HUMANA PEOPLE TO PEOPLE INDIA,DELHI V. DCIT,CIRCLE EXEMPT 1(1), DELHI

ITA 5506/DEL/2024

AI Insights

The case involves Humana People to People India, a not-for-profit organization, appealing against the orders of the AO and CIT(A) which denied them tax exemption on income generated from micro-finance activities and treated specified grants as income. The organization argued that their micro-finance activities, which provide credit to rural poor women, are charitable in nature and should not be taxed. The tribunal examined the nature of these activities, the legal framework under Section 11 of the Income Tax Act, and relevant judicial precedents. The tribunal concluded that the activities are indeed charitable and the specified grants are not to be considered as taxable income.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 775363 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Appeal Filed On: 28-11-2024
• Other Referred Cases: DIT vs. Society for Development Alternatives, Navodaya Grama Vikas Charitable Trust vs. DCIT, Janodaya Trust v ACIT (Exemptions), ITO (Exemptions) vs. Adhikar, Bhubaneshwar, Spandana vs. ACIT, CIT vs. M/s. Spandana, ACIT (E) vs Bharatha Swamukhi Samsthe, Disha India vs. ITA No. 265/CTK/2017
• Laws Referred To: Income Tax Act, 1961, Companies Act, 1956
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAILASH DAN RATNOO
• Assessee Lawyers: S KVSR KRISHNA; AMAN GOEL
• Keywords: Set aside; Charitable institution; Maximum Marginal Rate
• Section: 143(3); 142(1); 11; 12A; 12

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘B’ NEW DELHI BEFORE SHRI S RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SHRI VIMAL KUMAR, JUDICIAL MEMBER ITA No. 5506/Del/2024 Assessment Year: 2017-18 Humana People to People India, 111/9z, Kishangarh Village, Vasant Kunj, South West Delhi, Delhi-1100 70 Vs. DCIT, Circle Exempt 1(1), Delhi PIN: 1100 02 PAN :AAACH9111L (Appellant) (Respondent) ORDER PER VIMAL KUMAR, JUDICIAL MEMBER: The appeal filed by the assessee is against order dated 30.09.2024 of Learned Commissioner of Income Tax (Appeals)/National Faceless Assessment Centre (NFAC), Delhi (hereinafter referred as “the Ld. CIT(A)”) under Section 250 of the Income Tax Act, 1961 (hereinafter referred as “the Act”) arising out of Assessment Order dated 29.12.2019 of the Learned Assessing Appellant by S/Shri KVSR Krishna & Aman Goel, CAs. Respondent by Shri Kailash Dan Ratnoo, CIT (DR) Date of hearing 27.08.2025 Date of pronouncement 12.09.2025 Printed from counselvise.com 2 ITA No.5506/Del.2024 Officer/Learned Deputy Commissioner of Income, Circle Exempt 1(1), Delhi (hereinafter referred as “the Ld. AO”) under Sections 143(3) of the Act for assessment year 2017-18. 2. Brief facts of the case are that the assessee filed its return of income on 30.10.2017 disclosing nil income. The case was selected for scrutiny. Notice under Section 143(2) of the Act was issued on 18.09.2018. Notices under Section 142(1) along with questionnaire was issued to the assessed. The assessee filed details. After considering objects and activities of the assessee, it was observed that the assessee is in receipt of commission income, processing fee, interest income and the income from Micro Finance activity which is exceeding 20% of the total receipts. Vide notice dated 12.12.2019, the assessee was asked to provide calculation of the interest income and commission income charged on amount of loan and to justify the proviso to section 2(15) of the Act should not be applied. Reply of Assessee was received on 14.12.2019. On completion of proceedings, Ld. AO vide order dated 29.12.2019 assessed income of assessee at Rs.5,43,53,108/-. 3. Against order dated 29.12.2019 of the Ld. AO, the appellant/assessee preferred appeal before the Ld. CIT(A) which was dismissed vide order dated 30.09.2024. 4. Being aggrieved, appellant/assessee preferred present appeal. Printed from counselvise.com 3 ITA No.5506/Del.2024 5. Learned Authorized Representative for the appellant/assessee submitted that it is registered as a not-for-profit company u/s 25 of the Companies Act, 1956 since 21st May, 1998. It is also registered under the Provisions of section 12A of the Act. During the year 2016-17, various activities carried by the assessee are stated in the Annual Report filed in the paper book from pages 73 to 99. The activities of education, relief to the poor, medical relief and environment. Micro-finance activity is one of the Community Development Initiative coming under livelihood programme which is one of many initiatives. The Micro-finance activity started in 2007 with the objects to provide micro credit /finance to rural poor women in India. In all the earlier years the assessments have been completed accepting micro-finance as part of the 'charitable activities' of the assessee. The project of microfinancing in the earlier years was carried on by the assessee from its own resources of grants / donations made available by the donors /grantors. However, over a period of time since the out reach and the requirements grew and the policy of the RBI to extend micro- credit facilities to NGOs vide their many circulars enclosed in the paper book allowed NGOs with rural outreach to participate in the micro-credit eco-system. Since HPPI had the experience, the requisite team and the branches at the grass root level, it accepted to act as a bridge between the banks and the beneficiaries for the micro-credit lending activity as well as to act as business correspondent Printed from counselvise.com 4 ITA No.5506/Del.2024 (term coined RBI vide Circular No. DBOD.No.BL.BC.43/22.01.009/2010-11 dated 28th Sept. 2010. Paper-book page 132.to 138. 5.1 RBI vide Circular No.RPCD.CO.PLAN.BC.66/04.09.01/2010-11 DATED 3RD MAY, 2011 has allowed interest rates of 26% on reducing balance basis (effectively comes to 14%) and with a spread of 12% to recover for the costs of manpower, interest on loans taken and establishment charges. Similarly, the RBI allows banks to engage NGO as a business correspondent for follow-up and recovery of their micro-credit portfolio. The assessee receives commission income @35% of the interest recovery made for the bank i.e. affectively assessee receives 9% as commission which is for meeting the cost of manpower cost, establishment cost and non-recovery cost. The micro-credit facilities are focused to improving livelihood, mainly to empower women who are organized as self-help group or joint liability groups. The loan size varies from 15000 to 25000 and is typically used for improving agricultural / diary product, petty shops, vegetable vendors etc. Thus, the micro-credit activity is subservient to its main objective of providing livelihood to the marginalized and rural poor. The income thus generated is incidental to the main object of relief to the poor. Without prejudice to the above, even if the activity of micro-credit is considered as falling under any other object of general public utility there is no element of business, trade or commerce or any services in relation to business, trade or commerce. The ingredients of business, trade or commerce are missing. Printed from counselvise.com 5 ITA No.5506/Del.2024 The AO was swayed by the interest rate of 26%. whereas, as explained to the AO, it is the model of micro-financing which is easier to understand, with less documentation, the repayments in installments are convenient and works on the concept of pay as you earn. Please see the CIT(A) letter dated 15.04.2024 where the assessee has explained with example. [P.B page 1 to 19]. The A.O. has erred in considering the specified grants received both foreign as well as non-foreign as the income of the assessee. It is the contention of the appellant that the specified grants by the donors are a liability in so far as the assessee is only a trustee. The assessee is mandated by the grantor to apply for specific activities. It is not available to the assessee as any other voluntary contribution or donation. The assessee is not free to use for any purpose. The assessee has to give an account for the utilization of the grant given for specified purposes. Neither the grant amount received nor the expenditure against the utilization of the grant can be considered while computing the income of the assessee. 5.2 This issue is settled in favour of the assessee by the jurisdictional Delhi High Court decision in the case of DIT vs. Society for Development Alternatives in ITA No.12/2012 and 18/2012 vide order dated 13.01.2012 [Paper book pages 145 to 149]. 5.3 Reliance was placed by the Learned Authorized Representative on following decisions in favour of his case and prayed that micro finance activities are charitable in nature and eligible for section 11 of the Act: Printed from counselvise.com 6 ITA No.5506/Del.2024 1. Navodaya Grama Vikas Charitable Trust vs. DCIT – ITA No.172/Bang/2022 A.Y. 2017-18 vide order dated 31st August 2023; 2. Hon'ble ITAT Bangalore in M/s. Janodaya Trust v ACIT (Exemptions); ITA No. 763/Bang./2016 - which held charging to commercial rate of interest (14%) cannot make the activity commercial. Copy Enclosed. 3. Hon'ble ITAT, Cuttack Bench in the case of ITO (Exemptions), Bhubaneshwar v. Adhikar, Bhubaneshwar; ITA No. 265/CTK/2017 order dated 24.09.2018 which held that act of micro financing by an institution to self-help poor people amounts to providing relief to the poor. 4. Visakhapatnam Bench of the Tribunal in the case of Spandana (Rural & Urban Development Organisation) vs. ACIT page 28 reported in (2010) 40 DTR 153 has dealt with this issue. 5. The Hon’ble Andhra Pradesh High Court affirmed the case of CIT vs. M/s. Spandana (Rural & Urban Development Organization) in ITANo.304/2013 dated 10.07.2013 and has observed as under: 6. Bangalore Bench of the Tribunal in the case of ACIT (E) vs Bharatha Swamukhi Samsthe reported in 28 DTR 113 (Bangalore) 7. Delhi Bench of the ITAT in the case of Disha India ITA No. 265/CTK/2017 Assessment Year: 2009-10-Hon'ble ITAT. 6. Learned Authorized Representative for the Revenue relied on orders of Departmental Authorities. 7. From examination of record in light of aforesaid rival contentions, it is crystal clear that appellant/assessee is registered as a not for profit company under Section 25 of the Companies Act. The appellant/assessee is also registered under the provisions of section 12A of the Act. Annual Report for the year Printed from counselvise.com 7 ITA No.5506/Del.2024 2016-17 at pages 73 to 99 of the paper book gives details of activities of education, relief to poor, medical relief, environment and micro financing. The Micro-finance activity started in 2007 with the objects to provide micro credit /finance to rural poor women in India. In all the earlier years the assessments have been completed accepting micro-finance as part of the 'charitable activities' of the assessee. The project of microfinancing in the earlier years was carried on by the assessee from its own resources of grants / donations made available by the donors /grantors. 7.1 Ld. CIT(A) in para nos. 6.5 and 6.6 noted as under: \" 6.5 The allegation of the AO at page 8 up to page 11 can be summarized as below: i) Assessee is involved in micro-finance on commercial lines charging interest @ 26% per annum on reducing balance method. ii) The assessee is earning commission income by acting as business correspondent which varies from 38% to 43% on the amount of interest charged by bank from the beneficiary i.e. 26% and 50% of the processing iii) There is no element of relief to the poor, big micro-finance organizations acting on similar lines re-listed on stock-exchange as business entities. As such the assessee does not appear to be engaged in 'charitable activity'. iv) The AO places reliance on Circular No. 11/2008 dated 19/12/2008 for application of Proviso to section 2(15). v) AO relied on certain cases for coming to the conclusion that micro- finance activities which are carried on by the assessee are not charitable activity. 6.6 Thus, the assessing officers stand in denying tax exemption u/s 11 and 12 is upheld. The income is computed treating the taxpayer as an AOP. While computing the said income he has not only included income as per Income & Expenditure account but also treated the specified grants appearing in the Balance Sheet of the appellant aggregating to Rs. Printed from counselvise.com 8 ITA No.5506/Del.2024 31,71,39,409/- as part of income. Consequently, taxable income of Rs. 5,43,53,108/-has been determined by the AO and tax levied on MMR interest u/s 234. It is hereby pointed out that Specified grants are treated as income. There is no proof of filing any letter proposing how to apply this income. There is no proposal for utilizing/application of income in the future years also. There is no proof of investment in specified instruments u/s 11(5) either. The entire amount of Rs. 317139409 is brought to tax and the income at Rs.54353108 is taxed at 30% at MMR. This should be reduced to 15%.” 8. Hon'ble High Court of Delhi in ITA No.12/2012-18/2002 dated 31.01.2012 titled as “Director of Income Tax v. Society of Alternative” decided on 31.10.2012 has held that specified grants are not voluntary contribution as the assessee is not free to use the money as per its Will and neither have to rendered the accounts of the same to the donor nor the same is monitored by the donor. 9. Hon’ble Andhra Pradesh High Court affirmed the case of CIT vs. M/s. Spandana (Rural & Urban Development Organization) in ITANo.304/2013 dated 10.07.2013 and observed as under: Page 32 \"The learned Tribunal has concluded on fact that the 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 leamed Tribunal has also relied upon the judgment of the Bangalore Bench of the Tribunal on identical fact that the micro financing to the poor people is a charitable activity. Under such circumstances, the assessee was granted exemption u/s. 11 of the Income Tax Act, the Learned Tribunal further found that in order to achieve the main purpose of the charitable activity, the assessee has joined hands in some other financial organizations and banks. Such steps to collect money for micro financing does not defeat the real object in order to deprive of the exemption. We do not find any infirmity in the Printed from counselvise.com 9 ITA No.5506/Del.2024 order of the learned Tribunal, which is based on fact finding and such facts attract the provision of exemption.\" 10. In view of above material facts especially activities of education, relief to poor, medical relief, environment and micro financing in community development initiative by following above judicial precedents, it is held that impugned action of Ld. AO and Ld. CIT(A) has led to miscarriage of justice. Therefore, Grounds of Appeal nos. 1 to 7 are allowed. Both the impugned orders dated 30.09.2024 of Ld. CIT(A) and dated 29.12.2019 of Ld. AO are set aside. 11. In the result, the appeal of assessee is allowed. Order pronounced in the open court on 12th September, 2025. Sd/- Sd/- (S RIFAUR RAHMAN) ACCOUNTANT MEMBER (VIMAL KUMAR) JUDICIAL MEMBER Dated: 12th September, 2025. Mohan Lal Copy forwarded to: 1. Applicant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi Printed from counselvise.com "