Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश / O R D E R
PER A.MOHAN ALANKAMONY, AM:-
This appeal by the assessee is directed against the common order passed by the Ld. Commissioner of Income Tax (Appeals), Madurai dated 25.03.2016 in & 0046/2015- 16 for the assessment years 2011-12 & 2012-13 passed U/s.250(6) r.w.s.143(3) of the Act.
The assessee has raised five identical grounds in its appeals, however the cruxes of the issue are that (i) The Ld.CIT(A) has erred in confirming the order of the Ld.AO, who had held that the assessee is involved in business
activity and not public charitable activities and thereby withdrew the benefit of Section 11 & 12 of the Act, by invoking the provisions of Section 13(8) of the Act.
(ii) The Ld.CIT(A) has erred in upholding the order of the Ld.AO who had disallowed the expenses incurred by the assessee towards consultation charges in an arbitrary manner invoking the provisions of Section 13(2)(c) r.w.s. 40A(2) of the Act, without considering the fact that the appellant was making payment towards service received from various professionals, who were consultants.
The brief facts of the case are that the assessee is a Trust registered U/s.12AA of the Act, engaged in the business of providing micro finance services to self-help groups, filed its return of income for the assessment years 2011-12 & 2012-13 on 30.09.2011. The case was selected for scrutiny under CASS and finally order was passed U/s.143(3) of the Act for the assessment years 2011-12 & 2012-13 on 30.03.2014 & 31.03.2015, wherein the Ld.AO withdrew the benefit of Section 11 & 12 to the assessee and brought to tax the excess of income over expenditure by further disallowing the expenditure incurred towards consultation fee as allowable deduction, aggregating to Rs.56,17,300/- & Rs.99,01,142/- for the assessment year 2011-12 & 2012-13 respectively.
In the case of the assessee, it was observed by the Ld.AO that the assessee trust was involved only in the activity of providing micro-finance assistance to Self Help Groups (SHGs). Therefore the case was selected for scrutiny under CASS. During the course of scrutiny assessment, the Ld.AO noticed the following irregularities:-
(i) The assessee trust has paid consultation charges to the trustees and their relatives varying from Rs.4,20,000/- to Rs.12,00,000/- per annum. From the return of income filed by the trustees Dr. N. Sethuraman, Dr. S.Prathiba (D/o. Dr. N. Sethuraman), Dr. S. Gurusankar (S/o Dr. N. Sethuraman) and others, it was revealed that they were in receipt of professional fees from various concerns which indicated that they cannot contribute their entire time for the trust. Therefore the Ld.AO opined that the payments made to the trustees by the assessee towards consultation charges are not reasonable. (ii) The aforesaid amount claimed by the trustees as honorariums which the assessee is not entitled. (iii) The activity of lending money to SHGs cannot be regarded as an activity of ‘Relief to the poor’ because the interest rate charged by the assessee trust is higher than the rate of interest charged by the banks. (iv) Mere existence of the objects in the Trust Deed such as ‘relief to the poor’ is not sufficient to assess the real character of the Trust; but the actual performance of the trust should be that of providing relief to the poor. (v) In the case of the assessee, the assessee has obtained loan from the bank and had further lend to the SHGs charging higher interest than what is charged by the bank to the assessee. Thus the assessee has neither facilitated the SHGs from availing micro-finance loans directly from the bank nor it has passed on the benefits directly to the SHGs without charging extra interest costs.
(vi) Charging of additional interest to the SHGs and thereby deriving surplus cannot be considered as a charitable activity. (vii) Though the assessee had made claim to have conducted medical camps, it is evident that such camps were conducted only by other trusts and the assessee has only acted as a facilitator.
(viii) The classification of credits by the RBI as “priority sector advances” cannot be construed as “relief of the poor” as envisaged in the Income Tax Act.
(ix) The activity of micro-financing by the assessee can be inferred only to fall under the field ‘any other objects of public utility’ and not under the field ‘relief to the poor’. (x) Reliance was placed in the decision of ADIT(Exemption) vs. Bharatha Swamukhi Samasthe in M/s. Kurinji Social Welfare Society vs. The ACIT in ITA No.1594/Mds/2009, Disha
India Micro Credit vs. CIt, Muzaffarnagar in and Janalakshmi Social Service vs. Director of Exemtpions (Bangalore) reported in (2009) 33
SOT 197.
With the above observation, the Ld.AO came to a conclusion that the micro-finance activity of the trust is clearly a business activity and not an activity for rendering relief to the poor and therefore withdrew the benefit of Section 11 & 12 to the assessee and also disallowed the expenditure towards consultation fees paid to consultants as it was opined to be in excess or rather unwanted.
On appeal, the Ld.CIT(A) concurred with the view of the Ld.AO by holding that one of the major activity of the appellant is micro-financing by obtaining loan from the bank and lending to SHGs at higher interest, therefore hit by the first proviso to Section 2(15) and Section 13(8) of the Act.
Before us the Ld.AR reiterated the arguments made before the Revenue authorities on the earlier occasions and further argued by stating as follows:-
(i) The assessee trust were engaged in various activities to uplift the poor by identifying the villages, organizing professional visit to rural areas, educating the poor people by forming SHGs, holding meetings and workshops, advising the SHGs in forming fair price shops, so on and so forth. (ii) In order to help the SHGs the assessee trust was organizing funds through bank loans and extending them to SHGs at a nominal markup in order to cover the overheads and the bad debts arising on the advances made. Therefore it cannot be treated as a commercial activity. (iii) The trustees and their relatives are skilled and educated professionals who were spending considerable time for promoting and conducting the objects of the trust due to which they were compensated with nominal fees. (iv) The assessee’s trust cannot exist unless funds are generated to meet out its objects.
(v) There is no finding by the revenue that the assessee’s trust was servicing the rich and the affluent. (vi) Micro-financing activity to facilitate the poor in order to earn their daily livelihood is nothing but relief to the poor as envisaged under the Act. (vii) The assessee also placed reliance in the decision of the Tribunal in the case M/s. Microcredit Foundation of India vs. ACIT in & ITA No.075/Mds/2013,
M/s. Tiruchirappalli Multipurporse Social Service Society vs. ACIT in ITA No.654/Mds.2013, DCIT vs. M/s. Society for Rural Improvement in and the order of Apex court in ACIT vs. Thanthi Trust etc., dated
31.01.2001.
The Ld.AR also filed a paper book containing the details and proof of all the activities conducted by it running from 50 to 76 pages. The Ld.DR on the other hand relied on the orders of the Ld. Revenue Authorities and argued in support of the same.
We have heard the rival submissions and carefully perused the materials on record. From the facts of the case, it is apparent that the Revenue had withdrawn the benefit of Section 11 & 12 of the Act to the assessee only for the reason that the assessee’s activity is micro-financing by obtaining loan from bank and lending them to SHGs at a higher interest. However, surprisingly we find that the Revenue has granted registration to the assessee trust whose main objective is micro-financing. Further from the decision cited by the assessee herein above, it is clear that the activity of micro-financing by itself cannot be consider as not providing ‘relief to the poor’ unless and until there is a finding that the micro- financing activity is rendered to service the rich and the affluent. In the case of the assessee, there is no finding by the Revenue that the assessee trust has extended the micro-financing facility to rich and the affluent. Moreover, the assessee has claimed throughout in the assessment proceedings as well as the proceedings before the first Appellate Authority, that the Trust has been extending service to the poor in rural areas for uplifting the downtrodden; however the Revenue had not made any finding otherwise. Further from the Hon’ble Apex court decision in the case of Thanthi Trust supra, it can be inferred that mere generation of surplus cannot frustrate the provisions of Section 2(15) of the Act, when such surplus is utilized for obtaining the objects of the Trust. The claim of the assessee which is supplemented by the paper book furnished by the assessee is that, the assessee’s Trust is rendering service to the poor and needy by extending micro-finance loans in order to help the poor and downtrodden to earn their livelihood. This claim of the assessee is not negated by the Revenue in any of their findings which establishes the fact that the assessee trust is lending only to SHG’s consisting of poor and downtrodden. Further it is apparent from the orders of the Ld.AO that for the assessment year 2011-12, the assessee Trust has earned interest income of Rs.24,46,05,545/- and Rs.14,40,12,032/- for the assessment year 2012-13. Even though the assessee had received such enormous interest income, the excess of income over expenditure for the assessment year 2011-12 and 2012-13 computed by the Ld.AO is only Rs.21,22,319/- and Rs.91,51,142/- respectively. Thus it is evident that most of the income earned by the assessee is utilized for attaining the objects of the assessee trust. Proviso to Section 2(15) of the Act also does not bar the assessee from earning income during the course of its activities such as relief to the poor. When the assessee has utilized its entire funds for micro-financing in order to uplift the poor then the benefit of Section 11 & 12 of the Act cannot be denied to the assessee just because the assessee has charged some markup in its lending rates of interest. It is pertinent to mention that some markup in the lending rates is essential to cover up the administration cost and bad debts arising out of the advances. It is also a well-known fact that to obtain loan from Banks is a cumbersome process which any ordinary persons cannot succeed. Entities such as the assessee Trust only has a potential to reach out to such persons and effectively avoid loss of capital and yet lift the poor and the downtrodden. Considering the facts and circumstance of the present cases before us, we are of the considered view that the assessee Trust has rendered service in the nature of ‘providing relief to the poor’ as envisaged in the Act 11 2920/Mds/2016 and therefore the benefit of Section 11 & 12 of the Act cannot be denied. Hence, we hereby set aside the Order of the Ld.A.O and the Ld. CIT(A) and further direct the Ld.AO to grant the benefit of Section 11 & 12 of the Act, to the assessee. We have also examined the various extensive activities conducted by the assessee Trust and the considerable time spent by the trustees as well as their relatives and is of the considered view that the consultation fee ranging from Rs.4 lakhs to Rs.12 lakhs paid to the Trustees is quite reasonable. Therefore, we do not find the assessee’s trust to have violated any of the provisions of the Act.
In the result, the appeals filed by the assessee for both the assessment years are allowed.
Order pronounced on the 09th August, 2017 at Chennai.