M/s.Society for Rural Improvement, Palakkad V. The DCIT, Palakkad

CO 36/COCH/2014

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4073 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 9 month(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 01-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 18-05-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 28-08-2014
• Court: TRIBUNAL
• Keywords: Depreciation; Charitable institution; Maximum Marginal Rate; Set aside
• Section: 12A; 11

Judgement Text

ITA NO.329/COCH/2014 & C.O. NO.36/COCH/2014 1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI B P JAIN, AM & GEORGE GEORGE.K, JM ITA NO.329/COCH/2014 (ASST YEAR : 2011-12) THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, PALAKKAD. M/S. SOCIETY FOR RURAL IMPROVEMENT, SREE SRIMOORTHY NAGAR, NEAR CHINMAYA MISSION, KOLENGODE, PALAKKAD-678 506. ( REVENUE APPELLANT) VS (ASSESSEE -RESPONDENT) C.O. NO. 36/COCH/2014 (ARSG. OUT OF ITA NO.329/COCH/2014) (ASST YEAR : 2011-12) M/S. SOCIETY FOR RURAL IMPROVEMENT, SREE SRIMOORTHY NAGAR, NEAR CHINMAY MISSION, KOLLENGODE, PALAKKAD-678 506. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, PALAKKAD. ( ASSESSEE APPELLANT) VS (REVENUE -RESPONDENT) PAN NO. ASSESSEE BY SHRI T.M. SREEDHARAN, SR. ADV. REVENUE BY SHRI K.P. GOPAKUMAR, SR. DR DATE OF HEARING 18/05/2016 DATE OF PRONOUNCEMENT 01/06/2016 ORDER PER B.P. JAIN, AM: THIS APPEAL OF THE REVENUE ARISES FROM THE O RDER OF THE LD. CIT(A)-V DATED 21-02-2014 FOR THE ASSESSMENT YEAR 2011-12. ITA NO.329/COCH/2014 & C.O. NO.36/COCH/2014 2 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE DECISION OF THE COMMISSIONER OF INCOME-TAX ( APPEALS) IN I.T.A. NO. 100/PGT/CIT(A)-V/2013-14 DATED 21-02-2014 FOR THE A SSESSMENT YEAR 2011-12 IS ERRONEOUS IN LAW, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE HAS NOT DONE ANY CHARITABLE ACTIVITY EXCEPT DURING THE MICRO FINANCING BUSINESS CHARGING HUGE INTEREST ON THE LOANS GIVEN BY IT DURING THE PREVIOUS YEAR RELEVANT TO AY 2011-12. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) OUGHT TO HAVE APPRECIATED THE FACT THAT CHARGING OF INTEREST AT E XHORBITANT RATE OF 29.5% OR MORE PER ANNUM (IF CALCULATED ON REDUCING BALANCING METHOD) IS NOTHING BUT, EXPLOITATION OF THE POOR PEOPLE WHO ARE IN NEE D OF LOAN AND NOT CHARITABLE ACTIVITY. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN TREATING THE ASSESSEES ACTIVITIES AS CHARITY AND THE ASSESSEE T RUST DOES NOT FALL UNDER THE 4 TH LIMB OF DEFINITION OF CHARITABLE INSTITUTIONS AS D EFINED U/S. 2(15) OF THE ACT. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE ITSELF ACCEP TS, IF THERE IS NO PROFIT MOTIVE IT WILL NOT BE POSSIBLE FOR ACCUMULATING FUN DS FOR FUTURE ACTIVITY AND THUS IT SHOWS THAT THE ASSESSEES INTENTION IS TO E ARN PROFIT AND NOT TO DO ANY SOCIAL SERVICE. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN TREATING THE ASSESSEE TRUST AS QUALIFYING FOR EXEMPTION U/S. 11 OF THE ACT WHEN THE TRUST IS EXPLOITING THE POOR PEOPLE OR RURAL AREA BY LENDING MONEY AT EXHORBITANT RATE OF INTEREST (SAY 29.05 OR MORE PERCENTAGE PER ANNUM) WHICH AMOUNT TO CARRYING ON BUSINESS ACTIVITY FOR PROFIT. THE LEARN ED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THE FACT TH AT AS PER ASSESSEES OWN ADMISSION THE COST OF FUNDS RAISED BY IT RANGES FROM 11% TO 12.25% AND ADMINISTRATIVE COST EXCLUDING DEPRECIATION COMING T O 9.5%, STILL THE TRUST IS ABLE TO EARN A PROFIT MARGIN OF A MINIMUM OF ABOUT 8% IN THE MICRO FINANCING BUSINESS IS PLOUGHED BACK, IT WILL CONTINUE TO PROM OTE THE SAME COMMERCIAL ACTIVITY, BUT CANNOT BY ANY STRETCH OF IMAGINATION GET CONVERTED INTO A CHARITABLE ACTIVITY. 7. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THE FACT THAT EVEN THE ORDINARY MONEY LENDERS NORMALLY CHARGE ITA NO.329/COCH/2014 & C.O. NO.36/COCH/2014 3 AN INTEREST BETWEEN 24 TO 36 PER CENT FROM THE TRAD ERS, VILLAGERS ETC., WHO CANNOT APPROACH BANKS FOR LOANS. 8. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED A T THE TIME OF HEARING, THE ORDER OF THE CIT(A) MAY BE SET ASIDE AND THAT OF TH E ASSESSING OFFICER BE RESTORED. 9. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED OFF. 3. THE ASSESSEE IN THE CROSS OBJECTION HAS RAISE D THE FOLLOWING GROUNDS OF APPEAL: (I) THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-V, KOCHI, IN SO FAR AS IT SUSTAINED THE ADDITION OF RS.7,18,018/ - OUT OF THE DISPUTED ADDITION, IS OPPOSED TO LAW, FACTS AND CIRCUMSTANCES OF THE C ASE. (II) THE CIT(APPEALS) SHOULD HAVE FOUND THAT NO PAR T OF THE SURPLUS AMOUNT AS PER THE INCOME AND EXPENDITURE ACCOUNT IS LIABLE TO BE TREATED AS TAXABLE INCOME. (III)THE CLAIM OF DEPRECIATION AS PER THE INCOME AN D EXPENDITURE ACCOUNT AMOUNTING TO RS.10,17,821/- SHOULD HAVE BEEN ALLOWE D IN FULL. (IV) THE CIT(A) SHOULD HAVE FOUND THAT THE RESTRICT ION OF THE CLAIM FOR DEPRECIATION TO RS.2,99,803/- WAS WITHOUT ANY JUSTI FICATION ON THE PART OF THE ASSESSING OFFICER. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSE SSEE HEREIN IS A TRUST CONSTITUTED UNDER DEED OF TRUST DATED 26.04.1996. THE TRUST IS REGISTERED UNDER SECTION 12A OF THE INCOME TAX ACT, 1961 BY THE COMMISSIONER OF INCOME TAX, COCHIN AS PER CERTIFICATE OF REGISTRATION DATED 1.10.1996. THE P RINCIPAL OBJECT OF THE TRUST IS THE ITA NO.329/COCH/2014 & C.O. NO.36/COCH/2014 4 ALL ROUND UPLIFTMENT AND EMANCIPATION OF POOR AND D OWNTRODDEN PERSONS, ESPECIALLY THOSE LIVING IN RURAL AREAS. THE OBJECT INCLUDE, POVERTY ALLEVIATION PROGRAMMES, ENCOURAGEMENT OF THRIFT AND SAVING HABI TS AMONG RURAL POPULATION AND IN PARTICULAR INDIGENT WOMEN. OBJEC TS ALSO INCLUDE, ESTABLISHMENT OF EDUCATIONAL INSTITUTIONS, INDUSTRI AL TRAINING CENTRES ETC., AND TO PROVIDE SCHOLARSHIP TO DESERVING STUDENT AND PROVID E MEDICAL AID AND OTHER SERVICES FOR HEALTH CARE TO THE POORER SECTIONS OF THE COMMUNITY. THE ASSESSMENT YEAR 2011-12 IS THE YEAR OF ASSESSMENT O F THE APPELLANT.- 5. FOR THE ASSESSMENT YEAR 2011-12, THE ASSESSEE FURNISHED RETURN OF INCOME ON 23.03.2012 DECLARING TOTAL INCOME OF RS. NIL. TH E ENTIRE SURPLUS OF RECEIPTS OVER EXPENSES ARE CLAIMED TO BE EXEMPTED BASED ON THE RE GISTRATION U/S. 12A OF THE ACT AS A CHARITABLE ENTITY. 6. THE ASSESSING OFFICER DENIED THE CLAIM FOR EX EMPTION ON THE GROUND THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MICRO FINANC E AND PROFITS ARE DECLARED IN A SYSTEMATIC MANNER. HE ALSO FOUND THAT THE QUANTU M OF PROFITS SHOWED THAT THE PROFITS GENERATED ARE NOT MERELY INCIDENTAL TO THE OBJECT OF THE TRUST. 7. VIDE PARAGRAPH-3 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER CONSIDERED THE ACTIVITY OF THE ASSESSEE UNDER THE 4 TH LIMB OF THE DEFINITION OF CHARITABLE INSTITUTION U/S. 2(15) OF THE ACT. HE CONSIDERED TH E ISSUE UNDER THE 4 TH LIMB OF ITA NO.329/COCH/2014 & C.O. NO.36/COCH/2014 5 DEFINITION OF CHARITABLE INSTITUTION U/S. 2(15), VI Z., ADVANCEMENT OF AN OBJECT OF GENERAL PUBLIC UTILITY. THE ASSESSEES OBJECTIONS ARE ALSO CONSIDERED IN THE ASSESSMENT ORDER IN WHICH THE ASSESSEE VEHEMENTLY O BJECTED TO THE PROPOSAL TO DENY EXEMPTION. 8. IT WAS POINTED OUT THAT THE PRIMARY OBJECT IS TO PROVIDE MICRO FINANCE TO THE VULNERABLE SECTION OF THE SOCIETY. THE SURPLUS ARI SING FROM THE ACTIVITY IS PLOUGHED BACK AND UTILIZED FOR FURTHER LENDING. AS SESSEE ALSO RELIED UPON THE CIRCULAR NO. 11/2008 DATED 29/12/2008 ISSUED BY THE CBDT, WHEREIN THE PURPOSE OF AMENDMENT TO SEC. 2(15) HAS BEEN EXPLAINED. THE ASSESSING OFFICER REJECTED THE OBJECTIONS AND COMPLETED THE ASSESSMENT AS PER THE ABOVE ORDER BY DETERMINING THE EXCESS OF INCOME OVER EXPENDITURE A T RS.2,15,61,272/-. THE DEPRECIATION CLAIMED OF RS.10,17,821/- WAS ADDED BA CK AND ADMISSIBLE DEPRECIATION OF RS.2,99,808/- WAS ALLOWED. THE INCO ME IS ASSESSED AT THE MAXIMUM MARGINAL RATE BY TREATING THE ASSESSEE AS A OP. 9. AGGRIEVED BY THE ABOVE ORDER, THE ASSESSEE FILE D APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS)-V, COCHIN VIDE I.T.A. NO. 100/PGT/CIT(A)- V/2013-14 WAS DISPOSED OF BY ORDER DATED 21/02/201 4. IN PARAGRAPH-2 OF THE ORDER OF THE CIT(A), THE CONTENTIONS PUT FORTH BEFO RE HIM ARE REPRODUCED WHICH HAVE BEEN CONSIDERED IN THE APPELLATE ORDER. THE F OLLOWING ARE THE MAIN GROUNDS URGED BEFORE THE CIT(A):- ITA NO.329/COCH/2014 & C.O. NO.36/COCH/2014 6 (I) THE TRUST IS REGISTERED U/S. 12A OF THE INCOME TAX ACT, 1961 VIDE ORDER DATED 1.10.1996. (II) THE TRUST IS CLAIMING SURPLUS OF RECEIPTS OVER EXPENDITURE AS EXEMPTED INCOME U/S. 11 OF THE ACT. AS PER THE DEFINITION IN SEC. 2(15), CHARITABLE PURPOSE, INCLUDES RELIEF TO THE POOR, EDUCATION , MEDICAL RELIEF ETC. (III) IN THE ASSESSMENT ORDER, THE ASSESSING OFFICE R DEALT WITH THE APPELLANTS CASE UNDER 4 TH LIMB OF THE DEFINITION OF CHARITABLE INSTITUTION, NAMELY, THE ADVANCEMENT OF AN OBJECT OF GENERAL PUBLIC UTILITY . THIS IS A FUNDAMENTAL ERROR COMMITTED BY THE ASSESSING OFFICER. IT IS NOT SO. THE EXEMPTION IS CLAIMED UNDER THE FIRST LIMB OF THE DEFINITION U/S. 2(15) (IV) THE TRUST EXISTED FOR RENDING CHARITY TO THE P OOR. MICRO FINANCING ITSELF IS A CHARITABLE ACTIVITY. THE ASSESSEE IS CHARGING ONLY NORMAL RATE OF INTEREST. LENDING MONEY IS AT REASONABLE RATE OF INTEREST TO THE RURAL POPULATION, PARTICULARLY, THE POOREST AMONG THE POOR WOMEN, WHO DO NOT HAVE ANYTHING TO OFFER AS SECURITY FOR LOAN. THEY ARE PROVIDED W ITH SMALL LOANS AT REASONABLE RATE OF INTEREST. THE LOAN AMOUNT AS WELL AS THE IN TEREST WHICH IS COLLECTED BACK, IS RE-CYCLED FOR EXTENDING LOANS TO FRESH BEN EFICIARIES. THE LOANS ARE GIVEN TO PERSONS, WHO ARE ENCOURAGED TO TAKE UP ACT IVITIES IN THE NATURE OF SELF-EMPLOYMENT AND REHABILITATION. THE BENEFICIAR IES ARE INDIGENT WOMEN OF RURAL AREA. 10. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBM ISSION MADE ON BEHALF OF THE APPELLANT SUMMARIZED THE ISSUES AND HELD THAT THE A CTIVITIES OF THE ASSESSEE TRUST DID NOT FALL WITHIN THE 4 TH LIMB OF THE DEFINITION OF CHARITABLE INSTITUTION . IT WAS HELD THAT THE FIRST PROVISO TO SEC. 2(15) DID NOT F IND ANY APPLICATION AND THAT THE INFERENCES DRAWN BY THE ASSESSING OFFICER WERE NOT SUSTAINABLE. ACCORDINGLY, THE DECISION OF THE ASSESSING OFFICER TO TREAT THE ASSESSEE AS AN AOP AND TO TAX THE EXCESS OF INCOME OVER EXPENDITURE WERE VACA TED AND THE APPEAL WAS ALLOWED. ITA NO.329/COCH/2014 & C.O. NO.36/COCH/2014 7 11. THE VARIOUS GROUNDS IN THE APPEAL OF THE REVEN UE ARE THE FOLLOWING:- (I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE HAS NOT DONE ANY CHARITABLE ACTIVITY EXCEPT DOING THE MICRO FINANCING BUSINESS. (II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) OUGHT TO HAVE APPRECIATED THE FACT THAT CHARGING OF INTEREST AT EXHORBITANT RATE OF 29.5% OR MORE PER ANNUM, IS NOT CHARITABLE ACTIVITY. (III)THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN TREATING THE ASSESSEE TRUST AS QUALIFYING FOR EXEMPTION U/S. 11 OF THE ACT. 12. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND S IN THE MEMORANDUM OF CROSS OBJECTION:- (I) THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-V, KOCHI, IN SO FAR AS IT SUSTAINED THE ADDITION OF RS.7,18,018/ - OUT OF THE DISPUTED ADDITION, IS OPPOSED TO LAW, FACTS AND CIRCUMSTANCES OF THE C ASE. (II) THE CIT(A) SHOULD HAVE FOUND THAT NO PART OF T HE SURPLUS AMOUNT AS PER THE INCOME AND EXPENDITURE ACCOUNT IS LIABLE TO BE TREA TED AS TAXABLE INCOME. (III)THE CLAIM FOR DEPRECIATION AS PER THE INCOME A ND EXPENDITURE ACCOUNT AMOUNTING TO RS.10,17,821/- SHOULD HAVE BEEN ALLOWE D IN FULL. (IV) THE CIT(A) SHOULD HAVE FOUND THAT THE RESTRICT ION OF THE CLAIM FOR DEPRECIATION TO RS.2,99,803/- WAS WITHOUT ANY JUSTI FICATION ON THE PART OF THE ASSESSING OFFICER. 13. THE LEARNED SR. AR MADE WRITTEN SUBMISSION DA TED 15.12.2015 AND RAISED THE FOLLOWING GROUNDS:- ITA NO.329/COCH/2014 & C.O. NO.36/COCH/2014 8 (I) THE CIT(A) ERRED IN TREATING THE ASSESSEES ACT IVITY OF MICRO FINANCING BUSINESS AS CHARITY AND DECIDING THAT THE ASSESSE E TRUST DOES NOT FALL UNDER THE 4 TH LIMB OF DEFINITION OF CHARITABLE INSTITUTIONS AS D EFINED U/S. 2(15) OF THE ACT. (II) THE ISSUE HAS BEEN COMPREHENSIVELY DISCUSSED B Y VARIOUS JUDICIAL AUTHORITIES WHO HAVE HELD IN FAVOUR OF THE REVENUE. (II) IN THE CASE OF THE ASSESSEE, THE EFFECTIVE RAT E OF INTEREST HAS BEEN ADMITTED TO BE 29.5% DIFFERENTIAL RATE HAS BEEN SEEN TO BE 7 .5%. THE EXCESS OF INCOME OVER EXPENDITURE HAS BEEN FOUND TO BE NEARLY RS.2 C RORES. THIS IS A VERY GRAVE SITUATION EVEN THAN THE CIRCUMSTANCES NARRATED IN T HE CASE ANALYSED BY THE HONBLE CHENNAI TRIBUNAL IN THE CASE ANALYSES BY TH E HONBLE CHENNAI TRIBUNAL. 14. THE LEARNED DR ALSO PLACED STRONG RELIANCE ON THE ASSESSMENT ORDER AND SUBMITTED THAT THE ASSESSEE WAS CARRYING ON MICRO F INANCE BUSINESS IN A COMMERCIAL MANNER AND DIRECTLY FELL WITHIN THE 4 TH LIMB OF THE DEFINITION IN SEC. 2(15). IT WAS VEHEMENTLY ARGUED THAT EVEN IF THE A CTIVITIES OF THE ASSESSEE WERE STATED TO BE THE RELIEF OF THE POOR, IT WAS NOT POS SIBLE TO CONCLUDE THAT RUNNING OF BUSINESS IN THE FORM OF MICRO FINANCE WAS INCIDENTA L TO CARRYING ON MAIN OBJECTIVE OF THE ASSESSEE TRUST AND THEREFORE, THE ASSESSEE W AS NOT PROTECTED BY PROVISION OF SEC. 11(4A) OF THE ACT. HE SUBMITTED THAT MICRO FINANCING CANNOT BE CONSIDERED AS A CHARITY, AND THAT DELETING THE AD DITION OF THE INCOME AS PER THE ASSESSMENT SHOULD BE REVERSED. 15. THE ASSESSEES COUNSEL RELIED UPON THE JUDG MENT OF THE ANDHRA PRADESH HIGH COURT IN THE CASE OF THE COMMISSONER OF INCOME TAX VS. M/S. SPANDANA (RURAL & URBAN DEVELOPMENT ORGANIZATION) IN I.T.A. NO.304/2013 DATED ITA NO.329/COCH/2014 & C.O. NO.36/COCH/2014 9 10/07/2013. A DIVISION BENCH OF THE HONBLE HIGH C OURT OF ANDHRA PRADESH AFFIRMED THE ORDER OF THE ITAT. THE DECISIONS OF T HE CO-ORDINATE COCHIN BENCH IN M/S. K.P. PAUL FOUNDATION VS. CIT (2014) 40 CCH 314 (COCHIN TRIB.) AND OF THE ITAT, CHENNAI DBENCH IN THE CASE OF M/S. KURINJI WELFAR E SOCIETY VS. ACIT IN I.T.A. NO.1594/MDS./2009, ARE ALSO RELIED ON. 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFU LLY PERUSED THE RECORDS. ON GOING THROUGH THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A), WE FIND THAT THE MAIN ISSUE CONSIDERED IS WHETHER THE ASSESSEE IS A CHARITABLE TRUST PROVIDING RELIEF TO THE POOR, EDUCATION, MEDICAL RELIEF ETC., FALLIN G WITHIN THE FIRST PART OF THE DEFINITION OF WHETHER ITS OBJECT IS ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY, FALLING WITHIN THE LAST LIMB OF TH E DEFINITION AS AMENDED BY FINANCE ACT, 2008. THE ASSESSEE HAS FURNISHED A COPY OF THE DEED OF TRUST DATED 26/02/1996 IN THE PAPER BOOK. THE DOMINANT OBJECT OF THE TRUST AS PER CL. (3) ARE TO UNDERTAKE SUCH PROJECT AND PROGRAMMES AS MAY B E NECESSARY TO ALLEVIATE POVERTY OF THE POOREST AND NEEDY RURAL FOLK, ESPEC IALLY RURAL WOMEN REGARDLESS OF CASTE, CREED, COLOUR, RELIGION OR POLITICAL AFFILI ATIONS AND TO ENCOURAGE THRIFT AND SAVINGS HABITS AMONG RURAL POPULATION FROM THE COM MENCEMENT OF THE TRUST IN 1996 ONWARDS. THE ABOVE OBJECT OF THE TRUST IS CARRIED OUT BY PRO VIDING FINANCIAL ASSISTANCE TO INDIGENT WOMEN. THE RELIEF TO THE POOR IS THE DOMI NANT ACTIVITY. THE DOMINANT OBJECTIVE IS LENDING MONEY TO POOR. MICRO FINANCING ACTIVITY IS NOT MONEY LENDING BUSINESS AS COMMERCIALLY UNDERSTOOD. FUNDS ARE PRO VIDED TO THE RURAL WOMEN ITA NO.329/COCH/2014 & C.O. NO.36/COCH/2014 10 FOLK, WHO DO NOT HAVE ANY SECURITY TO OFFER FOR AVA ILING LOAN. THESE WOMEN CANNOT APPROACH BANK OR LEADING INSTITUTIONS FOR HE LP AS THEY CANNOT AFFORD TO PROVIDE SECURITY FOR AVAILING LOANS. THE ASSESSEE I S HELPING THE SOCIALLY AND ECONOMICALLY WEAKER SECTIONS OF THE SOCIETY, AS NO OTHER AGENCY REACHES OUT TO MEET THEIR REQUIREMENTS. THE FACT THAT THE ASSESSE E DOES NOT DEMAND SECURITY FOR THE LOAN AND THAT THE LOANS ARE GIVEN TO RURAL WOME N FOLK BELONGING TO LOW INCOME HOUSEHOLDS AND THAT SUCH FINANCIAL ASSISTANC E IS BASED ON REASONABLE RATE OF INTEREST FOR SELF EMPLOYMENT, REHABILITATIO N AND SUCH OTHER SELF HELP PROGRAMMES, WOULD GO TO ESTABLISH THAT THE 4 TH LIMB OF THE DEFINITION OF CHARITABLE INSTITUTION AS DEFINED IN SEC.2(15) OF THE ACT, DOE S NOT APPLY TO THE ASSESSEES TRUST. GOING BY THE ACTIVITIES CARRIED OUT BY THE ASSESSEE , IT IS CLEAR THAT THE OBJECTIVE OF THE TRUST IS NOT TO CONDUCT MONEY LENDING BUSINESS, BUT TO DO RELIEF TO THE POOR. MICRO FINANCING ACTIVITY IS AN OBJECT BASED FINANCI AL ASSISTANCE TO THE POOR RURAL POPULATION, PARTICULARLY TO THE POOR WOMEN, WHO DO NOT HAVE ASSETS OR PROPERTY TO OFFER AS SECURITY. SUCH PERSONS ARE PROVIDED WI TH SMALL LOANS NOT EXCEEDING RUPEES EIGHT THOUSAND IN THE CASE OF THE ASSESSEE, AT A TIME, WHICH IS COLLECTED BACK IN MONTHLY AND PERIODICAL INSTALMENTS RANGING UPTO FIFTY INSTALMENTS. THE REPAYMENTS ARE AGAIN RECYCLED IN THE FORM OF APPLIC ATION OF FUNDS. ACCORDING TO THE ASSESSEE, IT IS HELPING TO THE POORER SECTIONS OF THE SOCIETY FOR REHABILITATION AND SELF EMPLOYMENT. THE RATE OF INTEREST MAY RANG E FROM 10 TO 15% EFFECTIVE RATE OF INTEREST OR FROM 19.5% TO 25 TO 29% PER ANN UM ON REDUCING BALANCE WHICH IS NOT THE DECIDING FACTOR. PART OF THE INTEREST R ECEIVED IS ADMITTEDLY UTILIZED FOR ITA NO.329/COCH/2014 & C.O. NO.36/COCH/2014 11 PROVIDING FINANCIAL ASSISTANCE TO THE BENEFICIARIES IN THE FORM OF WELFARE FUND TO THE NUMEROUS BENEFICIARIES. THIS FACT IS REFERRED TO IN THE CIT(A)S ORDER VIDE PARAGRAPH-7(II). AS PER BALANCE SHEET ENDING ON 31 .03.2011, AN OPENING BALANCE OF THE CAPITAL FROM BENEFICIARIES SECURITY COLLECTI ON OF RS.13.39 CRORES, ON WHICH INTEREST PAID IS RS.58,56,118/-. THAT MEANS, OUT O F INTEREST COLLECTED FROM THE BENEFICIARIES ON LOAN GIVEN IS NOT TAKEN WHOLLY BY THE ASSESSEE BUT A PORTION THEREOF IS CREDITED TO BENEFICIARIES FUTURE SECURIT Y A/C AS A BENEVOLENT FUND WHICH IS KEPT IN THE SAVING A/C AND AN INTEREST @ 4% IS CREDITED TO THE SAID BENEVOLENT FUND, WHICH IS TAKEN BY THE BENEFICIARIES ALONG WIT H INTEREST , WHILE LEAVING THE INSTITUTION . THEREFORE AN AMOUNT OF RS.13.39 CROR ES IS LYING TO THE CREDIT OF THE BENEFICIARIES IN THE FORM OF BENEVOLENT FUND AS AT 31.03.2011. THIS ACTIVITY BEING A CHARITABLE ACTIVITY IS QUITE DISTINGUISHABLE FROM T HE MONEY LENDING ACTIVITY OF VARIOUS LENDING FIRMS. 17. IT WILL BE PROFITABLE TO MAKE REFERENCE TO T HE FINDINGS OF THE HONBLE HIGH COURT OF ANDHRA PRADESH IN THE AFORESAID JUDGMENT. THE HONBLE HIGH COURT OF ANDHRA PRADESH HELD AS FOLLOWS:- THE LEARNED TRIBUNAL HAS CONCLUDED ON FACT THAT TH E ACTIVITIES OF THE ASSESSEE ARE IN THE NATURE OF CHARITABLE ACTIVITIES. IT HAS BEEN FURTHER HELD ON APPRECIATION OF FACT THAT MICRO FINANCING ACTIVITY IN THE INSTANT CASE IS A CHARITABLE ACTIVITY. THE LEARNED TRIBUNAL HAS ALSO RELIED UPON THE JUDGMENT OF THE BANGALORE BENCH OF THE TRIBUNAL ON IDENTICAL FA CT THAT THE MICRO FINANCING TO THE POOR PEOPLE IS A CHARITABLE ACTIVITY. UNDER SU CH CIRCUMSTANCES, THE ASSESSEE WAS GRANTED EXEMPTION U/S. 11 OF THE INCOM E TAX ACT, THE LEARNED TRIBUNAL FURTHER FOUND THAT IN ORDER TO ACHIEVE THE MAIN PURPOSE OF THE ITA NO.329/COCH/2014 & C.O. NO.36/COCH/2014 12 CHARITABLE ACTIVITY, THE ASSESSEE HAS JOINED HANDS IN SOME OTHER FINANCIAL ORGANIZATIONS AND BANKS. SUCH STEPS TO COLLECT MON EY FOR MICRO FINANCING DOES NOT DEFEAT THE REAL OBJECT IN ORDER TO DEPRIVE OF T HE EXEMPTION. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED TRIBUNAL, WHICH IS BASED ON FACT FINDING AND SUCH FACTS ATTRACT THE PROVISION OF EXEMPTION. THE PRINCIPLE LAID DOWN IN THE ABOVE JUDGMENT WOULD NEGATIVE THE CONTENTION OF THE ASSESSING OFFICER THAT THE MICRO FINANCE IS MER ELY A MONEY LENDING ACTIVITY WITHOUT ANY CHARITABLE OBJECT. AS REGARDS RELIAN CE PLACED BY LD. AR ON THE DECISION OF THE ITAT, CHENNAI BENCH, THE ASSESSEE H AS A BENEFIT OF JUDGMENT OF HONBLE HIGH COURT OF ANDHRA PRADESH AND OTHER TRIB UNALS IN HIS FAVOUR. THEREFORE, ANY DECISION WHICH IS FAVOURABLE TO THE ASSESSEE SH OULD BE FOLLOWED IN VIEW OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F VEGETABLE PRODUCTS 88 ITR 192. 18. BASED ON THE ABOVE JUDGMENTS AND FOR REASONS S TATED ABOVE, WE ARE IN AGREEMENT WITH THE FINDINGS AND THE DECISION OF THE LD. CIT(A) AND ACCORDINGLY, THE ORDER OF THE LD. CIT(A) IS UPHELD. THUS ALL T HE GROUNDS OF THE REVENUE ARE DISMISSED. ACCORDINGLY, THE APPEAL OF THE REVENUE I S DISMISSED.. C.O. NO. 36/COCH/2014 19. NOW WE SHALL TAKE UP C.O. NO.36/COCH/2014. THE FIRST GROUND URGED BY THE ASSESSEE IS AGAINST REJECTION OF THE CLAIM FOR DEPR ECIATION IN THE INCOME AND EXPENDITURE ACCOUNT FOR RS.10,17,821/-. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE CLAIM FOR DEPRECIATION SHOULD HAVE BE EN ALLOWED IN FULL. ACCORDING TO THE LEARNED COUNSEL, NO DEPRECIATION HAD EITHER BEEN CLAIMED OR ALLOWED ON ITA NO.329/COCH/2014 & C.O. NO.36/COCH/2014 13 THE FIXED ASSETS IN THE PAST AND AS SUCH, THE WDV A S PER THE BOOKS OF ACCOUNT SHOULD BE THE BASIS FOR DECIDING THE CLAIM FOR DEPR ECIATION AND NOT MERELY THE COST OF NEW ASSETS PURCHASED DURING THE PREVIOUS YE AR. THE COUNSEL WOULD FURTHER SUBMITTED THAT BASED ON THE DECISION OF THE CIT(A) ON THE QUESTION OF ELIGIBILITY FOR THE CLAIM OF EXEMPTION U/S. 11, THERE CANNOT BE ANY TAXABLE INCOME FOR THE TRUST FOR THE ABOVE ASSESSMENT YEAR. HOWEVER, IN THE APP ELLATE ORDER, THE ADDITION DELETED IS RS.2,15,61,272/- AS AGAINST THE ASSESSED TOTAL INCOME OF RS.2,22,79,290/-, LEAVING A DIFFERENCE OF RS.7,18,018/- WHICH IS THE DIFFERENCE IN THE DEPRECIATION CLAIM. IT IS POINTED OUT THAT THIS DIFFERENTIAL AM OUNT IS ALSO THE INCOME OF THE TRUST, WHICH SHOULD BE ALLOWED AS EXEMPTED INCOME. 20. HAVING REGARD TO THE FINDINGS AND THE DECIS ION RENDERED BY US REGARDING THE CLAIM FOR EXEMPTION, IT IS CLEAR THAT THE ENTIR E SURPLUS OF INCOME OVER EXPENDITURE REQUIRES TO BE DELETED. ACCORDINGLY, WE SET ASIDE THE BALANCE SUM OF RS.7,18,018/- BEING THE DIFFERENCE BETWEEN THE DEPR ECIATION CLAIMED BY THE ASSESSEE AND THE DEPRECIATION ACTUALLY ALLOWED IN T HE ASSESSMENT AS NOT SUSTAINABLE. ACCORDINGLY, THE ADDITION OF RS.7,18, 018/- IS DELETED AND THE CROSS OBJECTION IS ALLOWED. ITA NO.329/COCH/2014 & C.O. NO.36/COCH/2014 14 21. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 01/0 6/2016 SD/- SD/- (GEORGE GEORGE K.) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : COCHIN DATED: 1 ST JUNE, 2016 GJ COPY TO: 1. M/S. SOCIETY FOR RURAL IMPROVEMENT, SREE SRIMOO RTHY NAGAR, NEAR CHINMAYA MISSION, KOLLENGODE, PALAKKAD-678 506. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1 , PALAKKAD. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-V, KOCHI , 4. THE COMMISSIONER OF INCOME-TAX, THRISSUR. 5. THE DR/ITAT, COCHIN BENCH. 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN ITA NO.329/COCH/2014 & C.O. NO.36/COCH/2014 15 1.DATE OF DICTATION : 30/05/2016 2.DATE ON WHICH THE TYPED DRAFT IS PLACED 30/05/201 BEFORE THE DICTATING MEMBER OTHER MEMBER: 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR . PS/PS: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER : 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. PS/PS : 6. DATE ON WHICH THE FILE GOES TO BENCH CLERK: 7. DATE ON WHICH THE FILE GOES TO HEAD CLERK: 8. DATE ON WHICH THE FILE GOES TO ASSISTANT REGISTR AR 9. DATE OF DISPATCH OF THE ORDER: