Grama Vidiyal Trust, CHENNAI V. ACIT, Trichy

CO 78/CHNY/2013

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4034 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 2 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-06-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 23-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 29-04-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S SRIDHAR
• Assessee Lawyers: DURAI PANDIAN ADDITIONAL
• Keywords: Capital asset; Gift; Depreciation; Charitable institution; Principle of natural justice; Maximum Marginal Rate; Bad and doubtful debts; Capital receipt; Condonation of delay; Revenue expenditure; Capital expenditure; TDS; Set aside; Capital Gains
• Section: 80G; 12AA; 201; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI , . ! '# BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER I.T.A.NO S . 345/MDS./2013, 1437/MDS./2014 & 392/MDS./2015 & CO NO.78/MDS./2013 ASSESSMENT YEARS : 2009-10, 2010-11 & 2011-12 & A.Y.2009-10 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-I92), TRICHY. VS. M/S.GRAMA VIDIYAL TRUST , 2A,SATHIYA ILLAM, ALLI STREET, ANNAMALAI NAGAR, TRICHY 620 018. [PAN AAATG 2928 F ] ( $% / APPELLANT) ( &'$% /RESPONDENT CROSS OBJECTOR) / APPELLANT BY : MR.DURAI PANDIAN, ADDITIONAL CIT DR /RESPONDENT BY : MR.S.SRIDHAR,ADVOCATE / DATE OF HEARING : 23 - 06 - 201 6 / DATE OF PRONOUNCEMENT : 30 - 06 - 2016 ( / 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 DI RECTED AGAINST THE GRAMA VIDIYAL TRUST :- 2 -: DIFFERENT ORDERS OF THE LEARNED COMMISSIONER OF IN COME 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 REVENUES APPEAL S & CROSS OBJECTIONS ARE COMMON IN NATURE, THESE APPEALS & C.O. ARE CLUB BED TOGETHER, HEARD TOGETHER, DISPOSED OFF BY THIS COMMON ORDER F OR 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 SU BMITTED 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 T HE APPEAL BEFORE THIS TRIBUNAL IS ON ACCOUNT OF MIXING UP OF PAPERS IN HI S OFFICE AND IT TOOK TIME TO LOCATE THE SAME AND AS SOON AS HE TRACED TH E RECORDS, HE FILED THE APPEAL ON 26.02.2013. IN OUR OPINION, THE REASO NS 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 CONDONAT ION PETITION DATED 20- 05.2014 FOR CONDOANTION OF DELAY. WE HAVE GONE THR OUGH THE GRAMA VIDIYAL TRUST :- 3 -: CONDONATION PETITION STATING THAT THE DELAY WAS OCC URRED ON THE REASON THAT THE AO ASSIGNED WORK OF ELECTION DUTY AS OBSER VER 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 AN D PRAYED THAT DELAY OF 18 DAYS IS CONDONED. IN OUR OPINION, THE REASONS SHOWN ARE JUSTIFIED AND HENCE, DELAY IN FILING THE APPEAL BEL ATEDLY FOR 18 DAYS BEFORE THE TRIBUNAL IS CONDONED AND APPEAL IS ADMIT TED FOR ADJUDICATION. 2.3. C.O. NO.78/MDS./2013 BY ASSESSEE (FOR A.Y 20 09-10) THERE WAS A DELAY OF 14 DAYS IN FILING THIS CROSS OBJECTIONS BY THE ASSESSEE. CONSEQUENT TO THIS, THE LD.A.R FILE D 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 AL SO THE CIRCUMSTANCES BEYOND THE CONTROL OF PETITIONER HERE IN. AFTER CONSIDERING THE SAME, WE ARE SATISFIED ABOUT THE RE ASONS ADVANCED BY THE LD.A.R FOR DELAY OF 14 DAYS IN FILING THE APPEA L. ACCORDINGLY, THE DELAY IS CONDONED 3.1 NOW THE COMMON GROUND IN THESE THREE APPEALS O F REVENUE IS THAT THE CIT(A) FAILED TO OBSERVE THE FACT THAT AFT ER THE AMENDMENT OF GRAMA VIDIYAL TRUST :- 4 -: THE SEC.2(15) OF THE ACT, ANY ACTIVITY IN THE NATUR E OF TRADE, COMMERCE OR BUSINESS, OR ANY ACTIVITY OF RENDERING ANY SERVI CE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS FOR A CESS OR FEE OR AN Y 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 S UPPORT OF THE ORDER OF THE LD.CIT(A) AND ALSO RAISED THE GROUNDS THAT INCOME GENERATED FROM THE MICRO FINANCE USED FOR THE PURPO SE OF CHARITABLE ACTIVITIES, AS SUCH IT CANNOT BE SAID THAT ASSESSEE TRUST IS NOT ENGAGED IN THE CHARITABLE ACTIVITIES. 4. THE CRUX OF THE GROUND OF THE REVENUES APPEAL IS THAT THE CIT(A) ERRED IN GRANTING EXEMPTION U/S.11 OF THE AC T TO THE ASSESSEE FOR THESE ASSESSMENT YEARS, THOUGH THE ASSESSEE CAR RIED ON THE BUSINESS ACTIVITIES WHICH ARE HIT BY THE PROVISIONS OF THE SECTION 2(15) OF THE ACT. FOR CLARITY, WE CONSIDER THE FACTS NAR RATED IN ASSESSMENT YEAR 2009-10. THE ASSESSEE TRUST IS DULY REGISTERE D TRUST U/S.12A(A) OF THE INCOME TAX ACT,1961 VIDE NO.163/1988-89 WITH EF FECT FROM THE ASSESSMENT YEAR 1998-99 FROM THE COMMISSIONER OF IN COME TAX- 1,TRICHY AND ALSO REGISTERED U/S.80G OF THE ACT. T HE TRUST HAS BEEN ESTABLISHED WITH THE IDEOLOGY OF POVERTY ELIMINATIO N THROUGH EMPOWERMENT OF WOMEN. MICRO CREDIT PROGRAMME HAS BE EN STARTED WITH THE SAME IDEA AND THE TRUST CONTINUED THE SAME TILL DECEMBER, GRAMA VIDIYAL TRUST :- 5 -: 2007. CREDIT WAS GIVEN AT AN AFFORDABLE COST, CONS IDERING THE COST OF FUND AND OPERATION COST, SURPLUS IF ANY WHICH WAS L EFT OVER HAS BEEN SPENT ON EDUCATION OF THE POOR AND NEEDY. 4.1 DURING THE ASSESSMENT YEAR 2009-10, I.E. THE YEAR U NDER CONSIDERATION, THE ASSESSING OFFICER HAS TREATED TH IS TRUST AS BUSINESS ENTITY AND TAXED ACCORDINGLY, STATING THAT THE MICRO CREDI T ACTIVITY CARRIED OUT BY THE TRUST ARE NOT OF CHARITABLE NATURE WHICH IS DEF INED UNDER SECTION 2(15) OF THE INCOME TAX ACT. THE AUTHORISED REPRESENTATIV E OF THE APPELLANT AGGRIEVED ON THE DECISION TAKEN BY THE ASSESSING OF FICER IN HIS SUBMISSIONS MADE BEFORE THE UNDERSIGNED STATED THAT THE GRAMA V IDIYAL 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 STA TED AS UNDER: 1) TO INTRODUCE A NON-TRADITIONAL CREDIT AND SAVING S SYSTEM, TO HELP THE RURAL POOREST OF THE POOR WOMEN. 2) TO PROMOTE SELF-RELIANCE AMONG WOMEN GROUPS (COM MUNITY BASED ORGANIZATIONS) BY SUPPORTING PROGRAMME OF SUSTAINAB LE DEVELOPMENT. 3) TO PROVIDE CREDIT TO THE RURAL POOR WOMEN FOR PR OGRAMMES LIKE: A) INCOME GENERATION ACTIVITIES AND MICRO ENTERPRIS ES 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 LA ND PURCHASING I) PROMOTING AGRICULTURAL PRODUCTIVITIES GRAMA VIDIYAL TRUST :- 6 -: J) HELPING TO IMPLEMENT NATURAL RESOURCE MANAGEMENT LIKE WATERSHED, IRRIGATION AND HERBAL PLANTS DEVELOPMENT , ETC. K) TRAINING THE MEMBERS OF VILLAGE WOMEN ASSOCIATIO N TOWARDS AWARENESS, ECONOMIC DEVELOPMENT, EDUCATION AND EMPO WERMENT 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 MICROFINAN CE P. LTD., REGISTERED WITH A RBI FOR CARRYING ON THE BUSINESS OF NON BANK ING FINANCIAL INSTITUTIONS WITHOUT ACCEPTING PUBLIC DEPOSITS. III) FROM JANUARY 2008 ONWARDS ALL THE LOAN ACTIVIT IES 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 AVAI LED LOAN FROM VARIOUS BANKING AND FINANCIAL INSTITUTIONS FOR THEIR MICROF INANCE ACTIVITIES. VI) THE GRAMA VIDIYAL TRUST STATED TO HAVE PASSED O NE RESOLUTION IN THE EXECUTIVE BOARD MEETING STATING ALL LENDING ACTIVIT IES CARRIED OUT BY GV TRUST WILL THE TRANSFERRED TO GRAMA VIDIYAL MICROFI NANCE LTD FROM 2008 ONWARDS. VII) WHEN THE ISSUE OF RESOLUTION PASSED IN THE EXE CUTIVE BOARD MEETING BROUGHT TO THE KNOWLEDGE OF THE AUTHORISED REPRESEN TATIVE OF THE APPELLANT WHO STRONGLY OBJECTED THE VERSION OF THE ASSESSING OFFICER AND FILED PAPER BOOK CONTAINING THE OBJECTIVES OF GRAMA VIDIYAL TRUST WHICH GRAMA VIDIYAL TRUST :- 7 -: CONTAINS GENERAL POINTS ON PAGE NO. 32 AND ALSO SUP PLEMENTARY 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 ASSESSEES CASE IS HIT B Y PROVISO TO SEC.2(15) OF THE ACT . IN VIEW OF THE AMENDMENT MAD E BY THE FINANCE ACT, 2008, HE WITHDREW THE EXEMPTION U/S.11 OF THE ACT AND ACCORDINGLY, THE INCOME OF ASSESSEE WAS ASSESSED A T MAXIMUM MARGINAL RATE. AGGRIEVED, THE ASSESSEE CARRIED THE APPEAL BEFORE T HE CIT(A). 5. ON APPEAL, THE CIT(A) OBSERVED THAT THE ASSESSE E TRUST HAS BEEN CARRYING ON MICRO FINANCIAL ACTIVITIES TO RURAL POO R WOMEN. IF THE AO HAS FAILED TO PROVE THAT THE TRUST MEMBERS HAVE MIS USED THE FUNDS OF THE TRUST FOR THEIR PERSONAL BENEFIT OR COULD NOT F IND 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 DEPOS ITS FOR ITS CHARITABLE ACTIVITIES, WHICH CAN BE UTILIZED FOR THE NEXT FIVE YEAR FROM THE DATE OF RECEIPT OF THE FUNDS IN DISCHARGING TOWAR5DS CHARIT ABLE ACTIVITIES, THE TRUST HAS NEITHER SOLD NOR TRANSFERRED ANY ASSET EI THER 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 G AINS IN THE HANDS OF GRAMA VIDIYAL TRUST :- 8 -: 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 GOV ERNMENTAL, CONVENTIONAL AND NON-CONVENTIONAL IN THE FORM OF SU BSCRIPTIONS, GRANT, DONATIONS, LOANS, AND GIFT FROM DONORS FROM INDIA A ND ABROAD AND ALSO RECEIVED SIMILAR ASSISTANCE FROM NBFC ALSO AND SUCH CONTRIBUTION HAVE BEEN KEPT AS DEPOSITS IN THE BANKS FOR SUBSEQUENT UTILIZ ATION 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 ASSESSIN G OFFICER IS DIRECTED TO DELETE THE ADDITIONS MADE TREATING THE ASSESSEE TRU ST 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 A SSESSEE TRUST HAS DONATED THIS AMOUNT FOR DOING CHARITABLE ACTIVITIES OF THE ASA TRUST, WHICH IS HAVING SIMILAR OBJECTIVES SUCH AS LENDING MICROFINA NCE SELF HELP GROUPS / NGOS /TRUSTS I SOCIETIES AND OTHER ASSOCIATION OF P ERSONS, FORMED FOR ACTIVITIES UNDERTAKING FOR THE ECONOMIC SOCIAL AND EDUCATIONAL UPLIFTMENT OF ITS MEMBERS. THESE OBJECTIVES OF THE APPELLANT TRUS T FOR GIVING DONATIONS OR CONTRIBUTION TO THE SIMILAR OBJECTIVE TRUSTS SUCH A S ASA CAN BE SEEN FROM THE OBJECTIVE CLAUSE OF THE APPELLANT TRUST IN ITS SUPP LEMENTARY TRUST DEED [CLAUSE 8M(M)]. THE AUTHORISED REPRESENTATIVE OF TH E APPELLANT HAS FURTHER ARGUED THAT THE CONTRIBUTION TO THE ASA TRUST IS TH US AN ELIGIBLE DEDUCTION GRAMA VIDIYAL TRUST :- 9 -: AND APPLICATION OF INCOME BY THE TRUST IN ACHIEVING THE OBJECTS OF THE TRUST. THE APPELLANT TRUST AS WELL AS ASA TRUST ARE BOTH P UBLIC CHARITABLE TRUST AND HAVE GOT 12AA REGISTRATION ALONG WITH 80G EXEMPTION ISSUED BY THE COMMISSIONER OF INCOME TAX TRICHY. AS ANY CONTRIBUT ION 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 O F THE APPELLANT AND ALSO OBJECTIVES OF THE TRUST, THE CONTRIBUTION / DO NATION GIVEN TO THE ASA TRUST IS IN TUNE WITH THE OBJECTIVES OF THE APPELLA NT 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 ASSES SING OFFICER FOR THE AMOUNT WRITTEN OFF CLAIMED BY THE APPELLANT TRUST A T ` 10,75,525, THE CIT(A) OBSERVED THAT THIS AMOUNT HAS BEEN WRITTEN OFF IN T HE 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 T HAT THE TRUST IS LENDING MONEYS TO POOR WOMEN AND SELF HELP GROUPS IN EXPECT ATION OF REPAYMENT OF THE LOANS TAKEN FROM THE TRUST. BUT IN CERTAIN CIRC UMSTANCES THE AMOUNTS OF LOANS TAKEN BY THE WOMEN SELF HELP GROUPS ARE NOT A BLE TO BE RECOVERED DUE TO NATURAL CALAMITY SUCH AS FLOODS, DROUGHT AND ALS O DUE TO SUDDEN DEATH OF THE BENEFICIARY FAMILY I BREADWINNER OF THE WOMEN G ROUPS, BORROWER MAY NOT BE ABLE TO REPAY THE LOAN TO THE APPELLANT TRUS T. UNDER THE CIRCUMSTANCES, AS A CHARITABLE MEASURE THE TRUST WI LL NOT BE ABLE TO COLLECT GRAMA VIDIYAL TRUST :- 10 - : THE AMOUNT OF LOAN GIVEN TO WOMEN GROUPS AND THE LO ANS HAVE TO BE WRITTEN OFF, SOMETIMES ADJUST THESE IRRECOVERABLE LOSES AGA INST THE SURPLUS TO HELP THE POOR WOMEN SELF HELP GROUP FAMILIES. AS THE APP ELLANT TRUST FAILED TO RECOVER ` 10,75,525, THE SAME HAS BEEN WRITTEN OFF AS IRRECOV ERABLE. 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 FI NANCE BUSINESS TO WRITE OFF IRRECOVERABLE DEBT WHICH THE APPELLANT HAS WRIT TEN OFF AS IRRECOVERABLE. HE DIRECTED THE ASSESSING OFFICER TO ALLOW THE AMOU NT 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 T HE APPELLANT TRUST AT ` 64,07,747, THE CIT(A) OBSERVED THAT THE CLAIM OF DE PRECIATION IS A NORMAL EXPENDITURE AND THE DEPRECIATION IS CALCULATED ACCO RDING TO THE INCOME TAX ACT, 1961. THE DEPRECIABLE ASSET HAVE BEEN ACQUIRED ON ACCOUNT OF CAPITAL EXPENDITURE IN THE PREVIOUS YEAR AS WELL CURRENT YE AR. ACCORDING TO CIT(A), THE CLAIM OF DEPRECIATION IS AN ALLOWABLE EXPENDITU RE 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 T RUST. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. HENCE, THE REVENUE IS IN APPEAL BEFORE US. 6. THE LD.D.R SUBMITTED THAT AFTER THE AMNENDMENT OF THE SECTION2(15), ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BU SINESS, OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COM MERCE OR BUSINESS FOR A CESS OR FEE OR ANY OTHER CONSIDERATION, IRRESPECTIV E OF THE NATURE OF USE OR GRAMA VIDIYAL TRUST :- 11 - : APPLICATION SHALL NOT BE TREATED AS OBJECT OF GENE RAL PUBLIC UTILITY. FURTHER, HE SUBMITTED THAT THE ASSESSEES ACTIVITY OF MICRO- FINANCING IS A BUSINESS AND IT COLLECTS INTEREST, THEREFORE, THE ASSESSEES ACT IVITY CANNOT NOT BE TREATED AS CHARITABLE PURPOSE. THE RATE OF INTEREST COLLECTE D IS AS PER NORMAL BANKS LENDING PROCEDURE. SINCE THE ASSESSEE IS IN FINANCI AL BUSINESS, CIT(A) SHOULD HAVE AFFIRMED THE STAND OF A.O. THE LD.D.R FURTHER POINTED OUT THAT THE ASSESSEES MICRO-FINANCING DOES NOT COME INTO THE A MBIT 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 3 3 SOT 197 (BANGALORE) RESPECTIVELY. THE LD.D.R SUBMITTED THAT THE ASSESSE E DURING THE ASSESSMENT PROCEEDINGS HAS STATED BEFORE A.O THAT THE ASSESSEE STOPPED THE MICRO- FINANCE ACTIVITIES FROM JANUARY 2008. BUT BEFORE CI T(A) THE TRUST TOOK A TOTALLY OPPOSITE STAND STATING THAT THE TRUST IS ST ILL 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 TRANSFE RRED 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 ASSESSEES MICRO-FINANCING ACTIV ITY 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 GRAMA VIDIYAL TRUST :- 12 - : IN SUBSEQUENT ASSESSMENT YEARS SHOWS THAT THE MICRO -FINANCE IS NOT A CHARITABLE ACTIVITY IN NATURE AND IT IS THE SELF AD MISSION OF ASSESSEE, THAT IT IS PURE BUSINESS ACTIVITY. FURTHER, LD.D.R MENTIONED T HAT THE CIT(APPEALS) HAS ERRED IN, ACCEPTING THE ASSESSEES CONTENTION THAT THE TRUST HAS NEITHER SOLD OR TRANSFERRED ANY ASSET EITHER TANGIBLE OR INTANGI BLE INCLUDING GOODWILL OR TECHNICAL KNOWHOW ATTRACTING THE PROVISIONS OF CAPI TAL GAINS AND ALSO THAT THE ASSESSEES REPRESENTATIVE HAS ADMITTED DURING THE A SSESSMENT PROCEEDINGS THAT THE TRUST HAS RECEIVED `8.24 CRORE FROM GRAMA VIDIYA MICRO FINANCE LTD. TOWATDS THE TRANSFORMATION CONSIDERATION OF TRANSFE R OF CAPITAL ASSETS FROM. THE- GRMA VIDIYAL TRUST TO GRANIA VIDIYA MICRO FI NANCE LTD. THE GRIEVANCE OF THE REVENUE IS THAT THE CIT(A) HAS NOT ADJUDICAT ED THE CONTENTION OF A.O THAT `8.24 CRORES WAS CREDITED TO THE CAPITAL A/C. OF ASSESSE 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 CHARI TABLE 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 T HE COST OF CAPITAL ASSET AS REVENUE EXPENDITURE IN EARLIER YEAR AND HENCE AG AIN CLAIMING DEPRECIATION WOULD BE DOUBLE DEDUCTION. HENCE, LD.D.R PLEADED T HAT THE ORDER OF LD.CIT(A) MAY BE SET ASIDE. GRAMA VIDIYAL TRUST :- 13 - : 7. ON THE OTHER HAND, LD.A.R SUPPORTED THE ORDER OF LD.CIT(A). FURTHER REGARDING THE CROSS OBJECTIONS, THE ASSESSEE RAISED THE FOLLOWING GROUNDS FOR ADJUDICATION. 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS), TIRUCHIPALLI DATED 7.11.2012 IN LT.A.NO.170/2011-12 /THE ORDER OF THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(2), TIRUCHIRAPALLI DATED 16.12.2011 FOR THE ABOVE MENTI ONED ASSESSMENT YEAR IN SO FAR AS THE ISSUES RAISED IN T HE PRESENT CROSS OBJECTIONS IS CONTRARY TO LAW, FACTS, AND IN THE CIRCUMSTANCES OF THE CASE. 2. THE CIT (APPEALS)/DCIT ERRED IN NOT CONSIDERING THE STATEMENT OF TOTAL INCOME WHICH FORMED PART OF THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND FUR THER ERRED IN NOT NOTICING THE FACT OF APPLICATION OF THE INCOME/ RECEIPTS GENERATED IN THE PREVIOUS YEAR RELATING TO THE ASSE SSMENT YEAR UNDER CONSIDERATION AS PER THE PRESCRIPTION OF SECT ION 11 OF THE ACT WITHOUT ASSIGNING PROPER REASONS AND JUSTIFICAT ION. 3. THE CIT(APPEALS)/DCIT FAILED TO APPRECIATED THAT THE ISSUE OF THE ACTIVITIES RELATING TO THE MICRO FINANCE IN REL ATION TRUSTEES TO THE PROVISIONS IN SECTION 11 OF THE ACT WOULD BE AC ADEMIC IN NATURE AND OUGHT TO HAVE APPRECIATED THAT IN THE LI GHT OF THE APPLICATION OF THE RECEIPTS/INCOME EARNED/GENERATED BY THE ASSESSEE/RESPONDENT HEREIN FOR THE OBJECTIVES OF TH E ASSESSEE/RESPONDENT TRUST, THE CONTRADICTION IN THE STAND AS WELL AS THE FINDINGS SHOULD NOT BE CONSTRUED AS FAT AL TO THE EXEMPTION AS PRESCRIBED IN SECTION 11 OF THE ACT. 4. THE CIT(APPEALS)/DCIT FAILED TO APPRECIATED THAT THE LULL IN THE CHARITABLE ACTIVITIES/THE MINIMUM CHARITABLE ACTIVI TIES CARRIED OUT IN THE PREVIOUS YEAR RELATING TO THE ASSESSMENT YEA R UNDER CONSIDERATION CONSEQUENT TO TRANSFORMATION/HIVING O FF THE MIRCO FINANCE ACTIVITIES WOULD NOT DISENTITLE THE ASSESSE E/RESPONDENT GRAMA VIDIYAL TRUST :- 14 - : TRUST FROM MAKING THE CLAIM FOR EXEMPTION WITHIN TH E 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 WOU LD NOT FALL WITHIN THE LAST LIMB OF THE DEFINITION PROVISION IN SECTION 2(15) OF THE ACT AND OUGHT TO HAVE APPRECIATED THAT THE ACTI VITIES 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 PR OCESS OF FRAMING THE ASSESSMENT WAS NARROW AS WELL AS LIMITE D AND HENCE OUGHT TO HAVE APPRECIATED THAT THE ACTION OF WITHDR AWING SUCH EXEMPTION IN TREATING THE STATUS OF THE ASSESSEE/RE SPONDENT TRUST AS AOP ON THE CONSIDERATION OF THE FACTS OF T HE CASE WAS WRONG, INCORRECT, UNJUSTIFIED, ERRONEOUS AND NOT SU STAINABLE 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 CONSI STENT SCRUTINY OF THE RETURNS OF INCOME FILED IN THE IMME DIATELY PRECEDING ASSESSMENT YEARS, THE SAID ACTIVITY OF MI CRO FINANCE AIMED AT GIVING RELIEF TO POOR WAS ACCEPTED AS A CH ARITABLE 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 IMPUGNE D ORDER AS WELL AS THE ASSESSMENT ORDER AND ANY ORDER PASSED I N VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE IS NULLITY IN LAW. GRAMA VIDIYAL TRUST :- 15 - : 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. SEC. 11 OF THE ACT STIPULATES THAT THE INCOME FROM PROPERTY HELD FOR CHARITABLE OR RELIGIOUS PURPOSE SHALL NOT BE INCLUD ED IN THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT OF THE I NCOME TO BE GIVEN EFFECT IN THE MANNER AS SPECIFIED THEREIN. THE TERM 'CHARITAB LE PURPOSE' HAS NOT BEEN DEFINED UNDER THE STATUTE; BUT FOR THE INCLUSIVE NA TURE OF THE TERM AS SPECIFIED UNDER S. 2(15) OF THE ACT, WHICH AS EXIST ED BEFORE THE AMENDMENT IS AS FOLLOWS : ' SEC. 2(15) : 'CHARITABLE PURPOSE' INCLUDES RELIEF O F THE POOR, EDUCATION, MEDICAL RELIEF AND THE ADVANCEMENT OF AN Y OTHER OBJECT OF GENERAL PUBLIC UTILITY.' AS PER FINANCE ACT, 2008, THE SAID PROVISION WAS AM ENDED 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 PU RPOSE, IF IT INVOLVES THE CARRYING ON OF ANY ACTIVITY IN THE NAT URE OF TRADE, COMMERCE OR BUSINESS OR ANY ACTIVITY OF RENDERING A NY 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 AMEN DMENT 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 UNDERS TANDING OF THE AO WITH REGARD TO THE SCOPE OF AMENDMENT TO SEC.2(15) IS TH OROUGHLY WRONG AND MISCONCEIVED. THERE IS NO TRADE OR BUSINESS IN THE ACTIVITIES PURSUED BY THE ASSESSEE IN RUNNING OF MICRO FINANCE BUSINESS AND W ILL NOT TAKE IT OUTSIDE THE PURVIEW OF CHARITY AND HENCE, THAT THE PROVISO AD DED TO SEC.2(15) OF THE GRAMA VIDIYAL TRUST :- 16 - : ACT, IS NOT AT ATTRACTED TO THE CASE IN HAND. HE A LSO SUBMITTED THAT THE STATUTE, AS IT STOOD EARLIER, HAD CLARIFIED THE CHA RITABLE 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 O F ANY ACTIVITY FOR PROFIT'. BY VIRTUE OF THE EXISTENCE OF THESE CLARIFYING WORD S, IF THERE WAS ANY ELEMENT OF PROFIT IT WAS ENOUGH LIABLE TO BE RECKONED AS CH ARITABLE PURPOSE RIGHT FROM THE INCEPTION OF THE ACT IN 1961 TILL 1ST APRIL, 1 984, WHEN THE WORDS 'NOT INVOLVING THE CARRYING ON OF ANY ACTIVITY FOR PROFI T' 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 EXEMPTI ON UNDER S. 11 OF THE ACT. 8.2. TO ANALYSE THE SCOPE AND OBJECT OF THE AMENDME NT, WE HAVE GONE THROUGH THE 'BUDGET SPEECH' OF THE MINISTER FOR FIN ANCE IN THE FINANCE BILL 2008, REPORTED IN (298 ITR (ST.) 33 AT PAGE 65 : '180. CHARITABLE PURPOSE INCLUDES RELIEF OF THE P OOR, EDUCATION, MEDICAL RELIEF AND ANY OTHER OBJECT OF G ENERAL PUBLIC UTILITY. THESE ACTIVITIES ARE TAX EXEMPT, AS THEY S HOULD BE. HOWEVER, SOME ENTITIES CARRYING ON REGULAR TRADE, C OMMERCE OR BUSINESS OR PROVIDING SERVICES IN RELATION TO ANY T RADE, COMMERCE OR BUSINESS AND EARNING INCOMES HAVE SOUGH T TO CLAIM THAT THEIR PURPOSES WOULD ALSO FALL UNDER 'CH ARITABLE 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 W ILL NOT IN ANY WAY BE AFFECTED' (EMPHASIS SUPPLIED). 8.3 THE LEARNED COUNSEL POINTS OUT THAT, THE AMENDM ENT WAS BROUGHT ABOUT AS A MEASURE OF RATIONALIZATION AND SIMPLIFIC ATION, STREAMLINING THE DEFINITION OF CHARITABLE PURPOSE AND NOT AS A MEASU RE OF TAXATION. IT IS ALSO GRAMA VIDIYAL TRUST :- 17 - : STATED THAT THE CONCEPT OF CHARITY IN INDIA IS WIDE R, 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 H OWEVER WILL NOT TILT THE BALANCE IN ANY MANNER IN THE CASE OF THE ASSESSEE S O AS TO TAKE THE ACTIVITIES OUTSIDE THE CHARITABLE PURPOSE, PARTICULARLY IN VIE W OF THE FACT THAT MICRO FINANCE BUSINESS WILL NOT CONSTITUTE ANY TRADE OR B USINESS. ACCORDING TO THE LD. AR, TO PERFORM CHARITY, INCOME IS INEVITABLE AN D CONTENDED THAT THE ACTIVITIES BEING PURSUED BY THE ASSESSEE MAY CONSTI TUTE 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 BUS INESS 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 NATUR E OF TRADE, COMMERCE OR BUSINESS FOR ANY ACTIVITY OF RENDERING SERVICE OR A NY OTHER CONSIDERATION, IRRESPECTIVE OF THE NATURE OF THE USE OR APPLICATIO N OR RETENTION OF THE INCOME OF SUCH ACTIVITY IS SPECIFIED AND HENCE, NOT ENTITL ED TO ANY EXEMPTION. 8.4. TO ANALYZE THE ACTIVITIES CARRIED ON BY THE AS SESSEE, WE HAVE TO GO THROUGH THE NATURE OF ACTIVITIES PURSUED BY THE ASS ESSEE AND PERUSAL OF THAT ACTIVITIES CARRIED ON BY THE ASSESSEE, CANNOT BE OU ST THE INVOLVEMENT OF TRADE, COMMERCE OR BUSINESS OR ANY SERVICE IN CO NNECTION WITH TRADE, COMMERCE OR BUSINESS AS CONTEMPLATED UNDER TH E STATUTE. FURTHER, GRAMA VIDIYAL TRUST :- 18 - : 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 POSIT ION AVAILABLE AFTER AMENDMENT TO SECTION 2(15) OF THE ACT, BROUGHT INT O EFFECT FROM 1ST APRIL, 2009. YET ANOTHER IMPORTANT ASPECT TO BE NOTED IN THIS CONTEXT IS THAT, AFTER THE AMENDMENT BY INCORPORATING PROVISO TO SE CTION 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 O R BUSINESS, (B) ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATI ON TO ANY TRADE, COMMERCE OR BUSINESS FOR A CESS OR A FEE OR ANY OTH ER 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 PU RPOSE UNDER CL. (A) WILL BE ATTRACTED, IF THE ACTIVITY PURSUED BY THE INSTITUTI ON INVOLVES ANY TRADE, COMMERCE OR BUSINESS. BUT THE SITUATION CONTEMPLATE D UNDER THE SECOND LIMB [CL. (B)] STANDS ENTIRELY ON A DIFFERENT PEDES TAL, WITH REGARD TO THE SERVICE IN RELATION TO THE TRADE, COMMERCE OR BUSIN ESS MENTIONED THEREIN. TO PUT IT MORE CLEAR, WHEN THE MATTER COMES TO THE SER VICE 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 S ERVICE IS GIVEN BY THE GRAMA VIDIYAL TRUST :- 19 - : ASSESSEE. IF THE SAID WORDS ARE ACTUALLY IN RESPECT OF THE TRADE, COMMERCE OR BUSINESS OF THE ASSESSEE ITSELF, THE SAID CLAUSE [S ECOND 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 FR OM THE CHARITABLE PURPOSE BY VIRTUE OF THE FIRST LIMB [CL. (A)] ITSEL F, THERE IS NO NECESSITY TO STIPULATE FURTHER, BY WAY OF CL. (B), ADDING THE WO RDS 'OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COM MERCE OR BUSINESS ..................'. AS IT STANDS SO, GIVING A PURP OSIVE 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 SE RVICE IS RENDERED AND IN SUCH CIRCUMSTANCES, THE ACTIVITIES CARRIED ON BY TH E ASSESSEE CANNOT BE CONSIDERED AS CHARITABLE ACTIVITIES. 8.6. THE ACTIVITIES CARRIED ON BY THE ASSESSEE CANN OT 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. TH E 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 P ROVISO GIVEN UNDER SECTION 2(15). THE PROVISO READS THAT 'ADVANCEMENT OF ANY O THER OBJECT OF GENERAL GRAMA VIDIYAL TRUST :- 20 - : PUBLIC UTILITY' SHALL NOT BE A CHARITABLE PURPOSE, IF IT INVOLVES CARRYING ON ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINE SS, OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COM MERCE OR BUSINESS FOR CONSIDERATION, IRRESPECTIVE OF THE APPLICATION OF T HE 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 FI NANCE BUSINESS. ALTERNATIVELY, ONE HAS TO LOOK INTO SECTION 11 (4A) . SUB-SECTION (4A) PROVIDES THAT EXEMPTION SHALL NOT APPLY IN RELATION TO ANY I NCOME OF A TRUST OR AN INSTITUTION, BEING PROFITS AND GAINS OF BUSINESS, U NLESS THE BUSINESS IS INCIDENTAL TO THE ATTAINMENT OF THE OBJECTIVES OF T HE ASSESSEE AND SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED BY SUCH TRUST OR IN STITUTION IN RESPECT OF SUCH BUSINESS. IN THE PRESENT CASE, THERE IS NO DIS PUTE ON THE FACT THAT THE ASSESSEE IS CARRYING ON THE BUSINESS OF MICRO FINAN CE. THE ASSESSEE IS MAINTAINING SEPARATE ACCOUNTS FOR THE ABOVE BUSINES S ACTIVITIES. BUT, THE CRUCIAL QUESTION IS WHETHER RUNNING OF MICRO FINANC E 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 BU SINESS OF MICRO FINANCE IS INCIDENTAL TO THE ABOVE STATED OBJECTIVES OF THE AS SESSEE-TRUST. 'INCIDENTAL' MEANS OFFSHOOT OF THE MAIN ACTIVITIES; INHERENT BY- PRODUCT OF PRINCIPAL ACTIVITIES. ACTIVITIES TO COMPLIMENT AND SUPPORT T HE MAIN OBJECTIVES ARE NOT IN THE NATURE OF INCIDENTAL TO THE BUSINESS. THEY A RE SUPPORTING ACTIVITIES, AT THE MAXIMUM. THE GENESIS OF INCIDENTAL ACTIVITIES M UST BE FROM THE PRINCIPAL ACTIVITIES THEMSELVES. THERE CANNOT BE ONE SOURCE F OR THE PRINCIPAL ACTIVITIES GRAMA VIDIYAL TRUST :- 21 - : AND ANOTHER SOURCE FOR INCIDENTAL ACTIVITIES. IN T HE 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 ASSE SSEE IS NOT PROTECTED BY THE PROVISION STATED IN SECTION 11 (4A), EITHER. 8.7. THE ASSESSEE IS LENDING MONEY AT COMMERCIAL RA TE PREVAILING IN THE MARKET. BY ADVANCING LOANS AT THAT RATE OF INTERES T, IT CANNOT BE CONSIDERED AS AN ACTIVITY CARRIED ON BY THE ASSESSEE AS CHARIT ABLE AND FOR THE BENEFIT OF THE PUBLIC. WHEN THE ASSESSEE CARRIED ON MICRO FIN ANCE ACTIVITY IN A COMMERCIAL LINE, THEN IT IS NOT A CHARITABLE ACTIVI TY BUT AN ACTIVITY TO EXPAND THE FINANCE BUSINESS BY CONTRACTING WEAKER SECTION OF THE PUBLIC AND IT DOES NOT INVOLVE ANY CHARITABLE ACTIVITY. THEREFORE, LO OKING 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 DECISI ON OF THE TRIBUNAL IN THE CASE OF JANALAKSHMI SOCIAL SERVICES (33 SOT 197) (B ANG.). THE ASSESSEE RELIED ON VARIOUS JUDGMENTS, WHICH CANNOT BE APPLIE D 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 S EC.11 OF THE ACT. GRAMA VIDIYAL TRUST :- 22 - : 9. FURTHER, THE SAME VIEW WAS TAKEN BY THIS TRIBUNA L IN THE CASE OF KALANJIAM DEVELOPMENT FINANCIAL SERVICES FOR ASSES SMENT YEAR 2009-10 IN ITA NO. 625/MDS/2015 VIDE ORDER DATED 07.08.2015. 10. HENCE, IN OUR OPINION, THE CIT(A) NOT JUSTIFIE D IN GRANTING EXEMPTION U/S.11 OF THE ACT TO THE ASSESSEE. ACCOR DINGLY, WE REVERSE THE ORDER OF THE LD.CIT(A) AND RESTORE THE ORDER OF THE AO. 11. REGARDING ALLOWING OF BAD DEBTS ` 10,75,525/-, IN OUR OPINION THE CIT(A) IS NOT JUSTIFIED IN GRANTING DEDUCTION AS BA D DEBTS AS THAT BUSINESS OF ASSESSEE TRUST, WHICH IS NOT CONTINUING DURING THE RELEVANT PERIOD AND IN CASE OF DISCONTINUED BUSINESS, THE CL AIM OF ASSESSEE U/S.36(1)(VII) CANNOT BE ALLOWED. THIS GROUND IS R EJECTED. 12. THE REVENUE RAISED ONE MORE GROUND IS WITH REG ARD TO DELETION OF 8.24 CRORES, WHICH WAS CREDITED TO THE CAPITAL A CCOUNT 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 CAPIT AL 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 GRAMA VIDIYAL TRUST :- 23 - : THAT THE ASSESSEE HAS TRANSFERRED CAPITAL ASSET IN TERMS OF SEC.2(14) OF THE ACT. IT IS RELATED TO TRANSFER OF GOOD WILL AN D THUS, THE ENTIRE AMOUNT OF ` 8,24,15,000/- IS TREATED AS INCOME OF ASSESSEE UNDE R 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 AN D HE DELETED THE ADDITION. AGGRIEVED BY THE ORDER OF CIT(A), REVENU E IS IN APPEAL BEFORE US. 12.2 WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL ON RECORD. THE ASSESSEE TOOK A PLEA BEFOE THE AO THAT THIS IMPUGNED AMOUNT HAS BEEN RECEIVED ON TRANSFER OF CAPITAL ASS ET FROM M/S.GRAMA VIDIYAL TRUST TO M/S.GRAMA VIDIYAL MICRO FINANCE LT D. CONTRARY TO THIS OBSERVATION OF THE AO, THE CIT(A) OBSERVED THAT THE RE 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 POS ITIVE MATERIAL. HENCE, THE FACTS BROUGHT ON RECORD NOT ENOUGH TO GI VE ANY FINDINGS ON THIS ISSUE. THEREFORE, THE ENTIRE ISSUE IS REMITTE D TO THE FILE OF AO FOR FRESH CONSIDERATION AFTER GIVING OPPORTUNITY OF HEA RING 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 TH E MATERIAL ON RECORD. IN OUR OPINION, THIS ISSUE CAME FOR CONSIDERATION B EFORE THIS TRIBUNAL IN THE CASE OF M/S KONGUNADU ARTS & SCIENCE COLLEGE COUNCI L GNANAMBIGAI MILLS POST COIMBATORE 641 029 IN I.T.A.NO.2097/MDS/2014 V IDE ORDER DATED 26-06-2015 FOR ASSESSMENT YEAR 2010-11. THE CO-ORD INATE BENCH OF THIS TRIBUNAL HELD AS FOLLOWS:- 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE PROVISIONS OF SECTION 32 OF THE AC T WHICH PROVIDES FOR DEPRECIATION. DEPRECIATION HAS TO BE ALLOWED ON THE COST OF THE ASSET. IN THIS CASE, THE COST OF THE A SSET 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 O F THE ASSET BECOMES NIL, THERE IS NO QUESTION OF ALLOWING ANY D EPRECIATION. IF THE DEPRECIATION IS ALLOWED THEN IT WOULD AMOUNT TO DOUBLE DEDUCTION. THE INCOME OF THE CHARITABLE INSTITUTIO N HAS TO BE COMPUTED ON COMMERCIAL PRINCIPLE IN CASE THE ASSES SEE IS NOT CLAIMING EXEMPTION U/S 11 OF THE ACT. THE ASSESS EE CAN ALSO CLAIM DEPRECIATION IN CASE THE EXEMPTION U/S 11 WA S DENIED BY THE ASSESSING OFFICER. WHATEVER MAY BE THE REASONS , SINCE THE COST OF THE ASSET IS NIL AS THE COST WAS ALREADY AL LOWED AS APPLICATION OF INCOME, THIS TRIBUNAL IS OF THE CONS IDERED OPINION THAT THE ASSESSEE IS NOT ENTITLED FOR DEPRECIATION . SECTION 32 OF THE ACT FALLS IN CHAPTER IV UNDER COMPUTATION OF BU SINESS INCOME, HOWEVER, SECTION 11 FALLS IN CHAPTER III WHICH PROV IDES FOR INCOMES WHICH DO NOT FORM PART OF THE TOTAL INCOME. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED PINION THAT PROV ISIONS OF SECTION 11 OF THE ACT WILL OVERRIDE SECTION 32. IN OTHER W ORDS, 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. THER EFORE, WE ARE UNABLE TO UPHOLD THE ORDER OF THE CIT(A). ACCORDIN GLY, THE ORDER OF THE CIT(A) IS SET ASIDE AND THAT OF THE ASSESSIN G OFFICER IS RESTORED. IN VIEW OF THIS, THERE IS NO QUESTION OF ALLOWING A NY DEPRECIATION IN THE ASSESSMENT YEAR UNDER CONSIDERATION ON THE ASSETS W HICH WRITTEN DOWN VALUE (WDV) HAD BECOME NIL. THUS, THIS GROUND O F THE REVENUE IS ALLOWED. 14. THE OTHER GROUND RAISED IN APPEAL OF REVENUE I N ITA NO.392/MDS./2014 (A.Y. 2011-12) IS THAT THE CIT(A) ERRED IN LAW IN ALLOWING THE ASSESSEES CLAIM OF ` 3.70 CRORES AS CORPUS DONATION WITHOUT APPRECIATING THAT THERE IS NO SPECIFIC DIRE CTION FROM THE MEMBERS ABOUT WHAT PORTION OF THE SUBSCRIPTION AMOU NT WOULD BE TAKEN AS CORPUS DONATION. 15. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THAT IF THE VOLUNTARY CONTRIBUTIONS RECEIVED BY THE TRUST CREAT ED, PARTLY OR WHOLLY, FOR CHARITABLE PURPOSE, THEN IN TERM OF SEC.2(24)(I IA) 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 ASSES SEE IS NOT A CHARITABLE TRUST, IT IS ENGAGED IN THE COMMERCIAL A CTIVITY AND IS NOT ENTITLED FOR EXEMPTION U/S.11 OF THE ACT. THE ASSES SEE 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 TH E FIELD OF CAPITAL RECEIPT, GRAMA VIDIYAL TRUST :- 26 - : CAPITAL RECEIPT WOULD NOT BE LIABLE FOR THE EXEMPTI ON 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 G ROUND OF REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 16. REGARDING CROSS OBJECTIONS, THE ARGUMENT OF LD .A.R IS THAT THE INCOME GENERATED FROM BUSINESS ACTIVITIES WAS APPLI ED 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 MISCONCE IVED. 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. 17. IN THE RESULT, APPEAL OF REVENUE IN 345/2013 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND CROSS OBJECTION BY ASSESSE E IS DISMISSED. 18. ITA NO.1437/MDS/2014 & ITA NO.392/MDS./2015 (A.Y 20 10-11 & 2011-12) : IN THESE ASSESSMENT YEARS UNDER CONSIDERATION, ASSE SSEE CARRIED ON MICRO INSURANCE BUSINESS IN ADDITION TO MICRO FINAN CE BUSINESS. IN VIEW OF OUR FINDINGS IN ITA NO.345/MDS./2013 IN PARA NO S.8 TO 9, WE ARE OF THE OPINION THAT THE ASSESSEE IS NOT ENTITLED FOR E XEMPTION U/S.11 OF THE ACT. ACCORDINGLY, THIS GROUND OF THE REVENUE IN BOT H THE APPEALS IS ALLOWED. GRAMA VIDIYAL TRUST :- 27 - : 18.1 THE NEXT GROUND IS RELATING TO RECEIPT OF COR PUS DONATION OF ` 3.7 CRORES IN THE ASSESSMENT YEAR 2011-12. THIS ISSUE I S REMITTED TO THE FILE OF AO WITHR SIMILAR DIRECTION GIVEN IN PARA NO.15 I N ITA NO.345/MDS./2013 FOR ASSESSMENT YEAR 2009-10. 18.2 THE OTHER GROUND IS WITH REGARD TO ALLOWAB ILITY 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 IT A NO.345/MDS./2013 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES, & CROSS OBJECTION BY THE ASSESSEE IS DISMISSED, AND THE APP EAL 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 STATI STICAL PURPOSES. ORDER PRONOUNCED ON 30 TH JUNE, 2016, AT CHENNAI. SD/ - SD/ - ( . ) ( G.PAVAN KUMAR ) ! / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER / CHENNAI !' / DATED: 30 TH JUNE, 2016 K S SUNDARAM #!$%%&' (% )( / COPY TO: % 1 . / APPELLANT 3. #%# *%+ , / CIT(A) 5. (-.%&&/0 / DR 2. / RESPONDENT 4. #%# * / CIT 6. .12%3 / GF