CENTRE FOR SOCIAL DEVELOPMENT,KANYAKUMARI vs. CIT (EXEMPTION) CHENNAI, CHENNAI

For the purposes of adjudication, we will consider the appeal in ITA No.953/Chny/2026 against the order in rejecting the registration u/s. 12AB of the Act as the lead case.

The assessee is a society registered under the Tamil Nadu Societies Registration Act. The assessee is engaged in charitable activities aimed at women empowerment, rural development, social welfare and upliftment for economically weaker and disadvantaged sections of the society. The assessee made a petition for registration u/s. 12AB of the Act, which came to be rejected by the CIT(E) on the ground that the predominant activity of the :- 3 -: assessee is stated to be maintaining Self Help Groups (SHG) and arranging loan facilities for which incentive income is received from the banks. The CIT(E) further held that the bank incentives and service charges of the activities are to be treated as systematic and organized commercial activity and the income period derived therefrom exceeds the permissible limit of 20% under the provisions of proviso to Section 2(15) of the Act. The relevant findings CIT(E) in this regard are extracted hereunder: “4) Decision: 4.1. The reply of the applicant is taken on record. However, the application filed by applicant trust dated 24/06/2025 in form 10AB u/s 12A(1)(ac)(ii) is rejected for the following reasons. 4.2 Commercial activity: 4.2.1 It is seen from the financials that the predominant activity of the trust is maintaining SHGs. Its major activities are in the nature of arranging loan facilities to various self-help groups for which the trust is receiving incentive income from banks. 4.2.2 On perusal of the financials, it is found that, its major source of income is incentive from banks. For the sake of convenience, the income and expenditure statement is reproduced below:

The Ld. Authorized Representative (AR) of the assessee submitted that the assessee is not engaged in any commercial activity and the objects of the trust would fall within “relief to poor” and therefore, testing the income of the assessee by invoking the proviso to Section 2(15) of the Act, which is applicable only to organizations engaged for general public utility is not applicable to assessee’s case. The Ld. AR further submitted that the loans are sanctioned and disposed directly by the banks to the SHG and as part of women empowerment and rural development, the assessee facilitates such activities. The Ld. AR also submitted that the assessee as per the agreement to the banks receives certain amount as the grant or incentives which has been completely utilized for charitable purposes. The Ld. AR argued that the CIT(E) has not disputed the primary objectives of the trust which is clearly coming out of the financial statements but has incorrectly classify the assessee :- 7 -: as engaged in general public utility services and rejected the registration by invoking the proviso to section 2(15) of the Act. The Ld. AR drew our attention to the financial statements of the assessee for the last three years to submit that the assessee’s activities are completely charitable in nature and therefore denying the registration by invoking the proviso is not tenable. The Ld. AR also relied on the decision of the Hon'ble Madras High Court in the case of CIT vs. M/s. Kurinji Social Welfare Society [TCA No.280 of 2011 dated 20.08.2001] where it has been held that: “iii. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in ignoring the amendment to Section 2(15) of the Income Tax Act, 1961 brought about by the Finance Act, 2008 wherein it was made clear that the 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 rendering any service relating to trade, etc., by way of cess or fee or any other consideration?” 4. The respondent – assessee is a society registered under the provisions of the Tamil Nadu Societies Registration Act, 1975 and they are engaged in the activity of micro finance for upliftment and development of rural women, who are below the poverty line. The assessee, which was established during the year 1991, was registered in the year 2005 and they submitted an application on 24.2.2009 seeking registration under Section 12AA of the Act. The Commissioner of Income Tax-I, Tiruchirapalli (for short, the CIT), by order dated 10.8.2009, rejected the application on the ground that the assessee is not engaged in charitable activity, rather the assessee is charging interest on the amount lent to the self help group and service charges for doing documentation, account writing, etc., on behalf of the self help group and it tantamounts to charging fee/consideration for the services to the self help group. 5. Aggrieved by the order of rejection of the application for registration under Section 12AA of the Act, the assessee preferred an appeal to the Tribunal, which, by the impugned order, allowed the appeal. Challenging the correctness of the same, the Revenue is before us by way of this appeal.

The Tribunal has done a thorough factual exercise and has found that the genuinity of the society is not in doubt since both the State and the Central Governments have been granting funds to the assessee. Furthermore, the Tribunal, on facts, has found that the beneficiaries are 2700 in number and apart from extending loan to the women of the self help group, other activities like construction of 110 latrines are also carried on by the assessee in rural areas. The Tribunal has also noted that apart from interest on loan, the assessee has income under the head charges on documentation, entrance fee and inspection charges.

When the activity of the assessee, which grants relief to the poor is not in dispute, the genuinity of the claim made by the assessee for registration ought not to have been rejected solely on the ground that certain service charges are being collected. Admittedly, women of the self help groups are people, who come from the marginalized society and they are poor rural women, who do not have the wherewithal to approach the nationalized banks for availing loan. If the assessee does not carry on such activity by rendering financial assistance to the women of self help groups, they will have to be under the mercy of the private financiers, who are charging exorbitant rate of interest. Considering all these aspects, the Tribunal granted relief to the respondent assessee. In our considered view, there is no question of law much less substantial question of law arising for consideration in this appeal, as the entire matter is factual and much of the factual position with regard to the :- 9 -: genuinity of the assessee have not been disputed either by the Tribunal or the CIT.”

The Ld. A.R also placed reliance on the decision of the Coordinate Bench in the case of Blaze Trust vs. CIT (E) [ITA No.563/Chny/2025 dated 07.04.2026], where it is held that: “9. We have heard the rival submissions and perused the materials available on record and gone through the order of the ld.CIT(E) along with the paper book filed. We find merit in the arguments of the Ld.AR and we further note that the assessee was incorporated in the year 2003 and has been addressing the issues faced by the downtrodden people with an intent to ensure socio economic empowerment of such people. 10. The Income Tax Department had recognized the activities pursued by the assessee as charitable and granted the registration u/s.12A of the Act under the old regime on 30.11.2008. Similarly, under the new regime, the registration sought for u/s.12A of the Act was also granted by the Department for five years on 30.09.2021 by reckoning the activities carried out by the assessee as charitable. In this background, we find it deem fit to adjudicate the findings recorded by the ld.CIT(E) for rejecting the registration sought for u/s.80G of the Act. 11. The main reason given by the ld.CIT(E), Chennai for rejecting the grant of registration is on the ground that the activities of the Assessee are in the nature of Business Correspondent which understanding of the ld.CIT(E) is found to be unacceptable in the absence of any findings demonstrating the commerciality in the overall activities of the trust. The Trust Deed itself authorizes activities such as formation of self-help groups, micro-credit programmes and developmental initiatives, which necessarily involve interaction with financial systems, and therefore, any facilitative role played by the Trust in this regard cannot be divorced from its objects or characterized as an independent business. 12. Moreover, there is no material on record to demonstrate that the Trust is driven by a profit motive, or that it carries on systematic commercial operations with a view to earning profits. There is no distribution of surplus to trustees or members, and any income generated is wholly applied towards the objects of the Trust. In fact, from the perusal of the financial statements we find that there is no abnormal surplus or profit emanating and further we are of the view that the activities carried out by the assessee :- 10 -: trust brought out in the annual reports placed on record (Page No.76 to 96) would fall within the ambit of relief to poor. 13. The absence of profit motive is a crucial factor which distinguishes a charitable activity from a business activity, and in the present case, the assessee had demonstrated that the activities carried out are not with the intention to make profit and the functioning of the Trust indicate that it operates in a not-for-profit framework, utilizing its resources for the benefit of the target beneficiaries. 14. In view of the above facts, we are inclined that the activities of the assessee Trust are purely charitable in nature, carried out in furtherance of its stated objects, and any incidental activity cannot alter the essential character of the Trust and various activities provided by the assessee would fall within the ambit of uplifting of poor, medical relief, education etc. which activities of the trust cannot be completely ignored for the purpose of granting approval u/s.80G of the Act. 15. It is also a settled position of law that at the stage of granting approval u/s.80G of the Act, the competent authority is required to examine only the nature of objects and the genuineness of activities, and not to sit in judgment over the application of income or to recharacterize incidental activities as business, in the absence of any evidence of profit-oriented conduct. Further, we are of the view that the provisions in proviso to Section 2(15) of the Act would not get attracted to the facts of the case since the activities carried out by the assessee trust falls within the ambit of relief to poor. 16. Accordingly, considering the charitable objects of the Trust and the genuineness of its activities which would fall within the ambit of relief to poor, the assessee Trust is held to be eligible for approval u/s.80G of the Act. The rejection of the application is therefore unsustainable and is set aside and the ld.CIT(E) is directed to grant approval u/s.80G of the Act.”

The Ld. Departmental Representative (DR), on the other hand, vehemently argued that the assessee has entered into agreement with financial institution such as banks whereby the assessee is soliciting the loan giving activity of the banks for which the assessee is receiving the commission. The Ld. DR further submitted that therefore the assessee is not engaged in the :- 11 -: activity of relief to the poor but is engaged in promoting the business of the banks by rendering the service liaisoning loan facility which is not charitable in nature. The Ld. DR also submitted that the claim of the assessee that it is engaged in relief to poor, empowerment of women etc. through SHG cannot be accepted and at best the assessee could be taken to be engaged in general public utility services whereby the proviso to Section 2(15) of the Act would be clearly applicable in assessee’s case. The Ld. DR argued that the proviso to Section 2 (15) of the Act clearly states that irrespective of the purpose of which the income from commercial activity is utilized, the assessee cannot be held to be a charitable institution if their income from said commercials activity exceeds prescribed percentage of 20%. The ld. DR further argued that in the present case the commission income earned by the assessee from arraigning loans is 26% which is far higher than the prescribed percentage. Accordingly, the Ld. DR argued that the assessee cannot be held to be the charitable institution, and the CIT(E) has rightly denied the registration u/s. 12AB of the Act. With regard to reliance placed by the assessee on the decision of Kurinzi Social Welfare Society (supra), the Ld. DR submitted that in a subsequent decision by the Jurisdictional High Court in the case of Kalanjiam Development Financial Services vs. ITO(E) [2025] 174 taxmann.com 1108 (Mad.) has considered a similar issue of supporting SHG and held that: “34. In the present case, the attempt of the Appellant/Assessee is to claim exemption on income derived from the processing fees collected by the Appellant/Assessee from the small borrowers through self-help groups under Section 11 of the IT Act by applying the exception provided in subsection (4A) to Section 11 of the IT Act to the facts of the case.

This reasoning equally applies especially in Section 11(4-A) which speaks of profits incidental which specifies that exemption in relation to income or trust of an institution which are profits or means of business cannot be exempted "unless the business is incidental, trust or as the case may be institution and separate books of accounts are maintained by such trusts or institution in respect of such business". Thus, the underlying objective of the seventh proviso to Section 10(23-C) and of Section 11(4-A) are identical. These have to be read in the light of the main provision which spells out the conditions for exemption under Section 10(23- C) — the same conditions would apply equally to the other sub- clauses of Section 10(23-C) that deal with education, medical institution, hospitals, etc."

The Impugned Order of the Tribunal has referred to the Definition of "Charitable Purpose". The dispute in the present case pertains to the Assessment Year 2009-2010 for the relevant Previous Assessment Year 2008-2009. In other words, it pertains to the income of the Appellant/Assessee between 01.04.2008 and 31.03.2009 which was assessable during the Assessment Year 2009-2010 between 01.04.2009 and 31.03.2010 as per the limitation prescribed under Section 153 of the IT Act as it prevailed then.

The definition of "Charitable Purpose" as in Section 2(15) of the IT Act is relevant for the grant of Certificate under Section 12A of the IT Act following the procedure under Section 12AA of the IT Act. During the period in dispute, the expression, "Charitable Purpose" was defined in Section 2(15) of the IT Act as follows:- :- 13 -: "2(15). "charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility."

However, by an amendment to the above definition vide clause (15) of Section 2 by the Finance Act, 2008 with effect from 01.04.2009, the above definition was altered to read as under:- "2(15). "charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility. 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."

Therefore, the Proviso to definition in Section 2(15) of the IT Act inserted with effect from 01.04.2009 which makes it clear that the advancement of any other object of general public utility shall not be considered as 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 is not relevant.

The Tribunal has also referred to the above amendment brought to the definition of "Charitable Purpose" in Section 2(15) of the IT Act. The Tribunal has also referred to Paragraph 180 of the Finance Minister's Budget Speech in Paragraph 8.2 of the Impugned Order wherein it has been stated as follows:-

As mentioned above, the Assessment Year in question is 2009-2010. It would relate income earned by the Appellant/Assessee between 01.04.2008 and 31.03.2009. Such income is assessable during the Assessment Year 2009-2010 starting from 01.04.2009 and 31.03.2010.

Therefore, the amendment to the definition of "Charitable Purpose" which appears to have influenced the Tribunal while coming to a conclusion that the Appellant/Assessee was not entitled to exemption under Section 11(4A) of the IT Act is misplaced. The cardinal principle of law is that any amendment to any Act or provision is prospective unless it is made applicable retrospectively.

The above amendment which came into force with effect from 01.04.2009 vide clause (15) of Section 2 by the Finance Act, 2008 is relevant only for the income earned during the Previous Assessment Year 2009-2010 assessable during the Assessment Year 2010-2011. Therefore, reference to the above amendment vide Finance Act, 2008 with effect from 01.04.2009 is misplaced and is of no relevance to the facts of the case.

The question to be answered is whether the exceptions provided in sub-section (4A) to Section 11 of the IT Act is attracted or not?. As mentioned above, to claim exemption under sub-section (1) only if income is derived from the property held in Trust or income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the Trust or institution, subject to the condition that such voluntary contributions are invested or deposited in one or more of the forms or modes specified in sub-section (5) maintained specifically for such corpus or the business is incidental to the object of the Trust or institution.

Sub-section (2), sub-section (3) and sub-section (3A) are to be read along with sub-section (1) to Section 11 of the IT Act.

A reading of sub-section (1), (2), (3), (3A) and the Explanation to sub- section (1) and sub-section (4A) indicates that although such Section (4A) to Section 11 of the IT Act is uninfluenced by sub-section (1), (2), (3) and (3A) of the IT Act, income of the Trust or an institution can be exempted even if such income is from business incidental to the attainment of the objective of the Trust.

The Ld. DR argued that the earlier decision of the Hon'ble High Court in the case of Kurinzi Social Welfare Society (supra) has been considered in the above case and therefore, the ratio laid down by the Hon'ble High Court in the above case should be applicable to the assessee’s case. Accordingly, the Ld. DR supported the order of the CIT(E).

We have heard the parties and perused the material available on record. The short issue arising for our consideration is whether the activity of the assessee in facilitating credit linkage between Self Help Groups and banks, :- 16 -: and earning an incentive from the banks for the said facilitation, falls within the ambit of "relief of the poor" under the main part of the definition of charitable purpose u/s.2(15) of the Act, or whether the same is to be treated as an activity of "general public utility" so as to attract the proviso to the said section.

Before adverting to the facts of the present case, it would be useful to briefly notice the nature and purpose of a Self-Help Group. A Self-Help Group is a small, informal association, typically of women belonging to economically weaker sections, who are organised with the primary object of enabling them to save in common and to access credit from the formal banking system, which they would otherwise be unable to approach on their own. This model, known as the SHG-Bank Linkage Programme, was launched by the National Bank for Agriculture and Rural Development (NABARD) in the year 1992, with the backing of the Reserve Bank of India, with the specific object of bringing the unreached poor into the fold of formal banking and of advancing their economic self-reliance. The said programme was conceived as a means of extending institutional credit to persons who, on account of their small and uncertain means, would otherwise remain outside the reach of nationalised banks and dependent on private moneylenders charging exorbitant rates of interest. Organisations working in this space ordinarily form such groups, train the members in savings discipline and group functioning, and thereafter facilitate the sanction of credit by banks to these groups. In its very conception and object, therefore, being a programme introduced by NABARD under the aegis of the Reserve Bank of India for extending formal credit to the poor, the SHG model is a tool for relief of the :- 17 -: poor, and more particularly for the economic upliftment of women belonging to the weaker sections of society.

We notice that the objects of the assessee trust, as per the trust deed amended by-laws are directed towards women empowerment, rural development and the upliftment of economically weaker sections, and the predominant activity carried out towards this object is the formation and support of Self Help Groups and facilitation of credit linkage for such groups with banks.

We further notice that the assessee does not itself lend any money to the members of the Self-Help Groups, nor does it recover any amount from them. The loans are sanctioned, disbursed and recovered directly by the banks, and the assessee's role is confined to facilitating this linkage, for which it receives an incentive from the banks. We are of the view that an activity of this nature, being squarely directed at enabling the poor to access institutional credit, and thereby to be rescued from dependence on private moneylenders, is an activity which falls within the ambit of "relief of the poor" under the main part of section 2(15) of the Act, and not under the residuary limb of "advancement of any other object of general public utility".

We notice that the Hon'ble Madras High Court in CIT vs. M/s.Kurinji Social Welfare Society [TCA No.280 of 2011, dated 18.08.2021] has considered a closely comparable issue, where the assessee therein had itself borrowed funds from nationalised banks and lent the same to Self Help Groups, charging interest as well as a service charge, and the Revenue had contended that such activity amounted to a business of money lending rather :- 18 -: than a charitable activity. The Hon'ble High Court held that the beneficiaries being poor rural women with no means of approaching nationalised banks directly, the activity of extending financial assistance to them through Self Help Groups was an activity of relief to the poor, and that the mere collection of a service charge, without more, could not take away this character. We further notice that the Coordinate Bench of this Tribunal, in Blaze Trust vs. CIT(E) [ITA No.563/Chny/2025, dated 07.04.2026], has considered a fact pattern materially similar to the one before us, where the assessee therein acted as a business correspondent for a bank and earned service charges for facilitating the banking and credit needs of the poor through Self Help Groups. The Coordinate Bench held that a facilitative role of this nature, undertaken in furtherance of the trust's objects of upliftment of the poor, cannot be characterised as an independent business merely because it involves interaction with the banking system, and that such activity falls within the ambit of relief to the poor, so that the proviso to section 2(15) of the Act would have no application.

We further notice that in a recent decision in the case of Centre For Rural Development And Education vs CIT(E) [ITA No. ITA No.2819 & 2820/Chny/2026] the coordinate Bench of this Tribunal has considered a closely comparable fact pattern, where the assessee trust was engaged in imparting vocational training to rural women and youth, and thereafter organising them into self help groups and facilitating their credit linkage with banks under a bank-sponsored SHG linkage programme, without itself lending any money or earning any interest income. The Ld. CIT(E) therein had rejected the renewal of registration u/s.12AB and the approval u/s.80G of :- 19 -: the Act, inter alia on the ground that the assessee was carrying on microfinance activity under the garb of a charitable institution. The Coordinate Bench, on facts, found that the assessee therein did not carry on any lending activity of its own, earned no interest income, and maintained no loan portfolio, and that the financial aid received from banks was utilised solely for conducting training programmes for the self-help groups. The Coordinate Bench accordingly held that the activities of the assessee, being directed at the welfare of rural youth and women belonging to poor and backward regions through skill training and facilitation of bank credit, squarely fell within the ambit of "relief for poor" u/s.2(15) of the Act, and set aside the order of the Ld. CIT(E) rejecting registration and approval. We find the facts and the ratio of the said decision to lend further support to the view we have taken above.

We notice that the present case stands on a stronger footing than the decisions discussed above, since the assessee herein neither lends any amount to the Self-Help Groups nor collects any charge whatsoever from them, the entire loan transaction being between the bank and the Self Help Group directly, with the assessee receiving only an incentive from the bank for its facilitative role. The Ld. DR has relied on the decision of the Hon'ble Madras High Court in Kalanjiam Development Financial Services vs. ITO(E) [2025] 174 taxmann.com 1108 (Mad.), to contend that the ratio in Kurinji Social Welfare Society (supra) stands distinguished in a subsequent decision of the Jurisdictional High Court on a similar issue of supporting Self Help Groups. We notice, however, that the assessee in Kalanjiam Development Financial Services (supra) was itself a dedicated financial institution in the business of :- 20 -: microfinance, which borrowed funds from banks and advanced loans directly to Self Help Groups on its own account, at a margin which was found to be higher than the rate of interest charged by nationalised banks themselves. We are of the view that the said decision turns on the fact that the assessee therein was itself carrying on the business of lending, at a margin of its own determination, to the Self-Help Groups. This is materially different from the facts of the present case, where the assessee is not a lender at all, does not determine or earn any margin on the credit extended to the Self-Help Groups, and the entire lending and recovery function is carried out directly by the bank. We accordingly hold that the decision in Kalanjiam Development Financial Services (supra) is distinguishable on facts and does not assist the case of the Revenue before us.

The Ld. DR has further submitted that the incentive income earned by the assessee from the banks works out to 26% of its total receipts, which exceeds the permissible limit of 20% prescribed under the proviso to section 2(15) of the Act, and that the registration is accordingly liable to be denied on this ground. We are unable to accept this submission. We have already held that the activity of the assessee falls within the ambit of relief to the poor under the main part of section 2(15) of the Act, and the proviso to the said section, along with the percentage threshold prescribed therein, is by its own terms confined to the residuary limb of advancement of any other object of general public utility. In such a scenario, the question of testing the said income against the threshold prescribed in the proviso does not arise at all, since the proviso itself stands uncalled for once the activity is found to be one of relief to the poor.

From the above, we notice that in each of the three years, the incentive income and the other receipts of the assessee have been spent entirely on its charitable activities. We are of the view that this further shows that the incentive received from the banks is not driven by any profit motive but is a source of funds for carrying on the charitable activities of the assessee. In view of the above discussion, we hold that the activities of the assessee fall within the ambit of "relief of the poor" u/s.2(15) of the Act, and the CIT(E) was not justified in denying the registration u/s.12AB by invoking the proviso :- 25 -: to section 2(15) of the Act. We accordingly direct the CIT(E) to grant the registration u/s.12AB to the assessee. 18. The appeal in ITA 952/Chny/2026 pertains to rejection of approval under section 80G of the Act. We notice from the order of the CIT(E) that the approval is rejected for the same reason as stated in the order rejecting the registration under section 12AB of the Act. We have already held that the CIT(E) is not correct in rejecting the registration under section 12AB of the Act and that the activities of the trust would fall withing “relief to poor” under section 2(15) of the Act thereby testing the income under the proviso is not warranted. The Ld. CIT(E) is thus directed to allow the approval under section 80G of the Act to the assessee, as sought for in the applications.

In the case of the assessees in ITA Nos.2616 & 2618/Chny/2026 the registration under section 12AB was rejected for the same reason that the assessees are engaged in commercial activity of loan facilitation to Self-Help Groups where the receipts are more than 90% which is in violation of the proviso to section 2(15) of the Act. For the same assessees in ITA Nos.2617 & 2618/Chny/2026 the approval under section 80G is also rejected for the same reason. We have while considering the identical issue in the case of ITA Nos.952 & 953/Chny/2026 have already held that the CIT(E) is not correct in rejecting the registration under section 12AB & approval under section 80G of the Act and that the activities of the trust would fall within “relief to poor” under section 2(15) of the Act thereby testing the income under the proviso is not warranted. In our considered view, in the present assessees’ case also the said decision is applicable mutatis mutandis considering the facts and the reasons for rejection are identical. We thus direct the Ld. CIT(E) to allow the :- 26 -: registration under section 12AB and the approval under section 80G of the Act to the assessee, as sought for in the applications.

In the result, all the six appeals filed by all the assessees are allowed.