Appeal details
Counselvise Citation
[2017] 127 COUNSELVISE.COM (IT) 6456 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
9 month(s) 27 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
09-08-2017
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
C
Next Hearing Date
04-05-2017
Assessment Year
2011-2012
Appeal Filed On
13-10-2016
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NOS.2919 & 2920/MDS/2016 ( / ASSESSMENT YEARS: 2011-12 & 2012-13) M/S. MAHASEMAM TRUST, NO.2/47-B, MELUR ROAD, UTHANGUDI, MADURAI 625 107. VS THE INCOME TAX OFFICER, WARD II (4), MADURAI PAN: AAATM7040C ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI K.G. RAGHUNATH, ADVOCATE /RESPONDENT BY : SHRI A.V. SREEKANTH, JCIT /DATE OF HEARING : 07.08.2017 ! /DATE OF PRONOUNCEMENT : 09.08.2017 / O R D E R PER A.MOHAN ALANKAMONY, AM:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE COMMON ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS), MADURAI DATED 25.03.2016 IN ITA NOS.0146/2014-15 & 0046/2015- 16 FOR THE ASSESSMENT YEARS 2011-12 & 2012-13 PASSE D U/S.250(6) R.W.S.143(3) OF THE ACT. 2 ITA NO.291 9& 2920/MDS/2016 2. THE ASSESSEE HAS RAISED FIVE IDENTICAL GROUNDS IN ITS APPEALS, HOWEVER THE CRUXES OF THE ISSUE ARE THAT (I) THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF THE LD.AO, WHO HAD HELD THAT THE ASSESSEE IS INVOLVED IN BUSIN ESS ACTIVITY AND NOT PUBLIC CHARITABLE ACTIVITIES AND T HEREBY WITHDREW THE BENEFIT OF SECTION 11 & 12 OF THE ACT, BY INVOKING THE PROVISIONS OF SECTION 13(8) OF THE ACT . (II) THE LD.CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF THE LD.AO WHO HAD DISALLOWED THE EXPENSES INCURRED BY THE ASS ESSEE TOWARDS CONSULTATION CHARGES IN AN ARBITRARY MANNER INVOKING THE PROVISIONS OF SECTION 13(2)(C) R.W.S. 40A(2) OF THE ACT, WITHOUT CONSIDERING THE FACT THAT THE APPELLANT WAS MAKING PAYMENT TOWARDS SERVICE RECEIVED FROM VARIOUS PROFESSIONALS, WHO WERE CONSULTANTS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A TRUST REGISTERED U/S.12AA OF THE ACT, ENGAGED IN THE BUSI NESS OF PROVIDING MICRO FINANCE SERVICES TO SELF-HELP GROUP S, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEARS 2011-12 & 2012-1 3 ON 30.09.2011. THE CASE WAS SELECTED FOR SCRUTINY UND ER CASS AND FINALLY ORDER WAS PASSED U/S.143(3) OF THE ACT FOR THE ASSESSMENT YEARS 2011-12 & 2012-13 ON 30.03.2014 & 31.03.2015, WHEREIN 3 ITA NO.291 9& 2920/MDS/2016 THE LD.AO WITHDREW THE BENEFIT OF SECTION 11 & 12 T O THE ASSESSEE AND BROUGHT TO TAX THE EXCESS OF INCOME OVER EXPEND ITURE BY FURTHER DISALLOWING THE EXPENDITURE INCURRED TOWARD S CONSULTATION FEE AS ALLOWABLE DEDUCTION, AGGREGATING TO RS.56,17 ,300/- & RS.99,01,142/- FOR THE ASSESSMENT YEAR 2011-12 & 20 12-13 RESPECTIVELY. 4. IN THE CASE OF THE ASSESSEE, IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE TRUST WAS INVOLVED ONLY IN THE AC TIVITY OF PROVIDING MICRO-FINANCE ASSISTANCE TO SELF HELP GROUPS (SHGS) . THEREFORE THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS. DUR ING THE COURSE OF SCRUTINY ASSESSMENT, THE LD.AO NOTICED THE FOLLO WING IRREGULARITIES:- (I) THE ASSESSEE TRUST HAS PAID CONSULTATION CHARGE S TO THE TRUSTEES AND THEIR RELATIVES VARYING FROM RS.4,20,0 00/- TO RS.12,00,000/- PER ANNUM. FROM THE RETURN OF INCOM E FILED BY THE TRUSTEES DR. N. SETHURAMAN, DR. S.PRATHIBA ( D/O. DR. N. SETHURAMAN), DR. S. GURUSANKAR (S/O DR. N. SETHURAMAN) AND OTHERS, IT WAS REVEALED THAT THEY W ERE IN RECEIPT OF PROFESSIONAL FEES FROM VARIOUS CONCERNS WHICH INDICATED THAT THEY CANNOT CONTRIBUTE THEIR ENTIRE TIME FOR 4 ITA NO.291 9& 2920/MDS/2016 THE TRUST. THEREFORE THE LD.AO OPINED THAT THE PAY MENTS MADE TO THE TRUSTEES BY THE ASSESSEE TOWARDS CONSUL TATION CHARGES ARE NOT REASONABLE. (II) THE AFORESAID AMOUNT CLAIMED BY THE TRUSTEES A S HONORARIUMS WHICH THE ASSESSEE IS NOT ENTITLED. (III) THE ACTIVITY OF LENDING MONEY TO SHGS CANNOT BE REGARDED AS AN ACTIVITY OF RELIEF TO THE POOR BECAUSE THE INTEREST RATE CHARGED BY THE ASSESSEE TRUST IS HIGHER THAN T HE RATE OF INTEREST CHARGED BY THE BANKS. (IV) MERE EXISTENCE OF THE OBJECTS IN THE TRUST DEE D SUCH AS RELIEF TO THE POOR IS NOT SUFFICIENT TO ASSESS TH E REAL CHARACTER OF THE TRUST; BUT THE ACTUAL PERFORMANCE OF THE TRUST SHOULD BE THAT OF PROVIDING RELIEF TO THE POO R. (V) IN THE CASE OF THE ASSESSEE, THE ASSESSEE HAS O BTAINED LOAN FROM THE BANK AND HAD FURTHER LEND TO THE SHGS CHARGING HIGHER INTEREST THAN WHAT IS CHARGED BY TH E BANK TO THE ASSESSEE. THUS THE ASSESSEE HAS NEITHER FAC ILITATED THE SHGS FROM AVAILING MICRO-FINANCE LOANS DIRECTLY FROM THE BANK NOR IT HAS PASSED ON THE BENEFITS DIRECTLY TO THE SHGS WITHOUT CHARGING EXTRA INTEREST COSTS. 5 ITA NO.291 9& 2920/MDS/2016 (VI) CHARGING OF ADDITIONAL INTEREST TO THE SHGS AN D THEREBY DERIVING SURPLUS CANNOT BE CONSIDERED AS A CHARITAB LE ACTIVITY. (VII) THOUGH THE ASSESSEE HAD MADE CLAIM TO HAVE CO NDUCTED MEDICAL CAMPS, IT IS EVIDENT THAT SUCH CAMPS WERE CONDUCTED ONLY BY OTHER TRUSTS AND THE ASSESSEE HAS ONLY ACTED AS A FACILITATOR. (VIII) THE CLASSIFICATION OF CREDITS BY THE RBI AS PRIORITY SECTOR ADVANCES CANNOT BE CONSTRUED AS RELIEF OF THE POO R AS ENVISAGED IN THE INCOME TAX ACT. (IX) THE ACTIVITY OF MICRO-FINANCING BY THE ASSESSE E CAN BE INFERRED ONLY TO FALL UNDER THE FIELD ANY OTHER OB JECTS OF PUBLIC UTILITY AND NOT UNDER THE FIELD RELIEF TO THE POOR. (X) RELIANCE WAS PLACED IN THE DECISION OF ADIT(EXE MPTION) VS. BHARATHA SWAMUKHI SAMASTHE IN ITA NO.1121/BANGALORE/2008, M/S. KURINJI SOCIAL WELFARE SOCIETY VS. THE ACIT IN ITA NO.1594/MDS/2009, DISHA INDIA MICRO CREDIT VS. CIT, MUZAFFARNAGAR IN ITA NO.1374/DEL/2010 AND JANALAKSHMI SOCIAL SERVICE VS. DIRECTOR OF EXEMTPIONS (BANGALORE) REPORTED IN (200 9) 33 SOT 197. 6 ITA NO.291 9& 2920/MDS/2016 WITH THE ABOVE OBSERVATION, THE LD.AO CAME TO A CON CLUSION THAT THE MICRO-FINANCE ACTIVITY OF THE TRUST IS CLEARLY A BUSINESS ACTIVITY AND NOT AN ACTIVITY FOR RENDERING RELIEF TO THE POO R AND THEREFORE WITHDREW THE BENEFIT OF SECTION 11 & 12 TO THE ASSE SSEE AND ALSO DISALLOWED THE EXPENDITURE TOWARDS CONSULTATION FEE S PAID TO CONSULTANTS AS IT WAS OPINED TO BE IN EXCESS OR RAT HER UNWANTED. 5. ON APPEAL, THE LD.CIT(A) CONCURRED WITH THE VIE W OF THE LD.AO BY HOLDING THAT ONE OF THE MAJOR ACTIVITY OF THE APPELLANT IS MICRO-FINANCING BY OBTAINING LOAN FROM THE BANK AND LENDING TO SHGS AT HIGHER INTEREST, THEREFORE HIT BY THE FIRST PROVISO TO SECTION 2(15) AND SECTION 13(8) OF THE ACT. 6. BEFORE US THE LD.AR REITERATED THE ARGUMENTS MA DE BEFORE THE REVENUE AUTHORITIES ON THE EARLIER OCCASIONS AN D FURTHER ARGUED BY STATING AS FOLLOWS:- (I) THE ASSESSEE TRUST WERE ENGAGED IN VARIOUS ACTI VITIES TO UPLIFT THE POOR BY IDENTIFYING THE VILLAGES, ORGANI ZING PROFESSIONAL VISIT TO RURAL AREAS, EDUCATING THE PO OR PEOPLE BY FORMING SHGS, HOLDING MEETINGS AND WORKSHOPS, 7 ITA NO.291 9& 2920/MDS/2016 ADVISING THE SHGS IN FORMING FAIR PRICE SHOPS, SO O N AND SO FORTH. (II) IN ORDER TO HELP THE SHGS THE ASSESSEE TRUST W AS ORGANIZING FUNDS THROUGH BANK LOANS AND EXTENDING T HEM TO SHGS AT A NOMINAL MARKUP IN ORDER TO COVER THE OVERHEADS AND THE BAD DEBTS ARISING ON THE ADVANCES MADE. THEREFORE IT CANNOT BE TREATED AS A COMMERCIA L ACTIVITY. (III) THE TRUSTEES AND THEIR RELATIVES ARE SKILLED AND EDUCATED PROFESSIONALS WHO WERE SPENDING CONSIDERABLE TIME F OR PROMOTING AND CONDUCTING THE OBJECTS OF THE TRUST D UE TO WHICH THEY WERE COMPENSATED WITH NOMINAL FEES. (IV) THE ASSESSEES TRUST CANNOT EXIST UNLESS FUNDS ARE GENERATED TO MEET OUT ITS OBJECTS. (V) THERE IS NO FINDING BY THE REVENUE THAT THE ASS ESSEES TRUST WAS SERVICING THE RICH AND THE AFFLUENT. (VI) MICRO-FINANCING ACTIVITY TO FACILITATE THE POO R IN ORDER TO EARN THEIR DAILY LIVELIHOOD IS NOTHING BUT RELIEF TO THE POOR AS ENVISAGED UNDER THE ACT. (VII) THE ASSESSEE ALSO PLACED RELIANCE IN THE DECI SION OF THE TRIBUNAL IN THE CASE M/S. MICROCREDIT FOUNDATION OF INDIA VS. ACIT IN ITA NO.410/MDS/2012 & ITA NO.075/MDS/20 13, 8 ITA NO.291 9& 2920/MDS/2016 M/S. TIRUCHIRAPPALLI MULTIPURPORSE SOCIAL SERVICE S OCIETY VS. ACIT IN ITA NO.654/MDS.2013, DCIT VS. M/S. SOCI ETY FOR RURAL IMPROVEMENT IN ITA NO.329/COCH/2014 AND T HE ORDER OF APEX COURT IN ACIT VS. THANTHI TRUST ETC., DATED 31.01.2001. THE LD.AR ALSO FILED A PAPER BOOK CONTAINING THE DE TAILS AND PROOF OF ALL THE ACTIVITIES CONDUCTED BY IT RUNNING FROM 50 TO 76 PAGES. THE LD.DR ON THE OTHER HAND RELIED ON THE O RDERS OF THE LD. REVENUE AUTHORITIES AND ARGUED IN SUPPORT OF THE SA ME. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS ON RECORD. FROM THE FACTS OF THE CAS E, IT IS APPARENT THAT THE REVENUE HAD WITHDRAWN THE BENEFIT OF SECTI ON 11 & 12 OF THE ACT TO THE ASSESSEE ONLY FOR THE REASON THAT TH E ASSESSEES ACTIVITY IS MICRO-FINANCING BY OBTAINING LOAN FROM BANK AND LENDING THEM TO SHGS AT A HIGHER INTEREST. HOWEVER, SURPRI SINGLY WE FIND THAT THE REVENUE HAS GRANTED REGISTRATION TO THE AS SESSEE TRUST WHOSE MAIN OBJECTIVE IS MICRO-FINANCING. FURTHER F ROM THE DECISION CITED BY THE ASSESSEE HEREIN ABOVE, IT IS CLEAR THA T THE ACTIVITY OF MICRO-FINANCING BY ITSELF CANNOT BE CONSIDER AS NOT PROVIDING RELIEF TO THE POOR UNLESS AND UNTIL THERE IS A FINDING TH AT THE MICRO- 9 ITA NO.291 9& 2920/MDS/2016 FINANCING ACTIVITY IS RENDERED TO SERVICE THE RICH AND THE AFFLUENT. IN THE CASE OF THE ASSESSEE, THERE IS NO FINDING BY TH E REVENUE THAT THE ASSESSEE TRUST HAS EXTENDED THE MICRO-FINANCING FACILITY TO RICH AND THE AFFLUENT. MOREOVER, THE ASSESSEE HAS CLAIM ED THROUGHOUT IN THE ASSESSMENT PROCEEDINGS AS WELL AS THE PROCEE DINGS BEFORE THE FIRST APPELLATE AUTHORITY, THAT THE TRUST HAS B EEN EXTENDING SERVICE TO THE POOR IN RURAL AREAS FOR UPLIFTING TH E DOWNTRODDEN; HOWEVER THE REVENUE HAD NOT MADE ANY FINDING OTHERW ISE. FURTHER FROM THE HONBLE APEX COURT DECISION IN THE CASE OF THANTHI TRUST SUPRA, IT CAN BE INFERRED THAT MERE GENERATION OF S URPLUS CANNOT FRUSTRATE THE PROVISIONS OF SECTION 2(15) OF THE AC T, WHEN SUCH SURPLUS IS UTILIZED FOR OBTAINING THE OBJECTS OF TH E TRUST. THE CLAIM OF THE ASSESSEE WHICH IS SUPPLEMENTED BY THE PAPER BOOK FURNISHED BY THE ASSESSEE IS THAT, THE ASSESSEES T RUST IS RENDERING SERVICE TO THE POOR AND NEEDY BY EXTENDING MICRO-FI NANCE LOANS IN ORDER TO HELP THE POOR AND DOWNTRODDEN TO EARN THEI R LIVELIHOOD. THIS CLAIM OF THE ASSESSEE IS NOT NEGATED BY THE RE VENUE IN ANY OF THEIR FINDINGS WHICH ESTABLISHES THE FACT THAT THE ASSESSEE TRUST IS LENDING ONLY TO SHGS CONSISTING OF POOR AND DOWNTR ODDEN. FURTHER IT IS APPARENT FROM THE ORDERS OF THE LD.AO THAT FO R THE ASSESSMENT YEAR 2011-12, THE ASSESSEE TRUST HAS EARNED INTERES T INCOME OF RS.24,46,05,545/- AND RS.14,40,12,032/- FOR THE ASS ESSMENT YEAR 10 ITA NO.29 19& 2920/MDS/2016 2012-13. EVEN THOUGH THE ASSESSEE HAD RECEIVED SUC H ENORMOUS INTEREST INCOME, THE EXCESS OF INCOME OVER EXPENDIT URE FOR THE ASSESSMENT YEAR 2011-12 AND 2012-13 COMPUTED BY THE LD.AO IS ONLY RS.21,22,319/- AND RS.91,51,142/- RESPECTIVELY . THUS IT IS EVIDENT THAT MOST OF THE INCOME EARNED BY THE ASSES SEE IS UTILIZED FOR ATTAINING THE OBJECTS OF THE ASSESSEE TRUST. P ROVISO TO SECTION 2(15) OF THE ACT ALSO DOES NOT BAR THE ASSESSEE FRO M EARNING INCOME DURING THE COURSE OF ITS ACTIVITIES SUCH AS RELIEF TO THE POOR. WHEN THE ASSESSEE HAS UTILIZED ITS ENTIRE FUNDS FOR MICRO-FINANCING IN ORDER TO UPLIFT THE POOR THEN THE BENEFIT OF SEC TION 11 & 12 OF THE ACT CANNOT BE DENIED TO THE ASSESSEE JUST BECAUSE T HE ASSESSEE HAS CHARGED SOME MARKUP IN ITS LENDING RATES OF INT EREST. IT IS PERTINENT TO MENTION THAT SOME MARKUP IN THE LENDIN G RATES IS ESSENTIAL TO COVER UP THE ADMINISTRATION COST AND B AD DEBTS ARISING OUT OF THE ADVANCES. IT IS ALSO A WELL-KNOWN FACT T HAT TO OBTAIN LOAN FROM BANKS IS A CUMBERSOME PROCESS WHICH ANY ORDINA RY PERSONS CANNOT SUCCEED. ENTITIES SUCH AS THE ASSESSEE TRUST ONLY HAS A POTENTIAL TO REACH OUT TO SUCH PERSONS AND EFFECTIV ELY AVOID LOSS OF CAPITAL AND YET LIFT THE POOR AND THE DOWNTRODDEN. CONSIDERING THE FACTS AND CIRCUMSTANCE OF THE PRESENT CASES BEFORE US, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE TRUST HAS REN DERED SERVICE IN THE NATURE OF PROVIDING RELIEF TO THE POOR AS ENVISAGED IN THE ACT 11 ITA NO.29 19& 2920/MDS/2016 AND THEREFORE THE BENEFIT OF SECTION 11 & 12 OF THE ACT CANNOT BE DENIED. HENCE, WE HEREBY SET ASIDE THE ORDER OF TH E LD.A.O AND THE LD. CIT(A) AND FURTHER DIRECT THE LD.AO TO GRAN T THE BENEFIT OF SECTION 11 & 12 OF THE ACT, TO THE ASSESSEE. WE HA VE ALSO EXAMINED THE VARIOUS EXTENSIVE ACTIVITIES CONDUCTED BY THE ASSESSEE TRUST AND THE CONSIDERABLE TIME SPENT BY T HE TRUSTEES AS WELL AS THEIR RELATIVES AND IS OF THE CONSIDERED VI EW THAT THE CONSULTATION FEE RANGING FROM RS.4 LAKHS TO RS.12 L AKHS PAID TO THE TRUSTEES IS QUITE REASONABLE. THEREFORE, WE DO NOT FIND THE ASSESSEES TRUST TO HAVE VIOLATED ANY OF THE PROVIS IONS OF THE ACT. 8. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E FOR BOTH THE ASSESSMENT YEARS ARE ALLOWED. ORDER PRONOUNCED ON THE 09 TH AUGUST, 2017 AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER '# /CHENNAI, $% /DATED 09 TH AUGUST, 2017 JR % '( )( /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. , ( )/CIT(A) 4. , /CIT 5. (-. / /DR 6. .0 /GF
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