Bharat Integrated Social Welfare Agency, Sambalpur V. CIT, Sambalpur

ITA 115/CTK/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4394 (ITAT-CUTTACK)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 26-05-2011
• Assessment Year: 2009-2010
• Appeal Filed On: 28-02-2011
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHY
• Assessee Lawyers: D K SETH
• Keywords: Charitable institution
• Section: 11

Judgement Text

IN THE INCME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER, AND HONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER. ITA NO. 115/CTK/2011 (ASSESSMENT YEAR 2009 - 10) BHARAT INTEGRATED SOCIAL WELFARE AGENC Y, DANIPALI, GOPALMAL, BUDHARAJA, SAMBALPUR 768 004 VERSUS COMMISSIONER OF INCOME - TAX, SAMBALPUR. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI D.K.SETH, AR FOR THE RESPONDENT SMT. PARAMITA TRIPATHY, DR ORDER SHRI K.K.GUPTA, ACCOUNTANT MEMBER : THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX U/S.12AA ( 3) OF THE INCOME - TAX ACT, 1961. 2. IT IS SUBMITTED THAT THE ASSESSEE TRUST WAS HITHERTO HAVING REGISTRATION U/S.12AA W.E.F. ASSESSMENT YEAR 1995 - 96 AND SUBS EQUENT RENEWAL REGISTRATION W.E.F. ASSESSMENT YEAR 2005 - 06 WAS HELD TO BE CARRYING OUT THE ACTIVITIES FOR CHARITABLE PURPOSES WHICH WAS SOUGHT TO BE REVIEWED THE LEARNED CIT IN HIS ORDER UNDER THE PROVISIONS OF SECTION 12AA(3) VIDE HIS ORDER DT.1.2.2011 T HAT IN VIEW OF THE AMENDED PROVISIONS OF SECTION 2(15 ) , THE ASSESSEE SOCIETY CARRYING MICROFINANCE BUSINESS COULD NO MORE BE CONSIDERED ELLIGIBLE FOR EXEMPTION U /S.11 OF THE ACT. HE THEREAFTER CONCLUDED THAT THE OBJECT OF THE SOCIETY CAN NO MORE BE TREATE D AS CHARITABLE IN NATURE AGAINST WHICH NO FINDING HAS BEEN NOTED BY THE LEARNED CIT IN HIS ORDER. HOWEVER, CANCELLING THE REGISTRATION W.E.F. 1.4.2009, THE LEARNED CIT HAS HELD THAT THE ASSESSEE SHALL NOT BE ENTITLED FOR EXEMPTION FROM THE CHARGE OF INCOM E TAX IN RESPECT OF COMMERCIAL SURPLUS FOR THE ASSESSMENT YEAR 2009 - 10 ONWARDS. ITA NO.115/CTK/2011 2 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE OBJECTION OF THE LEARNED CIT IN VIEW OF THE AMENDED PROVISION OF THE SAID SECTION W.E.F. ASSESSMENT YEAR 2009 - 10 IS ILL FOUNDED AND PREMATURE. HE HAS SUPER IMPOSED HIS UNDERSTANDING OF THE AMENDED PROVISION W.E.F. ASSESSMENT YEAR 2 00 9 - 10 ON THE BASIS OF APPLICATION OF FUNDS TO BE CONSIDERED UNDER THE PROVISIONS OF SECTION 11 WHEN THE ONLY JURISDICTION WHICH HE COULD CO MPLY WAS TO HOLD THAT THE ASSESSEE WAS NO MORE CARRYING ON CHARITABLE OPERATIONS. THE OPERATIONS CONTINUED TO REMAIN THE SAME AND WERE ENTITLED TO GET REGISTRATION U/S.12AA OF THE ACT SINCE 1995 AND WAS ALSO DRE - REGISTERED W.E.F. 2005 - 06 FOR SAME, THEREFOR E HE WAS TO ONLY SATISFY HIMSELF ABOUT THE GENUINENESS OF THE ACTIVITIES OF THE TRUST AND TO MAKE QUERIES TO SATISFY HIMSELF THAT THE OBJECTS OF THE TRUST OR INSTITUTION WERE SUPPORTED BY ITS ACTIVITIES WHEN HE SHOULD LET THE TRUST CONTINUE IN ACCORDANCE W ITH THE PROVISIONS OF THE I.T.ACT. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT HE REVOKED THE REGISTRATION HITHERTO GRANTED ON THE BASIS OF AN ADDED PROVISO CLARIFYING THE FIRST PROVISO IN THE SAID SECTION WHICH DOES NOT THRO W ANY LIGHT TO EXCLUDE P ROFITS HAVING RENDERED AS SURPLUS BY THE ASSESSEE WHETHER COULD BE CONSIDERED FOR TAXATION UNDER THE PROVISIONS OF SECTION 11. SECTION 11 ALLOWS THE ASSESSEE TO WITHHOLD SURPLUS FOR THE PURPOSE OF CARRYING OUT ITS CHARITABLE ACTIVITIES WAS NOT THE INTENTIO N OF THE LEGISLATURE IN CREATING THE PROVISO TO ESTABLISH THAT THE ASSESSEE HAD SUDDENLY STARTED CARRYING ON COMMERCIAL ACTIVITIES. THE LEARNED COUNSEL FOR THE ASSESSEE PERUSED THE ORDER OF THE LEARNED CIT WHEREIN ON PAGE 7 OF HIS ORDER HE HAS TABULATED T HE AMOUNT OF INTEREST RECEIVED FOR THE ASSESSMENT YEAR 2005 - 06 TO 2009 - 10 AND THE INTEREST PAID AND THE FINANCIAL COST FOR THE SAID YEARS LEAVING A BALANCE IN EXCESS OF RS.10 LAKHS WHICH BEING INCOME OVER EXPENDITURE WAS TO BE CONSIDERED NOT AS A TRADING A CTIVITY INSOFAR AS THESE ITA NO.115/CTK/2011 3 ACTIVITIES HAVE BEEN CARRIED OUT IN THE PAST YEARS AS WELL. IN SUPPORT OF HIS CONTENTION, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED A COMPILATION OF THE DECISIONS WHEN MICROFINANCE ACTIVITIES ARE TREATED AS CHARITABLE AND NOT TRADING ACTIVITIES WHICH ARE NOT TO BE CONSIDERED WHEN SUCH RECEIPTS ARE RS.10 LAKHS OR LESS. THE LEARNED COUNSEL FOR THE ASSESSEE THEREFORE SUBMITTED THAT THE MISINTERPRETATION OF THE PROVISO LED THE LEARNED CIT TO ESTABLISH THAT THE ASSESSEE HAS NO L ONGER CHARITABLE ACTIVITIES CARRIED OUT BECOMES BEYOND ANY COMPREHENSION. FOR THE PROPOSITION THAT MICROFINANCE ACTIVITIES ARE TO BE TREATED AS CHARITABLE ACTIVITY AND NOT TRADING ACTIVITIES HE HAS RELIED ON THE DECI SION OF THE ITAT, BANGALORE BENCH IN T HE CASE OF ASST.DIT(EXEMPTION) V. BHARATHA SWAMUKHI SAMSTHE, REPORTED IN (2009) 028 DTR 0113 . HE HAS BEEN ABLE TO OBTAIN A COPY OF THE ORDER OF THE ITAT, DELHI BENCH IN THE CASE OF DISHA INDIA MICRO CREDIT V. CIT IN ITA NO.1374/DEL/2010 DT.28.1.2011 , WHI CH FACTS SQUARELY APPLY TO THE ASSESSEES CASE EXCEPT THAT THE ASSESSEE THEREIN WAS A COMPANY REGISTERED UNDER THE PROVISIONS OF SECTION 25 OF THE COMPANIES ACT. HE PERUSED THESE COMPILATIONS TO GIVE ELABORATE REASONING AND FACTUAL ASPECT THAT HAS ALSO BEE N CONSIDERED BY THE LEARNED CIT BUT IN A MANNER INDICATING HIS CONCERN TO THE SURPLUS BEING THE DIFFERENCE IN INTEREST PORTION AS A COMMERCIAL ACTIVITY TO RULE OUT THE AVAILABILITY TO THE ASSESSEE TRUST EXEMPTION U/S.12AA. FOR THIS PROPOSITION HE RELIED ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF SANJEEVAMMA HANUMANTHE GOWDA CHARITABLE TRUST V. DIT (285 ITR 327) WHEN THEIR LORDSHIPS HAVE CONCLUDED THAT FOR THE PURPOSE OF REGISTRATION/S.12AA OF THE ACT, WHAT THE AUTHORITIES HAVE TO BE SAT ISFIED IS THE GENUINENESS OF THE ACTIVITIES OF THE TRUST OR INSTITUTION AND HOW THE INCOME DERIVED FROM THE TRUST PROPERTY IS APPLIED TO CHARITABLE OR RELIGIOUS PURPOSE AND NOT THE NATURE OF THE ACTIVITIES ITA NO.115/CTK/2011 4 BY WHICH THE INCOME WAS DERIVED BY THE TRUST. THE LEARNED COUNSEL FOR THE ASSESSEE THEREFORE VEHEMENTLY ARGUED THAT HITHERTO MICROFINANCING CARRIED OUT BY THE ASSESSEE TRUST WAS BORROWING FROM BANKS AT A CERTAIN PERCENTAGE OF INTEREST AND GIVING BY WAY OF LOAN TO DESTITUTE WOMEN AND OTHER GENERAL PUBLIC W HO WOULD REQUIRE TO STAND ON THEIR OWN FEET BY MAKING THEM RESPONSIBLE FOR THE MONEY SO ADVANCED TO THEM BY CHARGING TOKEN INTEREST WAS PURELY A CHARITABLE ACTIVITY AND THE SURPLUS BEING THE INTEREST PORTION VIS - - VIS AFTER DEDUCTING THE BANK CHARGES AS GU ARANTORS OF THE SAID MONEY THE SAME WAS UTILIZED FOR THE CHARITABLE PURPOSE HAS BEEN ESTABLISHED BY THE LEARNED CIT HIMSELF AS CAN BE PERUSED IN HIS ORDER. HONBLE KARANATAKA HIGH COURT THEREFORE CLEARLY DISTINGUISHED THAT IT IS IN THE NATURE OF ACTIVITY W HICH HAS TO BE HELD COMMERCIAL FROM THE INCOME - TAX ANGLE BUT ON THE BASIS OF APPLICATION FOR CHARITABLE PURPOSES WHICH HAS NEVER BEEN LOST SIGHT OF WAS ALSO AGREED UPON BY THE LEARNED CIT WHO HAS ONLY DIRECTED TO TAX THE EXEMPTED PORTION AFTER APPLICATION OF THE INCOME. HE SUBMITTED THAT IN ORDER TO CREATE AWARENESS AMONGST THE GENERAL PUBLIC, THE RBI WHO GOVERNS THE OPERATION OF THE SCHEDULED BANK LINKED THE SELF HELP GROUPS SUCH AS THE ASSESSEE WITH BANKS TO ALLOW THEM TO REACH TO THE GENERAL PUBLIC WAS B ASICALLY TO INVITE AND HO LD RESPONSIBLE AN INDIVIDUAL BORROWER BY CHARGING INTEREST. IT CANNOT BE SAID THAT THE ASSESSEE TRUST IS RUNNING ITS CHARITABLE OPERATIONS IN COMPETITION TO THE BANKS WHO WERE HITHERTO NOT GIVING LOANS TO SUCH WHO WERE DESTITUTE PE OPLE BUT OFFERED NO SECURITY AND WHO COULD STAND ON THEIR OWN FEET BY INVOLVING THEMSELVES IN ACTIVITIES SUCH AS RUNNING CRCHES AND OTHER LABOUR COLONIES WHERE FEELING SELF EMPLOYMENT CREATE S AWARENESS FOR HOLDING AN PRIDE IN BEING A HUMAN AND SELF RIGHTE OUSNESS. AFTER HAVING THESE FINDINGS , IT IS NOT THE CASE OF THE CIT THAT THE INTEREST SURPLUS IS PLOUGHED BACK FOR THE FURTHERANCE OF THE ACTIVITY OF ADVANCING ITA NO.115/CTK/2011 5 LOANS ON INTEREST WHICH ALONE INTEREST COULD BE CONSIDERED AS NOT PERTAINING TO THE CHARITABLE A CTIVITIES. UNDER THE PROVISIONS OF SECTION 11 NO CONTROVERTING MATERIAL HAS BEEN BROUGHT ON RECORD BY THE CIT THAT SUCH SURPLUS EXCEEDED THE PERMISSIBLE LIMIT AS PROVIDED IN LAW. THEREFORE, LINKING THE SURPLUS TO THE NON - CHARITABL E ACTIVITIES IN PLANNING O UT THE CHARITABLE ONE BY THE LEARNED CIT WAS CONSIDERED IN HIS DETAILED ORDER REFUSING REGISTRATION U/S.12AA ON THE BASIS OF AMENDMENT OF THE PROVISO TO THE SAID SECTION DEFINING CHARITABLE PURPOSES [SEC.2(15) ] W.E.F. ASSESSMENT YEAR 2009 - 2010 . HE PRAYE D THAT THE ORDER OF THE LEARNED CIT BE CANCELLED. 4. THE LEARNED DR SU PPORTED THE ORDER OF THE LEARNED CIT BY SUBMITTING THAT THE EARNING OF INTEREST IS NOT A CHARITABLE ACTIVITY. SHE SUBMITTED THAT THE ASSESSEE SOCIETY IS CARRYING ON ACTIVITIES WHICH HIT HERTO WERE BEING CARRIED OUT ON BY THE BANKS AND AT THE END OF THE DAY RESULTED IN RENDERING SURPLUS AS WAS NOTED BY THE LEARNED CIT IN HIS ORDER AT PAGE 7. THE LEARNED CIT THEREFORE CONSIDERED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ACIT V. THANTHI TRUST REPORTED IN 247 ITR 785. THE EARNING OF INTEREST CANNOT BE SAID TO BE INCIDENTAL TO THE CHARITABLE ACTIVITIES CARRIED OUT BY THE ASSESSEE HAS TO BE SATISFIED TO DISTINGUISH THE FACTS OF THE ASSESSEES CASE AS HAS BEEN NOTED BY THE LEARNED CIT IN HIS ORDER ON PAGE 7. HE NOTED THAT THE ACTIVITIES OF THE ASSESSEE SOCIETY TO BE CONSIDERED TO BE RELATABLE TO FINANCIAL BUSINESS WHICH IS CARRIED ON IN A SYSTEMATIC MANNER COMPRISES OF RECEIPTS OF LOANS FROM BANKS AND ADVANCING LOANS THROUGH NGOS AN D SHGS. THE AMENDED PROVISO THEREFORE WAS RIGHTLY INVOKED TO REVOKE THE REGISTRATION HITHERTO GRANTED TO THE ASSESSEE SOCIETY WHICH SHE FULLY SUPPORTED . 5 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CON SIDERATION OF THE FACTS, WE ARE ITA NO.115/CTK/2011 6 INCLINED TO HOLD THAT THE LEARNED CIT HAS INTERPOLATED THE ACTIVITIES OF THE CHARITABLE NATURE CARRIED ON BY THE ASSESSEE TRUST WITH THAT OF THE INCOME RESULTING IN INTEREST EARNING AGAINST WHICH ACTIVITY HE HAS NOT BEEN ABL E TO ESTABLISH WHETHER HE WAS TRYING TO HOLD THE ACTIVITIES AS NON - CHARITABLE ON THE BASIS OF SURPLUS IDENTIFIABLE AS INTEREST ONLY. OBVIOUSLY THE ASSESSEE IS S AID TO HAVE BORROWED THE AMOUNTS FROM BANKS AND GIVES TO THE ULTIMATE BORROWER BY BECOMING A CO - BORROWER , STAND S GUARANTEE , SURETY BY PAYING CERTAIN CHARGES TO THAT EFFECT. INSOFAR AS THE LENDERS ARE CONCERNED THEY HAVE NOT GIVEN MONEY FOR CHARITABLE PURPOSE WHICH THE ASSESSEE HAS IDENTIFIED ITSELF OF CARRYING OUT THE CHARITABLE ACTIVITIES. EARNING O F INTEREST BECOMES INCIDENTAL FOR GOVERNING AND CONTROLLING ALL THE FUNDS AS UTILIZED CANNOT BE ISOLATED TO DERIVE A TRADING OR COMMERCIAL ACTIVI TY THEREIN. WE FIND MERIT IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT HAVING RECEIVED VARIOU S GRANTS FOR THE CHARITABLE PURPOSES FROM THE GOVERNMENT AND SEMI - GOVERNMENT CONCERNS, THE INTEREST RECEIVED IS NOT BEYOND THE PERMISSIBLE MARKET RATES IN ORDER TO RENDER SURPLUS TO THE ASSESSEE TO HOLD A VIEW THAT THE ASSESSEE IS CONDUCTING THE BUSINESS O F EARNING INTEREST. FOR THIS PROPOSITION HE HAS SUBMITTED THE FINANCIAL STATEMENT S OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2009 - 10 AND 2010 - 11 WHEREIN HE POINTED OUT THAT THE SURPLUS GENERATED IS PLOUGHED BACK BY IDENTIFYING THE FUNDS TO BE UTILIZED FOR T HE PURPOSE OF CHARITABLE ACTIVITIES AND IT IS NOT THE CASE OF THE ASSESSEE THAT IRRECOVERABLE DEBTS ARE ON THE BASIS OF CHARITABLE ACTIVITIES CARRIED OUT HAVE NOT BEEN ADJUSTED THERE AGAINST. THE INTEREST PORTION THEREFORE CANNOT BE IDENTIFIED AS SURPLUS F ROM CARRYING OUT ANY NON - CHARITABLE ACTIVITIES AS IT BECOMES PART AND PARCEL OF THE PRINCIPAL. AT NO POINT OF TIME CAN THE ASSESSEE BE SAID TO HAVE DEVIATED THE VERY OBJECT OF CARRYING OUT THE A C TI VI TIES AS HAS BEEN NOTED BY THE ITA NO.115/CTK/2011 7 LEARNED CIT IN HIS ORDER T O POINT OUT THAT THE ASSESSEE HAD BEEN GIVEN REGISTRATI ON W.E.F. 1995 , RENEWED FROM 200 5 WAS ON THE BASIS OF THE ASSESSEE NOT CARRYING OUT ANY CHARITABLE ACTIVITIES. THE ASSESSEE HAS BEEN CARRYING OUT THE SAME CHARITABLE ACTIVITIES GIVING NO EFFECT TO THE AMENDED PROVISIONS W.E.F. 1.4.2009 THEREFORE WAS NOT TO BE REVOKED ON THE BASIS OF FINDINGS AND NOTICING BY THE LEARNED CIT IN HIS ORDER. WE ARE OF THE CONSIDERED VIEW THAT THE PROVISO RATHER CONFIRMS THE ACTION OF THE ASSESSEE TRUST CARRYING OUT THE ACTIV ITIES TO CONTINUE THE SAME IN VIEW OF THE FACT FINDING BY THE LEARNED CIT ON PAGE 8 OF HIS ORDER WHEN THE EXCESS OF INCOME OVER EXPENDITURE DOES NOT INDICATE THAT IT WAS THE SURPLUS FROM A NON - CHARITABLE ACTIVITY. THE FUNDS CREATED FOR THE PURPOSE OF UTILI ZATION THEREOF HAS ALREADY BEEN APPROVED BY THE ASSESSING OFFICER UNDER THE SEPARATE PROVISIONS OF THE SECTION 11 AGAINST WHICH NO CONTROVERTING MATERIAL HAS BEEN BROUGHT ON RECORD BY THE LEARNED CIT. THE AMOUNTS RECEIVED FROM THE FINANCIAL INSTITUTIONS AN D THE AMOUNTS DISTRIBUTED AS LOAN TO CARRY OUT ITS ACTIVITIES THEREFORE FALLS IN BALANCE TO COMMENSURATE TO THE MAIN OBJECT OF THE ASSESSEE TRUST WHICH HAS NOT BEEN DISTURBED OR POINTED ANY FAULT WITH BY THE LEARNED CIT IN HIS ORDER. WE FULLY ENDORSE THE R EASONS FOR GRANTING REGISTRATION TO THE RESPECTIVE ASSESSEES IN THE CASE LAWS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE, NAMELY DISHA INDIA MICRO CREDIT V. CIT BY ITAT, DELHI BENCH (SUPRA) AND ASST.DIT(EXEMPTIONS) V. BHARATHA SWAMUKHI SAMSTHE BY ITAT, BANGALORE BENCH (SUPRA), WHICH ELABORATELY CONSIDER THE CASES OF THE RESPECTIVE ASSESSEES SEEKING REGISTRATION TO BE ELLI GIBLE FOR REGISTRATION U/S.12AA IN THE SAME SET OF FACTS AS HAVE BEEN CONSIDERED BY THE LEARNED CIT IN THE IMPUGNED ORDER. HONBLE SUP REME COURTS DECISION THEREFORE ONLY SUGGESTS AN OPTION AVAILABLE TO THE ASSESSEE TRUST WITHOUT HOLDING IT AGAINST THE ASSESSEE TRUST. IT WAS A VIEW BY THE LEARNED CIT THAT THE AMENDED PROVISION ITA NO.115/CTK/2011 8 LED TO THE FINDING THAT THE ASSESSEE TRUST COULD NO MORE BE T REATED AS CHARITABLE IN NATURE SPECIFICALLY IN ACCORDANCE WITH THE AMENDED PROVISIONS OF SECTION 2(15) THEREFORE HAS NOT BEEN ESTABLISHED AS HAS BEEN CONSIDERED BY THE HONBLE KARANATAKA HIGH COURT IN THE CASE OF SANJEEVAMMA HANUMANTHE GOWDA CHARITABLE T RUST V. DIT (285 ITR 327). 6 . WE ARE, THEREFORE, OF THE CONSIDERED VIEW THAT THE ASSESSEE CANNOT BE SUBJECTED TO REVOCATION OF THE REGISTRATION ALREADY GRANTED U/S.12AA. WE DIRECT THE LEARNED CIT TO GRANT REG ISTRATION TO THE ASSESSEE TRUST AND CANCEL THE IMPUGNED ORDER DT.01.02.2011. 7 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN OPEN COURT ON DT. 27 TH MAY, 2011 SD/ - SD/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 27 TH MAY, 2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: BHARAT INTEGRATED SOCIAL WELFARE AGENCY, DANIPALI, GOPALMAL, BUDHARAJA, SAMBALPUR 768 004 2. THE RESPONDENT: COMMISSIONER O F INCOME - TAX, SAMBALPUR. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.