JT.CIT (E) 1(1), MUMBAI vs. CREDIT GUARANTEE FUND TRUST FOR MICRO AND SMALL ENTERPRISES, MUMBAI

This appeal has been filed by the revenue against the order dated 27.12.2017 passed by the Commissioner of Income Tax (Appeals)-2 (for short ‘the CIT(A), Mumbai, for the assessment year 2014-15, whereby the Ld. CIT(A) has partly allowed the appeal filed by the assessee against the assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short the ‘Act’).

Brief facts of the case are that the assessee institute registered as charitable organization with CIT (Exemption) u/s 12A, which was revoked by DIET vide order u/s 12AA(3) of the Act, filed its return of income for the assessment year under consideration declaring nil income. It was noticed that during the previous year, the assessee received corpus contribution from Govt. of India amounting to Rs. 74, 99,00,000/- and corpus contribution from SIDBI Assessment Year: 2014-15 of Rs. 18,74,75,000/-. The AO after hearing the assessee held that the receipts are liable to be taxed as income u/s 2(24)(iia) of the Act and accordingly passed assessment order u/s 143 (3) of the Act. The assessee challenged the assessment order before the Ld. CIT (A). The Ld.CIT (A) partly allowed the assessee’s appeal. Against the said findings of the Ld. CIT (A), the revenue is in appeal before the Tribunal. 3. The revenue has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds:- “1. Whether on the facts of the case and in law the Ld. CIT(A) was justified by relying upon the decision of Hon 'ble ITAT in assessee 's own case for A. Y.2010-11 in which the Hon'ble ITAT was right in holding that the assessee performs charitable activities within the meaning of proviso to section 2(15) of the Income Tax Act, 1961. 2. Whether on the facts of the case and in law the Ld. CIT(A) was justified by relying upon the decision of Hon'ble ITAT in assessee 's own case for A. Y.2010-11 in which the Hon'ble ITAT was right in directing to allow exemption u/s 11 to the assessee when the activities of assessee are akin to those of a mutual association and do not fall within the definition of "Charitable purpose" as per proviso to Section 2(15) of the Income Tax Act, 1961. 3. Whether on the facts of the case and in law the Ld. CIT(A) was justified by relying upon the decision of Hon'ble ITAT in assessee's own case for A. Y.2010-11 in which the Hon'ble ITAT was right in directing the Assessing Officer to allow exemption u/s 11 of the I.T. Act, 1961, even though the assessee Trust is providing guarantees any/or counter guarantees for credit facilities enjoyed by small scale industries from various lending institutions against charging of fee and other charges, which clearly establishes that the motive of the trust is to earn profits violating the proviso to Section 2(15) of the I.T. Act? Assessment Year: 2014-15

Whether on the facts of the case and in law the Ld. CIT(A) was justified by relying upon the decision of Hon'ble ITAT in assessee's own case for A. Y.2010-1 I in which the Hon'ble ITAT was right in circumstances of the case and in law the Hon'ble ITAT, Mumbai is right in deleting the disallowance of corpus donation received during the year of Rs. 93,73,75,000/ - despite the fact that the assessee trust is not a charitable/ religious organization?”

On the other hand, the Ld. counsel for the assessee relying on the order passed by the Ld. CIT (A) submitted that the ITAT has already decided the identical issue in favour of the assessee in the assessee’s own case for the AY 2010-11 and since the Ld. CIT (A) has decided the identical issue in favour of the assessee by following the decision of the ITAT, Mumbai in assessee’s own case there is no merit in the appeal of the revenue.

We have heard the rival submissions and also carefully gone through the relevant record including the order passed by the coordinate Bench in assessee’s own case for the AY 2010-11. As pointed out by the Ld. counsel for Assessment Year: 2014-15 the assessee, the Ld. CIT (A) has decided the identical issue in favour of the assessee by following the decision of the coordinate Bench rendered in the assessee’s case (supra). The relevant portion of the order passed by the Ld. CIT (A) is reproduced as under:- “6.2.2 I have gone through the order of the ITAT and the facts of the Hon tie ITAT are placed hereunder: a). The appeal filed by the assessee pertaining to assessment year 2010-11 is directed against an order passed by CIT(A)-1, Mumbai dated 28/07/2014, which in turn, arises out of an order passed by the Assessing Officer under section 143(3) dated 05/03/2013. In this appeal, a perusal of the Grounds of appeal which are similar to the present which mainly revolves on controversy around the stand of the income tax authorities in denying the claim of exemption made by the assessee-trust under sections 11 & 12 of the Act The Hon'ble ITAT has touched upon the manner and the purpose for which assessee-trust has been formed and also the history of the past assessments in the case of the assessee. The relevant portion of the order is as follows: "The appellant before us is a Trust, which has been settled on 27/07/2000 by the President of India acting through the Ministry of Small Industries & ARI (hereafter referred to as Government of India) and Small Industries Development Bank of India (herein after referred to as SIDBI). In terms of the trust- deed, the settlors i.e. Government of India and SIDBI noted that the Small Scale industries were facing difficulties in getting credit from primary lending institutions viz. Banks, State Finance Corporation, State Industrial Development Corporation and Regional Rural Banks (RRB) for want of collateral securities and/or third party guarantees. The Government of India decided to introduce a Credit Guarantee Fund Scheme for the small industries, in order to provide effective credit guarantee for SSI loans; for guaranteeing the loans and advances extended without collateral and/or third party guarantees to small industries by the Scheduled Commercial Banks and others. With these objectives the settlors i.e. Government of India and SIDBI decided to create a Trust and provide for the necessary funds. As per the trust-deed, the initial as well as any further contributions to the corpus of the Trust are to be made by the Government of India and SIDBI in the ratio of 4:1. It is (Assessment Year 2010- Assessment Year: 2014-15 11) prescribed in the trust-deed that the Government of India was liable to make up the deficit, if any, incurred in the overall operation of the scheme by providing the necessary budgetary support to the Trust. It is also prescribed in the trust-deed that the entire income arising out of corpus fund shall be spent towards fulfilling the objectives of the Trust and even savings effected in any year were to be transferred to the corpus fund to be spent towards fulfilling the objectives of the Trust. The trust- deed also prescribes the manner in which the scheme is to be implemented and it also provides for a Board of Trustees, whereby the Chairman & Managing Director of SIDBI is to be its Ex- officio Chairman and other members being drawn from the officials of the Government of India. The Management and administrative affairs of the Trust are under the overall supervision and superintendence of the Board of Trustees." 6.2.3 The Hon'ble ITAT has also dealt the objects and purposes of the Trust. Further the legal position and application of the proviso to section 2(15) of the Act was also discussed as to whether the assessee Trust has been established for charitable purpose or not;' The nature of income earns and how to treat such income whether is it conclusive to determine that the assessee Trust is not established for charitable purpose. These questions were answered the Hon'ble ITAT is mentioned as under: "In other words, the existence or otherwise of the profit motive in the activities carried out by the assessee Trust would be crucial to determine the applicability of the proviso to section 2(15) of the Act; may it be to examine whether its activities are in the nature of trade, commerce or business or whether it is rendering any service in relation to any trade, commerce or business, as prescribed in the proviso to section 2(15) of the Act. 6.2.4 The Hon'ble ITAT also dealt the object and purpose of the assessee Trust and with a finding as under: "is to enable the small scale industries and micro enterprises to pursue their income generation activities. The said object is sought to be achieved by providing guarantees or counter guarantees to the lending institutions who disburse loans or provide other credit facilities to the small scale industries and micro enterprises. We may again emphasize that the object and purpose of the assessee Trust is to help the small scale industries and micro enterprises by ensuring that they Assessment Year: 2014-15 get ability to obtain loans from lending institutions. No doubt, there is an element of fee or charges levied by the assessee Trust, but the point is, is there a profit motive which would enable such activity to be characterized as a trade, commerce or business. In the orders of the authorities below as well as before us, there is no charge made by the Revenue that the quantum or object of fee charged by the assessee Trust betrays any profit motive. In fact, the income- tax authorities do not dispute the fact that the purpose and object behind the assessee Trust is not to carry on trade, commerce or business, but the only point made is that certain fee/charges have been levied for activities rendered to the beneficiaries, and therefore, it should be seen as 'trade, commerce or business'. As we have seen earlier, mere action of charging fee for services, by itself, would not justify invoking of the proviso to section 2(15) of the Act unless it is established that the purpose and object is profit motive. Considering the entirety of circumstances we are unable to find any credible reasoning taken by the Revenue to say that the purpose and object of the assessee Trust falls within the meaning of expression trade, commerce or business' used in the proviso to section 2(15) of the Act. in fact, as we had noted earlier, the assessee Trust has been settled on 27/07/2000 by the Government of India and SIDBI The trust deed brings out the objects and purpose for which the assessee Trust has been setup, namely, (Assessment Year 2010-11) to mitigate the difficulties faced by the small scale industries and micro enterprises in availing credit facilities from various lending institutions. It is also to he noted that the object and purpose of the Trust is focussed on small scale industries and micro enterprises and is not available to entrepreneurs at large.Apart there-from, it is also prescribed in the scheme operationalized by the Trust that the benefits are to be made available only to credit facilities aggregating upto Rs.10.00 lacs sanctioned and disbursed by the lending institutions. Therefore, considering the focused area of the Trust, it could not be inferred that there is any profit motive so as to view the activities to be 'trade, commerce or business as understood for the purposes of proviso to section 2(15) of the Act. Therefore, in our considered opinion, on facts, it is not possible to infer that assessee Trust is carrying on any regular 'trade, commerce or business' and on the contrary it is an entity which is essentially existing for charitable purposes but conducting some activities for consideration or Assessment Year: 2014-15 fee. In this background, the proviso to section 2(15) of the Act cannot be invoked to exclude assessee Trust from the purview of section 2(15) of the Act since the said proviso only seeks to exclude institutions which are carrying on regular business, as inferred by us following the legal position explained by the Hon'ble Delhi High Court in the cases referred herein above. In conclusion, we therefore, set-aside the order of the CIT(A) and direct the Assessing Officer to allow the claim of the assessee for exemption under section 11 & 12 of the Act.” Before parting, the Hon’ble Bench further observed that "we may note that the appellant has made an alternate plea that its activities fall within the scope of 'relief of poor as envisaged in (Assessment Year 2010-11) section 2(15) of the Act, and in this context reliance was also placed on the decision of the Delhi Tribunal in the case of Disha India Micro Credit in ITA No. 1374/Mum/2010 dated 28th January, 2011. The case before the Delhi Tribunal pertained to a lending institution who had provided loans to micro enterprises, which in-Pint were guaranteed by the assessee Trust before us. The Tribunal upheld the plea of the assessee therein seeking registration under section 12A of the Act. Since assessee has already succeeded on its claim for the benefits of sections 11 & 12 of the Act in the earlier paras, the said alternate plea is not being addressed as it is rendered academic. The only other issues remaining are with respect to the action of the Assessing Officer in treating the contribution made by settlers towards corpus as taxable receipts and adding the accumulation made by the assessee in earlier assessment years 2007-08 and 2008-09. The Assessing Officer assessed the aforesaid amounts only for the reason that he was denying the benefits of sections 11 & 12 of the Act. Since we have upheld the claim of the assessee for the benefits of sections 11 & 12 of the Act, on the said issue also assessee succeeds and the Assessing Officer is directed to recompute the income accordingly in the light of our instant decision. 6.2.5 With these findings the Hon'ble ITAT, observed that the AO was denying the benefits of sections 11 & 12 and given directions to the AO to recompute the income of the appellant accordingly. Assessment Year: 2014-15 6.2.6 As the denial of such income was computed by the AO mainly relying on the benefits of section 11 and 12 of the Act are not entitled to the appellant whereas the Hon'ble Jurisdictional ITAT's decision in its own case squarely addressed all such issues with a clear findings. Therefore, respectfully following the Hon’ble jurisdictional ITAT, I direct the AO to follow the directions of the higher authority in this year consideration also, which is binding on the AO. With this these grounds 2 & 3 are treated as partly allowed and disposed off.”

We notice that the order passed by the Ld. CIT (A) is in accordance with the order passed by the coordinate Bench in the assessee’s own case for the AY 2010-11. Since, the coordinate Bench has decided the identical issue in favour of the assessee in assesee’s case for the AY 2010-11 (supra) and since there is no change of facts in the present case, we respectfully following the decision of the coordinate Bench uphold the findings of the Ld. CIT (A) and dismiss all the grounds of appeal of the revenue. In the result, appeal filed by the revenue for assessment year 2014- 2015 is dismissed.