ITO, Vellore V. M/s. Sarvodaya Mutual Benefit Trust, Polur

ITA 1104/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0818 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 05-02-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 18-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M RETHINASWAMY IRS
• Assessee Lawyers: K VENKATESH PRABHU
• Keywords: Maximum Marginal Rate
• Section: 143(3); 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NOS.1100 & 1098(MDS)/2012 ASSESSMENT YEARS : 2007-08 & 2008-09 THE INCOME-TAX OFFICER, WARD I(1), VELLORE. VS. M/S.SARVODAYA MUTUAL BENEFIT TRUST, RETTAIVADAI ST. VELLAMALAI, ANAKKAVUR, UKKAL POST, CHEYYAR TK. PAN AADTS6149M. (APPELLANT) (RESPONDENT) ITA NO.1101(MDS)/2012 ASSESSMENT YEAR : 2007-08 THE INCOME-TAX OFFICER, M/S.SARV ODAYA MUTUAL WARD I(4), VS. BE NEFIT TRUST, KILPENNATHUR, VELLORE. THIRUVANNAMALAI. PAN AAGTS5072E. (APPELLANT) (RESPONDENT) ITA NO.1102(MDS)/ 2012 ASSESSMENT YEAR : 2 007-08 THE INCOME-TAX OFFICER, M/S.SARV ODAYA MUTUAL WARD I(4), VS. B ENEFIT TRUST, MAMANDUR, VELLORE. CHEYYAR TK. PAN AADTS5991D. (APPELLANT) (RESPONDENT) - - ITA1100 TO 1104 & 1098 OF 2012 2 ITA NO.1103(MDS)/20 12 ASSESSMENT YEAR : 2008 -09 THE INCOME-TAX OFFICER, M/S.SA RVODAYA MUTUAL WARD I(4), VS. BENEFIT TRUST, 17-KASIKARA VELLORE. ST., CHEYYAR-604 407. PAN AAGTS5075D. (APPELLANT) (RESPONDENT) AN D ITA NO.1104(MDS)/2012 ASSESSMENT YEAR 2008-09 THE INCOME-TAX OFFICER, M/S.SA RVODAYA MUTUAL WARD I(4), VS. BENEFIT TRUST, SANTHAVASAL, VELLORE. POLUR TK. PAN AAETS2747L. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.RETHINASWAMY, IRS, CIT RESPONDENTS BY : SHRI K.VENKATESH PRABHU, C A. DATE OF HEARING : 5 TH FEBRUARY, 2013 DATE OF PRONOUNCEMENT : 5 TH FEBRUARY, 2013 O R D E R PER DR.O.K.NARAYANAN, VICE PRESIDENT THIS IS A BUNCH OF SIX APPEALS. THREE APPEALS RE LATE TO THE ASSESSMENT YEAR 2007-08. THE REMAINING THREE A PPEALS RELATE TO THE ASSESSMENT YEAR 2008-09. ALL THE APP EALS ARE FILED BY THE REVENUE. THE RESPONDENTS ARE TRUSTS CONSTIT UTED AT - - ITA1100 TO 1104 & 1098 OF 2012 3 DIFFERENT PLACES UNDER A COMMON NAME SARVODAYA MUT UAL BENEFIT TRUST (SMBT FOR SHORT). IN THE CASE OF SM BT AT ANAKAVOOR THE REVENUE HAS FILED TWO APPEALS FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09. IN THE CASES OF SMBT AT KILPENNATHUR AND MAMANDUR (VEMBAKKAM) THE REVENU E HAS FILED ONE APPEAL IN EACH CASE FOR THE ASSESSMENT YE AR 2007-08. IN THE CASES OF SMBT AT CHEYYAR AND SANTHAVASAL, TH E REVENUE HAS FILED ONE APPEAL IN EACH CASE, RELATING TO THE ASSESSMENT YEAR 2008-09. 2. ALL THE APPEALS ARE DIRECTED AGAINST THE ORDERS PASSED BY THE COMMISSIONER OF INCOME-TAX(APPEALS)-I X AT CHENNAI ON 29-2-2012. THE APPEALS ARISE OUT OF THE ASSESSMENTS COMPLETED UNDER SECTION 143(3) OF THE I NCOME-TAX ACT, 1961. 3. THE ASSESSEE IS A PROMINENT NGO WORKING AMONG THE RURAL FOLK IN DIFFERENT PARTS OF INDIA, WITH TH E AIM OF RAISING THE LIVING STANDARD OF POOR VILLAGERS, ESPECIALLY SCHED ULED CASTS, TRIBES AND OTHER BACKWARD COMMUNITIES. THE ASSESSE E TRUSTS ARE REGISTERED, IN THESE CASES IN TAMIL NADU, TO MA NAGE SELF- HELP-GROUPS (SHGS FOR SHORT). THESE SHGS ARE GROUP OF - - ITA1100 TO 1104 & 1098 OF 2012 4 VILLAGERS AND THEIR FAMILIES NUMBERING AROUND TEN T O FIFTEEN AND THEY UNDERTAKE A PARTICULAR PROGRAMME OF GENERATING INCOME FOR THE BENEFIT OF THE MEMBERS OF THAT SHG. THE ASSESS EE TRUST SMBT IS LEADING AND MANAGING ABOUT TEN TO TWENTY SH GS IN THEIR ACTIVITIES. THE ASSESSEES SMBT, AROUND TWENT Y TO THIRTY IN NUMBERS, WORKING IN TAMIL NADU, ARE UNDER THE COMMO N UMBRELLA OF M/S.SARVODAYA NANO BANKING FINANCE COMP ANY LIMITED (SNBFCL FOR SHORT). SNBFCL IS APPROVED BY THE RESERVE BANK OF INDIA FOR CARRYING OUT THE ACTIVITI ES OF MICRO FINANCING. SNBFCL OBTAINS LOANS FROM STATUTORY COR PORATIONS LIKE SIDBI AND NATIONALIZED BANKS. SNBFCL OBTAINS LOANS FROM THE ABOVE STATED SOURCES AND DISTRIBUTES TO DIFFERE NT SMBTS, LIKE THE ASSESSEES. THE ASSESSEE SMBTS, IN TURN, LEND T HE MONEY TO DIFFERENT SHGS UNDER THEM. SNBFCL IS CHARGING IN TEREST AT THE RATE OF 12 PER CENT ON THE NET BALANCE METHOD F OR THE AMOUNT ADVANCED BY IT TO DIFFERENT SMBTS, LIKE THE ASSESSE ES. SMBTS LIKE THE ASSESSEES, IN TURN, ADVANCE THESE LOANS TO THEIR SHGS AT A FLAT RATE OF 12 PER CENT. AT THE LAST POINT OF S HGS, IT IS FOR THE GROUP TO DECIDE THE INTEREST RATE CHARGEABLE ON THE INDIVIDUAL MEMBERS OF THAT SHG. THE ASSESSEE SMBTS ARE GETTIN G FUNDS - - ITA1100 TO 1104 & 1098 OF 2012 5 FROM SNBFCL AT 12 PER CENT RATE ON NET BALANCE, WHE REAS THEY ARE ADVANCING AMOUNTS TO SGHS AT A FLAT RATE OF 12 PER CENT. THIS DIFFERENTIAL METHOD GENERATES SURPLUS INCOME I N THE HANDS OF SMBTS LIKE THE ASSESSEES IN THE PRESENT APPEALS. THE BY- LAWS OF ASSESSEE TRUSTS PROVIDE THAT 95 PER CENT OF SUCH SURPLUS WILL BE DISTRIBUTED AMONG THE MEMBERS OF SHGS WORKI NG UNDER THEM AND 5 PER CENT OF THE SURPLUS IS TO BE RETAINE D BY THE ASSESSEE-TRUSTS FOR THEIR OWN MAINTENANCE AND OTHER ADMINISTRATIVE OVERHEADS. 4. THESE SMBTS ARE OPERATING IN THE ABOVE-STATED OPERATIONAL MODEL IN HELPING THE VILLAGERS. 5. ALL THESE INSTITUTIONS MENTIONED ABOVE ARE THE FIELD ORGANIZATIONS OF AN ALL INDIA NATIONAL APEX BODY CA LLED ASSOCIATION OF SARVA SEVA FARMS (ASSEFA FOR SHORT ). ASSEFA IS A NATIONAL LEVEL TRUST FORMED FOR THE UPL IFTMENT OF POOR VILLAGERS WHO HAD RECEIVED IN THE PAST, PARCELS OF LAND DISTRIBUTED BY BOODHAN MOVEMENT INITIATED BY ACHARYA VINOBA BAV E. THE BOODHAN MOVEMENT HAD COLLECTED GOOD EXTENT OF LAND IN DIFFERENT PARTS OF INDIA. THOSE LANDS WERE ALLOTTE D TO LANDLESS POOR VILLAGERS. BUT, THE VILLAGERS WERE NOT IN A P OSITION TO RAISE - - ITA1100 TO 1104 & 1098 OF 2012 6 RESOURCES TO CARRY ON AGRICULTURAL AND OTHER RELATE D ACTIVITIES IN THE LAND ALLOTTED TO THEM. IT CREATED A SITUATION THAT INSPITE OF LAND ALLOTTED TO THEM, THE POOR PEOPLE WERE NOT IN A POSITION TO MAKE A LIVELIHOOD OUT OF THE LAND. ASSEFA WAS FORM ED IN THE ABOVE CONTEXT. THEY MADE OUT A PROGRAMME FOR THE S USTAINABLE GROWTH OF BOODHAN LAND ALLOTTEES. ON THE SECURITY OF THE BOODHAN LAND, ASSEFA WILL ARRANGE FUNDS FROM NATION ALIZED BANKS FOR DISTRIBUTING AMONG THE BOODHAN LAND ALLOT TEES, SO THAT THEY CAN INDULGE IN DIFFERENT ACTIVITIES INCLUDING AGRICULTURAL, FOR CREATING AN ENVIRONMENT OF SUSTAINABLE GROWTH. ASS EFA IS A NATIONAL NODAL AGENCY ENGAGED IN THE UPLIFTMENT OF RURAL PEOPLE THROUGH PROGRAMMES DESIGNED FOR SUSTAINABLE DEVELOP MENT. IN THAT WAY, THE NATIONAL APEX BODY ASSF IS A CHARITAB LE INSTITUTION BY THE NATURE OF THE WORK CARRIED ON BY IT. NEEDLE SS TO SAY, IT IS A NON- PROFIT ORGANIZATION. 6. IT IS UNDER THE OVERALL GUIDANCE AND POLICY FORMULATION OF ASSEFA THAT FIELD ORGANIZATIONS LIKE SNBFCL, THE ASSESSEE-TRUSTS AND INDIVIDUAL SHGS ARE WORKING. S HGS ARE WORKING AT GRASSROOT LEVEL IN VILLAGES. THE ASSESS EE-TRUSTS ARRANGE FINANCE TO THESE GRASSROOT LEVEL SHGS BY AV AILING FUNDS - - ITA1100 TO 1104 & 1098 OF 2012 7 FROM SNBFCL. AS ALREADY STATED, SNBFCL ARRANGES TH E FINANCE FROM STATUTORY INSTITUTIONS AND NATIONALIZED BANKS. 7. THE ISSUES INVOLVED IN ALL THESE APPEALS, WHICH ARE COMMON, ARISE OUT OF THE SCENARIO OF ACTIVITIES EXP LAINED IN THE ABOVE PARAGRAPHS. 8. AS ALREADY STATED, BECAUSE OF THE DIFFERENTIAL PLANS OF CHARGING OF INTEREST, THE ASSESSEE TRUSTS ARE GE NERATING SURPLUS IN THEIR HANDS. THEY ARE DISTRIBUTING 95 PE R CENT OF THE SURPLUS TO MEMBER SHGS, AS MANDATED BY THE BY-LAWS OF THE ASSESSEE-TRUSTS, AND THEY RETAIN 5 PER CENT OF THE SURPLUS. 9. IN THE COURSE OF THE ASSESSMENTS OF THESE ASSESSEE-TRUSTS, THE ASSESSING OFFICER HELD THAT TH E ASSESSEE TRUSTS ARE IN THE STATUS OF ASSOCIATION OF PERSONS (AOP FOR SHORT) AND THEY ARE LIABLE FOR TAXATION ON THE SURPLUS INC OME AT THE MAXIMUM MARGINAL RATE. THE REASON POINTED OUT BY T HE ASSESSING OFFICER IS THAT THE DISTRIBUTION OF 95 PE R CENT MADE BY THE ASSESSEE TRUSTS TO MEMBER SHGS IS NOT DETERMINA TE WITH REFERENCE TO INDIVIDUAL RECIPIENTS. IN OTHER WORDS , THE DISTRIBUTION OF 95 PER CENT OF SURPLUS IS INDETERMINATE. THEREF ORE, HE HELD THAT 95 PER CENT OF SURPLUS DISTRIBUTED BY THE ASSE SSEE TRUSTS TO - - ITA1100 TO 1104 & 1098 OF 2012 8 THEIR MEMBER SHGS HAS TO BE TREATED AS INCOME OF TH E RESPECTIVE TRUSTS. IT IS TO BE SEEN THAT THE ASSES SEE TRUSTS HAVE ALREADY OFFERED FOR TAXATION 5 PER CENT OF THE SURP LUS RETAINED BY THEM. THE DISPUTE IS ONLY WITH REFERENCE TO 95 PER CENT OF THE SURPLUS DISTRIBUTED TO MEMBER SHGS. 10. ANOTHER ISSUE POINTED OUT BY THE ASSESSING OFF ICER IN THE COURSE OF ASSESSMENTS IS THAT THE ASSESSEE T RUSTS ARE PAYING INTEREST TO SNBFCL WITHOUT DEDUCTING TAX AT SOURCE. THE ASSESSING OFFICER HELD THAT THE ASSESSEES ARE BOUND TO DEDUCT TAX AT SOURCE UNDER SECTION 194A OF THE INCOME-TAX ACT, 1961. BUT, TAX WAS NOT DEDUCTED. THE ASSESSING OFFICER, THEREFORE, HELD THAT SECTION 40(A)(IA) IS ATTRACTED. ACCORDIN GLY, HE DISALLOWED THE PAYMENTS OF INTEREST MADE BY THE ASS ESSEE TRUSTS TO SNBFCL AND TREATED THOSE DISALLOWANCES AS INCOME IN THE HANDS OF THE ASSESSEE TRUSTS. 11. WHEN THESE TWO ISSUES WERE TAKEN IN FIRST APPE ALS BEFORE THE COMMISSIONER OF INCOME-TAX(APPEALS), HE FOUND THAT ONLY 5 PER CENT OF THE SURPLUS RETAINED BY THE ASSE SSEE TRUSTS ARE LIABLE FOR TAXATION. AFTER EXAMINING THE ORGANIZAT IONAL MODEL OF ASSESSEE-TRUSTS, SNBFCL AND SHGS, THE COMMISSIONER OF - - ITA1100 TO 1104 & 1098 OF 2012 9 INCOME-TAX(APPEALS) CAME TO A FINDING THAT THE ASSE SSEES ARE NOT ASSOCIATION OF PERSONS, AS HELD BY THE ASSESSIN G OFFICER, BUT THEY ARE ALL MUTUAL CONCERNS. ALL THE ACTIVITIES A RE MEANT FOR THE BENEFIT OF THE MEMBERS OF SHGS AND, THEREFORE, THES E ARE ALL CLEAR CASES OF MUTUALITY. AS 95 PER CENT OF THE SU RPLUS IS DISTRIBUTED BY THE ASSESSEE-TRUSTS TO MEMBER SHGS, THAT DISTRIBUTION IS ABSORBED BY THE PRINCIPLES OF MUTUA LITY AND, THEREFORE, SUCH DISTRIBUTED INCOME CANNOT BE TREATE D AS TAXABLE. HE ACCORDINGLY DELETED THE ADDITION MADE BY THE ASS ESSING AUTHORITY, TREATING 95 PER CENT OF THE SURPLUS DIST RIBUTED TO MEMBER SHGS AS INCOME OF ASSESSEE-TRUSTS. THE COMMISSIONER OF INCOME-TAX(APPEALS) ANYHOW CONFIRME D THE TAXING OF 5 PER CENT OF SURPLUS RETAINED BY THE ASS ESSEE TRUSTS. 12. REGARDING DEDUCTION OF TAX AT SOURCE AND APPLICATION OF SECTION 40(A)(IA), THE COMMISSIONER OF INCOME- TAX(APPEALS) HELD THAT INTEREST EXPENSES IN THE HAN DS OF THE ASSESSEE TRUSTS ARE DEDUCTIBLE UNDER SECTION 28 ITS ELF AND, THEREFORE, SECTION 40(A)(IA) DOES NOT APPLY, AS THA T SECTION COVERS ONLY THE EXPENSES CLAIMED BY AN ASSESSEE UNDER SECT IONS 30 TO - - ITA1100 TO 1104 & 1098 OF 2012 10 38. HE ACCORDINGLY DELETED THOSE DISALLOWANCES MAD E BY THE ASSESSING AUTHORITY UNDER SECTION 40(A)(IA) OF THE ACT. 13. THESE TWO MODIFICATIONS GRANTED BY THE COMMISSIONER OF INCOME-TAX(APPEALS), STATED IN THE ABOVE PARAGRAPHS, ARE THE TWO ISSUES RAISED BY THE REVENU E IN ALL THESE APPEALS PRESENTED BEFORE US. THE FIRST ISSUE IS WHETHER 95 PER CENT OF THE SURPLUS DISTRIBUTED BY THE ASSESSEE TRUSTS TO SHGS IS TAXABLE OR NOT. THE SECOND ISSUE IS WHETHE R THE ASSESSEE TRUSTS ARE BOUND TO DEDUCT TAX AT SOURCE W HILE MAKING PAYMENTS OF INTEREST TO SNBFCL. 14. THE CIRCUMSTANCES OF ALL THESE CASES ARE SIMIL AR AND THE ISSUES ARE COMMON. THEREFORE, THE GROUNDS RAISED BY THE REVENUE IN ALL THESE APPEALS ARE EXACTLY SIMILA R. 15. SHRI M.RETHINASWAMY, THE LEARNED COMMISSIONER OF INCOME-TAX APPEARING FOR THE REVENUE, ARGUED THE CA SE AT LENGTH. THE LEARNED COMMISSIONER OF INCOME-TAX CON TENDED THAT WHEN THE DISTRIBUTION OF 95 PER CENT OF THE SURPLUS TO SHGS ARE INDETERMINATE, THERE CANNOT BE A CASE OF MUTUALITY PERSISTING BETWEEN THE MEMBERS OF SHGS AND AS SUCH THE COMMISS IONER OF INCOME-TAX(APPEALS) HAS ERRED IN HOLDING THAT AL L THESE - - ITA1100 TO 1104 & 1098 OF 2012 11 ASSESSEE TRUSTS ARE MUTUAL ORGANIZATIONS. REGARDIN G DEDUCTION OF TAX AT SOURCE, THE LEARNED COMMISSIONER OF INCOM E-TAX EXPLAINED THAT ONLY INDIVIDUALS AND HINDU UNDIVIDED FAMILIES ARE EXEMPTED FROM DEDUCTING TAX AT SOURCE WHILE MAKING PAYMENTS OF INTEREST, SUBJECT TO CERTAIN CONDITIONS, AND THE ASSESSEES, BEING IN THE STATUS OF AOPS, ARE LIABLE FOR MAKING TDS UNDER SECTION 194A. HE ARGUED THAT THE FINDING OF THE CO MMISSIONER OF INCOME-TAX(APPEALS) THAT THE INTEREST EXPENDITURE I S DEDUCTIBLE UNDER SECTION 28 ITSELF IS AGAINST THE SCHEME OF TH E ACT. THE LEARNED COMMISSIONER OF INCOME-TAX EXPLAINED THAT S ECTION 36(1)(III) SPECIFICALLY PROVIDES FOR DEDUCTING INTE REST PAYMENTS IN COMPUTING THE BUSINESS PROFITS FOR THE PURPOSE OF S ECTION 28 AND, THEREFORE, THE ISSUE OF INTEREST PAYMENT IS TO BE C ONSIDERED UNDER SECTION 36(1)(III) ITSELF. SECTION 40(A)(IA) COVERS THOSE EXPENSES PROVIDED UNDER SECTIONS 30 TO 38 AND, THER EFORE, OBVIOUSLY SECTION 40(A)(IA) APPLIES TO SECTION 36(1 )(III) AS WELL. THEREFORE, THE LEGAL PROPOSITION MADE OUT BY THE CO MMISSIONER OF INCOME-TAX(APPEALS) IS NOT SUSTAINABLE IN LAW. ACCORDINGLY, THE LEARNED COMMISSIONER OF INCOME-TAX CONTENDED TH AT THE - - ITA1100 TO 1104 & 1098 OF 2012 12 ORDERS OF THE COMMISSIONER OF INCOME-TAX(APPEALS) I N THESE CASES MAY BE SET ASIDE ON THESE TWO ISSUES. 16. SHRI K.VENKATESH PRABHU, CHARTERED ACCOUNTANT, WHO APPEARED FOR THE ASSESSEES, RELIED ON THE ORDER S PASSED BY THE COMMISSIONER OF INCOME-TAX(APPEALS) AND ON THOS E CASE LAWS REFERRED TO BY THE COMMISSIONER OF INCOME-TAX( APPEALS) IN HIS ORDERS. 17. FIRST WE WILL CONSIDER THE QUESTION OF TREATIN G 95 PER CENT OF THE SURPLUS DISTRIBUTED TO THE MEMBER SHGS, AS INCOME LIABLE FOR TAXATION OR NOT. 18. WE HAVE BROADLY STATED THE ORGANIZATIONAL MODE L OF THE ASSESSEE TRUSTS WORKING UNDER THE GUIDANCE OF A NATIONAL APEX NGO. ON THE GRASSROOTS LEVEL, SHGS ARE WORKIN G, FOR WHOM THE ASSESSEE TRUSTS ARE ARRANGING FUNDS AVAILE D FROM THE UMBRELLA ORGANIZATION SNBFCL. EVERY SHG CONTAINS T EN TO FIFTEEN MEMBERS. THE DETAILS OF EVERY MEMBER BELONG ING TO A SHG ARE AVAILABLE ON RECORD. THE DETAILS OF LOANS AVAILED BY THE VARIOUS SHGS ARE PROPERLY RECORDED AND FURTHER DIST RIBUTION OF FUNDS BY SHGS TO THEIR INDIVIDUAL MEMBERS ARE ALSO PROPERLY DOCUMENTED. IT IS ON THE BASIS OF THESE DOCUMENTAT IONS AND - - ITA1100 TO 1104 & 1098 OF 2012 13 DETAILS THAT INTEREST IS COMPUTED AND PAID OFF. TH E ASSESSEE TRUSTS ARE RETURNING BACK 95 PER CENT OF THE SURPLU S TO THE VARIOUS SHGS WORKING UNDER THEM FOR THE PURPOSE OF ULTIMATE LY DISTRIBUTING AMONG THE MEMBERS. THERE CANNOT BE A CASE, IN SUCH CIRCUMSTANCES, THAT THE SHARE OF EVERY SHG, OR THE SHARE OF EVERY INDIVIDUAL MEMBER IS INDETERMINATE. THAT IS A FINDING OF FACT ARRIVED AT BY THE ASSESSING AUTHORITY WITHOUT ANY BASIS. THE ASSESSEE TRUSTS ARE NOT DISTRIBUTING THE 95 PER CEN T OF THE SURPLUS TO A LARGE CROWD AT THEIR OWN WHIMS AND FANCY. THE ASSESSEE TRUSTS ARE DISTRIBUTING THE 95 PER CENT OF SURPLUS ON THE BASIS OF PROPER ACCOUNTS, FORMULA AND PROCEDURE. EVERY BENE FICIARY IS IDENTIFIED. THE SHARE OF EVERY BENEFICIARY IS QUAN TIFIED. THEREFORE, WE FIND THAT THE COMMISSIONER OF INCOME- TAX(APPEALS) IS JUSTIFIED IN COMING TO THE CONCLUSI ON THAT THE ASSESSEE TRUSTS AND THE SHGS ARE INTER-RELATED AND THEY ARE ALL CONCERNS GOVERNED BY THE PRINCIPLES OF MUTUALITY. THE 95 PER CENT SURPLUS DISTRIBUTED BY THE ASSESSEE TRUSTS TO THE VARIOUS SHGS WORKING UNDER THEM IS NOTHING BUT THE INCOME O F THOSE SHGS THEMSELVES. IT IS NOT SOMETHING THAT THOSE GR OUPS ARE GETTING FROM OUTSIDE BY WAY OF INCOME. IT IS THE F RUIT OF THEIR - - ITA1100 TO 1104 & 1098 OF 2012 14 EFFORTS. AFTER FINALISING THE ACCOUNTS AND COMPUTI NG THE SURPLUS, THE PROFITS ARE DIVIDED AMONG THOSE MEMBERS, WHOSE SHARES ARE DETERMINATE AND WHOSE ROLES ARE WELL DEFINED. THER EFORE, WE ENDORSE THE VIEW OF THE COMMISSIONER OF INCOME-TAX( APPEALS) THAT ALL THESE SHGS WORKING UNDER THE ASSESSEE TRUS TS ARE CONCERNS GOVERNED BY THE PRINCIPLES OF MUTUALITY AN D ACCORDINGLY THE 95 PER CENT OF SURPLUS DISTRIBUTED AMONG THEM A RE NOT IN THE NATURE OF INCOME. THE COMMISSIONER OF INCOME-TAX(A PPEALS) HAS RIGHTLY HELD THAT 95 PER CENT OF THE SURPLUS DI STRIBUTED BY THE ASSESSEE TRUSTS CANNOT BE BROUGHT TO TAX. HIS ORDE RS ON THIS POINT ARE CONFIRMED AND THE GROUNDS RAISED BY THE R EVENUE ON THIS POINT ARE REJECTED. 19. NEXT IS THE QUESTION OF TDS AND APPLICATION OF SECTION 40(A)(IA) OF THE ACT. 20. FIRST OF ALL, WE HAVE TO STATE THAT WE DO NOT AGREE WITH THE LEGAL PROPOSITION MADE BY THE COMMISSIONER OF INCOME- TAX(APPEALS) THAT INTEREST EXPENDITURE IS DIRECTLY COVERED BY SECTION 28 AND, THEREFORE, SECTION 40(A)(IA) WILL N OT APPLY FOR THE REASON THAT THE SAID SECTION APPLIES ONLY TO THOSE EXPENSES COVERED BY SECTIONS 30 TO 38. SECTION 28, PROVIDED UNDER - - ITA1100 TO 1104 & 1098 OF 2012 15 CHAPTER IV, DEALS WITH THE NATURE OF INCOME THAT WI LL BE TREATED AS PROFITS AND GAINS OF BUSINESS OR PROFESSION. SE CTION 28 DOES NOT PROVIDE ANY MECHANISM TO COMPUTE THE PROFITS AN D GAINS OF BUSINESS OR PROFESSION. IT IS AN EXPLANATORY SECTI ON WHICH DESCRIBES ON VARIOUS TYPES OF RECEIPTS OF INCOME WH ICH ARE TO BE INCLUDED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION. APART FROM THIS GENERAL DESCRIPTION, SECTION 28 DOES NOT PROVIDE FOR DEDUCTION OF ANY EXPENDITURE INCURR ED BY AN ASSESSEE IN EARNING PROFITS AND GAINS OF BUSINESS O R PROFESSION. THIS POSITION IS MADE VERY CLEAR IN SECTION 29. SE CTION 29 PROVIDES THAT THE INCOME REFERRED TO IN SECTION 28 SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINE D IN SECTIONS 30 TO 43D. WHEN SECTION 29 SPECIFICALLY P ROVIDES THAT THERE ARE DIFFERENT SECTIONS PROVIDED AFTER SECTION S 28 AND 29 FOR THE PURPOSE OF COMPUTING PROFITS AND GAINS OF BUSIN ESS OR PROFESSION, IT MEANS THAT DIFFERENT EXPENSES THAT M AY BE CLAIMED BY AN ASSESSEE SHALL BE CONSIDERED FOR DEDUCTIONS U NDER THOSE RESPECTIVE SECTIONS ARRANGED IN BETWEEN SECTIONS 30 TO 43D. SECTION 36 SPECIFICALLY PROVIDES FOR OTHER DEDUCTIO NS ALLOWABLE TO AN ASSESSEE. SECTION 36(1)(III) PROVIDES FOR DEDUC TION OF INTEREST - - ITA1100 TO 1104 & 1098 OF 2012 16 PAID BY AN ASSESSEE. SECTION 37 PROVIDES A RESIDUA RY PROVISION FOR DEDUCTING OTHER EXPENDITURE INCURRED IN CARRYIN G ON OF THE BUSINESS, BUT NOT SPECIFIED ELSEWHERE. ALL THESE T HINGS SHOW THAT LAW HAS PROVIDED A COMPREHENSIVE SYSTEM FOR DECIDIN G WHAT ARE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND HOW PROFITS AND GAINS OF BUSINESS OR PROFESSION WILL BE COMPUTED. WHEN SUCH AN EXHAUSTIVE PROVISION IS MADE IN THE ACT, IT IS NOT POSSIBLE TO HOLD THAT SECTION 28 ITSELF PROVIDES FOR EXPENDITURE AND , THEREFORE, THE ASSESSEE CAN CLAIM THE EXPENDITURE OF INTEREST PAYM ENT AS AN EXPENDITURE DEDUCTIBLE AT SOURCE ITSELF UNDER SECTI ON 28. WE DISAGREE WITH THE LEGAL PROPOSITION LAID OUT BY THE COMMISSIONER OF INCOME-TAX(APPEALS) AND HIS LEGAL CONCLUSION ON THAT POINT IS SET ASIDE. 21. NOW, COMING TO THE FACTS OF THE CASE, WE AGREE WITH THE COMMISSIONER OF INCOME-TAX(APPEALS) THAT THE AS SESSEES ARE NOT LIABLE TO DEDUCT ANY TAX ON PAYMENT OF INTE REST TO SNBFCL. THE ASSESSEES ARE AVAILING LOANS FROM SNBF CL AND PASSING OVER THE LOANS TO VARIOUS SHGS WORKING UNDE R THEM. IN FACT, THE LOAN AMOUNTS ARE NOT UTILIZED BY THE ASSE SSEE TRUSTS. THEY ARE UTILIZED BY THE SHGS WORKING UNDER THE TRU STS. THE - - ITA1100 TO 1104 & 1098 OF 2012 17 ULTIMATE PAYER OF THE INTEREST IS NOT THE ASSESSEE TRUSTS, BUT THE SHGS. THEREFORE, WE HAVE TO SEE THAT THE INTEREST BY WAY OF EXPENDITURE IS INCURRED IN THE CASES OF SHGS AND NO T IN THE HANDS OF THE ASSESSEE TRUSTS. THE ASSESSEE TRUSTS ARE FACILITATORS. THEY ARE TO BE TREATED AS REPRESENTA TIVE ASSESSEES OF THE SHGS, WHO ARE ULTIMATELY UTILIZING THE LOAN AND INCURRING INTEREST BY WAY OF EXPENDITURE. THE SHGS ARE MUTUA L CONCERNS AND ULTIMATELY THE INTEREST BURDEN IS SHARED BY THE INDIVIDUAL MEMBERS OF THE GROUP. THEREFORE, DE FACTO SPEAKING , THE EXPENDITURE BY WAY OF INTEREST IS INCURRED BY THE M EMBERS OF THE SHGS AND IN FACT THE INTERESTS ARE PAID BY THOSE ME MBERS OF SHGS TO SNBFCL. THESE INDIVIDUALS, NOT BEING LIABL E FOR AUDIT UNDER SECTION 44AB, THE PROVISIONS OF SECTION 194A ARE NOT APPLICABLE TO THEM. WHAT IS NOT APPLICABLE TO THE MEMBERS, WILL NOT APPLY TO REPRESENTATIVE ASSESSEES. IN THE PRES ENT CASE, ALL THE ASSESSEE TRUSTS ARE REPRESENTATIVE ASSESSEES OF THE MEMBERS CONSTITUTING THE SELF HELP GROUPS. 22. THEREFORE, ON FACTS, WE FIND THAT THE COMMISSI ONER OF INCOME-TAX(APPEALS) IS JUSTIFIED IN HOLDING THAT THE ASSESSEES ARE NOT BOUND BY THE LAW STATED IN SECTION 194A. T HEREFORE, - - ITA1100 TO 1104 & 1098 OF 2012 18 THERE IS NO NEED OF DEDUCTING ANY TAX AT SOURCE WHI LE MAKING THE INTEREST PAYMENTS TO SNBFCL. ACCORDINGLY, WE UPHOL D THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) IN DELET ING THE ADDITIONS MADE BY THE ASSESSING AUTHORITIES UNDER S ECTION 40(A)(IA) OF THE INCOME-TAX ACT, 1961. 23. THIS ISSUE IS ALSO DECIDED AGAINST THE REVENUE . 24. IN RESULT, THESE APPEALS FILED BY THE REVENUE ARE PARTLY ALLOWED. ORDERS PRONOUNCED IN THE OPEN COURT AT THE TIME O F HEARING ON TUESDAY, THE 5 TH OF FEBRUARY, 2013 AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED, THE 5 TH FEBRUARY, 2013. V.A.P. COPY TO: 1. APPELLANT 2. RESPONDENT S 3. CIT 4. CIT(A) 5. DR 6. GF.