Disha India Micro Credit, Saharanpur V. CIT, Muzaffarnagar

ITA 1374/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0495 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-11-2010
• Assessment Year: misc
• Appeal Filed On: 30-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y S KAKKAR
• Assessee Lawyers: RAVI GUPTA; SSH P C YADAV
• Keywords: Depreciation; Charitable institution
• Section: 12A; 12AA; 6; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `B: NEW DELHI BEFORE SHRI C.L.SETHI, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER I.T. A. NO.1374/DEL/2010 ASSESSMENT YEAR: --- DISHA INDIA MICRO CREDIT, COMMISSIONER OF INCOME- TAX, MOHALLA, MANDIR JI, VS. MUZAFFARNAGAR. SULTANPUR-CHILKANA. PAN: AADCD0457A (APPELLANT) (RESPONDENT) APPELLANT BY: S/SH. P.C. YADAV & RAVI GUPTA, AD VOCATE. RESPONDENT BY: MS. Y.S. KAKKAR , SR. DR. O R D E R PER C.L. SETHI, JUDICIAL MEMBER: THE ASSESSEE COMPANY IS IN APPEAL AGAINST THE ORDER DATED 28.01.2010 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX, M UZAFFARNAGAR UNDER SECTION 12AA OF THE INCOME-TAX ACT, 1961 (THE ACT), REFUSING REGISTRATION TO THE ASSESSEE UNDER SEC. 12A OF THE ACT. 2. THE ASSESSEE COMPANY NAMELY, M/S. DISHA INDIA MI CRO CREDIT, IS A COMPANY REGISTERED UNDER SEC. 25 OF THE COMPANIES A CT, 1956. IT HAS APPLIED FOR REGISTRATION UNDER SEC. 12A IN FORM NO. 10A, ON 6.07.2009. THE ASSESSEES APPLICATION FOR REGISTRATION U/S 12A HAS BEEN REJECTED BY THE LEARNED COMMISSIONER OF INCOME-TAX, MUZAFFARNAGAR V IDE ORDER DATED 2 28.01.2010. THE LEARNED CIT HAS OBSERVED THAT THE VARIOUS CLAUSES OF THE MEMORANDUM OF THE COMPANY WOULD CLEARLY SHOW THAT T HE ASSESSEE HAS A MOTIVE OF PROFIT ALSO, ALONG WITH THE STATED MOTIVE OF SERVICE TO THE POOR AND NEEDY PEOPLE AS CLAIMED BY THE ASSESSEE. HE FURTHE R OBSERVED THAT SUCH PROFIT EVEN IF TO BE PLOUGHED BACK AS CLAIMED BY TH E ASSESSEE, IS LIABLE TO INCOME-TAX UNDER INCOME-TAX ACT. THE ORDER OF THE L EARNED COMMISSIONER OF INCOME-TAX RUNS AS UNDER:- 1. ON PERUSAL OF MEMORANDUM IT IS NOTICED THAT:- S.NO.8, THE OBJECTS ARE DESCRIBED AS TO BORROW OR RAISE MONEY PM INTEREST OR OTHERWISE FROM BANKS, FINANCIA L INSTITUTIONS, TERM LENDING INSTITUTION, CORPORATE P ERSON OR ORGANIZATIONS IN INDIA OR ABROAD AND IN SUCH MANNER AS THE COMPANY MAY THINK FIT FOR THE PURPOSE OF FINANCING THE ACTIVITIES OF THE COMPANY. S.NO.15 TO CREATE ANY RESERVE FUNDS, SINKING FUND S, INSURANCE FUND OR ANY OTHER SPECIAL FUND WHETHER FO R DEPRECIATION, FOR REPAIRING, IMPROVING, EXTENDING O R MAINTAINING ANY OF THE PROPERTY OF THE COMPANY OR F OR ANY OTHER PURPOSE CONDUCIVE TO THE INTEREST OF THE COMPANY. S.NO.17 TO SELL, LEASE, MORTGAGE, OR OTHERWISE DI SPOSE OF THE UNDERTAKING OF THE COMPANY OR ANY PART THERE OF FOR SUCH CONSIDERATION AS COMPANY MAY THINK FIT AND IN PARTI CULAR FOR SHARE, DEBENTURES OR SECURITIES OF ANY OTHER COMPAN Y HAVING OBJECTS ALTOGETHER OR IN PART SIMILAR TO THOSE OF T HIS COMPANY. S.NO.21 TO BORROW OR RAISE MONEY IN SUCH MANNER AS THE COMPANY SHALL THINK FIT AND TO ARRANGE THE REPA YMENT OF ANY MONEY BORROWED, RAISED OR OWING BY MORTGAGE, CHARGE OR LIEN UPON ALL OR ANY OF THE COMPANYS PROPERTY (BOTH PRE SENT AND FUTURE) INCLUDING ITS UNCALLED CAPITAL AND ALSO BY A SIMILAR 3 MORTGAGE, CHARGE OR LIEN TO SECURE AND GUARANTEE TH E PERFORMANCE BY THE COMPANY OR ANY OTHER PERSON OR B ODY CORPORATE OF ANY OBLIGATION UNDERTAKEN BY THE COMPA NY OR ANY OTHER PERSON OR COMPANY. S.NO.24 TO INVEST THE IDLE FUNDS OF THE COMPANY AS ALLOWED UNDER INCOME TAX ACT, 1961 AND COMPANIES AC T, 1956 IN OR UPON ANY INVESTMENTS OR PROPERTIES AND WHERE SO EVER SITUATED AND TURN TO ACCOUNT, EXCHANGE OR TRANSPOSE ANY INVESTMENT OR PROPERTIES OF THE COMPANY TO ATTAIN T HE MAIN OBJECTS. S.NO.V(4) NOTHING IS THIS CLAUSE SHALL PREVENT THE PAYMENT BY THE COMPANY IN GOOD FAITH OF REASONABLE REMUNERATION TO ANY OF ITS OFFICERS OR SERVANTS (NO T BEING MEMBERS) OR TO ANY OTHER PERSON (NOT BEING A MEMBER ) IN RETURN FOR ANY SERVICES ACTUALLY RENDERED TO THE CO MPANY. ALL THESE CLAUSES CLEARLY SOW THAT THE COMPANY HAS A MOTIVE OF PROFIT ALSO ALONGWITH THE STATED MOTIVE O F THE SERVICE OF POOR AND NEEDY PEOPLE AS CLAIMED BY THE ASSESSEE . SUCH PROFIT EVEN IF TO BE PLOUGHED BACK AS CLAIMED BY TH E ASSESSEE, IS LIABLE TO TAX UNDER INCOME TAX ACT. 2. IT IS INCOMPREHENSIBLE AS TO WHY NOT ASSESSEE GO T ITSELF REGISTERED AS A SOCIETY; IF THE MOTIVE WAS TO DO AC TIVITIES OF PUBLIC CHARITY !! 3. THE ASSESSEE COMPANY HAS RELIED ON THE CASE DIRE CTOR OF INCOME TAX V/S BHARAT DIAMOND BOURSE (2003) 259 ITR 280 (SC). THE FACTS OF THE CASE ARE DIFFERENT BECAUSE THE BHARAT DIAMOND BOURSE COMPANY IS AN APEX BODY, COMPRISING OF VARIOUS DIAMONDS ASSOCIATIONS/ BODIES/ TRADERS ETC; WITH A VIEW TO PROMOTE DIAMOND TRADE AND INDUSTRY. IT IS BASIC ALLY PROVIDING VARIETY OF SERVICES TO GENERAL PUBLIC. I T IS NOT DOING ANY BUSINESS ACTIVITIES ON ITS OWN AND ALSO IT IS A NON-PROFIT ORGANIZATION. THE ASSESSEE ON THE OTHER HAND HIMSELF ADMITTED TH AT OBJECTS OF THE REFERRED COMPANY ARE DIFFERENT FROM THE ASSESSEE 4 MEMORANDUM AND THIS COMPANY IS CHARGING HIGHER RATE OF INTEREST THAN OTHER BANKS. THE ASSESSEE ADMITS THAT IT WOULD ITSELF CARRY OUT BUSINESS ACTIVITIES OF PROVIDING L OANS. 4. THE ASSESSEE COMPANY IS NOT DOING ANY ACTIVITY O F PUBLIC UTILITY. THE ASSESSEE CLAIMED THAT THEY WILL PROVI DE COLLATERAL FREE CREDIT TO POOR PERSONS THROUGH THEIR SOLIDARIT Y GROUPS AND SECONDARY TO BORROW OR RAISE MONEY ON INTEREST OR O THERWISE FROM BANKS, FINANCIAL INSTITUTIONS, TERM ENDING INS TITUTION, CORPORATE PERSON OR ORGANIZATIONS IN INDIA OR ABROA D AND IN SUCH MANNER AS THE COMPANY MAY THINK FIT FOR THE PU RPOSE OF FINANCING THE ACTIVITIES OF THE COMPANY. THE LOAN DISTRIBUTION ON INTEREST ON HIGHER RATE F ROM THE BANKS DOES NOT COME UNDER PURVIEW OF SECTION 2(15) I.E. RELIEF TO POOR AND FOR PUBLIC UTILITY WORK THAT WOO ON ITS OWN CONDITIONS AND AT HIGHER RATE OF INTEREST FROM THE RURAL BANKS. THIS ACTIVITY IS NOT A CHARITABLE WORK. THE MEMORAN DUM OF THE COMPANY ALSO NOT ABLE TO ESTABLISH THAT COMPANY IS A NON-PROFIT ORGANIZATION. FROM THE ABOVE DISCUSSION, I AM IN VIEW OF THAT TH E ASSESSEE DISHA INDIA MICRO CREDIT A COMPANY ALSO DOES NOT COME UNDER PURVIEW OF INSTITUTION AS ENVISAGED IN SECTION 11, 12 AND 13 OF INCOME TAX ACT. IT IS ALSO NOT ABLE T O ESTABLISH THAT THE ASSESSEE COMPANYS WORK IS FOR RELIEF TO P OOR AND FOR PUBLIC UTILITY. THEREFORE, I HEREBY REJECT THE APPLICATION FILED F OR REGISTRATION. 3. HENCE, THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULL Y PERUSED THE MATERIAL ON RECORD. 5. IN THIS CASE, WE ARE CONCERNED WHETHER THE ASSES SEE IS ENTITLED TO GET REGISTRATION U/S 12A OF THE ACT. IN ORDER TO GET R EGISTRATION OF THE TRUST OR 5 INSTITUTION, THE ASSESSEE HAS TO MAKE AN APPLICATIO N IN THE PRESCRIBED FORM AND IN THE PRESCRIBED MANNER TO THE COMMISSIONER WI THIN SUCH TIME AS SPECIFIED U/S 12A OF THE ACT. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS MADE AN APPLICATION FOR REGISTRATION I N THE PRESCRIBED FORM AND IN THE PRESCRIBED MANNER TO THE COMMISSIONER. SEC. 12AA PROVIDES THAT THE COMMISSIONER, ON RECEIPT OF AN APPLICATION FOR REGI STRATION OF A TRUST OR INSTITUTION MADE U/S 12A, SHALL CALL FOR SUCH DOCUM ENTS OR INFORMATION FROM THE TRUST OR INSTITUTION AS HE THINKS NECESSARY IN ORDER TO SATISFY HIMSELF ABOUT THE GENUINENESS OF ACTIVITIES OF THE TRUST OR INSTI TUTION AND MAY ALSO MAKE SUCH ENQUIRIES AS HE MAY DEEM NECESSARY IN THIS BEH ALF, AND AFTER SATISFYING HIMSELF ABOUT THE OBJECTS OF THE TRUST OR INSTITUTI ON AND THE GENUINENESS OF ITS ACTIVITIES, HE SHALL PASS AN ORDER IN WRITING REGIS TERING THE TRUST OR INSTITUTION, OR SHALL, IF HE IS NOT SO SATISFIED, PASS AN ORDER IN WRITING REFUSING TO REGISTER THE TRUST OR INSTITUTION, AND A COPY OF SUCH ORDER SHALL BE SENT TO THE APPLICANT. 6. IN THE LIGHT OF THE CONDITIONS SPECIFIED U/S 12A A FOR GRANTING REGISTRATION TO THE TRUST OR INSTITUTION, WE HAVE T O SEE THE OBJECT OF THE PRESENT INSTITUTION AND GENUINENESS OF ITS ACTIVITIES. 7. IT IS NOT IN DISPUTE THAT THE PRESENT ASSESSEE I S A COMPANY REGISTERED U/S 25 OF THE COMPANIES ACT, 1956. UNDER SUB-SEC. (1) OF SEC. 25 OF THE 6 COMPANIES ACT, 1956, IT HAS BEEN PROVIDED THAT WHER E IT IS PROVED TO THE SATISFACTION OF THE CENTRAL GOVERNMENT THAT AN ASSO CIATION IS ABOUT TO BE FORMED AS A LIMITED COMPANY FOR PROMOTING COMMERCE, ART, SCIENCE, RELIGION, CHARITY OR ANY OTHER USEFUL OBJECT, AND INTENDS TO APPLY ITS PROFITS, IF ANY, OR OTHER INCOME IN PROMOTING ITS OBJECTS, AND TO PROHI BIT THE PAYMENT OF ANY DIVIDEND TO ITS MEMBERS, THE CENTRAL GOVERNMENT MAY , BY LICENCE, DIRECT THAT THE ASSOCIATION MAY BE REGISTERED AS A COMPANY WITH LIMITED LIABILITY WITHOUT THE ADDITION TO ITS NAME OF THE WORD LIMIT ED OR THE WORDS PRIVATE LIMITED. IN THAT EVENT, THE ASSOCIATION MAY BE REG ISTERED ACCORDINGLY, AND ON REGISTRATION, THE ASSOCIATION SHALL ENJOY ALL TH E PRIVILEGES, AND (SUBJECT TO THE PROVISION OF SEC. 25 OF THE COMPANIES ACT) BE S UBJECT TO ALL THE OBLIGATIONS, OF LIMITED COMPANIES. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE CENTRAL GOVERNMENT HAS DIRECTED THAT THE A SSESSEE ASSOCIATION IS TO BE REGISTERED AS A COMPANY WITH LIMITED LIABILITY. IT IS THUS PROVED THAT THIS ASSOCIATION HAS BEEN FORMED AS A LIMITED COMPANY FO R PROMOTING COMMERCE, ART, SCIENCE, RELIGION, CHARITY OR ANY OTHER USEFUL OBJECTS AND IT INTENDED TO APPLY ITS PROFIT IF ANY, OR OTHER INCOME, IN PROMOT ING THE AFORESAID OBJECTS. THE ASSESSEE IS ALSO PROHIBITED FROM MAKING PAYMENT OF ANY DIVIDEND TO ITS MEMBERS. THEREFORE, PRIMA FACIE THE ASSESSEE ASSOC IATION REGISTERED AS A LIMITED COMPANY UNDER SEC. 25 OF THE COMPANIES ACT, HAS BEEN FORMED FOR 7 CHARITY OR ANY OTHER USEFUL OBJECT AS SO PROVIDED U NDER SEC 25(1) OF THE COMPANIES ACT. 8. THE ASSESSEE HAS PRODUCED BEFORE US A COPY OF M EMORANDUM OF ASSOCIATION. THE OBJECTS FOR WHICH THE COMPANY WAS ESTABLISHED U/S 25 OF THE COMPANIES ACT, 1956, ARE SPECIFIED IN PARA III OF THE MEMORANDUM. PARA III CONSISTS OF 2 PARTS, NAMELY PART-A AND PAR T-B. PART-A PROVIDES ABOUT THE MAIN OBJECTS TO BE PURSUED BY THE COMPANI ED ON ITS INCORPORATION U/S 25 OF THE COMPANIES ACT. PART-B SPECIFIES THE OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN OBJECTS. T HE MAIN OBJECTS SPECIFIED IN PART-A OF PARA III ARE AS UNDER:- 1) TO PROMOTE MICRO FINANCE SERVICES, AS PERMITTED FRO M TIME TO TIME BY THE RESERVE BANK OF INDIA, EXCLUSIVELY T O LARGE NUMBER OF POOR PERSONS, IN THEIR VILLAGES, TOWNS ET C. FOR INCOME-GENERATION, AND THUS TO HELP THEM AND THEIR FAMILIES RISE OUT OF POVERTY NOT WITH THE MOTIVE OF PROFIT. 2) NO OBJECTS OF THE COMPANY WILL BE CARRIED OUT WITHO UT OBTAINING PRIOR APPROVAL/NO OBJECTION CERTIFICATE F ROM THE CONCERNED AUTHORITY WHEREVER REQUIRED. 3) NONE OF THE OBJECTS WILL BE CARRIED OUT ON COMMERCI AL BASIS. 9. ON PERUSAL OF THE AFORESAID MAIN OBJECTS TO BE P URSUED BY THE ASSESSEE COMPANY, THE MAIN OBJECTS OF THE ASSESSEE COMPANY W OULD BE TO PROMOTE MICRO FINANCE SERVICES AS PERMITTED FROM TIME TO TI ME BY THE RESERVE BANK OF INDIA, EXCLUSIVELY TO LARGE NUMBER OF POOR PERSO NS IN THEIR VILLAGES, TOWNS 8 ETC. FOR INCOME-GENERATION,; AND THUS TO HELP THEM AND THEIR FAMILIES RISE OUT OF POVERTY NOT WITH THE MOTIVE OF PROFIT. IT IS AL SO PROVIDED THEREIN THAT NO OBJECTS OF THE COMPANY WILL BE CARRIED OUT WITHOUT OBTAINING PRIOR APPROVAL/NO OBJECTION CERTIFICATE FROM THE CONCERNE D AUTHORITIES WHEREVER REQUIRED, AND NONE OF THE OBJECTS WILL BE CARRIED O UT ON COMMERCIAL BASIS. FROM THE OBJECTS, IT IS THUS CLEAR THAT THE ASSESSE E HAS BEEN PURSUING ITS OBJECTS NOT WITH THE MOTIVE OF PROFIT AND ON COMMER CIAL BASIS. THE LEARNED CIT IN HIS ORDER HAS REPRODUCED THE ONLY OBJECTS WH ICH ARE INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN OBJECT SPEC IFIED IN PART-B OF PARA III OF THE MEMORANDUM OF ASSOCIATION. THE LEARNED CIT HAS REPRODUCED ITEM NOS.8, 15, 17, 21 & 24 WHICH ARE THE OBJECTS INCIDE NTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN OBJECTS AND NOT THE MAIN OBJ ECTS. THE CIT HAS IGNORED TO TAKE INTO ACCOUNT THE MAIN OBJECTS OF TH E ASSESSEE COMPANY SPECIFIED IN PART-A OF PARA III. IT IS THUS CLEAR THAT THE CIT HAS NOT APPLIED HIS MIND PROPERLY TO THE MAIN OBJECTS TO BE PURSUED BY THE ASSESSEE COMPANY ON ITS OWN INCORPORATION U/S 25 OF THE COMPANIES AC T. AFTER NARRATING THE AFORESAID INCIDENTAL OR ANCILLARY CLAUSES, THE CIT HAS OBSERVED THAT ALL THESE CLAUSES CLEARLY SOW THAT THE COMPANY HAS A MOTIVE O F PROFIT ALSO, ALONG WITH THE STATED MOTIVE OF THE SERVICE OF POOR AND NEEDY PEOPLE BUT AT THE SAME TIME, THE ASSESSEE HAS A MOTIVE OF PROFIT. THIS OB SERVATION OF THE CIT IS 9 PURELY BASED ON HIS ASSUMPTION INASMUCH AS IN THE M AIN OBJECT, IT HAS BEEN CLEARLY STATED AND SPECIFIED THAT THE ASSESSEE SHAL L PROMOTE MICRO FINANCE SERVICES, AS PERMITTED FROM TIME TO TIME BY THE RES ERVE BANK OF INDIA, EXCLUSIVELY TO A LARGE NUMBER OF POOR PERSONS TO HE LP THEM AND THEIR FAMILIES TO RISE OUT OF POVERTY NOT WITH THE MOTIVE OF PROFI T. IN THE MAIN OBJECT UNDER ITEM NO.(1), IT HAS BEEN CLEARLY STATED THAT THE AS SESSEE HAS BEEN PURSUING ITS OBJECTS NOT WITH THE MOTIVE OF PROFIT. SECTION 25 OF THE COMPANIES ACT, 1956, ALSO PROVIDES THAT THE COMPANY SHALL APPLY IT S PROFIT, IF ANY, OR OTHER INCOME IN PROMOTING ITS OBJECTS AND IT IS PROHIBITE D FROM MAKING ANY PAYMENT OF DIVIDEND TO ITS MEMBERS. THEREFORE, THE QUESTION OF PURSUING THE OBJECTS OF THE COMPANY WITH A PROFIT MOTIVE DOES NO T ARISE. WE THEREFORE, HOLD THAT THE ASSESSEE COMPANY HAS NO MOTIVE OF PRO FIT IN PURSUING ITS OBJECTS AS PROVIDED IN THE MEMORANDUM OF ASSOCIATIO N. 10. ON PERUSAL OF ARTICLES OF ASSOCIATION, WE ALSO FIND THAT UNDER CLAUSE 73 OF THE ARTICLE OF ASSOCIATION, IT HAS BEEN PROVI DED THAT THE COMPANY SHALL APPLY ITS PROFITS, IF ANY, OR OTHER INCOME, IN PROM OTING ITS OBJECTS, AND TO PROHIBIT THE PAYMENT OF ANY DIVIDEND TO ITS MEMBERS . THE SOCIAL OBJECTIVES OF THE COMPANY ARE PROVIDED UNDER CLAUSE 81 OF THE ARTICLES OF ASSOCIATION WHERE IT IS PROVIDED THAT THE COMPANY SHALL HAVE AM ONG ITS OBJECTIVES, THE SOCIAL AND ECONOMIC DEVELOPMENT OF WEAKER SECTION O F THE SOCIETY AND THE 10 PROMOTION AND GROWTH OF THE NATIONAL ECONOMY THROUG H EFFECTIVE UTILIZATION OF MATERIAL AND MAN-POWER RESOURCES AND CONTINUED A PPLICATION OF MODERN, SCIENTIFIC AND MANAGERIAL TECHNIQUES IN KEEPING WIT H THE NATIONAL ASPIRATIONS, REDUCTION OF POVERTY IN A SUSTAINABLE WAY AND THE C OMPANY SHALL BE MINDFUL OF ITS SOCIAL RESPONSIBILITIES TO THE EMPLOYEES, SH ARE-HOLDERS, THE LOCAL COMMUNITY, LENDERS AND SOCIETY IN GENERAL. 11. WE FURTHER FIND THAT THE REGIONAL DIRECTOR OF M INISTRY OF CORPORATE AFFAIRS, NORTHERN REGION, NOIDA, UP HAS ALSO GRANTE D A LICENCE U/S 25 OF THE COMPANIES ACT TO THE ASSESSEE ASSOCIATION AFTER BEI NG SATISFIED THAT THE ASSESSEE ASSOCIATION IS TO BE REGISTERED AS A COMPA NY UNDER THE COMPANIES ACT FOR PROMOTING OBJECTS OF THE NATURE SPECIFIED I N SEC. 25, SUB-SEC.(1), CLAUSE (A) OF THE SAID ACT AND THAT IT INTENDS TO A PPLY ITS PROFITS, IF ANY, OR OTHER INCOME IN PROMOTING ITS OBJECTS AND TO PROHIB IT THE PAYMENT OF ANY DIVIDEND TO ITS MEMBERS. IN THE LICENCE, IT HAS BE EN CLEARLY PROVIDED THAT THE INCOME AND THE PROPERTY OF THE ASSESSEE COMPANY WHE N SO EVER DERIVED, SHALL BE APPLIED SOLELY FOR THE PROMOTION OF THE OB JECTS AS SET FORTH IN ITS MEMORANDUM OF ASSOCIATION AND THAT NO PORTION THERE OF SHALL BE PAID OR TRANSFERRED, DIRECTLY OR INDIRECTLY BY WAY OF DIVID END, BONUS OR OTHERWISE BY WAY OF PROFIT, TO PERSONS WHO AT ANY TIME ARE OR HA VE BEEN MEMBERS OF THE 11 SAID COMPANY OR TO ANY OF THEM OR TO ANY PERSON CLA IMING THROUGH ANYONE OR MORE OF THEM. 12. IN PARA X OF THE MEMORANDUM OF ASSOCIATION REG ARDING CONSEQUENCE UPON WINDING UP OR DISSOLUTION OF THE COMPANY, IT I S CLEARLY PROVIDED THEREIN THAT IF UPON WINDING UP OR DISSOLUTION OF THE COMPA NY, THERE REMAINS, AFTER THE SATISFACTION OF ALL ITS DEBTS AND LIABILITIES, ANY PROPERTY WHATSOEVER, THE SAME SHALL NOT BE DISTRIBUTED AMONGST THE MEMBERS O F THE COMPANY BUT SHALL BE GIVEN OR TRANSFERRED TO SUCH OTHER COMPANY OR IN STITUTION REGISTERED UNDER SEC. 25 OF THE ACT HAVING OBJECTS SIMILAR TO THE OB JECTS OF ASSESSEE COMPANY, TO BE DETERMINED BY THE MEMBERS OF THE COMPANY AT O R BEFORE THE TIME OF DISSOLUTION OR IN DEFAULT THEREOF, BY THE HIGH COUR T OF JUDICATURE THAT HAS OR MAY ACQUIRE JURISDICTION IN THE MATTER. 13. IN THE LIGHT OF THE FACTS AND REASONS DISCUSSED ABOVE, WE, THEREFORE, HOLD THAT THE ASSESSEE COMPANY HAS NO MOTIVE OF PRO FIT IN PURSUING ITS OBJECTS AND ACTIVITIES. 14. NOW, THE QUESTION ARISES AS TO WHETHER THE ACTI VITIES OF PROMOTING MICRO FINANCE SERVICES, AS PERMITTED FROM TIME TO T IME BY THE RESERVE BANK OF INDIA, EXCLUSIVELY TO LARGE NUMBER OF POOR PERSO NS, IN THEIR VILLAGES, TOWNS ETC. FOR INCOME-GENERATION; AND THUS TO HELP THEM A ND THEIR FAMILY TO RISE OUT 12 OF POVERTY NOT WITH THE MOTIVE OF PROFIT, CAN BE CO NSIDERED TO BE CHARITABLE PURPOSE WITHIN THE MEANING OF SEC. 2(15) OF THE ACT . 15. SEC. 2(15) OF THE ACT DEFINES CHARITABLE PURPO SE TO INCLUDE THE FOLLOWING:- (I) RELIEF OF THE POOR, (II) EDUCATION, (III) MEDICAL RELIEF, AND (IV) THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBL IC UTILITY. 16. THE EXPRESSION RELIEF OF THE POOR HAS BEEN EX PLAINED BY THE BOARD IN ITS CIRCULAR NO.11 OF 2008 DATED 19 TH DECEMBER, 2008 STATING THEREIN AS UNDER:- 2.2 RELIEF OF THE POOR ENCOMPASSES A WIDE RANGE OF OBJECTS FOR THE WELFARE OF THE ECONOMICALLY AND SOCIALLY DI SADVANTAGED OR NEEDY. IT WILL, THEREFORE, INCLUDE WITHIN ITS A MBIT PURPOSES SUCH AS RELIEF TO DESTITUTE, ORPHANS OR THE HANDICA PPED, DISADVANTAGED WOMEN OR CHILDREN, SMALL AND MARGINAL FARMERS, INDIGENT ARTISANS OR SENIOR CITIZENS IN NEED OF AID . ENTITIES WHO HAVE THESE OBJECTS WILL CONTINUE TO BE ELIGIBLE FOR EXEMPTION EVEN IF THEY INCIDENTALLY CARRY ON A COMMERCIAL ACT IVITY, SUBJECT, HOWEVER, TO THE CONDITIONS STIPULATED UNDER SECTION 11(4A) OR THE SEVENTH PROVISO TO SECTION 10(23C)WHICH ARE THA T (I) THE BUSINESS SHOULD BE INCIDENTAL TO THE ATTAINMENT OF THE OBJECTIVES OF THE ENTITY, AND (II) SEPARATE BOOKS OF ACCOUNT SHOULD BE MAINTAINED IN RESPECT OF SUCH BUSINESS. SIMILARLY, ENTITIES WHOSE OBJECT IS EDUCATION OR MEDICAL RELIEF WOULD ALSO CONTINUE TO BE ELIGIBLE FOR EXEM PTION AS CHARITABLE INSTITUTIONS EVEN IF THEY INCIDENTALLY C ARRY ON A COMMERCIAL ACTIVITY SUBJECT TO THE CONDITIONS MENTI ONED ABOVE. 13 17. ON PERUSAL OF THE AFORESAID MEANING OF RELIEF O F THE POOR, IT IS CLEAR THAT IT ENCOMPASSES A WIDE RANGE OF OBJECTS FOR THE WELFARE OF THE ECONOMICALLY AND SOCIALLY DISADVANTAGED OR NEEDY PE OPLE. IT WOULD INCLUDE WITHIN ITS AMBIT, PURPOSES SUCH AS RELIEF TO DESTIT UTE, ORPHANS OR THE HANDICAPPED, DISADVANTAGED WOMEN OR CHILDREN, SMALL AND MARGINAL FARMERS, INDIGENT ARTISANS OR SENIOR CITIZENS IN NEED OF AID . ENTITIES WHO HAVE THESE OBJECTS WILL CONTINUE TO BE ELIGIBLE FOR EXEMPTION EVEN IF THEY INCIDENTALLY CARRY ON A COMMERCIAL ACTIVITY, SUBJECT, HOWEVER, T O THE CONDITIONS STIPULATED UNDER SEC. 11(4A) OR THE SEVENTH PROVISO TO SEC. 10 (23C) OF THE ACT. 18. AT THIS STAGE, WE MAY MAKE A GAINFUL REFERENCE TO THE DECISION DATED 24 TH DECEMBER, 2008 OF ITAT, BANGALORE BENCH `A IN THE CASE OF ASSTT. DIRECTOR OF INCOME-TAX (EXEMPTION) VS. BHARATHA SWA MUKHI SAMSTHE REPORTED IN (2009) 28 DTR (BANG)(TRIB) 113 ON WHICH A GREAT RELIANCE HAS BEEN PLACED BY THE LEARNED COUNSEL FOR THE ASSESSEE . IN THIS CASE, THE ASSESSEE TRUSTS WORK WAS LENDING MONEY TO POOR WOM EN FOR INCOME GENERATING ACTIVITIES. LOANS GIVEN TO WOMEN WERE B ORROWED FROM BANK. THERE WAS NOTHING ON RECORD TO SHOW THAT THE INTERE ST CHARGED BY THE ASSESSEE WAS EXORBITANT. IN THE LIGHT OF THESE FAC TS, IT WAS HELD BY THE TRIBUNAL THAT THE ASSESSEES OBJECT OF USING MONEY FOR MICRO CREDIT TO POOR WOMEN FOR THEIR POVERTY ALLEVIATION AND FOR THE BEN EFIT OF THE SOCIO- 14 ECONOMICALLY WEAKER SECTIONS OF THE SOCIETY IS CHAR ITABLE OBJECT QUALIFYING FOR EXEMPTION UNDER SEC. 11 OF THE ACT. THIS DECIS ION IS SQUARELY COVERS THE PRESENT CASE. 19. HOWEVER, THE LEARNED DR ON THE OTHER HAND, PLAC ED RELIANCE UPON THE DECISION OF ITAT, BANGALORE BENCH `B IN THE CASE O F JANALAKSHMI SOCIAL SERVICES VS. DIRECTOR OF INCOME-TAX (EXEMPTION), BA NGALORE, ORDER BEING DATED AUGUST 22, 2008 REPORTED IN (2009) 33 SOT 197 (BANG.), TO CONTEND THAT MICRO FINANCING IF DONE ON COMMERCIAL LINES IS NOT A CHARITABLE ACTIVITY. THE LEARNED DR THEREFORE, CONTENDED THAT THE LEARNE D CIT HAS RIGHTLY REFUSED REGISTRATION TO THE ASSESSEE ASSOCIATION BY HOLDING THAT THE ASSESSEES ACTIVITIES ARE NOT CHARITABLE ACTIVITIES WITHIN THE MEANING OF SEC. 2(15) READ WITH SEC. 12AA OF THE ACT. 20. WE HAVE CAREFULLY PERUSED THE AFORESAID DECISIO N IN THE CASE OF JANALAKSHMI SOCIAL SERVICES (SUPRA). IN THIS CASE, WE FIND THAT THE ASSESSEE WAS PROVIDING FINANCE TO A PARTICULAR SECTION OF SO CIETY I.E. TRADERS DEALING IN VEGETABLES AND FRUITS, AND MAKING PURCHASES FROM SA FAL. THE ASSESSEE WAS AVAILING OF LOAN FACILITY FROM BANKS/FINANCIAL INST ITUTION AT INTEREST RATES RANGING FROM 8.5 PER CENT TO 9 PER CENT AND SUCH LO AN FACILITY WAS EXTENDED TO SO CALLED POOR PEOPLE IN URBAN AREAS AT RATES RA NGING BETWEEN 18% TO 24% PER ANNUM IN ADDITION TO BURDEN OF PROCESSING AND S ERVICE CHARGES BETWEEN 15 1 TO 2 PER CENT. IT WAS ALSO FOUND IN THAT CASE TH AT THE ASSESSEE COMPANY WAS NOT REACHING TO INDIVIDUAL BENEFICIARIES DIRECTLY B UT WAS DOING SO THROUGH NGOS AND SHGS FROM WHOM IT CHARGES HIGH INTEREST RA TE. IT WAS THUS, HELD THAT THE ASSESSEE WAS UNDERTAKING ONLY BUSINESS OF MICRO FINANCING AND HAD NOT DONE ANY ACTIVITY TO SHOW THAT IT HAD BEEN DONE AS A CHARITABLE ACT. THIS CASE IS TOTALLY DISTINGUISHABLE ON FACTS FROM THE F ACTS OF THE PRESENT CASE. IN THE PRESENT CASE, IT IS NOT A CASE, WHERE THE ASSES SEE HAS BEEN PROVIDING FINANCE TO A PARTICULAR SECTION OF THE SOCIETY. TH E PRESENT CASE IS NOT A CASE, WHERE THE ASSESSEE HAS BEEN PROVIDING LOAN TO INDIV IDUAL BENEFICIARIES NOT DIRECTLY BUT THROUGH SOME MEDIATOR. IT IS ALSO NOT A CASE WHERE THE ASSESSEE HAS BEEN CHARGING EXORBITANT RATE OF INTEREST ALONG WITH PROCESSING AND SERVICE CHARGES. IN THE PRESENT CASE, WE FIND THAT THE ASSESSEE HAS BEEN PROVIDING MICRO-FINANCIAL SERVICES AS PER THE GUIDE LINES GIVEN BY THE RESERVE BANK OF INDIA. THE RESERVE BANK OF INDIA H AS GIVEN GUIDELINES ABOUT THE NATURE OF MICRO CREDITS AND THE INTEREST RATES APPLICABLE THERETO. IN THE PRESENT CASE, THE ASSESEE MADE APPLICATION FOR FINANCIAL ASSISTANCE UNDER MICRO SCHEME TO SMALL INDUSTRIES DEVELOPMENT BANK O F INDIA, WHO BY ORDER DATED MARCH 2, 2009, WAS PLEASED TO SANCTION TO THE ASSESSEE A LOAN NOT EXCEEDING RS.200 LAKH ONLY FOR FINANCING THE PROJEC T UNDER MICRO CREDIT SCHEME WITH CERTAIN CONDITIONS AND STIPULATIONS WHI CH HAD BEEN DULY 16 COMPLIED WITH BY THE ASSESSEE. AS PER THE CONDITIO NS, THE LOAN WAS TO BE DISBURSED IN NEED BASED INSTALMENTS AND ON RECOMMEN DATION OF PROJECT ADVISORY COMMITTEE. THEREFORE, THE FACTS OF THE PR ESENT CASE ARE ON QUITE DIFFERENT FOOTING THAN THAT IN THE CASE OF JANALAKS HMI SOCIAL SERVICES (SUPRA). 21. IN THE LIGHT OF THE DISCUSSION MADE ABOVE, THE PRESENT CASE SHALL BE GUIDED BY THE DECISION OF ITAT, BANGALORE BENCH IN THE CASE OF BHARATHA SWAMUKHI SAMASTHE (SUPRA) AND NO BY THE DECISION IN THE CASE OF JANALAKSHMI SOCIAL SERVICES (SUPRA). 22. IT IS WELL SETTLED THAT WHEN A PROFIT IS USED T OWARDS THE ACHIEVEMENT OF THE CHARITABLE OBJECTS OF THE TRUST, IT WOULD BE CO NSIDERED TO BE INCIDENTAL TO THE ACHIEVEMENTS OF THE OBJECTS OF THE TRUST NOTWIT HSTANDING THE PROFIT AND GAIN INVOLVED THEREIN. IN THIS RESPECT, A REFERENC E MAY BE MADE TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF AS STT. CIT VS, THANTHI TRUST (2001) 247 ITR 785 (SC). THUS, MERE BECAUSE THERE WAS A SURPLUS FROM THE ACTIVITY OF MICRO FINANCING, THAT BY ITSEL F, CANNOT BE A GROUND TO SAY THAT THE ASSESSEE DOES NOT EXIST FOR CHARITABLE PUR POSE PARTICULARLY WHEN UNDER THE MEMORANDUM OF ASSOCIATION AND ARTICLES OF ASSOCIATION, IT HAS BEEN CLEARLY PROVIDED THAT THE PROFIT SHALL NOT BE DISTRIBUTED AMONGST THE MEMBERS BUT SHALL BE UTILIZED TOWARDS ITS OBJECTS, AND IN THE CASE OF DISSOLUTION, ANY PROPERTY REMAINING AFTER MEETING O UT THE LIABILITY SHALL BE 17 TRANSFERRED TO THE ASSOCIATION HAVING SIMILAR OBJEC T. THEREFORE, THE REJECTION OF THE REGISTRATION OF TRUST ON THIS SCORE IS ALSO UNJUSTIFIED. 23. FURTHER, A REFERENCE MAY BE MADE TO THE DECISIO N OF THE HONBLE BOMBAY HIGH COURT NAGPUR BENCH IN THE CASE OF CIT VS. AGRICULTURAL PRODUCE AND MARKET COMMITTEE (2007) 291 ITR 419 (BO M.), WHERE WHILE DEALING WITH THE QUESTION, WHETHER THE MARKET COMMI TTEES ARE ENTITLED TO REGISTRATION U/S 12A/12AA OF THE ACT, THE HONBLE H IGH COURT FOUND THAT THE SURPLUS REMAINING IN THE MARKET FUND WAS PLOUGHED B ACK FOR CARRYING OUT THE OBJECTS OF THE 1963 ACT, AND, THUS, THE SURPLUS REM AINING IN THE MARKET FUND WAS NEITHER DISTRIBUTED NOR ACCUMULATED AS PROFITS, AND IN THESE CIRCUMSTANCES, THE HONBLE HIGH COURT HELD THAT IT CANNOT BE SAID THAT THE MARKET COMMITTEES ARE ESTABLISHED WITH PROFIT MOTIV E SO AS TO DENY REGISTRATION UNDER SEC. 12A/12AA OF THE ACT. THIS PROPOSITION LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IS SQUARELY APPLICABL E TO THE FACTS OF THE PRESENT CASE, WHERE THE PROFIT OR SURPLUS REMAINING WITH THE ASSESSEE WAS USED FOR CARRYING OUT THE OBJECTS OF THE ASSESSEE A SSOCIATION AND IT WAS NEITHER DISTRIBUTED AS PROFIT OR DIVIDEND AMONGST T HE MEMBERS NOR ACCUMULATED AS PROFITS FOR DISTRIBUTION. 24. THE LEARNED CIT HAS ALSO GIVEN ONE MORE REASON THAT IT IS NOT COMPREHENSIBLE AS TO WHY NOT THE ASSESSEE GOT ITSEL F REGISTERED AS A SOCIETY, 18 IF THE MOTIVE OF THE ASSESSEE WAS TO DO ACTIVITIES OF PUBLIC CHARITY. THIS REASON GIVEN BY THE CIT IS FOUND, IN OUR CONSIDERED VIEW, TO BE IMPROPER. IT IS NOT NECESSARY THAT IN ORDER TO DO PUBLIC CHARITY , ANY ONE ASSOCIATION IS TO BE REGISTERED AS A SOCIETY OR A TRUST. IN THE CASE OF CIT VS. AGRICULTURAL PRODUCE AND MARKET COMMITTEE (SUPRA), THE HONBLE B OMBAY HIGH COURT NAGPUR BENCH HAS HELD THAT THERE IS NO REQUIREMENT UNDER THE ACT THAT AN INSTITUTION CONSTITUTED FOR ADVANCEMENT OF ANY OBJE CT OF GENERAL PUBLIC UTILITY MUST BE REGISTERED AS A TRUST. THEREFORE, IN THE P RESENT CASE BEFORE US, MERE BECAUSE THE ASSESSEE ASSOCIATION IS REGISTERED AS C OMPANY UNDER SEC. 25 OF THE COMPANIES ACT, THAT BY ITSELF CANNOT BE A GROUN D TO REFUSE REGISTRATION UNDER SEC. 12A/12AA OF THE ACT. THUS, THIS GROUND OF REJECTION OF REGISTRATION BY THE COMMISSIONER OF INCOME-TAX, IS ALSO REJECTED. 25. FOR THE REASONS GIVEN ABOVE, WE, THEREFORE, DIR ECT THE COMMISSIONER OF INCOME-TAX TO GRANT REGISTRATION UNDER SEC. 12A/ 12AA OF THE ACT, TO THE ASSESSEE. 26. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 27. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 28 TH JANUARY, 2011. SD/- SD/- (K.G. BANSAL) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 28 TH JANUARY, 2011. 19 ITA NO.1374/DEL/2010 COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.