ITO, Trichy V. Nanaya Surabhi Development Financial Services, Trichy

ITA 393/CHNY/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8662 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 17-06-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 23-02-2015
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: S SRIDHAR
• Keywords: Charitable institution
• Section: 12AA; 11

Judgement Text

, - , IN THE INCOME TAX APPELLATE TRIBUNAL SMC-B BENCH : CHENNAI . . . , [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER ] ./ I.T.A.NO.2050/MDS/2014 & 393/MDS/2015 / ASSESSMENT YEAR : 2010-11 & 2011-12 THE ASSTT. COMMISSIONER OF INCOME-TAX , CIRCLE I(2)/ ITO, EXEMPTIONS WARD TRICHY VS. M/S NANAYA SURABHI DEVELOPMENT FINANCIAL SERVICES NO.2A, ISHWARYA APARTMENTS 48, OFFICERS COLONY PUTHUR, TRICHY - 17 [PAN AACCN 1141 J ] ( !' / APPELLANT) ( #$!' /RESPONDENT) / APPELLANT BY : SHRI N. MADHAVAN, JCIT /RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE / DATE OF HEARING : 17 - 06 - 2016 / DATE OF PRONOUNCEMENT : 24 - 08 - 2016 / O R D E R BOTH THE APPEALS OF THE REVENUE ARE DIRECTED AGAI NST THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME-TA X (APPEALS), TIRUCHIRAPALLI, FOR ASSESSMENT YEARS 2010-11 AND 2 011-12. SINCE COMMON ISSUE ARISES FOR CONSIDERATION IN BOTH THE A PPEALS, I HEARD THEM TOGETHER AND DISPOSING OF THE SAME BY THIS CO MMON ORDER. 2. SHRI N. MADHAVAN, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE-COMPANY IS REGISTERED U/S 25 OF THE ITA NO.2050/14 &393/15 :- 2 -: INDIAN COMPANIES ACT, 1956. THE MAIN OBJECT OF THE ASSESSEE- COMPANY IS OFFERING MICRO FINANCING FACILITY TO THE MEMBERS OF SELF-HELP GROUPS CALLED SURABHI AND DEVELOP THEIR ECONOMIC FINANCIAL AND SOCIAL STATUS. THE ASSESSING OFFICER FOUND THAT THE ASS ESSEE BORROWED HUGE LOANS FROM BANKS AND OTHER FINANCIAL INSTITUTIONS A ND ADVANCED THE SAME TO THE SO CALLED SELF-HELP GROUPS FOR HIGHER R ATE OF INTEREST. THE ASSESSEE HAS ALSO EARNED ADDITIONAL INCOME IN THE NAME OF OPERATIONAL INCOME FROM THE SO CALLED SELF-HELP GRO UPS. DURING THE ASSESSMENT YEAR 2010-11, THE TOTAL AMOUNT COLLECTED FROM THESE SELF- HELP GROUPS WAS TO THE EXTENT OF ` 3,05,92,930/- WHICH IS MUCH HIGHER THAN THE INTEREST PAID TO THE BANK AND FINANCIAL IN STITUTIONS OF ` 1,54,02,472/-. THE LD. DR FURTHER SUBMITTED THAT THE ACTIVITY OF MICRO FINANCING MAY FALL UNDER THE CATEGORY OF GENERAL P UBLIC UTILITY. ADVANCING MONEY TO VARIOUS SELF-HELP GROUPS IS IN T HE NATURE OF TRADE, COMMERCE ETC, THEREFORE, THE ACTIVITY OF THE ASSES SEE CANNOT BE CONSIDERED TO BE A CHARITABLE ONE. REFERRING TO PR OVISO TO SEC. 2(15) OF THE ACT, THE LD. DR SUBMITTED THAT THE SURPLUS EARN ED BY THE ASSESSEE FROM THE SO CALLED MICRO FINANCING ACTIVITY CANNOT BE CLAIMED AS EXEMPT U/S 11 OF THE ACT. HOWEVER, ON APPEAL BY T HE ASSESSEE, THE CIT(A) FOUND THAT THE OBJECT OF THE ASSESSEE WAS GIVING RELIEF TO THE POOR, THEREFORE, THE PROVISO TO SEC. 2(15) MAY NOT BE APPLICABLE AT ALL. ITA NO.2050/14 &393/15 :- 3 -: THE CIT(A) REFERRING TO THE BOARDS CIRCULAR 11 OF 2008 FOUND THAT PROVISO TO SEC. 2(15) WILL NOT BE APPLICABLE IN RES PECT OF RELIEF TO THE POOR, EDUCATION OR MEDICAL RELIEF. PLACING RELIANC E ON THE ORDER OF THIS BENCH OF THE TRIBUNAL IN ITO VS KALANJIAM DEVELOPME NT FINANCIAL SERVICES IN I.T.A.NO.625/MDS/2015, DATED 7.8.2015, THE LD. DR SUBMITTED THAT ON IDENTICAL CIRCUMSTANCES, THIS TRI BUNAL FOUND THAT MICRO FINANCING ACTIVITY CANNOT BE CONSIDERED AS CH ARITABLE OBJECT. THIS TRIBUNAL FOUND THAT THE ACTIVITIES OF THE ASS ESSEE IS BUSINESS IN NATURE, THEREFORE, NOT LIABLE FOR EXEMPTION U/S 11 OF THE ACT. IN VIEW OF THIS ORDER OF THIS TRIBUNAL, THE CIT(A) IS NOT J USTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. 3. ON THE CONTRARY, SHRI S. SRIDHAR, LD. COUNSEL FOR T HE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A COMPANY REGISTERE D U/S 25 OF THE COMPANIES ACT, 1956 AND ALSO REGISTERED AS CHARITAB LE INSTITUTION U/S 12AA OF THE ACT. THE OBJECT OF THE ASSESSEE IS TO GIVE RELIEF TO THE POOR. THE ASSESSEE IS ADVANCING MONEY TO MEMBERS OF THE SELF- GROUPS WHO ARE LIVING BELOW THE POVERTY LINE. THIS ACTIVITY OF THE ASSESSEE AMOUNTS TO RELIEF TO THE POOR WHICH IS ONE OF THE CONDITION FOR CONSIDERING THE ASSESSEE-COMPANY AS CHARITABLE INST ITUTION. REFERRING TO THE DECISION OF THIS BENCH OF THE TRIBUNAL IN KU RINJI SOCIAL WELFARE SOCIETY VS CIT AND THE DECISION OF THE VISHAKAPATNA M BENCH OF THE ITA NO.2050/14 &393/15 :- 4 -: TRIBUNAL IN SPANDANA RURAL AND URBAN DEVELOPED ORGA NIZATION VS CIT, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT G IVING RELIEF TO THE POOR IS CLEARLY A CHARITABLE ACTIVITY WITHIN THE ME ANING OF SEC. 2(15) OF THE ACT. RELIEF TO THE POOR CANNOT BE CONSIDERED T O BE A BUSINESS ACTIVITY. MERELY BECAUSE THERE WAS A SURPLUS IN TH E ACTIVITY OF THE ASSESSEE THAT DOES NOT MEAN THAT THE ACTIVITY OF TH E ASSESSEE IS NON- CHARITABLE ONE. WHEN THE ASSESSEE-COMPANY WAS REGI STERED AS A CHARITABLE INSTITUTION FOR THE PURPOSE OF GIVING RE LIEF TO THE POOR, THE LD. COUNSEL SUBMITTED THAT PROVISO TO SEC. 2(15) IS NOT APPLICABLE AT ALL. THE CBDT IN ITS CIRCULAR VERY CATEGORICALLY STATED THAT PROVISO TO SEC. 2(15) IS APPLICABLE ONLY IN RESPECT OF THE INSTITUT IONS WITH AN OBJECT OF GENERAL PUBLIC UTILITY. SINCE THE ASSESSEE-INST ITUTION IS NOT HAVING ANY OBJECT OF GENERAL PUBLIC UTILITY AND IT IS ONLY G IVING RELIEF TO THE POOR, PROVISO TO SEC. 2(15) IS NOT APPLICABLE AT ALL. TH EREFORE, THE CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. 4. I HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER S IDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE CLAIMS THAT THAT THE OBJECT OF THE ASSESSEE IS TO GIVE R ELIEF TO THE POOR, THEREFORE, PROVISO TO SECTION 2(15) IS NOT APPLICAB LE AT ALL. THE COPY OF THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE-COMPA NY IS NOT FILED BEFORE THIS TRIBUNAL. THEREFORE, THIS TRIBUNAL IS UNABLE TO ASCERTAIN THE ITA NO.2050/14 &393/15 :- 5 -: EXACT OBJECT OF THE COMPANY. THE FACT REMAINS THAT THE ASSESSEE WAS REGISTERED AS A CHARITABLE INSTITUTION U/S 12AA OF THE ACT BY THE DIRECTOR OF INCOME-TAX(EXEMPTIONS). THEREFORE, THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE-COMPANY OUGHT TO HAVE C ONTAINED A CHARITABLE OBJECT. AS RIGHTLY SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE, THIS TRIBUNAL IN KURINJI SOCIAL WELFARE SOCIETY(SUPRA) AND THE VISHAKAPATNAM BENCH OF THIS TRIBUNAL IN SPANDANA RU RAL AND URBAN DEVELOPED ORGANIZATION (SUPRA), FOUND THAT MICRO F INANCING IS ALSO ONE OF THE CHARITABLE ACTIVITY ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT. HOWEVER, A CONTRARY VIEW WAS TAKEN BY ANOTHER DIVIS ION BENCH OF THIS TRIBUNAL IN KALANJIAM DEVELOPMENT FINANCIAL SERVICE S(SUPRA). EVEN THOUGH THE DECISION OF THIS TRIBUNAL IN THE CASE OF KURINJI SOCIAL WELFARE SOCIETY(SUPRA) WAS BROUGHT TO THE NOTICE OF THE SUBSEQUENT DIVISION BENCH IN KALANJIAM DEVELOPMENT FINANCIAL S ERVICES(SUPRA), PRIMA FACIE IT APPEARS THAT THE SAME WAS NOT CONSID ERED. IN OTHER WORDS, THE SUBSEQUENT BENCH HAS NOT CONSIDERED THE FINDING RECORDED BY THE EARLIER BENCH IN KURINJI SOCIAL WELFARE SOC IETY(SUPRA). MOREOVER THE DECISION OF THE VISHAKAPATNAM BENCH IN SPANDANA RURAL AND URBAN DEVELOPED ORGANIZATION (SUPRA) WAS APPARE NTLY NOT BROUGHT TO THE NOTICE OF THE DIVISION BENCH IN THE CASE OF KALANJIAM DEVELOPMENT FINANCIAL SERVICES. THEREFORE, THIS TR IBUNAL IS OF THE ITA NO.2050/14 &393/15 :- 6 -: CONSIDERED OPINION THAT THE MATTER NEEDS TO BE REEX AMINED BY THE ASSESSING OFFICER IN THE LIGHT OF THE DECISION OF T HIS TRIBUNAL IN KURINJI SOCIAL WELFARE SOCIETY(SUPRA), KALANJIAM DEVELOPMEN T FINANCIAL SERVICES(SUPRA) AND THE DECISION OF VISHAKAPATNAM B ENCH IN SPANDANA RURAL AND URBAN DEVELOPED ORGANIZATION (SUPRA). IN OTHER WORDS, SINCE THERE WAS A CONFLICTING JUDICIAL OPINION AMON G THE VARIOUS BENCHES OF THE TRIBUNAL, THIS TRIBUNAL IS OF THE OP INION THAT AN OPPORTUNITY SHALL BE GIVEN TO BOTH THE ASSESSING OF FICER AND THE ASSESSEE TO BRING NECESSARY MATERIAL ON RECORD HOW THE ACTIVITIES OF THE ASSESSEE ARE CHARITABLE IN NATURE. GIVING ONE MORE OPPORTUNITY TO BOTH THE PARTIES MAY NOT PREJUDICE THE INTEREST OF ANY OF THE PARTIES. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT GIV ING SUCH AN OPPORTUNITY MAY DEFINITELY PROMOTE THE CAUSE OF JUS TICE. THE ULTIMATE OBJECT OF THE INCOME-TAX ACT, 1961 IS TO ASCERTAIN THE CORRECT TAXABLE INCOME. THEREFORE, BY KEEPING THE OBJECT OF THE IN COME-TAX ACT, 1961 IN MIND, THE ORDERS OF THE LOWER AUTHORITIES ARE SE T ASIDE AND THE ENTIRE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL REEXAMINE THE ISSUE AFRESH AS OBSERVED ABOVE AND THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH L AW AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. ITA NO.2050/14 &393/15 :- 7 -: 5. IN THE RESULT, THE APPEALS OF THE REVENUE ARE ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH AUGUST, 2016, AT CHENNAI. SD/- ( . . . ! ) (N.R.S. GANESAN) / JUDICIAL MEMBER '# / CHENNAI $% / DATED: 24 TH AUGUST, 2016 RD %&'' ()'*) / COPY TO: ' 1 . / APPELLANT 4. ' + / CIT 2. / RESPONDENT 5. ),-' . / DR 3. ' +'/! / CIT(A) 6. -0'1 / GF