Community Development Centre, Theni V. ITO, Theni

ITA 1998/CHNY/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4500 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 23-09-2013
• Assessment Year: misc
• Appeal Filed On: 24-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAILENDRA MAMIDI IRS
• Assessee Lawyers: G BASKAR
• Keywords: Charitable institution
• Section: 80G; 12AA

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.2207 & 1998(MDS)/2010 COMMUNITY DEVELOPMENT CENTRE, MAIN ROAD, (NEAR GHAT ROAD), GENGUVARPATTI, TENI DIST. 625 203. PAN AAATC4444L. VS. THE INCOME-TAX OFFICER, WARD I(1), THENI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G.BASKA R, ADVOCATE RESPONDENT BY : SHRI SAILENDRA M AMIDI, IRS, CIT DATE OF HEARING : 23 RD SEPTEMBER, 2013 DATE OF PRONOUNCEMENT : 23 RD SEPTEMBER, 2013 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT THESE TWO APPEALS ARE FILED BY THE ASSESSEE. THE APPEALS ARE DIRECTED AGAINST THE ORDER OF THE COMMI SSIONER OF INCOME-TAX-I AT MADURAI, CANCELLING THE REGISTRATIO N GRANTED TO THE ASSESSEE UNDER SECTION 12AA OF THE INCOME-TAX A CT, 1961 - - ITA 2207 & 1998 OF 2010 2 AND THE ORDER OF THE COMMISSIONER OF INCOME-TAX MAD URAI, REFUSING RENEWAL OF APPROVAL UNDER SECTION 80G(5) O F THE ACT. THE ORDER DECLINING THE RENEWAL UNDER SECTION 80G H AS BEEN PASSED BY THE COMMISSIONER OF INCOME-TAX ON 20-9-20 10. THE OTHER ORDER UNDER SECTION 12AA(3), CANCELLING THE R EGISTRATION, HAS BEEN PASSED ON 6-12-2010. 2. WE HEARD SHRI G.BASKAR, THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE AND SHRI SAILENDRA MAMID I, THE LEARNED COMMISSIONER OF INCOME-TAX APPEARING FOR TH E REVENUE. 3. THE ASSESSEE, A CHARITABLE INSTITUTION, HAS BEE N ENJOYING THE BENEFIT OF REGISTRATION GRANTED UNDER SECTION 12AA OF THE ACT, SINCE 2003. THE ASSESSEE IS REGISTERED AS A CHARITABLE INSTITUTION TO CARRY ON DIFFERENT CHARITABLE ACTIVI TIES IN THE DISTRICT OF THENI IN TAMIL NADU. THIS REGISTRATION HAS BEEN CANCELLED BY THE COMMISSIONER OF INCOME-TAX ON 6-12-2010, THROUG H HIS ORDER PASSED UNDER SECTION 12AA(3), MAINLY ON THE GROUND THAT THE ASSESSEE IS NOT CARRYING ON ANY CHARITABLE ACTIVITI ES, BUT, IN FACT, THE ASSESSEE IS CARRYING ON MICRO-FINANCE ACTIVITIE S. ACCORDING - - ITA 2207 & 1998 OF 2010 3 TO THE COMMISSIONER OF INCOME-TAX, CARRYING ON OF M ICRO- FINANCING IS NOTHING BUT A BUSINESS ACTIVITY. 4. THIS ISSUE WAS CONSIDERED AT LENGTH BY THE TRIB UNAL AT THE TIME OF HEARING. WE HAVE GONE THROUGH THE M ATERIALS AVAILABLE BEFORE US IN THE FORM OF THE APPEAL FOLDE R, ALL ORDERS OF THE LOWER AUTHORITIES AS WELL AS THE TWO VOLUMES OF THE PAPER- BOOK FILED BY THE ASSESSEE BEFORE US. 5. GENERALLY SPEAKING, MICRO-FINANCING INSTITUTION S, IPSO FACTO, DO NOT TAKE THE CHARACTER OF CHARITABLE INSTITUTIONS. THIS IS BECAUSE THE ACTIVITY OF MICRO-FINANCING COU LD BE EITHER A BUSINESS ENDEAVOR OR A CHARITABLE ACTIVITY. A DECI SION IS POSSIBLE ONLY ON A VERIFICATION AND APPRECIATION OF THE FACT S SURROUNDING EACH CASE. 6. IT IS TRUE IN THE PRESENT CASE THAT ONE OF THE ACTIVITIES CARRIED ON BY THE ASSESSEE IS PROVIDING MICRO-FINAN CE TO SELF HELP GROUPS (SHGS). THE ASSESSEE IS GETTING LOANS AND ADVANCES FROM BANKS AT THE RATE OF 9 PER CENT INTER EST. THESE - - ITA 2207 & 1998 OF 2010 4 FUNDS AVAILED BY WAY OF BANK LOANS ARE DISTRIBUTED TO VARIOUS SHGS AT THE RATE OF 12 PER CENT INTEREST. THE SHGS , IN THEIR TURN, DISTRIBUTE THE MONEY TO THE ULTIMATE BENEFICIARIES IN THE FORM OF SMALL TIME LOANS TO HELP THEM TO SET UP INCOME GENE RATING ACTIVITIES SO THAT THE BENEFICIARIES ARE ASSURED A REGULAR SOURCE OF INCOME FOR SUSTAINABLE DEVELOPMENT. 7. IF THE ASSESSEE IS CARRYING ON THE ACTIVITY OF SIMPLY DISTRIBUTING THE LOANS AVAILED FROM THE BANKS TO DI FFERENT SHGS, IT COULD BE POSSIBLE TO ARGUE THAT THE ASSESSEE AS SUC H IS NOT CARRYING ON ANY CHARITABLE ACTIVITIES. BUT, IN THE PRESENT CASE, THE CASE IS DIFFERENT. AS ALREADY STATED, THE ASSE SSEE IS GETTING LOANS FROM BANKS AT 9 PER CENT INTEREST AND THE FUN DS ARE DISTRIBUTED TO SHGS AT THE RATE OF 12 PER CENT. TH E ASSESSEE IS GETTING A MARGIN OF 3 PER CENT IN THIS PROCESS. TH E FUND GENERATED IN THE HANDS OF THE ASSESSEE AS A RESULT OF THE ABOVE 3 PER CENT MARGIN IS NOT CONSUMED BY THE ASSESSEE F OR THE PURPOSE OF ITS ADMINISTRATIVE REQUIREMENTS ALONE. THE ASSESSEE IS COLLECTING FUNDS THROUGH THIS 3 PER CENT DIFFERE NCE AND THOSE FUNDS ARE DIRECTLY SPENT BY THE ASSESSEE FOR THE BE NEFIT AND - - ITA 2207 & 1998 OF 2010 5 UPLIFTMENT OF THE POOR PEOPLE LIVING IN THENI DISTR ICT AND SURROUNDING AREAS. THE ASSESSEE IS CARRYING ON VAR IOUS EDUCATIONAL ACTIVITIES, SOCIAL AWARENESS ACTIVITIES , SELF- EMPLOYMENT AND SUPPORTS VARIOUS OTHER SIMILAR CHARI TABLE ACTIVITIES. ALL THESE ACTIVITIES ARE CARRIED OUT F OR THE BENEFIT OF THE PUBLIC AT LARGE. IN THAT WAY, THE ASSESSEE IS CARR YING OUT TWO- PRONGED ACTIVITIES WITH THE AIM OF DEVELOPMENT OF T HE POOR AND THE MARGINALIZED PEOPLE LIVING IN BACKWARD AREAS. ON THE ONE HAND, THE ASSESSEE IS MAKING AVAILABLE TO THE POOR PEOPLE LOAN FINANCE AT A REASONABLE RATE OF INTEREST. THESE LO ANS DISTRIBUTED TO THE SHGS ARE MONITORED CONSISTENTLY TO SEE THAT THOSE FUNDS ARE ULTIMATELY USED FOR THE BENEFIT OF DEVELOPING U SEFUL EMPLOYMENT TO THE BENEFICIARIES. IN THAT WAY, THE ASSESSEE IS AUGMENTING THE ECONOMIC INDEPENDENCE OF THE POOR AN D THE MARGINALIZED PEOPLE OF THE SOCIETY. SECONDLY, THE ASSESSEE EARNS INCOME BY WAY OF THE MARGIN OF 3 PER CENT AND THAT INCOME IS ALSO DIRECTLY SPENT FOR THE DIFFERENT CHARITABLE ACTIVITIES, AS MENTIONED ABOVE. - - ITA 2207 & 1998 OF 2010 6 8. IN THESE CIRCUMSTANCES, IT IS NOT POSSIBLE TO W RITE OFF THE CASE OF THE ASSESSEE, POINTING IT AS AN INSTITU TION ENGAGED IN THE BUSINESS OF MICRO-FINANCING. ONE OF THE OTHER REASONS POINTED OUT BY THE COMMISSIONER OF INCOME-TAX IS TH AT THE MAIN EXPENDITURE OF THE ASSESSEE IS PAYMENT OF INTEREST AND ONLY A SMALL PORTION IS AVAILABLE FOR CARRYING ON ITS ACTI VITIES. THIS IS NOT A DEFECT THAT COULD BE HELD AGAINST THE ASSESSEE. IT IS THE FAIT ACCOMPLI OF THE ASSESSEE THAT THE ASSESSEE IS DISTR IBUTING FUNDS TO SHGS AT THE RATE OF 12 PER CENT NOT OUT OF FREE FUNDS AVAILABLE IN ITS HANDS. THE ASSESSEE IS COLLECTING THE NECES SARY FUNDS FROM BANK LOANS AT THE RATE OF 9 PER CENT. THEREFO RE, IT IS OBVIOUS THAT THE MAIN EXPENDITURE OF THE ASSESSEE IS BY WAY OF INTEREST PAYMENTS TO BANKS. THIS INTEREST PAYMENT IS NOT IN CURRED AT THE WILL OF THE ASSESSEE. THE ASSESSEE IS BOUND TO PAY INTEREST TO THE BANKS. THEREFORE, THE QUESTION OF PAYMENT OF I NTEREST TO THE BANKS AND THE SAID INTEREST PAYMENTS, BEING THE PRI NCIPAL ITEM OF EXPENDITURE IN THE HANDS OF THE ASSESSEE, CANNOT BE CONSIDERED AS A CASE AGAINST THE ASSESSEE. THE INCIDENCE OF S UCH INTEREST EXPENDITURE IS IMPERATIVE. THE REMAINING 3 PER CEN T SURPLUS - - ITA 2207 & 1998 OF 2010 7 AVAILABLE WITH THE ASSESSEE IS SPENT ON CHARITABLE ACTIVITIES FOR THE BENEFIT OF THE DOWNTRODDEN. 9. IT IS TO BE FURTHER SEEN THAT THE REGISTRATION UNDER SECTION 12AA WAS GIVEN TO THE ASSESSEE ON THE SAME SET OF FACTS AFTER APPRECIATING THAT THE ACTIVITIES CARRIED ON B Y THE ASSESSEE ARE CHARITABLE IN NATURE. THERE IS NO CHANGE OR AN Y PARADIGM SHIFT IN THE ACTIVITIES CARRIED ON BY THE ASSESSEE SINCE ITS INCEPTION. THEREFORE, WE FIND THAT THE COMMISSIONE R OF INCOME- TAX IS NOT JUSTIFIED IN PASSING AN ORDER UNDER SECT ION 12AA(3) TO CANCEL THE REGISTRATION AVAILABLE TO THE ASSESSEE U NDER SECTION 12AA OF THE ACT. 10. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DIRECT THE COMMISSIONER OF INCOME-TAX TO RESTORE TH E REGISTRATION TO THE ASSESSEE ALREADY GRANTED AND GIVE THE BENEFI T OF THE REGISTRATION UNDER SECTION 12AA TO THE ASSESSEE WIT HOUT ANY BREAK FROM THE DATE OF FIRST GRANTING THE REGISTRAT ION ON 8-9-2003. 11. IN VIEW OF OUR ORDER REGARDING THE MATTER OF S ECTION 12AA REGISTRATION AND FOR THE REASONS EXPLAINED IN THE ABOVE - - ITA 2207 & 1998 OF 2010 8 PARAGRAPHS, WE DO NOT FIND THAT THERE IS ANY REASON TO REFUSE RENEWAL OF APPROVAL GRANTED TO THE ASSESSEE UNDER S ECTION 80G(5) OF THE ACT. WE DIRECT THE COMMISSIONER OF I NCOME-TAX TO RENEW APPROVAL IN FAVOUR OF THE ASSESSEE UNDER SECT ION 80G OF THE ACT. 12. IN RESULT, BOTH THE APPEALS FILED BY THE ASSES SEE ARE ALLOWED. ORDERS PRONOUNCED IN THE OPEN COURT AT THE TIME O F HEARING ON MONDAY, THE 23 RD OF SEPTEMBER, 2013 AT CHENNAI. SD/- SD/- (VIKASAWASTHY) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED, THE 23 RD SEPTEMBER, 2013. V.A.P. COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GF.