ITO, TRICHY vs. GRAMA VIDIYAL TRUST, TRICHY

आदेश / O R D E R

PER CHANDRA POOJARI, ACCOUNTANT MEMBER

These three Appeals and cross objections for A.Y 2009-10 filed

by the Revenue and the Assessee respectively are directed against the

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different orders of the Learned Commissioner of Income Tax(A),

Tiruchirapalli dated 07.11.2012, 29.01.2014 & 03.11.2014 pertaining

to the assessment years 2009-10, 2010-11 & 2011-12 respectively.

Since issues involved in all these Revenue’s appeals & Cross objections

are common in nature, these appeals & C.O. are clubbed together,

heard together, disposed off by this common order for the sake of

convenience.

2.1 ITA No.345/Mds./2013 by Revenue (for A.Y 2009-10)

On perusing the appeal, we find that the AO had filed the

appeal with delay of 14 days. The learned AO has submitted a Petition

dated 01.07.2015 seeking condonation of delay and the AO stated in

this petition that the delay of 14 days in filing the appeal before this

Tribunal is on account of mixing up of papers in his office and it took

time to locate the same and as soon as he traced the records, he filed

the appeal on 26.02.2013. In our opinion, the reasons explained by

the AO for filing the appeal belatedly is bonafide. Accordingly, the

delay is condoned.

2.2 ITA No.1437/Mds./2014 by Revenue (for A.Y 2010-11)

There was a delay of 18 days in filing this appeal. Consequent

to this, the ld. Assessing Officer filed a condonation petition dated 20-

05.2014 for condoantion of delay. We have gone through the

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condonation petition stating that the delay was occurred on the reason

that the AO assigned work of Election duty as observer for the

assembly constituencies Vijayawada West, Vijayawada Central, Andhra

Pradesh from 12.04.2014 to 09.05.2014 and AO joined duty only on

12.05.2014. Thereafter only he was able to prepare the paper for filing

the appeal and he filed the appeal on 23.05.2014 and prayed that

delay of 18 days is condoned. In our opinion, the reasons shown are

justified and hence, delay in filing the appeal belatedly for 18 days

before the Tribunal is condoned and appeal is admitted for

adjudication.

2.3. C.O. No.78/Mds./2013 by assessee (for A.Y 2009-10)

There was a delay of 14 days in filing this Cross Objections by

the assessee. Consequent to this, the ld.A.R filed a condonation

petition dated 20.06.2016 for condoantion of delay stating that the

said delay in filing the CO is neither willful nor deliberate but due to

frequent illness of the Chartered Accountant and also the

circumstances beyond the control of Petitioner herein. After

considering the same, we are satisfied about the reasons advanced by

the ld.A.R for delay of 14 days in filing the appeal. Accordingly, the

delay is condoned

3.1 Now the common ground in these three appeals of Revenue is

that the CIT(A) failed to observe the fact that after the amendment of

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the sec.2(15) of the Act, 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 shall not

be treated as “object of general public utility”.

3.2 The assessee has raised grounds in its C.O in support of the

order of the Ld.CIT(A) and also raised the grounds that income

generated from the micro finance used for the purpose of charitable

activities, as such it cannot be said that assessee trust is not engaged

in the charitable activities.

CIT(A) erred in granting exemption u/s.11 of the Act to the assessee

for these assessment years, though the assessee carried on the

business activities which are hit by the provisions of the section 2(15)

of the Act. For clarity, we consider the facts narrated in assessment

year 2009-10. The assessee trust is duly registered trust u/s.12A(a) of

the Income Tax Act,1961 vide No.163/1988-89 with effect from the

assessment year 1998-99 from the Commissioner of Income Tax-

1,Trichy and also registered u/s.80G of the Act. The Trust has been

established with the ideology of poverty elimination through

empowerment of women. Micro Credit programme has been started

with the same idea and the Trust continued the same till December,

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2007. Credit was given at an affordable cost, considering the cost of

fund and operation cost, surplus if any which was left over has been

spent on education of the poor and needy.

4.1 During the assessment year 2009-10, i.e. the year under

consideration, the Assessing Officer has treated this Trust as business entity

and taxed accordingly, stating that the micro credit activity carried out by

the Trust are not of charitable nature which is defined under Section 2(15)

of the Income tax Act. The Authorised Representative of the appellant

aggrieved on the decision taken by the Assessing Officer in his submissions

made before the undersigned stated that the Grama Vidiyal Trust is working

among the poor women to alleviate their poverty and to create self

employment scheme for their lively hood by lending money to thousands of

poor women at nominal rate of interest.

4.2 The main object of the appellant Trust is stated as under:

1) To introduce a non-traditional credit and savings system, to help the rural poorest of the poor women. 2) To promote self-reliance among women groups (community based organizations) by supporting programme of sustainable development. 3) To provide credit to the rural poor women for programmes like: a) Income generation activities and micro enterprises development b) Improving the bio diversity c) Meeting the basic needs d) Promoting the existing business and ventures e) Generation of new employment f) Redemption of debts g) Meeting essential and emergency needs h) Redemption from land mortgage and promote new land purchasing i) Promoting agricultural productivities

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j) Helping to implement natural resource management like watershed, irrigation and herbal plants development, etc. k) Training the members of village women association towards awareness, economic development, education and empowerment progress in all respect.

4.3 The AO observed that for financial year 2008-09 in page No. 2 of the

assessment order is as under:-

i) That the Grama Vidiyal Trust has not been doing the micro finance loan to (SHGs) during the FY 2008-09.

ii) The new company called Grama Vidiyal Microfinance P. Ltd., registered with a RBI for carrying on the business of non banking financial institutions without accepting public deposits.

iii) From January 2008 onwards all the loan activities of microfinance activities are carried out only in the new company.

iv) The Grama Vidiyal Trust is doing the charitable and non microfinance activities from January 2008 onwards.

v) Before January 2008 Grama Vidiyal Trust has availed loan from various banking and financial institutions for their microfinance activities.

vi) The Grama Vidiyal Trust stated to have passed one resolution in the executive board meeting stating all lending activities carried out by GV Trust will the transferred to Grama Vidiyal Microfinance Ltd from 2008 onwards.

vii) When the issue of resolution passed in the executive board meeting brought to the knowledge of the Authorised Representative of the appellant who strongly objected the version of the Assessing Officer and filed paper book containing the objectives of Grama Vidiyal Trust which

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contains general points on page No. 32 and also supplementary Trust deed on page No. 34 as well as Trust amendment deed on page No. 39, Trust supplementary deed on page No. 42.

Thus, according to AO, the assessee’s case is hit by proviso to

sec.2(15) of the Act . In view of the amendment made by the Finance

Act, 2008, he withdrew the exemption u/s.11 of the Act and

accordingly, the income of assessee was assessed at maximum

marginal rate. Aggrieved, the assessee carried the appeal before the

CIT(A). 5. On appeal, the CIT(A) observed that the assessee trust has been

carrying on micro financial activities to rural poor women. If the AO

has failed to prove that the trust members have misused the funds of

the Trust for their personal benefit or could not find any material on

record for having acquired any asset in their names out of the funds of

the Trust. Since the Trust uses the funds or deposits for its charitable

activities, which can be utilized for the next five year from the date of

receipt of the funds in discharging towar5ds charitable activities, the

Trust has neither sold nor transferred any asset either tangible or

intangible including goodwill or technical knowhow attracting the

provisions of capital gains tax. The AO failed to bring anything on

record for any asset sold/transferred by the Trust during the year

under consideration warranting levying of capital gains in the hands of

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the assessee trust. Therefore, the AO is directed to delete the addition

made on account of capital gains of `8,24,15,000/-. Trust has

received contribution from various institutions governmental,

conventional and non-conventional in the form of subscriptions, grant,

donations, loans, and gift from donors from India and abroad and also

received similar assistance from NBFC also and such contribution have been

kept as deposits in the banks for subsequent utilization in carrying out the

Trust objectives. Therefore, the contention of the Assessing Officer in

treating the Trust activities as non-charitable do not stand on any material

evidence as well as on legality. Hence the Assessing Officer is directed to

delete the additions made treating the assessee Trust as non-charitable and

directed to allow the exemption under section 11 of the Income tax Act.

5.1 Regarding the payment of `22,44,016 paid to the activists for social

alternatives (ASA), the CIT(A) observed that the assessee Trust has

donated this amount for doing charitable activities of the ASA Trust, which is

having similar objectives such as lending microfinance self help groups /

NGOs /Trusts I Societies and other Association of Persons, formed for

activities undertaking for the economic social and educational upliftment of

its members. These objectives of the appellant Trust for giving donations or

contribution to the similar objective Trusts such as ASA can be seen from the

objective clause of the appellant Trust in its supplementary Trust deed

[clause 8M(m)]. The Authorised Representative of the appellant has further

argued that the contribution to the ASA Trust is thus an eligible deduction

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and application of income by the Trust in achieving the objects of the Trust.

The appellant Trust as well as ASA Trust are both public charitable Trust and

have got 12AA registration along with 80G exemption issued by the

Commissioner of Income tax Trichy. As any contribution given to another

Trust which is having similar charitable activities the contribution made by

the appellant gets the benefit of 80G exemption. On verifying the

submissions made by the Authorized Representative of the appellant and

also objectives of the Trust, the contribution / donation given to the ASA

Trust is in tune with the objectives of the appellant Trust and therefore the

CIT(A) directed the Assessing Officer to allow the claim of the appellant

Trust.

5.2 As far as the disallowance made by the Assessing Officer for the

amount written off claimed by the appellant Trust at `10,75,525, the CIT(A)

observed that this amount has been written off in the books of accounts of

the appellant Trust after making efforts to recover the amounts of loan given

to self help groups being a part of micro financing activity. The Authorised

Representative of the appellant further submitted that the Trust is lending

moneys to poor women and self help groups in expectation of repayment of

the loans taken from the Trust. But in certain circumstances the amounts of

loans taken by the women self help groups are not able to be recovered due

to natural calamity such as floods, drought and also due to sudden death of

the beneficiary family I breadwinner of the women groups, borrower may

not be able to repay the loan to the appellant Trust. Under the

circumstances, as a charitable measure the Trust will not be able to collect

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the amount of loan given to women groups and the loans have to be written

off, sometimes adjust these irrecoverable loses against the surplus to help

the poor women self help group families. As the appellant Trust failed to

recover `10,75,525, the same has been written off as irrecoverable. The

same has to be considered and allowed as bad debts which have been

written off in the books of the Trust. The claim of the appellant has been

examined and its has been normal practice in any finance business to write

off irrecoverable debt which the appellant has written off as irrecoverable.

He directed the Assessing Officer to allow the amount of bad debt as they

were written off in the books of accounts as a part of main Trust activity of

micro-financing.

5.3 As far as the claim of depreciation made by the appellant Trust at

`64,07,747, the CIT(A) observed that the claim of depreciation is a normal

expenditure and the depreciation is calculated according to the Income Tax

Act, 1961. The depreciable asset have been acquired on account of capital

expenditure in the previous year as well current year. According to CIT(A),

the claim of depreciation is an allowable expenditure as part of application of

funds of the assessee trust as the purchase of the asset were taken as

application of funds in the previous years of the Trust. Aggrieved, the

Revenue is in appeal before us. Hence, the Revenue is in appeal before us.

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

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application shall not be treated as “object of general public utility”. Further,

he submitted that the assessee’s activity of micro-financing is a business and

it collects interest, therefore, the assessee’s activity cannot not be treated as

“charitable purpose”. The rate of interest collected is as per normal banks

lending procedure. Since the assessee is in financial business, CIT(A) should

have affirmed the stand of A.O. The ld.D.R further pointed out that the

assessee’s micro-financing does not come into the ambit of the definition

u/s.2(15) in view of the decisions of ITAT, Chennai and ITAT, Bangalore in

the cases of Socio-Economic Development Association vs ITO 2011 TIOL

754-ITAT, Chennai and Janalakshmi Social Services 33 SOT 197 (Bangalore)

respectively. The ld.D.R submitted that the assessee during the assessment

proceedings has stated before A.O that the assessee stopped the micro-

finance activities from January 2008. But before CIT(A) the trust took a

totally opposite stand stating that the trust is still carrying micro- financing

activity and no opportunity was given by CIT(A) to A.O. to explain this

dichotomy. Ld.D.R submitted that the assessee trust is carrying out micro-

finance activities in subsequent years because the assessee trust passed a

resolution in the Executive Board stating that “all the lending activities

carried out by Grarna Vidiyal Trust will be transferred to Grama Vicliyal Micro

Finance (P) Ltd. from January 2008 onwards” and in fact a copy of resolution

was filed before A.O. during assessment proceedings. Further, ld.D.R

submitted that the assessee’s micro-financing activity has been transferred

to a company in which the same activity is treated as business. The very fact

that assessee has treated the activity as “business” in the hand of company

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in subsequent assessment years shows that the micro-finance is not a

charitable activity in nature and it is the self admission of assessee, that it is

pure business activity. Further, ld.D.R mentioned that the CIT(Appeals) has

erred in, accepting the assessee’s contention that the trust has neither sold

or transferred any asset either tangible or intangible including goodwill or

technical knowhow attracting the provisions of capital gains and also that the

assessee’s representative has admitted during the assessment proceedings

that the trust has received `8.24 crore from Grama Vidiya Micro Finance Ltd.

towatds the transformation consideration of transfer of capital assets from.

the-’ Gráma Vidiyal Trust to Grania Vidiya Micro Finance Ltd. The grievance

of the Revenue is that the CIT(A) has not adjudicated the contention of A.O

that `8.24 crores was credited to the capital a/c. of assesseë trust directly

which shows that the assessee trust has treated it as a receipt. Ld.D.R

submitted that the assessee cannot claim deduction towards payment to ASA

Trust, as the activities of the Trust are not charitable in nature and also the

assessee cannot write off an amount of 10,75,525/- since the assessee trust

is not continuing the business during the relevant period. Further, ld.D.R

submitted that the assessee had claimed the entire expenditure prior to

previous year relevant to assessment year 2009-10, as application of

income. In other words, the assessee has claimed the cost of capital asset

as revenue expenditure in earlier year and hence again claiming depreciation

would be double deduction. Hence, ld.D.R pleaded that the order of

Ld.CIT(A) may be set aside.

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regarding the cross objections, the assessee raised the following grounds for

adjudication.

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Trust from making the claim for exemption within the scope of section 11 of the Act. 5. The CIT(Appeals)/DCIT failed to appreciated that in any event the activities of the Assessee/Respondent Trust would not fall within the last limb of the definition provision in section 2(15) of the Act and ought to have appreciated that the activities even though minimum in the previous year relating to the Assessment Year under consideration due to transformation, had focused on relief to poor, medical aid and promoting education which were first three limbs of the definition provision. 6. The CIT(Appeals)/DCIT failed to appreciate that the power of withdrawal of exemption u/s 11 of the Act in the process of framing the assessment was narrow as well as limited and hence ought to have appreciated that the action of withdrawing such exemption in treating the status of the Assessee/Respondent Trust as AOP on the consideration of the facts of the case was wrong, incorrect, unjustified, erroneous and not sustainable both on facts and in law. 7. The CIT(Appeals)/DCIT failed to appreciate that in any event the activity of micro finance should not be considered as an activity outside the purview of the definition provision in section 2(15) of the Act and ought to have appreciated that on consistent scrutiny of the returns of income filed in the immediately preceding Assessment Years, the said activity of micro finance aimed at giving relief to poor was accepted as a charitable activity within the scope of the said section. 8. The CIT(Appeals)/DCIT failed to appreciated that there was no proper opportunity given before passing the impugned order as well as the assessment order and any order passed in violation of the principles of natural justice is nullity in law.

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Sec. 11 of the Act stipulates that the income from property held for

charitable or religious purpose shall not be included in the total income of

the previous year of the person in receipt of the income to be given effect in

the manner as specified therein. The term 'charitable purpose' has not been

defined under the statute; but for the inclusive nature of the term as

specified under s. 2(15) of the Act, which as existed before the amendment

is 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. 1st 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." The AO has taken a stand that by virtue of the amendment as above, the

assessee is not entitled to exemption u/s.11 of the Act.

8.1. The ld. AR submitted that, the idea and understanding of the AO with

regard to the scope of amendment to sec.2(15) is thoroughly wrong and

misconceived. There is no trade or business in the activities pursued by the

assessee in running of micro finance business and will not take it outside the

purview of charity and hence, that the “proviso” added to sec.2(15) of the

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Act, is not at attracted to the case in hand. He also submitted that the

statute, as it stood earlier, had clarified the charitable purpose mentioned in

sec.2(15) of the Act, had clarified the charitable purpose mentioned in s.

2(15) by the words "not involving the carrying on of any activity for profit".

By virtue of the existence of these clarifying words, if there was any element

of profit it was enough liable to be reckoned as charitable purpose right from

the inception of the Act in 1961 till 1st April, 1984, when the words "not

involving the carrying on of any activity for profit" were deleted. Thus the

contention is that after 1st April, 1984, there is no allergy to profit and if the

profit feeds charity, it stands cleared for exemption under s. 11 of the Act.

8.2. To analyse the scope and object of the amendment, we have gone

through the "Budget Speech" of the Minister for Finance in the Finance Bill

2008, reported in (298 ITR (St.) 33 at page 65 :

"180. ‘Charitable purpose’ includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under 'charitable purpose'. Obviously, this was not the intention of Parliament and hence I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected" (Emphasis supplied).

8.3 The learned counsel points out that, the amendment was brought

about as a measure of rationalization and simplification, streamlining the

definition of charitable purpose and not as a measure of taxation. It is also

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stated that the concept of charity in India is wider, simultaneously adding

that, by virtue of the amendment, the position that existed prior to 1st Feb.,

1984 has been brought back and that is all. This however will not tilt the

balance in any manner in the case of the assessee so as to take the activities

outside the charitable purpose, particularly in view of the fact that micro

finance business will not constitute any trade or business. According to the

ld. AR, to perform charity, income is inevitable and contended that the

activities being pursued by the assessee may constitute a trade or business,

if it is not applied for the purposes of charity. Contrary to this, the ld. DR

submitted that though the object of the assessee is to carry on charitable

activities, but it does not carry those charitable activities, and it was only

carrying on micro finance business in a commercial manner, which cannot be

construed as charitable activity. In other words, it was contended by the ld.

DR that the assessee carried on activities in a business oriented manner, it

will definitely come within the fourth limb of the amended sec.2(15) of the

Act, where the prohibition of activity in the nature of trade, commerce or

business for any activity of rendering service or any other consideration,

irrespective of the nature of the use or application or retention of the income

of such activity is specified and hence, not entitled to any exemption.

8.4. To analyze the activities carried on by the assessee, we have to go

through the nature of activities pursued by the assessee and perusal of that

activities carried on by the assessee, cannot be oust the involvement of

“trade, commerce or business” or “any service in connection with trade,

commerce or business” as contemplated under the statute. Further,

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we note that there is substantial variation in the statutory position as it

existed earlier to 1st April, 2009, where the assessee has been given

exemption under section 11 of the Act and the position available after

amendment to section 2(15) of the Act, brought into effect from 1st April,

2009. Yet another important aspect to be noted in this context is that, after

the amendment by incorporating proviso to section 2(15), the 4th

limb as to the advancement of "any other object of general public utility"

will no longer remain as charitable purpose, if it involves carrying on of :

(a) any activity in the nature of trade, commerce or business,

(b) any activity of rendering any service in relation to any trade,

commerce or business for a cess or a fee or any other consideration,

irrespective of the nature of use or application or retention of the

income from such activity.

8.5. The first limb of exclusion from charitable purpose under cl. (a) will be

attracted, if the activity pursued by the institution involves any trade,

commerce or business. But the situation contemplated under the second

limb [cl. (b)] stands entirely on a different pedestal, with regard to the

service in relation to the trade, commerce or business mentioned therein. To

put it more clear, when the matter comes to the service in relation to the

trade, commerce or business, it has to be examined whether the words "any

trade, commerce or business" as they appear in the second limb of cl. (b)

are in connection with the service referred to the trade, commerce or

business pursued by the institutions to which the service is given by the

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assessee. If the said words are actually in respect of the trade, commerce or

business of the assessee itself, the said clause [second limb of the stipulation

under cl. (b)] is rather otiose. Since the activity of the assessee involving any

trade, commerce or business, is already excluded from the charitable

purpose by virtue of the first limb [cl. (a)] itself, there is no necessity to

stipulate further, by way of cl. (b), adding the words "or any activity of

rendering any service in relation to any trade, commerce or business

..................". As it stands so, giving a purposive interpretation to the

statute, it may have to be read and understood that the second limb of

exclusion under cl. (b) in relation to the service rendered by the assessee,

the terms "any trade, commerce or business" refers to the trade, commerce

or business pursued by the recipient to whom the service is rendered and in

such circumstances, the activities carried on by the assessee cannot be

considered as charitable activities.

8.6. The activities carried on by the assessee cannot be considered as

activities of medical relief or education or relief of the poor. It is true that

the activities carried on by the assessee take care of the poor people also.

But those activities cannot be classified under any of the specific activities of

relief of the poor; education or medical relief. The correct way to express the

nature of the activities carried on by the assessee is to say that the assessee

is carrying on 'advancement of any other object of general public utility'.

When that is the case, the assessee is hit by the proviso given under section

2(15). The proviso reads that 'advancement of any other object of general

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public utility' shall not be a charitable purpose, if it involves carrying on 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

consideration, irrespective of the application of the money. Therefore, the

case of the assessee is hit by proviso to section 2(15) and the assessee is

not entitled for the benefit of section 11 for that part of income generated in

the hands of the assessee from running its micro finance business.

Alternatively, one has to look into section 11 (4A). Sub-section (4A) provides

that exemption shall not apply in relation to any income of a trust or an

institution, being profits and gains of business, unless the business is

incidental to the attainment of the objectives of the assessee and separate

books of account are maintained by such trust or institution in respect of

such business. In the present case, there is no dispute on the fact that the

assessee is carrying on the business of micro finance. The assessee is

maintaining separate accounts for the above business activities. But, the

crucial question is whether running of micro finance is a business incidental

to the attainment of the objectives of the trust or not. By any stretch of

imagination, it is not possible to hold that the business of micro finance is

incidental to the above stated objectives of the assessee-trust. "Incidental"

means offshoot of the main activities; inherent by-product of principal

activities. Activities to compliment and support the main objectives are not

in the nature of incidental to the business. They are supporting activities, at

the maximum. The genesis of incidental activities must be from the principal

activities themselves. There cannot be one source for the principal activities

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and another source for incidental activities. In the present case, even if

activities of the assessee were stated to be relief of poor, it was not possible

to conclude that running of business in the form of micro finance is

incidental to carrying on of main objective of the assessee-trust and it is the

main business of the assessee. Therefore, the assessee is not protected by

the provision stated in section 11 (4A), either.”

8.7. The assessee is lending money at commercial rate prevailing in the

market. By advancing loans at that rate of interest, it cannot be considered

as an activity carried on by the assessee as charitable and for the benefit of

the public. When the assessee carried on micro finance activity in a

commercial line, then it is not a charitable activity but an activity to expand

the finance business by contracting weaker section of the public and it does

not involve any charitable activity. Therefore, looking into the activities

carried on by the assessee, we fully agree with the findings of the AO and

this view of ours is squarely covered by the decision of the Tribunal in the

case of Janalakshmi Social Services (33 SOT 197) (Bang.). The assessee

relied on various judgments, which cannot be applied to the facts of the

present case, as the assessee is carrying on micro finance business in a

commercial manner so as to earn profit and there is no iota of charity carried

on by the assessee so as to grant exemption under sec.11 of the Act.

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Kalanjiam Development Financial Services for assessment year

2009-10 in ITA No. 625/Mds/2015 vide order dated 07.08.2015.

exemption u/s.11 of the Act to the assessee. Accordingly, we reverse

the order of the Ld.CIT(A) and restore the order of the AO.

CIT(A) is not justified in granting deduction as bad debts as that

business of assessee trust, which is not continuing during the relevant

period and in case of discontinued business, the claim of assessee

u/s.36(1)(vii) cannot be allowed. This ground is rejected.

of 8.24 crores, which was credited to the capital account of the

assessee Trust by the CIT(A), though it was treated as revenue receipt

by the AO.

12.1 The facts of the issue are that the assessee had shown

`8,24,15,000/- under the head “capital fund” in the balance sheet.

The assessee given explanation to the AO that this amount represents

‘transformation consideration’ on transfer of capital assets from

M/s.Grama Vidiyal Trust to M/s.Grama Vidiyal Micro Finance Ltd., and it

is being a capital receipt exempted from tax. The AO is of the opinion

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that the assessee has transferred capital asset in terms of sec.2(14) of

the Act. It is related to transfer of good will and thus, the entire

amount of `8,24,15,000/- is treated as income of assessee under the

head “capital gain”. The CIT(A) has given a relief to the assessee by

observing that there is no material to suggest that the assessee had

transferred any asset so as to levy capital gain and he deleted the

addition. Aggrieved by the order of CIT(A), Revenue is in appeal before

us.

12.2 We have heard both the parties and perused the material on

record. The assessee took a plea befoe the AO that this impugned

amount has been received on transfer of capital asset from M/s.Grama

Vidiyal Trust to M/s.Grama Vidiyal Micro Finance Ltd. Contrary to this

observation of the AO, the CIT(A) observed that there is no transfer of

any asset, as such there is no levy of capital gain tax at `8,24,15,000/-.

This findings of the CIT(A) is not based on any positive material.

Hence, the facts brought on record not enough to give any findings on

this issue. Therefore, the entire issue is remitted to the file of AO for

fresh consideration after giving opportunity of hearing to the assessee.

13.1 The next ground raised in this appeal is with regard to

allowability of depreciation on the assets on which the entire cost of

assets has been allowed as application of income in earlier assessment

years.

Grama Vidiyal Trust :- 24 -:

13.2 We have heard both the parties and perused the material on record.

In our opinion, this issue came for consideration before this Tribunal in the

case of M/s Kongunadu Arts & Science College Council Gnanambigai Mills

Post Coimbatore 641 029 in I.T.A.No.2097/Mds/2014 vide order dated

26-06-2015 for assessment year 2010-11. The Co-ordinate Bench of this

Tribunal held as follows:-

“5. We have considered the rival submissions on either side and also perused the material available on record. We have also gone through the provisions of section 32 of the Act which provides for depreciation. Depreciation has to be allowed on the cost of the asset. In this case, the cost of the asset was allowed u/s 11 of the Act as application income since the assessee is a charitable institution entitled for exemption u/s 11. Therefore, the cost of the asset becomes NIL. When the cost of the asset becomes NIL, there is no question of allowing any depreciation. If the depreciation is allowed then it would amount to double deduction. The income of the charitable institution has to be computed on commercial principle in case the assessee is not claiming exemption u/s 11 of the Act. The assessee can also claim depreciation in case the exemption u/s 11 was denied by the Assessing Officer. Whatever may be the reasons, since the cost of the asset is NIL as the cost was already allowed as application of income, this Tribunal is of the considered opinion that the assessee is not entitled for depreciation. Section 32 of the Act falls in Chapter IV under computation of business income, however, section 11 falls in Chapter III which provides for incomes which do not form part of the total income. Therefore, this Tribunal is of the considered pinion that provisions of section 11 of the Act will override section 32. In other words, if the assessee claims exemption u/s 11 under Chapter III of the Act, it

Grama Vidiyal Trust :- 25 -:

cannot claim depreciation u/s 32 of the Act. Therefore, we are unable to uphold the order of the CIT(A). Accordingly, the order of the CIT(A) is set aside and that of the Assessing Officer is restored.”

In view of this, there is no question of allowing any depreciation in the

assessment year under consideration on the assets which Written down

value (WDV) had become ‘Nil’. Thus, this ground of the Revenue is

allowed.

No.392/Mds./2014 (A.Y. 2011-12) is that the CIT(A) erred in law in

allowing the assessee’s claim of `3.70 crores as “corpus Donation”

without appreciating that there is no specific direction from the

members about what portion of the subscription amount would be

taken as “Corpus Donation”.

voluntary contributions received by the Trust created, partly or wholly,

for charitable purpose, then in term of sec.2(24)(iia) of the Act it forms

the part of the corpus fund of the Trust and it is a capital receipt. In

the present case, since we have observed that assessee is not a

charitable trust, it is engaged in the commercial activity and is not

entitled for exemption u/s.11 of the Act. The assessee is required to

give details of receipt of `3.70 crores and it is to be proved by assessee

that it is not a revenue receipt and if it is in the field of capital receipt,

Grama Vidiyal Trust :- 26 -:

capital receipt would not be liable for the exemption u/s.11 of the Act.

Accordingly, this issue is remitted to the file of AO to examine afresh

and assessee shall furnish necessary details. The ground of Revenue is

partly allowed for statistical purposes.

income generated from business activities was applied for the charitable

purpose. Hence, exemption u/s.11 of the Act is to be granted. In our

opinion, the plea of the ld.A.R is totally misconceived. Once the

assessee is not entitled of exemption u/s.11 of the Act, the application

of income by the assessee for charitable purpose is irrelevant so as to

grant exemption once again u/s.11 of the Act. Hence, Cross objections

filed by the assessee is dismissed.

statistical purposes and Cross Objection by assessee is dismissed.

micro insurance business in addition to micro finance business. In view

of our findings in ITA No.345/Mds./2013 in para Nos.8 to 9, we are of

the opinion that the assessee is not entitled for exemption u/s.11 of the

Act. Accordingly, this ground of the Revenue in both the appeals is

allowed.

Grama Vidiyal Trust :- 27 -:

18.1 The next ground is relating to receipt of corpus donation of `3.7 crores in the assessment year 2011-12. This issue is remitted to the file of AO withr similar direction given in para No.15 in ITA No.345/Mds./2013 for assessment year 2009-10. 18.2 The other ground is with regard to allowability of depreciation on assets as application of income. This ground is also dismissed as discussed in para No.13.2 in ITA No.345/Mds./2013 for assessment year 2009-10. 19. In the result, the appeal of the Revenue in ITA No.345/Mds./2013 is partly allowed for statistical purposes, & Cross

objection by the assessee is dismissed, and the appeal of Revenue

in ITA No.1437/Mds./2014 is allowed and the appeal of Revenue

in ITA No.392/Mds./2015 is partly allowed for statistical purposes. Order pronounced on 30th June, 2016, at Chennai.

Sd/- Sd/- (जी. पवन कुमार) (चं� पूजार�) (G.PAVAN KUMAR) (CHANDRA POOJARI) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य /ACCOUNTANT MEMBER चे�नई/Chennai �दनांक/Dated: 30th June, 2016 K S Sundaram आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF