.MEERA V.MENON RESPONDENTS:

1 THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-I, PALAKKAD-678 001. 2 THE COMMISSIONER OF INCOME TAX, PALAKKAD-678 001.

BY ADVS. SRI.P.K.RAVINDRANATHA MENON (SR.) SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 05.12.2022, ALONG WITH ITA.315/2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

I.T.A.Nos.315 & 319 of 2019 -3-

S.V.BHATTI & BASANT BALAJI, JJ. --------------------------------------------- I.T.Appeal Nos.315 and 319 of 2019 --------------------------------------------- Dated this the 5th day of December 2022

JUDGMENT S.V.Bhatti, J.

We have heard Mr Harisankar V.Menon for the appellant, and Sri PKR Menon learned Senior counsel for the respondent.

2.

M/s Shalom Charitable Ministries of India/assessee is the appellant in these two appeals. The Deputy Commissioner and Commissioner of Income Tax are the respondents.

3.

The details of assessment orders, year of assessment and orders of the authorities, for brevity, are stated in the following table. Sl.No. Assessment year & Date of Assessment Order of Commissioner of Income Tax (Appeals) Order of the Appellate Tribunal ITA No. 1 29.12.2009; 2007-2008 ITA-21/PGT/CIT(A) V/2009-10 dated 09.12.2016 ITA Nos.79 & 80/Coch/2017 & S.P.Nos.17 & 18/Coch/2017 dated 25.04.2018 315/20 19 2 26.12.2011; 2009-2010 ITA- 15/PGT/CIT(A)V/2011-12 dated 09.12.2016 ITA Nos.79 & 80/Coch/2017 & S.P.Nos.17 & 18/Coch/2017 dated 25.04.2018 319/20 19

I.T.A.Nos.315 & 319 of 2019 -4-

4.

The assessee claims it is a Trust running schools and providing microfinancing activities to self-help groups of women. The assessee borrows money from nationalised banks of financial institutions and claims to be providing financial assistance to the self-help groups of women. The assessee claimed exemption under Section 11 of the Income Tax Act. The assessing authority, the Commissioner of Appeals and the Tribunal have recorded findings of fact that the activity of the assessee principally comes as a microfinancing and real estate business and is not entitled to benefit under Section 11 of the Income Tax Act. The appeal is filed for the following substantial questions of law: A) Has not the Appellate Tribunal erred in holding that the appellant is not entitled for the benefit of exemption under Section 11 of the Income Tax Act, 1961? B) Ought not the Appellate Tribunal have held that microfinance activity is a charitable activity? c) Has not the Appellate Tribunal erred in disallowing the amount towards provision for bad and doubtful debts in its income and expenditure account? D) Has not the Appellate Tribunal erred in disallowing 20% of the expenses supported by self-vouchers of the appellant?

I.T.A.Nos.315 & 319 of 2019 -5-

5.

Adv.Harisankar V.Menon made the arguments under two heads. Firstly, the amendment introduced by way of the proviso to Section 2(15) of the Income Tax Act which reads as follows: “Sec.2(15): “Charitable purpose” includes relief of the poor, education, medical relief and the advancement of any other object of general public utility.’ As per Finance Act, 2008, the said provision was amended adding a ‘proviso w.e.f. Ist April, 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.” 6. From the above, the argument is that as against the two assessment years, the assessment year 2009-2010 is covered by the proviso, and denial of benefit under Section 11 is illegal. Secondly, it is argued that the activities of the appellant ensuring financial strength and assistance to self-help groups of women must have been brought under one of the limbs of Section 2(15), which is the advancement of any other object of general public utility.

7.

Learned Senior counsel PKR Menon invites our attention to the findings recorded by the Tribunal on both grounds canvassed before this Court. According to the Senior

I.T.A.Nos.315 & 319 of 2019 -6-

Counsel, the assessee is doing microfinance services which cannot and could not come under the head ‘the advancement of any other object of general public utility. The nature of the activity is also that the assessee borrows the amounts from the nationalised banks or financial institutions, and the substantial increase on the prior lending rate was 29%. Also, the amounts are lent to small self-help groups. When the effort is coming within the fold of the advancement of any other object of general public utility is not attracted, extending the benefit of the proviso introduced with effect from 1.4.2009 does not arise. 8. We have perused the order of the Tribunal, and the learned members have not omitted to consider any of the grounds or limbs of argument on both the points now canvassed before us. It is not the assessee’s case that the assessee could be considered under the head of providing relief for the poor, education, medical etc. The last limb to the nature of the activity carried on by the assessee has been rightly considered as not a charitable purpose. We do not propose to re-iterate the very conclusion recorded by the Tribunal and answer the questions. We agree with the

I.T.A.Nos.315 & 319 of 2019 -7-

consideration and conclusion arrived at by the Tribunal in the confirmation judgment under appeal. Further, these are all findings of fact, and the questions formulated above are not legal substantial questions of law. Questions are answered in favour of revenue and against the assessee. The appeals fail and are accordingly dismissed.

Sd/- S.V.BHATTI, JUDGE

Sd/- BASANT BALAJI, JUDGE

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I.T.A.Nos.315 & 319 of 2019 -8-

APPENDIX OF ITA 319/2019

PETITIONER ANNEXURES ANNEXURE A COPY OF ASSESSMENT ORDER ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- I, PALAKKAD FOR THE YEAR 2009-10 DATED 26.12.2011. ANNEXURE B COPY OF THE ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX(APPEALS), THRISSUR DATED 9.12.2016. ANNEXURE C COPY OF ORDER IN ITA NO.80/COCH/2017 ISSUED BY THE INCOME TAX APPELLATE TRIBUNAL, COCHIN.

I.T.A.Nos.315 & 319 of 2019 -9-

APPENDIX OF ITA 315/2019

PETITIONER ANNEXURES ANNEXURE A COPY OF ASSESSMENT ORDER ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- I, PALAKKAD FOR THE YEAR 2007-2008, DATED 29.12.2009. ANNEXURE B COPY OF ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS), THRISSUR, DATED 09.12.2016. ANNEXURE C COPY OF ORDER IN ITA.NO.79/COCH/2017 ISSUED BY THE INCOME TAX APPELLATE TRIBUNAL, COCHIN, DATED 25.04.2018.

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