ITO, Madurai V. Kalanjiam Development Financial Services, Madurai

ITA 625/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95876 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 22-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 30-03-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: K SHESHADRI; BHARADWAJ SHESHADRI ACA
• Keywords: Charitable institution; Reasonable cause
• Section: 12; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , ! , ' #$ BEFORE SHRI N.R.S.GANESAN, JUDICIAL MMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ./ ITA NO. 625/MDS/2015 / ASSESSMENT YEAR : 2009-10 THE INCOME-TAX OFFICER (EXEMPTIONS), MADURAI. APPELLANT) V. KALANJIAM DEVELOPMENT FINANCIAL SERVICES, 2 ND FLOOR, 1-A, VAIDYANATHAPURAM EAST, NEAR SEVENTH DAY ADVENTISTS SCHOLL, KENNET ROAD CROSS, MADURAI - 625016. PAN AABCK9855F RESPONDENT) / APPELLANT BY : SHRI A.V.SREEKANTH, JCIT / RESPONDENT BY : SHRI K. SHESHADRI, FCA & SHRI BHARADWAJ SHESHADRI, ACA ! / DATE OF HEARING : 22.07.2015 '# ! / DATE OF PRONOUNCEMENT : 07.08.2015 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGA INST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DATED 2.12. 2014. - - ITA 625 /15 2 2. THERE IS A DELAY OF 13 DAYS IN FILING THIS APPEA L BEFORE THE TRIBUNAL. THE DEPARTMENT HAS FILED A PETITION PRAY ING FOR CONDONATION OF DELAY. AFTER GOING THROUGH THE RE ASON GIVEN IN THE CONDONATION PETITION, WE ARE SATISFIED THAT THE RE IS A REASONABLE CAUSE FOR THE DELAY OF 13 DAYS IN FILING THE APPEAL AND THE SAME IS CONDONED AND THE APPEAL IS ADMITTED FOR ADJUDICATION. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL : GROUND NO:2: 2.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID. CIT (A) ERRED ON LAW IN NOT APPRECIATING THAT THE ACTIV ITY OF THE 'MICRO-FINANCE ' COMES UNDER THE LAST LIMB OF THE CHARITA BL E PURPOSE MENTIONED IN SECTION 2(15) OF THE I . T . ACT I . E . , ' ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBL I C UTILITY ', AND WRONGLY HOLDING THAT SUCH ACTIVITY FALLS UNDER THE HEAD ' RELIEF OF POOR ' . 2.2 THE ID. CIT (A) FAILED TO TAKE NOTE THAT DURING THE A.Y. 2009-10, THE ASSESSEE EARNED INTEREST AND SERVICE C HARGES OF ` 1,27,24,442/-, WHICH EXCEEDED THE THRESHOLD LIMIT OF ` 10 LAKHS, THEREBY CLEARLY BRINGING THE ASSESSEE WITHIN THE 1 ST & 2 ND PROVISOS TO SEC.2(15) OF THE I.T. ACT. 2.3 THE LD. CIT(A) FAILED TO APPRECIATE THAT AFTER INTRODUCTION OF FIRST PROVISO TO SECTION 2(15) W.E.F. 01.04.2009 , IRRESPECTIVE OF 'NATURE OF USE' OR 'APPLICATION' OF SUCH PROFITS - - ITA 625 /15 3 BY A TRUST PURSUING AN OBJECT OF 'GENERAL PUBLIC UT ILITY', THE SAME WOULD NOT BE HELD TO BE A 'CHARITABLE ACTIVITY '. THIS ASPECT HAS BEEN CORRECTLY APPRECIATED BY THE HON'BL E ITAT, PANAJI BENCH IN THE CASE OF ENTERTAINMENT SOCIETY O F GOA V. CIT (2013) 34 TAXMANN.COM 210 (PANAJI-TRIB.) AT PAR A 14 OF ITS ORDER, AMRITSAR ITAT IN THE CASE OF JAMMU DEVEL OPMENT AUTHORITY VS CIT (2012)23 TAXMANN.COM 343, AGAINST WHICH SLP BEFORE SUPREME COURT STANDS DISMISSED VIDE SLP( C) NO 4990/2014 DATED 21.07.2014. GROUND NO.3: 3.1 THE ID. CIT (A) ERRED ON FACT IN NOT APPRECIATI NG THAT THE ASSESSEE H AS COLLECTED AN AMOUNT OF ` 1,27,24 , 442/- ( INTEREST OF ` 6,52,711/- AND SERV I CE CHARGES OF ` 12,07,173/-) FROM THE BORROWERS AND PAID ONLY ` 84,56,011/- AS INTEREST AND BANK CHARGES , WHICH SHOWS THAT THE ACTIVITY OF THE ASSESSEE IS PURELY 'BUS I NESS' IN NATURE AND IS THUS HIT BY PROVISO'S TO SEC.2(15) OF THE ACT . A COPY OF THE INCOME AND EXPENDITURE FOR THE YEAR ENDED 31.3.2011 IS ENCLOSED AS ANNEXUR E 'A' ; 3.2 THE ID. CIT (A) ERRED IN HOLDING THAT INTEREST SPREAD OF THE ASSESSEE IS VERY SMALL (2% TO 3%) IGNORING THE FACT THAT IT IS CHARGING MUCH MORE UNDER THE CAPTION OF 'SERVICE CHARGES'. G ROUND NO.4: 4.1 THE ID. CIT (A) FAILED TO PLACE RELIANCE ON THE DECISION OF THE JURISDICTIONAL ITAT IN THE CASE OF SOCIO ECO NOMIC DEVELOPMENT ASSOCIATION V. ITO, WARD 11(4), MADURAI [(2011)-TIOL-754-ITAT-MAD] AND BANGALORE ITAT IN TH E CASE OF JANALAKSHMI SOCIAL SERVICES VS. DIT (EXEMPT IONS) [2009] 33 SOT 197 (BANG.) WHEREIN MICRO-FINANCE ACTIVITIES ARE HELD TO BE 'COMMERCIAL' IN NATURE WH EN HIGH INTEREST RATES AND SERVICE CHARGES ARE COLLECTED, W HICH IS ALSO TRUE IN THE PRESENT CASE . - - ITA 625 /15 4 GROUND NO.5: 5.1 THE LD CIT(A) ERRED IN RELYING ON CIT-1 , MADURAI'S DECISION NOT TO WITHDRAW THE REGISTRATION U/S 12 AA(3) , IGNORING THE LEGAL POSITION THAT REGISTRATION NEED NOT BE WITHDRAWN IN CASES WHERE ASSESSEES ARE PURSUING OBJ ECTS OF GENERAL PUBLIC UTILITY AS THEIR GROSS ANNUAL REC EIPTS MAY VARY FROM YEAR TO YEAR . 5 . 2 THE LD CIT (A) ERRED IN IGNORING THE PROVISIONS OF SEC. 13(8) OF THE LNCOME TAX ACT, WHICH EMPOWERS TH E A . O TO DENY EXEMPTION TO THE ASSESSEE IN ANY YEAR WHE N ITS TURNOVER EXCEEDS THE LIMITS PRESCRIBED UNDER 2 ND PROVISO TO SEC. 2(15) AND IT IS PURSUING OBJECTS OF GENERAL PUBLIC UTILITY. GROUND NO.6: 6.1 THE LD CIT(A) ERRED IN HOLDING THAT A SEC . 25 COMPANY CAN HAVE NO 'PROFIT MOTIVE', WHEREAS UNDER THE INCO ME TAX ACT, PROVISOS TO SEC. 2(15) KICK IN EVEN W I THOUT 'PROFIT' MOTIVE. 6.2 THE LD CITCA) ERRED IN IGNORING THE LEGAL PROPO SITION THAT PROVISIONS OF OTHER ACTS LIKE COMPANIES ACT DO N'T OVERRIDE THE PROVISIONS OF INCOME TAX ACT, AS HELD IN SOUTHERN TECHNOLOGY LTD VS JCIT (2010) 320 ITR 577 (SC). 4. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY REGISTERED U/S.25 OF THE COMPANIES ACT. THE ASSES SEE WAS GRANTED REGISTRATION U/S.12A OF THE ACT BY THE CIT, MADURAI IN - - ITA 625 /15 5 2003. THE ASSESSEE FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 24.9.2009 AND WAS PROCESSED U/S.143 (1) OF THE ACT. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S.143(2) WAS ISSUED ON 28.9.2009 AND THE CASE WAS HEARD ON A NUMBER OF OCCASIONS. 4.1. THE ASSESSEE IS A MICRO FINANCE COMPANY OPERAT ING AS A FINANCIAL INTERMEDIARY BETWEEN BANKS AND THE SHGS. AS PER THE ANNUAL REPORT, MAIN OBJECTIVE OF THE COMPANY IS BR IDGING THE GAP IN MICRO FINANCE TO SHGS. A PERUSAL OF THEIR ACCO UNT BOOKS MAINTAINED REVEALED THAT AS AGAINST THE LOANS ADVAN CED TO VARIOUS SHGS, THE ASSESSEE HAS RAISED OVERDRAFT FAC ILITY AND REVOLVING FUND ASSISTANCE BY HYPOTHECATION OF THEIR BOOK DEBTS WITH VARIOUS NATIONALIZED BANKS. THE AO NOTED THAT THE ASSESSEE AVAILED CREDIT FACILITIES FROM 12 DIFFEREN T BANKS/FINANCIAL INSTITUTIONS OVER THE FEW YEARS AT INTEREST RATES U PTO 11%. THESE WERE ADVANCED AT INTEREST RATES WITH SOME MARK-UP, WHICH IS NOT VERY HIGH. ACCORDING TO THE AO, AS PER THE ANNUAL REPORT, THE NET PROFIT FROM OUT OF THE ABOVE OPERATIONS WAS AT 20.4 4% IN THE FINANCIAL YEAR 2009-10. - - ITA 625 /15 6 4.2 THE ASSESSMENT WAS COMPLETED BY ASSESSING THE I NCOME AT ` 30,33,950/- BY DENYING THE EXEMPTION U/S.11 & 12 B Y INVOKING THE PROVISION OF PROVISO TO SEC.2(15) ON T HE GROUND THAT THE ASSESSEE WAS DOING BUSINESS OF BANKING (SOME F ORM OF MONEY LENDING) WHICH FELL UNDER 4 TH LIMB OF PROVISO TO SEC.2(15) I.E. ANY OTHER OBJECT OF PUBLIC UTILITY. THE ASSE SSEE HAS RAISED A NUMBER OF OBJECTIONS AGAINST AOS DECISION TO INVOK E PROVISIONS OF PROVISO TO SEC.2(15) OF THE ACT. THE AO REJECTE D THE ASSESSEES CONTENTIONS AND JUSTIFIED HIS STAND. AG GRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS). 5. ON APPEAL, THE CIT(APPEALS) OBSERVED THAT THE AS SESSEE IS A COMPANY WITHOUT PROFIT MOTIVE AND THE MICRO FI NANCE BUSINESS CARRIED ON BY THE ASSESSEE FALLS UNDER THE CATEGORY OF RELIEF TO POOR AND HENCE, IT IS CARRYING ON CHARI TABLE ACTIVITY U/S.2(15) OF THE ACT, SO AS TO GRANT EXEMPTION U/S. 11 AND 12 OF THE ACT.. ACCORDINGLY, HE DELETED THE ADDITION MA DE BY THE AO. HENCE, THE REVENUE IS IN APPEAL BEFORE US. 6. THE LD. DR SUBMITTED THAT THE OBSERVATION OF THE CIT(APPEALS) THAT THE ASSESSEE PROVIDES RELIEF TO T HE POOR BY WAY OF PROVIDING SUCH CREDIT FACILITIES AT LOWER RA TES VIS-A VIS - - ITA 625 /15 7 PRIVATE MONEY LENDERS AND ALSO WITHOUT INSISTING ON SECURITIES IS FALLACIOUS. THE LD. DR DREW OUR ATTENTION TO THE TABLE AVAILABLE ON PAGE 9 OF CIT(APPEALS) ORDER, WHICH IS REPRODUCE D BELOW: FINANCIAL YEAR ANNUAL BORROWING ANNUAL LENDING RATE RATE 31 . 032006 & 9% 11% 31 .032007 31 . 032008 11% 11% TILL 15.07.2007 13% FROM 16.07.2007 31 . 03 2009 11% 1 3 % 31 . 32010 - 95% 13% TILL 30.06.2009 11.5 %FROM 01 . 07 . 2009 THE LD. DR SUBMITTED THAT IT IS CLEAR FROM THE ABOV E TABLE THAT THE LENDING RATE IS ALWAYS HIGHER THAN THE BORROWIN G RATE AND IT IS AN ADMITTED FACT THAT THE ASSESSEE BORROWS FR OM NATIONALIZED BANKS. THIS WOULD MEAN THAT THE ASSESS EE IS LENDING AT A RATE HIGHER THAN THE RATE OF INTEREST CHARGED BY THE NATIONALIZED BANKS. IN SUCH A SCENARIO, CAN THE ACT OF LENDING BY THE ASSESSEE AT A RATE HIGHER THAN THE R ATE CHARGED BY THE NATIONALIZED BANKS BE TERMED AS 'REL IEF TO THE POOR'? THEREFORE, THE CLAIM THAT THE ASSESSEE IS PR OVIDING RELIEF TO THE POOR IS NOT BORNE OUT BY FACTS. 6.1 THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE, BEING A COMPANY REGISTERED UNDER SECTION 25 OF THE COMPANIES - - ITA 625 /15 8 ACT, THE COMPANY IS LEGALLY DEBARRED FROM DISTRIBUT ING DIVIDEND. THAT DOES NOT MEAN THAT THERE IS NO PROFI T MOTIVE. THE MOTIVE OF THE ASSESSEE TO GARNER PROFITS MANIFE STS ITSELF BY THE AMENDMENT THE ASSESSEE MADE TO ITS OBJECTS INCORPORATING THE WORDS 'WITH INTEREST' ON 18.03.2003. THE LD. DR ALSO POINTED OUT THAT THIS FACT WOULD ALSO DEMOL ISH THE OBSERVATION OF THE CIT(APPEALS) MADE IN PARA 7.4 WHERE HE STATES THAT THE AO HAS ACCEPTED THAT THE INTEREST SPREAD IS LESS WHICH PROVES THAT THERE IS NO PROFIT MOTIVE. 6.2 ACCORDING TO THE LD. DR, R EFERENCE BY THE ASSESSEE TO CIRCULAR NO.110/24 DATED 24TH JANUARY 1973 IN SUPPORT OF ITS CLAIM IS MISPLACED SINCE THERE IS NO REFERENCE IN T HE SAID CIRCULAR TO 'MICRO FINANCING'. 6.3 THE LD. DR FURTHER SUBMITTED THAT THE CONCEPT O F RES JUDICATA RELIED UPON BY THE ASSESSEE DOES NOT APPLY TO INCOME TAX PROCEEDINGS, BECAUSE EACH Y EAR IS A SEPARATE PROCEEDING. 6.4 FURTHER, THE LD. DR SUBMITTED THAT AS PER THE C LAIM OF THE ASSESSEE THAT AS PER THE MEMORANDUM OF ASSOCIAT ION, THE MAIN OBJECT IS 'RELIEF FOR POOR BY ALL CONCEIVABLE MEANS'. - - ITA 625 /15 9 ACCORDING TO THE LD. DR , THE WORD, 'POOR' IS A RELATIVE TERM AND THERE CANNOT BE A UNIVERSAL DEFINITION. HOWEVER, AS PER THE REPORT OF THE EXPERT GROUP TO REVIEW THE METHODOLOG Y FOR MEASUREMENT OF POVERTY BY THE RANGARAJAN COMMITTEE THOSE SPENDING MORE THAN ` 972 A MONTH IN RURAL AREAS AND ` 1 , 407 A MONTH IN URBAN AREAS IN 2011-12 DO NOT FALL UNDER THE DEFINITION OF POVERTY. THE ASSESSEE HAS NOT ESTABLISHED THAT IT CATERS ONLY TO THE POOR. 6.5. ACCORDING TO THE LD. DR, THE FINDINGS OF THE R EPORT OF SIDBI CANNOT BE TAKEN AS THE LAST WORD ON THE SUBJE CT, SINCE SIDBI ITSELF IN THE SAID REPORT ADMITTED AS FOLLOWS : THE SAMPLE SIZE WITHIN EACH OF SUBCATEGORY ANALYZED IN THE STUDY WAS NOT ADEQUATE TO CORROBORATE THE FINDI NGS. E.G . THERE ARE NOT MANY 'NOT FOR PROFIT INSTITUTIONS' (S EVEN SOCIETIES, THREE TRUSTS AND ONE SECTION 25) IN THE STUDY TO CONFIRM THE FINDINGS OF THE STUDY WITH RESPECT T O THE ENTIRE POPULATION OF SUCH INSTITUTIONS; 6.6. THE LD. DR SUBMITTED THAT THERE IS ONLY ONE SE CTION 25, COMPANY IN SAMPLE TAKEN UP BY SIDBI AND THEREFORE UNIVERSAL APPLICABILITY OF THE FINDINGS OF THE REPO RT CANNOT BE MADE, MORE SO TO THE CASE OF THE ASSESSEE SINCE, THERE WAS ONLY ONE SECTION 25 CASE IN THE SAMPLE. THEREFORE, JUST BECAUSE THE AO DID NOT REBUT THE FINDINGS OF T HE SIDBI - - ITA 625 /15 10 THAT DOES NOT MEAN OR INDICATE THAT THE ASSESSEE HA S NO PROFIT MOTIVE. 6.7. THE LD. DR FURTHER CONTENDED THAT THE ASSESSEE CLAIMS THAT ' ALL THE MAIN OBJECTS SPECIFICALLY RESTRICT THE OPE RATIONS OF THE ASSESSEE TO BE CARRIED OUT FOR THE POOR, WHICH IS CLEARLY EVIDENT BY THE REPETITIVE USE OF THE PHRASES SUCH AS ' ' .... OF UTILITY TO POOR INDIVIDUALS, GROUP OF PERSONS BELONGING TO THE POORER SECTIONS', ' INDIVIDUALS BELONGING TO THE POORER SECTIONS' FIELDS OF BENEFIT AND INTEREST TO THE POOR' ETC. IN VARIOUS CLAUSES.' ACCORDINGLY, THE LD. DR SUBMITTED THAT MERE REPETITIVE USE OF PHRASES DOES NOT SUBSTANTIATE THE ASSESSEE'S CLAIM THAT ITS ACTIVITIES ARE FOR THE BENEFIT OF THE POOR. 7. THE LD. AR SUBMITTED THAT A LL THE MAIN OBJECTS OF THE ASSESSEE SPECIFICALLY RESTRICT THE OPERATIONS TO BE CARRIED OUT FOR THE BENEFIT OF THE POOR . THIS IS CLEARLY EVIDENT BY THE REPETITIVE USE OF PHRASES SUCH AS ' OF UTILITY TO POOR INDIVIDUALS, GROUP OF PERSONS BELONGING TO THE POORER SECTIONS ... ', IND IVIDUALS BELONGING TO THE POORER SECTIONS ... ', ' .. . FIELDS OF BENEFIT AND INTEREST TO THE POOR ... ', ETC., IN VARIOUS CLAUSES. THE ASSESSEE IS CARRYING OUT ITS ACTIVITIES IN ACCORDANCE WITH T HESE OBJECTS - - ITA 625 /15 11 TARGETTED ONLY AT THE POOR. THERE IS NO CONTRARY FI NDING BY THE REVENUE OR ANY OTHER AUTHORITY. THE POOR ARE THE ON LY BENEFICIARIES OF THE ASSESSEES ACTIVITIES. THE FOL LOWING POINTS INDICATE THAT THE ACTIVITIES OF THE ASSESSEE IS ONE OF RELIEF TO THE POOR AND THUS FALL WITHIN THE FIRST LIMB OF SECTION 2(15) OF THE ACT: 1 . ASSESSEE S LOANS ARE TARGETTED AT POOR WOMEN WHO AR E ORGANISED IN SELF- HELP GROUPS (SHGS) - USUALLY OF 20 WOMEN EACH. 2 . DURING THE RELEVANT PREVIOUS YEAR, THE REACH OF THE ASSESSEE HAS GONE UP TO 13174 SHGS. 3. THE FINANCIAL ASSISTANCE IS AIMED AT 'LIVELIHOOD SECURITY' AND IS LENT FOR SPECIFIC PURPOSES SUCH AS AGRICULTURE, CON SUMPTION , M ARRIAGE, EDUCATION , DEBT REDEMPTION, MEDICAL EMERGENCIES, INCOME GENERATING ACTIVITIES, HOUSE REPAIRS ETC., D AIRY FARMING, SANITATION, ETC. THE NATURE OF THESE PURPOSES IS, I TSELF, INDICATIVE OF THE FINANCIAL POSITION OF THE BORROWE RS. 4 . THE FUNDAMENTAL BASIS OF THE ASSESSEE'S ACTIVITIES IS THAT THE ASSESSEE IS ABLE TO EXTEND FINANCIAL ASSISTANCE TO PEOPLE WHO ARE UNABLE TO ACCESS BANKS. THE ASSESSEE DOES NOT ( AND CANNOT, BY VIRTUE OF THE RESTRICTIVE NATURE OF ITS OBJECTS) LEND TO THE WELL-OFF (NON-POOR) SECTIONS OF THE POPULATION. 5 . IN ANY CASE, THE ASSESSEE'S RELIEF TO THE POOR EXTE NDS FAR BEYOND JUST CREDIT . THE ASSESSEE ALSO CONDUCTS AND HAS CONDUCTED OTHER ACTIVITIES SUCH AS TRAINING , CAPACITY BUILDING, GROUP PROMOTION, AND TSUNAMI RELIEF AT NO COST TO I TS BENEFICIARIES. FOR THESE PURPOSES, THE ASSESSEE ALS O GIVES NON- RETURNABLE FINANCIAL GRANTS. AN AGGREGATE AMOUNT OF ` 71 . 83 LAKHS HAS BEEN SPENT ON THESE ACTIVITIES FROM FY 20 04-05 TO FY 2009-10. - - ITA 625 /15 12 6. THE QUANTUM OF THE CREDIT EXTENDED ALSO MAKES IT CLEAR THAT THE ASSESSEE LENDS TO THE POOR . THE LIMITS ARE AS FOLLOWS: ` 4,00,0001- PER SHG OF 20 INDIVIDUALS WHERE THE LOANS ARE FOR DWELLINGS; AND ` 2,50,0001- PER SHG OF 20 INDIVIDUALS FOR OTHER PURPOSES. 7. KDFS DOES NOT - HAVE ANY PROFIT MOTIVE - DISTRIBUTE ANY DIVIDEND/PROFIT TO ANYONE - PAY REMUNERATION TO ANY OF ITS BOARD MEMBERS - INVOLVE ANY PRIVATE GAIN AND PERSONAL BENEFIT TO ANY PERSON. 8. MICROFINANCE IS SEEN AS AN EFFECTIVE TOOL TO ORG ANISE THE UNORGANISED AND BUILD THEIR NESTED INSTITUTIONS THR OUGH ENABLING THE POOR WOMEN . THE PRIMACY IS ON BUILDING THE CAPACITIES OF THE POOR AND ENABLING THEM TO MANAGE THE FINANCIAL SERV ICES AND BUILD STRONG, SUSTAINABLE PEOPLE'S ORGANISATIONS TO ADDRESS THEIR OWN DEVELOPMENT AND GROWTH - FINANCIAL AND SOCIAL . THIS APPROACH BUILDS OWNERSHIP OF MEMBERS WITH SUBSTANTI AL MEMBERS' SAVINGS, OWN FUNDS AND INVOLVEMENT . THESE PEOPLES' INSTITUTIONS ARE BUILT ON THE PRINCIPLES OF SELF HE LP AND MUTUALITY WITH ENABLING MODE TO ADDRESS POVERTY . IT WORKS ON DEMAND SIDE, WHILE MICRO CREDIT COMMERCIAL ENTITIES WORK ON SUPP LY SIDE WITH DELIVERY APPROACH. MICROFINANCE WITH ENABLING APPROACH PROVIDES SPACE FOR PEOPLE TO PRACTICE DEMOCRACY AT GRASSROOTS WHILE MICRO-CREDIT WITH DELIVERY APPR OACH REINFORCES DEPENDENCE PERPETUALLY. THE EMPHASIS IS ON DEVELOPI NG SUITABLE INSTITUTIONS AND FINANCIAL SERVICES CONTROLLED BY T HE USERS. 7.1 THE LD. AR FURTHER SUBMITTED THAT E VEN GOVERNMENT POLICY CONSIDERS MICROFINANCE TO BE AN EFFECTIVE TOOL FOR POVERTY ALLEVIATION . THIS IS EVIDENCED BY A STATEMENT TO THIS EFFECT MAD E BY THE FINANCE MINISTER IN HIS BUDGET SPEECH ON THE FINANCE BILL, 2000 ON 29 FEBRUARY 2000 REPORTED IN [2000] 2 42 ITR (ST.) 5. - - ITA 625 /15 13 THEREFORE, THERE CAN BE NO GENERAL PRINCIPLE LAID D OWN THAT MICROFINANCE IS NOT FOR THE BENEFIT OF THE POOR . THERE IS A SPECIFIC BURDEN ON THE DEPARTMENT TO ESTABLISH THE VALIDITY THIS PROPOSITION IN THE FACTS OF EACH CASE. IT HAS NOT BEEN SO PROVEN IN THE PRESENT CASE . THE LATIN MAXIM 'GENERALIA SPECIALIBUS NON DEROGANT' (I.E., THE GENERAL PROVISION WILL NOT DEROGATE FROM THE SPECIAL PROVISION) MUST BE APPLIED IN THE INTERPRET ATION OF SECTION 2(15). IN SECTION 2(15), THE RESIDUARY LIMB, 'THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY' CANNOT DEROGATE FROM THE FIRST LIMB, 'RELIEF OF THE POOR'. HE RELIED O N THE JUDGMENT OF THE SUPREME COURT IN CIT V. SHAHZADA NAND AND SONS [1966] 60 ITR 392 (SC), WHEREIN THE APEX COURT HAS AFFIRMED THIS GENERAL PRINCIPLE OF LAW AS FOLLOWS IN THE CONTEXT OF THE TAX LAWS : 'ANOTHER RULE OF CONSTRUCTION WHICH IS RELEVANT TO THE PRESENT ENQUIRY IS EXPRESSED IN THE MAXIM, GENERALI A SPECIALIBUS NON DEROGANT, WHICH MEANS THAT WHEN THE RE IS A CONFLICT BETWEEN A GENERAL AND A SPECIAL PROVI SION, THE LATTER SHALL PREVAIL . THE SAID PRINCIPLE HAS BEEN STATED IN CRAIES ON STATUTE LAW, 5TH EDITION , AT PAGE 205, THUS; 'THE RULE IS, THAT WHENEVER THERE IS A PARTICULAR ENACTMENT AND A GENERAL ENACTMENT IN THE SAME STATU TE, AND THE LATTER, TAKEN IN ITS MOST COMPREHENSIVE SEN SE, WOULD OVERRULE THE FORMER, THE PARTICULAR ENACTMENT MUST BE OPERATIVE, AND THE GENERAL ENACTMENT MUST BE TAK EN TO AFFECT ONLY THE OTHER PARTS OF THE STATUTE TO WH ICH IT MAY - - ITA 625 /15 14 PROPERLY APPLY. ' BUT THIS RULE OF CONSTRUCTION IS NOT OF UNIVERSAL A PPLICATION. IT IS SUBJECT TO THE CONDITION THAT THERE IS NOTHIN G IN THE GENERAL PROVISION, EXPRESSED OR IMPLIED, INDICATING AN INTENTION TO THE CONTRARY ... ' IT IS CLEAR THAT THERE IS NOTHING IN THE RESIDUARY LIMB OF SECTION 2 (15) THAT WOULD SUGGEST AN INTENTION TO O VERRIDE THE FIRST LIMB OF THE SAID SUBSECTION. THUS THE SAI D SUBSECTION WOULD NOT FALL WITHIN THE EXCEPTION POST ULATED BY THE SUPREME COURT EITHER . THE LD. AR ALSO SUBMITTED THAT THIS PRINCIPLE HAS B EEN APPLIED IN THE INTERPRETATION OF SEC.2(15) BY THE ITAT, CHA NDIGARH IN HIMACHAL PRADESH ENVIRONMENT PROTECTION AND POLLUTI ON CONTROL BOARD V. CIT (9 ITR (TRIB) 604). HE HAS AL SO DRAWN OUR ATTENTION TO CBDT CIRCULAR 11/19 DECEMBER 2008 (308 ITR 5 (STATS) WHILE EXPLAINING THE AMENDMENT IN SEC .2(15) OF THE ACT. 7.2 THE LD. AR, RELIED ON THE FOLLOWING JUDGMENTS O F VARIOUS COURTS TO SUPPORT HIS ARGUMENT. 1. ADIT(E) V. BHARATHA SWAMUKTI SAMSTHE [2009] 319 ITR 422, 434 (AT)(BANGALORE). 2. DISHA INDIA MICRO CREDIT V. CIT, MUZAFFARNAGAR ( I . T . A . NO. 2. 1374/DEL/2010) 3. M/S. KURINJI SOCIAL WELFARE SOCIETY V. ACIT, TRICHY (I . T . A . NO. 1594IMDSI2009). - - ITA 625 /15 15 7.3 REGARDING GROUND NOS. 2.2 & 2.3, THE LD. AR SUBMITT ED THAT THE ASSERTION IN GROUND 2.2 THAT THE ASSESSEE EARNED INTEREST AND SERVICE CHARGES OF ` 1 , 27,24,442/- IS BASED ON AN INCORRECT INTERPRETATION OF THE FACTS AND THE BREAK -UP OF THIS SUM IS GIVEN BELOW ALONG WITH EXPLANATIONS. LINE ITEM IN INCOME & AMOUNT EXPENDITURE ACCOUNT - DETAILS (RS.) PB 85 THIS AMOUNT INCLUDES INTEREST ON MICRO CREDIT AND ONE TIME UPFRONT ADMINISTRATIVE CHARGES (RS.100 TO RS.250) CHARGED FROM THE BORROWER - BENEFICIARIES. INTEREST IS COLLECTED AT 2% SERVICE CHARGES FROM 1,20,71,731 ABOVE THE RATE AT WHICH RESPONDENT BORROWS MEMBERS FROM BANKS/INSTITUTIONS. CHARGING OF ADMINISTRATIVE CHARGES WAS STOPPED FROM AY 2010-11 (THOUGH BANKS CONTINUE TO CHARGE THE ASSESSEE) WITH AMOUNTS ALREADY CHARGED BEING REFUNDED IN MANY CASES. THIS REPRESENTS INTEREST RECEIVED FROM THE BANK INTEREST RECEIVED 6,52,711 ACCOUNTS/ DEPOSITS AND HAS NOTHING TO DO WITH THE BORROWERS AT ALL. TOTAL 1,27,24,442 THE LD. AR SUBMITTED THAT THESE TWO GROUNDS DEAL WI TH THE APPLICATION OF THE TWO PROVISOS TO SECTION 2(15). I N THE LIGHT OF HIS SUBMISSIONS IN RELATION TO GROUND 2.1 ABOVE, AC CORDING TO HIM, THE ASSESSEE CARRIES ON ACTIVITIES FALLING UND ER 'RELIEF OF THE POOR', BEING THE FIRST LIMB OF THE SUBSECTION. THE APPLICATION OF THE TWO PROVISOS TO SECTION 2(15) IS TRIGGERED ONLY WHERE THE ACTIVITIES FALL WITHIN THE RESIDUARY LIMB, 'THE - - ITA 625 /15 16 ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC U TILITY'. ACCORDINGLY, HE SUBMITTED THAT THE TWO PROVISOS HAV E NO APPLICATION TO THE PRESENT CASE. 7.4 THE LD. AR FURTHER SUBMITTED THAT THE CONTE NTION OF THE REVENUE IS BASED ON THE PRESUMPTION THAT THE MICROF INANCE ACTIVITIES ARE ACTIVITIES 'IN THE NATURE OF TRADE, COMMERCE OR BUSINESS' AS CONTEMPLATED BY THE FIRST PROVISO TO S ECTION 2(15) AND THAT THE RECEIPTS THEREFROM ARE THUS TAXABLE. T HE LD. AR TRIED TO ESTABLISH THAT THE ACTIVITIES OF THE ASSES SEE ARE NOT IN THE NATURE OF TRADE COMMERCE OR BUSINESS BY GIVING FOLLOWING SUBMISSIONS. 7.5 THE LD. AR SUBMITTED THAT THE FACT THAT THE ACT IVITIES OF THE ASSESSEE ARE NOT IN THE NATURE OF BUSINESS IS CLEAR FROM THE FACT THAT THE ASSESSEE COMES WITHIN THE SCOPE OF THE RE SERVE BANK OF INDIA'S (RBI) NOTIFICATION NO . DNBS . 138/CGM(VSNM)-2000 DATED JANUARY 13, 2000. THE INTENTION OF THIS NOTIF ICATION WAS TO RELIEVE ENTITIES LIKE THE ASSESSEE FROM THE STRINGENT PROCEDURAL REQUIREMENT (SUCH AS CAPITAL ADEQUACY AND REGISTRAT ION WITH THE RBI) APPLICABLE TO FOR-PROFIT MICROFINANCE NBFCS. THE ASSESSEE IS ALSO SUPPORTED BY GRANTS. DONORS DO NOT M A KE GRANTS TO - - ITA 625 /15 17 COMMERCIAL ENTITIES. THE ASSESSEES AGGREGATE GRANT RECEIPTS IN THE FIVE FINANCIAL YEARS ENDING 31 MARCH 2011 AMOUN TED TO RS.63.55 LAKHS. THE BASIC PREREQUISITE OF BUSINESS IS PROFIT MOTIVE. IT HAS BEEN REPEATEDLY HELD BY VARIOUS COUR TS INCLUDING THE SUPREME COURT THAT THE MERE INCIDENCE OF PROFIT S DOES NOT RESULT IN THE ACTIVITY BEING TREATED AS BUSINESS AN D THAT THE INTENT TO EARN PROFITS IS A SINE QUA NON FOR AN ACTIVITY T O BE TREATED AS BUSINESS. DOMINANT PURPOSE TEST IS TO BE APPLIED. T HE SUPREME COURT HAS HELD THAT THE INCIDENCE OF PROFITS WILL N OT, PER SE, VITIATE THE CHARITABLE CHARACTER OF ORGANISATIONS AND HE RE LIED ON THE FOLLOWING PRECEDENTS: - ADDL. CIT V. SURAT ART SILK CLOTH MANUFACTURERS ' ASSOCIATION [1980] 121 ITR 1 (SC); - THIAGARAJAR CHARITIES V. ADDL, CIT [1997] 225 ITR 1010 (SC); - CIT V. ANDHRA PRADESH STATE ROAD TRANSPORT ASSOCI ATION [1986] 159 ITR 1 (SC); AND - AMERICAN HOTEL AND LODGING ASSN. EDUCATION INSTIT UTE V. CIT [2008] 301 ITR 86 (SC). 7.6 HE SUBMITTED THAT VARIOUS PRECEDENTS INCLUDING SOME OF THESE HAVE BEEN COMPREHENSIVELY ANALYSED TO REITERA TE THE AFOREMENTIONED PRINCIPLES IN THE SUPREME COURT ' S RECENT JUDGEMENT IN QUEEN ' S EDUCATION SOCIETY V. CIT [2015] 372 ITR 699 (SC). THIS PRINCIPLE (I.E . , TO DETERMINE WHETHER THE DOMINANT - - ITA 625 /15 18 INTENTION IS ONE TO EARN PROFIT OR NOT) HAS COME TO BE KNOWN AS THE DOMINANT PURPOSE TEST . HE ALSO SUBMITTED THAT THE RELIANCE PLACED BY THE LEARNED AO IN HIS ORDER ON THE JUDGEM ENTS OF THE SUPREME COURT IN SOLE TRUSTEE, LOK SHIKSHANA TRUST V. CIT [1975] 101 ITR 234 (SC) AND IN INDIAN CHAMBER OF COMMERCE V. CIT [1975] 101 ITR 796 (SC) IS MISPLACED. IN SURAT ART'S CASE, INDIAN CHAMBER JUDGEMENT HAS BEEN OVERRULED AND THE OBSERVATIONS ON RESTRICTION OF PROFIT IN LOKSHIKSHA NA HAVE BEEN DISAPPROVED. IN THE LIGHT OF THESE PRECEDENTS, IN O RDER TO ESTABLISH THAT THE ACTIVITIES OF THE ASSESSEE ARE N OT HIT BY THE PROVISOS TO SECTION 2(15) , IT WOULD BE SUFFICIENT TO ESTABLISH THAT SUCH ACTIVITIES ARE NOT CARRIED OUT WITH PROFIT AS THE MOTIVE . DOMINANT PURPOSE MUST BE CHARITABLE. 7.7 THE LD. AR CONTENDED THAT T HE ASSESSEE'S MICRO-LENDING ACTIVITIES ARE CARRIED OUT AT AN INTEREST RATE THAT IS THE BORROWING RATE PLUS A LOAD OF 2% OF THE AMOUNT OF T HE BORROWINGS. THEREFORE, WHERE THE INTEREST RATE ON B ORROWINGS MADE BY THE ASSESSEE FALLS, THE RESULTANT BENEFIT I S PASSED ON TO THE BORROWERS. THIS IS DEMONSTRATED BY THE IN TEREST RATES SHOWN BELOW. THESE FACTS HAVE NOT BEEN DISPUTED BY THE - - ITA 625 /15 19 REVENUE THUS FAR . IN FACT AS PER NON-BANKING FINANCIAL COMPANY - MICROFINANCE INSTITUTIONS (NBFC - MFI) DI RECTIONS ISSUED BY THE RBI, THE MARGIN CAP LAID DOWN FOR MIC RO LOANS TO THE POOR IS AS HIGH AS 10% (LOAN PORTFOLIO EXCEEDIN G ` 100 CRORES) AND 12% (LOAN PORTFOLIO BELOW ` I00 CRORES) BASED ON THE LOAN PORTFOLIO. THE LOAD OF 2% CANNOT BE DONE AWAY WITH AS IT IS A BARE NECESSITY TO ENSURE THE SURVIVAL OF THE ORGA NISATION. THIS LOAD IS APPLIED TOWARDS ADMINISTRATIVE COSTS AND BA D DEBTS . THE SURPLUS IF ANY IS ONLY PLOUGHED BACK FOR APPLICATIO N TOWARDS ITS OBJECTS. IN THE LIGHT OF THE LICENSE UNDER SECTION 25 OF THE 1956 ACT, THE ASSESSEE ACTUALLY HAS NO OTHER LEGALLY PER MISSIBLE OPTION . TO SUGGEST THAT THE LOAD OF 2% INDICATES AN INTENTI ON TO EARN PROFIT AND THAT THIS LOAD WOULD VITIATE THE CH ARITABLE CHARACTER WOULD BE TO CONDEMN THE ASSESSEE TO FINAN CIAL FAILURE. FINANCIAL STABILITY IS A PREREQUISITE FOR THE SURVI VAL OF EVERY ENTITY INCLUDING THOSE CARRYING ON CHARITABLE ACTIVITIES. TO INTERPRET SECTION 2(15) AS PROHIBITING EARNING EVEN THIS INCO ME WOULD BE TO DEFEAT THE INTENTION OF THE EXEMPTION PROVISIONS. T HE RATES OF INTEREST CHARGED BY THE ASSESSEE ARE CONSIDERABLY L OWER THAN THE RATES OF INTEREST CHARGED BY OTHER ENTITIES CAR RYING OUT - - ITA 625 /15 20 MICROFINANCE. THIS IS EVIDENCED BY THE DATA BROUGHT OUT IN THE SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI)' S REPORT TITLED 'STUDY ON INTEREST RATES AND COSTS OF MICRO FINANCE INSTITUTIONS, 2011'. THE RELEVANT DATA IS EXTRACTED BELOW. APR + NO.OFMFIS PERCENTAGE OF MFIS 15% TO 20% 10 20% 20% TO 25% 4 8% 25% TO 30% 16 31% 30% TO 35% 14 27% 35% TO 40% 5 10% ABOVE 40% 2 4% TOTAL 51 100% AVERAGE ANNUAL PERCENTAGE RATE TABULATED IN ANNEXUR E 7 TO THE SIDBI REPORT VARIES BETWEEN 15% AND 50.09%. ASSESSE ES APR IS 13% (INTEREST ONLY) AND VARIES BETWEEN 13.12% AN D 13.44% (INTEREST + FEE) BASED ON THE QUANTUM OF LOAN. THE AVERAGE APR (INTEREST + FEE) OF ALL THE MFLS COVERED IS 28 . 19% AS PER ANNEXURE 7 TO SIDBI REPORT. FURTHER THE ASSESSEE DO ES NOT ACCEPT DEPOSIT OR INSIST ON INSURANCE LIKE THESE MF IS THUS MAKING IT LESS BURDENSOME FOR THE POOR. 7. 8. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE IS LICENSED UNDER SECTION 25 OF THE COMPANIES ACT, 195 6. THIS LICENCE PROHIBITS THE ASSESSEE FROM DECLARING DIVI DENDS, ISSUING BONUS SHARES OR DISTRIBUTING THE PROFITS IN ANY OTH ER MANNER. - - ITA 625 /15 21 MANAGERIAL REMUNERATION CAN ALSO NOT BE PAID TO MEM BERS. FURTHER, THE TERMS UNDER WHICH THE LICENCE IS GRANT ED MAKE IT INCUMBENT UPON THE RESPONDENT TO UTILISE (I.E., PLO UGH BACK) ITS PROFITS ONLY FOR THE PURPOSE OF ITS OBJECTS . PROFIT MOTIVE CANNOT, THUS, BE ATTRIBUTED TO A SECTION 25 OF THE COMPANIE S ACT. HE DREW OUR ATTENTION TO THE DECISION OF THE TRIBUNAL, CHENNAI BENCH IN THE CASE OF SOCIO ECONOMIC DEVELOPMENT ASSOCIATI ON V. ITO, WARD II(4) MADURAI [2011]-TIOL-754-ITAT-MAD, WHEREI N IT WAS OBSERVED AS UNDER: 'NEVERTHELESS, SUCH ACTIVITIES OF GIVING MICRO-FINA NCE AND EARNING INTEREST CAN BE OKAYED IN THE CASE OF COMPANIES REGISTERED U/S 25 OF THE COMPANIES ACT, 1956, BECAUSE IN THAT CASE, THE COMPANY INTENDS TO APPLY ITS PROFIT IN PROMOTING CHARITY. ' 7.9. THE LD. AR SUBMITTED THAT IF THE ASSESSEE'S IN TENTION WAS TO EARN PROFIT: (I) THE ASSESSEE WOULD NOT HAVE GIV EN GRANTS; (II) THE ASSESSEE'S SPREAD WOULD NOT HAVE BEEN AS LOW AS 2%; (III) THE POOR WOULD NOT HAVE BEEN THE ONLY FOCUS; (IV) T HE MONETARY LIMITS OF LOANS EXTENDED WOULD NOT HAVE BEEN AS LOW AS THEY ARE; (V) OTHER ACTIVITIES SUCH AS TRAINING, CAPACITY BUI LDING, PROMOTION OF SHGS AND TSUNAMI RELIEF WOULD NOT HAVE BEEN CARR IED OUT; AND (VI) THE ASSESSEE WOULD NOT HAVE CHOSEN TO OBTAIN A LICENCE - - ITA 625 /15 22 UNDER SECTION 25. HE ALSO DREW OUR ATTENTION TO T HE JUDGEMENT OF THE DELHI HIGH COURT IN INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA V . DGIT( E) [2013] 358 ITR 91 (DELHI) , WHERE THE COURT HELD THAT THE WORDS 'TRADE, COMMERCE OR BUSINESS' O CCURRING IN SECTION 2(15) MUST BE INTERPRETED RESTRICTIVELY WHI LE BEARING THE PURPOSES OF THAT SUBSECTION AND THE EXEMPTION PROVI SIONS IN MIND. HE ALSO PLACED RELIANCE ON THE JUDGMENT OF T HE HIGH COURT OF ANDHRA PRADESH IN CIT V. SPANDANA RURAL AND URBA N DEVELOPMENT ORGANISATION (ITA NO.304 OF 2013). FU RTHER, HE PLACED RELIANCE ON THE FOLLOWING PARAGRAPH IN THE S PEECH OF THE FINANCE MINISTER IN THE CONTEXT OF THE AMENDMENT OF THE FIRST PROVISO TO SEC.2(15) OF THE ACT: '180. 'CHARITABLE PURPOSE' INCLUDES RELIEF OF THE P OOR, EDUCATION, MEDICAL RELIEF AND ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. THESE ACTIVITIES ARE TAX EX EMPT, AS THEY SHOULD BE. HOWEVER, SOME ENTITIES CARRYING ON REGULAR TRADE, COMMERCE OR BUSINESS OR PROVIDING SERVICES IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS AND EARNING INCOMES HAVE SOUGHT TO CLAIM THAT THEIR PURPOSES WOULD ALSO FALL UNDER 'CHARITAB LE PURPOSE'. OBVIOUSLY, THIS WAS NOT THE INTENTION OF PARLIAMENT AND, HENCE, I PROPOSE TO AMEND THE LAW T O EXCLUDE THE AFORESAID CASES. GENUINE CHARITABLE ORGANISATIONS WILL NOT IN ANY WAY BE AFFECTED.' ACCORDINGLY, THE LD. AR SUBMITTED THAT THE ASSESSEE IS A GENUINE - - ITA 625 /15 23 CHARITABLE ORGANIZATION AND IT MUST NOT BE AFFECTED BY THIS AMENDMENT. 7.10. THE LD. AR SUBMITTED THAT GROUND NO. 2.3 REFERS TO TWO PRECEDENTS BOTH OF WHICH DO NOT APPLY TO THE AS SESSEE FOR THE REASONS HEREIN BELOW: THE ESSENCE OF THE GROUND TAKEN IS THAT THE NATURE OF USE OR APPLICATION OF PROFITS FROM AN ACTIVITY IN T HE NATURE OF TRADE, COMMERCE, OR BUSINESS BY A TRUST PURSUING THE ADVANCEMENT OF ANY OTHER OBJECT OF GEN ERAL PUBLIC UTILITY IS IRRELEVANT . THE FACTS OF ENTERTAINMENT SOCIETY OF GOA V. CLT [2013] 23 ITR(T) 635 (PANAJI) ARE DISTINGUISHABLE ON FACTS OF THE PRESENT CASE. FURT HER, HE INVITED OUR ATTENTION TO THE CBDTS CIRCULAR NO.11 OF 2008, WHICH WAS NOT CONSIDERED IN ENTERTAINMENT SOCIETY OF GOA(ESG) (SUPRA). THE LD. AR ALSO PLACE D RELIANCE ON THE RECENT JUDGMENT OF THE HIGH COURT O F DELHI IN INDIA TRADE PROMOTION ORGANIZATION V. DGIT (371 ITR 333) AND HE CONTENDED THAT THE PANAJI BEN CH DID NOT HAVE THE BENEFIT OF JUDGMENT OF THE DELHI H IGH COURT IN THE CASE OF ENTERTAINMENT SOCIETY OF GOA(S UPRA) AS IT WAS PASSED SUBSEQUENTLY. ACCORDINGLY, HE SUBMITTED THAT THE ORDER OF THE TRIBUNAL IN THE CAS E OF ENTERTAINMENT SOCIETY OF GOA(SUPRA) IS NOT RELEVANT TO THE PRESENT CASE. HE ALSO RELIED ON THE DECISION O F THE TRIBUNAL I N JAMMU DEVELOPMENT AUTHORITY V. CIT [2012] 23 TAXMANN.COM 343 (AMRITSAR) AND THE TRIBUNAL CAME TO A CONCLUSIVE FINDING THAT THERE WAS NO CHARITABL E ACTIVITY AT ALL . THE ASSESSEE IN THAT CASE WAS SET UP TO PROMOTE AND SECURE THE DEVELOPMENT OF LOCAL AREA. THERE WAS, IN THAT CASE, A CLEAR INTENTION TO EARN PROFITS WHICH FINDING IS CONSPICUOUSLY ABSENT IN THE PRESEN T CASE. 7.11. THE LD. AR SUBMITTED THAT GROUND NO.3, ASSER TS THAT - - ITA 625 /15 24 THE INTEREST SPREAD IS MUCH MORE THAN 2 % OR 3 % A S CHARGE S A RE MADE UNDER THE CAPTION 'SERVICE CHARGES '. THIS IS FACTUALLY INCORRECT AS IT IS AN ADMITTED POSITION THAT IT IS ACTUALLY INTEREST THAT IS STYLED AS ' SERVICE CHARGES'. THE TABLE OF RATES SHOWING THE RELATIONSHIP BETWEEN THE BORROWING RATE S AND THE LENDING RATES HAS NO T BEEN CONT R OVERTED BY THE REVENUE. 7.12. THE LD. AR SUBMITTED THAT THE RELIANCE MADE BY THE REVENUE IN SOCIO ECONOMIC DEVELOPMENT ASSOCIATION V. ITO , WARD 11(4), MADURAI [2011]-TIOL- 754-ITAT-MAD AND I N JANAL A KSHMI SOCIAL SERVICES V . DIT (EXEMPTIONS) [2009] 33 SOT 197 (B A NG. ) - IS NOT RELEVANT TO THE FACTS OF THE PRESENT CASE. 7.13. ACCORDING TO THE LD. AR, THE ASSESSEE IS PURSUING 'THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUB LIC UTILITY' WHICH PRESUMPTION IS CLEARLY INCORRECT AND WHICH HA S BEEN ADDRESSED ABOVE. HE SUBMITTED THAT IN ENTERTAINMENT SOCIETY OF GOA (SUPRA), REGISTRATION WAS CANCELLED UNDER SECTI ON 12AA(3) INVOKING PROVISO TO SECTION 2 (15) WHICH WAS UPHELD BY THE ITAT . HOWEVER IN THI S PARAGRAPH THE GROUND STATES THAT REGISTRATION CANNOT BE CANCELLED UNDER SECTION 12 AA (3) INVOKING PROVISO TO - - ITA 625 /15 25 SECTION 2 (15). THE LD. AR SUBMITTED THAT THE CIT - 1, MADURAI INITIATED ACTION U/S.12AA(3) INVOKING THE PROVISO T O SECTION 2(15), BUT DROPPED THE PROCEEDINGS. BEFORE THE CIT-1, THE ASSESSEE EMPHASISED THAT IT FALLS UNDER RELIEF OF POOR WITH ORAL AND WRITTEN SUBMISSIONS. HE FURTHER SUBMITTED THAT GROUND 5.2 ALSO DEALS WITH INVOKING THE SECOND PROVISO TO SECTION 2(15) A ND, CONSEQUENTLY, THE PROVISIONS OF SECTION 13(8). ONCE AGAIN, THIS PROCEEDS ON THE BASIS THAT THE ASSESSEE IS PURSUING 'THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC U TILITY' WHICH PRESUMPTION IS CLEARLY INCORRECT AND WHICH HAS BEEN ADDRESSED ABOVE. 7.14 REGARDING INVOKING OF PROVISOS TO SEC.2(15), HE SUBMITTED THAT IT HAS PROCEEDED ON THE BASIS THAT THE ASSESSEE IS PURSUING 'THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY' WHICH PRESUMPTION IS CLEARLY INCORR ECT AND WHICH HAS BEEN ADDRESSED ABOVE. HE CONTENDED THAT THROUG H GROUND 6.2, THE REVENUE CONTENDS THAT THE PROVISIONS OF OT HER PIECES OF LEGISLATION SUCH AS THE COMPANIES ACT CANNOT OVERRI DE THE PROVISIONS OF THE INCOME TAX ACT, 1961 AND PLACES R ELIANCE ON THE JUDGEMENT OF THE SUPREME COURT IN SOUTHERN TECH NOLOGY - - ITA 625 /15 26 LTD. V. CIT [2010] 320 ITR 577 (SC). PRESUMABLY, THE REVENUE'S ARGUMENT IS THAT THE CHARACTER OF THE ASSESSEE (VIZ . A COMPANY LICENSED UNDER SECTION 25 OF THE 1956 ACT) CANNOT P REJUDICE THE ASSESSMENT UNDER THE INCOME TAX ACT, 1961 . HE SUBMITTED THAT BY VIRTUE OF THE LICENCE UNDER SECTION 25 OF THE COM PANIES1956 ACT, THE ASSESSEE IS STATUTORILY PROHIBITED FROM DO ING CERTAIN DEEDS (SUCH AS DECLARATION OF DIVIDEND ISSUE OF BON US SHARES, PAYMENT OF REMUNERATION TO MEMBERS ETC.). THEREFORE , ASSESSEE CANNOT BE PRESUMED TO BE AN ENTITY WITH A PROFIT MO TIVE. THIS ASPECT IS ACTUALLY FACTUAL AND NOT LEGAL . IT IS A FACTUAL CONSEQUENCE OF THE APPLICATION OF LAW. HE FURTHER SUBMITTED THAT THE REVENUE'S CONTENTION IS ALSO INCORRECT AS, TO P RESUME THAT THE ASSESSEE IS ESTABLISHED WITH A PROFIT MOTIVE WO ULD BE EITHER: TO PRESUME NON- COMPLIANCE WITH SECTION 25 OF THE C OMPANIES ACT, 1956; OR TO FULLY IGNORE THE APPLICATION OF TH E COMPANIES ACT, 1956. ACCORDINGLY, HE SUBMITTED THAT BOTH THESE PO SITIONS ARE CLEARLY FALLACIOUS AND DO NOT DESERVE CONSIDERATION . HE ALSO INVITED OUR ATTENTION TO THE FOLLOWING DECISIONS FO R THE PREPOSITION THAT STATUS UNDER SECTION 25 OF THE COMPANIES ACT, IS VERY RELEVANT IN THE CONTEXT OF SECTION 2 (15) AND ITS P ROVISOS . - - ITA 625 /15 27 1 . SOCIO ECONOMIC DEVELOPMENT ASSOCIATION (SUPRA) 2. PARAGRAPH 9 OF THE DECISION OF ITAT, DELHI IN DI SHA MICRO CREDIT HE ALSO RELIED ON THE JUDGEMENT IN THE CASE OF INDIA TRADE PROMOTION (371 ITR 333, 364), WHERE THE DELHI HIGH COURT HAS HELD THAT IN VIEW OF THE STATUTORY PROVISIONS OF SE CTION 25 OF COMPANIES ACT, PROFIT MAKING CANNOT BE HELD TO BE T HE OBJECT OF THE ENTITY AND HE PRAYED THAT THE ORDER OF THE CIT( APPEALS) IS TO BE CONFIRMED. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. SEC. 11 OF THE ACT STIPULATES THAT THE INCOME FROM PROPERTY HELD FOR CHARITABLE OR RELIGIO US PURPOSE SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PR EVIOUS YEAR OF THE PERSON IN RECEIPT OF THE INCOME TO BE GIVEN EFF ECT IN THE MANNER AS SPECIFIED THEREIN. THE TERM 'CHARITABLE P URPOSE' HAS NOT BEEN DEFINED UNDER THE STATUTE; BUT FOR THE INC LUSIVE NATURE OF THE TERM AS SPECIFIED UNDER S. 2(15) OF THE ACT, WH ICH AS EXISTED BEFORE THE AMENDMENT IS AS FOLLOWS : 'SEC. 2(15) : 'CHARITABLE PURPOSE' INCLUDES RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY.' - - ITA 625 /15 28 AS PER FINANCE ACT, 2008, THE SAID PROVISION WAS AM ENDED ADDING A 'PROVISO' W.E.F. 1ST APRIL, 2009 AS FOLLOW S : 'PROVIDED THAT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PU RPOSE, IF IT INVOLVES THE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR ANY ACTIVITY OF REND ERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS FOR A CESS OR FEE OR ANY OTHER CONSIDERATI ON IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION OR RETENTION OF THE INCOME FROM SUCH ACTIVITY.' THE AO HAS TAKEN A STAND THAT BY VIRTUE OF THE AMEN DMENT AS ABOVE, THE ASSESSEE IS NOT ENTITLED TO EXEMPTION U/ S.11 OF THE ACT. 8.1. THE LD. AR SUBMITTED THAT, THE IDEA AND UNDERSTANDING OF THE AO WITH REGARD TO THE SCOPE OF AMENDMENT TO SEC.2(15) IS THOROUGHLY WRONG AND MISCONCEIVED. THERE IS NO TRADE OR BUSINESS IN THE ACTIVITIES PURSUED BY THE ASSESSEE IN RUNNING OF MICRO FINANCE BUSINESS AND WILL NOT TAKE IT OUTSIDE THE PURVIEW OF CHARITY AND HENCE, THAT THE PROVISO AD DED TO SEC.2(15) OF THE ACT, IS NOT AT ATTRACTED TO THE CA SE IN HAND. HE ALSO SUBMITTED THAT THE STATUTE, AS IT STOOD EARLIE R, HAD CLARIFIED THE CHARITABLE PURPOSE MENTIONED IN SEC.2(15) OF TH E ACT, HAD CLARIFIED THE CHARITABLE PURPOSE MENTIONED IN S. 2( 15) BY THE WORDS 'NOT INVOLVING THE CARRYING ON OF ANY ACTIVIT Y FOR PROFIT'. BY - - ITA 625 /15 29 VIRTUE OF THE EXISTENCE OF THESE CLARIFYING WORDS, IF THERE WAS ANY ELEMENT OF PROFIT IT WAS ENOUGH LIABLE TO BE RECKON ED AS CHARITABLE PURPOSE RIGHT FROM THE INCEPTION OF THE ACT IN 1961 TILL 1 ST APRIL, 1984, WHEN THE WORDS 'NOT INVOLVING THE CA RRYING ON OF ANY ACTIVITY FOR PROFIT' WERE DELETED. THUS THE CON TENTION IS THAT AFTER 1 ST APRIL, 1984, THERE IS NO ALLERGY TO PROFIT AND IF THE PROFIT FEEDS CHARITY, IT STANDS CLEARED FOR EXEMPTION UNDE R S. 11 OF THE ACT. 8.2. TO ANALYSE THE SCOPE AND OBJECT OF THE AMENDM ENT, WE HAVE GONE THROUGH THE 'BUDGET SPEECH' OF THE MIN ISTER FOR FINANCE IN THE FINANCE BILL 2008, REPORTED IN (298 ITR (ST.) 33 AT PAGE 65 : '180. CHARITABLE PURPOSE INCLUDES RELIEF OF THE P OOR, EDUCATION, MEDICAL RELIEF AND ANY OTHER OBJECT OF G ENERAL PUBLIC UTILITY. THESE ACTIVITIES ARE TAX EXEMPT, AS THEY SHOULD BE. HOWEVER, SOME ENTITIES CARRYING ON REGUL AR TRADE, COMMERCE OR BUSINESS OR PROVIDING SERVICES I N RELATION TO ANY TRADE, COMMERCE OR BUSINESS AND EAR NING INCOMES HAVE SOUGHT TO CLAIM THAT THEIR PURPOSES WO ULD ALSO FALL UNDER 'CHARITABLE PURPOSE'. OBVIOUSLY, TH IS WAS NOT THE INTENTION OF PARLIAMENT AND HENCE I PROPOSE TO AMEND THE LAW TO EXCLUDE THE AFORESAID CASES. GENUI NE CHARITABLE ORGANIZATIONS WILL NOT IN ANY WAY BE AFF ECTED' (EMPHASIS SUPPLIED). - - ITA 625 /15 30 8.3 THE LEARNED COUNSEL POINTS OUT THAT, THE AMEND MENT WAS BROUGHT ABOUT AS A MEASURE OF RATIONALIZATION A ND SIMPLIFICATION, STREAMLINING THE DEFINITION OF CHAR ITABLE PURPOSE AND NOT AS A MEASURE OF TAXATION. IT IS ALSO STATED THAT THE CONCEPT OF CHARITY IN INDIA IS WIDER, SIMULTANEOUSL Y ADDING THAT, BY VIRTUE OF THE AMENDMENT, THE POSITION THAT EXIST ED PRIOR TO 1ST FEB., 1984 HAS BEEN BROUGHT BACK AND THAT IS ALL. THIS HOWEVER WILL NOT TILT THE BALANCE IN ANY MANNER IN THE CASE OF THE ASSESSEE SO AS TO TAKE THE ACTIVITIES OUTSIDE THE CHARITABLE PURPOSE, PARTICULARLY IN VIEW OF THE FACT THAT MICRO FINANCE BUSINESS WILL NOT CONSTITUTE ANY TRADE OR BUSINESS. ACCORDING TO THE LD. AR, TO PERFORM CHARITY, INCOME IS INEVITABLE AND CONTENDED THAT THE ACTIVITIES BEING PURSUED BY THE ASSESSEE MAY CONSTI TUTE A TRADE OR BUSINESS, IF IT IS NOT APPLIED FOR THE PURPOSES OF CHARITY. CONTRARY TO THIS, THE LD. DR SUBMITTED THAT THOUGH THE OBJECT OF THE ASSESSEE IS TO CARRY ON CHARITABLE ACTIVITIES, BUT IT DOES NOT CARRY THOSE CHARITABLE ACTIVITIES, AND IT WAS ONLY CARRYING ON MICRO FINANCE BUSINESS IN A COMMERCIAL MANNER, WHICH CANN OT BE CONSTRUED AS CHARITABLE ACTIVITY. IN OTHER WORDS, IT WAS CONTENDED BY THE LD. DR THAT THE ASSESSEE CARRIED O N ACTIVITIES IN - - ITA 625 /15 31 A BUSINESS ORIENTED MANNER, IT WILL DEFINITELY COME WITHIN THE FOURTH LIMB OF THE AMENDED SEC.2(15) OF THE ACT, WH ERE THE PROHIBITION OF ACTIVITY IN THE NATURE OF TRADE, COM MERCE OR BUSINESS FOR ANY ACTIVITY OF RENDERING SERVICE OR A NY OTHER CONSIDERATION, IRRESPECTIVE OF THE NATURE OF THE US E OR APPLICATION OR RETENTION OF THE INCOME OF SUCH ACTIVITY IS SPEC IFIED AND HENCE, NOT ENTITLED TO ANY EXEMPTION. 8.4. TO ANALYSE THE ACTIVITIES CARRIED ON BY THE ASSESSEE, WE HAVE TO GO THROUGH THE NATURE OF ACTIV ITIES PURSUED BY THE ASSESSEE AND PERUSAL OF THAT ACTIVITIES CARR IED ON BY THE ASSESSEE, CANNOT BE OUST THE INVOLVEMENT OF TRADE, COMMERCE OR BUSINESS OR ANY SERVICE IN CONNECTION WITH TRA DE, COMMERCE OR BUSINESS AS CONTEMPLATED UNDER THE STATUT E. FURTHER, WE NOTE THAT THERE IS SUBSTANTIAL VARIATION IN THE STATUTORY POSITION AS IT EXISTED EARLIER TO 1 ST APRIL, 2009, WHERE THE ASSESSEE HAS BEEN GIVEN EXEMPTION UNDER SECTION 11 OF THE AC T AND THE POSITION AVAILABLE AFTER AMENDMENT TO SECTION 2(15) OF THE ACT, BROUGHT INTO EFFECT FROM 1 ST APRIL, 2009. YET ANOTHER IMPORTANT ASPECT TO BE NOTED IN THIS CONTEXT IS THAT, AFTER THE AMENDMENT BY INCORPORATING PROVISO TO SECTION 2(15), THE 4TH LIMB AS - - ITA 625 /15 32 TO THE ADVANCEMENT OF 'ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY' WILL NO LONGER REMAIN AS CHARITABLE PURPOSE, IF IT INVOLVES CARRYING ON OF : (A) ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE O R BUSINESS, (B) ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATI ON TO ANY TRADE, COMMERCE OR BUSINESS FOR A CESS OR A FEE OR ANY OTH ER CONSIDERATION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION OR RETENTION OF THE INCOME FROM SUCH ACTIVITY. 8.5. THE FIRST LIMB OF EXCLUSION FROM CHARITABLE P URPOSE UNDER CL. (A) WILL BE ATTRACTED, IF THE ACTIVITY PU RSUED BY THE INSTITUTION INVOLVES ANY TRADE, COMMERCE OR BUSINES S. BUT THE SITUATION CONTEMPLATED UNDER THE SECOND LIMB [CL. ( B)] STANDS ENTIRELY ON A DIFFERENT PEDESTAL, WITH REGARD TO TH E SERVICE IN RELATION TO THE TRADE, COMMERCE OR BUSINESS MENTION ED THEREIN. TO PUT IT MORE CLEAR, WHEN THE MATTER COMES TO THE SERVICE IN RELATION TO THE TRADE, COMMERCE OR BUSINESS, IT HAS TO BE EXAMINED WHETHER THE WORDS 'ANY TRADE, COMMERCE OR BUSINESS' AS THEY APPEAR IN THE SECOND LIMB OF CL. (B) ARE IN CONNECTION WITH THE SERVICE REFERRED TO THE TRADE, COMMERCE OR BUSI NESS PURSUED BY THE INSTITUTIONS TO WHICH THE SERVICE IS GIVEN B Y THE ASSESSEE. IF THE SAID WORDS ARE ACTUALLY IN RESPECT OF THE TR ADE, COMMERCE - - ITA 625 /15 33 OR BUSINESS OF THE ASSESSEE ITSELF, THE SAID CLAUSE [SECOND LIMB OF THE STIPULATION UNDER CL. (B)] IS RATHER OTIOSE. SINCE THE ACTIVITY OF THE ASSESSEE INVOLVING ANY TRADE, COMMERCE OR BU SINESS, IS ALREADY EXCLUDED FROM THE CHARITABLE PURPOSE BY VIR TUE OF THE FIRST LIMB [CL. (A)] ITSELF, THERE IS NO NECESSITY TO STI PULATE FURTHER, BY WAY OF CL. (B), ADDING THE WORDS 'OR ANY ACTIVITY O F RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSIN ESS ..................'. AS IT STANDS SO, GIVING A PURP OSIVE INTERPRETATION TO THE STATUTE, IT MAY HAVE TO BE READ AND UNDERSTOOD THAT THE SECOND LIMB OF EXCLUSION UNDER CL. (B) IN RELATION TO THE SERVICE RENDERED BY THE ASSESSEE, THE TERMS 'ANY TRADE, COM MERCE OR BUSINESS' REFERS TO THE TRADE, COMMERCE OR BUSINESS PURSUED BY THE RECIPIENT TO WHOM THE SERVICE IS RENDERED AND I N SUCH CIRCUMSTANCES, THE ACTIVITIES CARRIED ON BY THE ASS ESSEE CANNOT BE CONSIDERED AS CHARITABLE ACTIVITIES. 8.6. THE ACTIVITIES CARRIED ON BY THE ASSESSEE CAN NOT BE CONSIDERED AS ACTIVITIES OF MEDICAL RELIEF OR EDUCA TION OR RELIEF OF THE POOR. IT IS TRUE THAT THE ACTIVITIES CARRIED O N BY THE ASSESSEE TAKE CARE OF THE POOR PEOPLE ALSO. BUT THOSE ACTIVI TIES CANNOT BE CLASSIFIED UNDER ANY OF THE SPECIFIC ACTIVITIES OF RELIEF OF THE POOR; - - ITA 625 /15 34 EDUCATION OR MEDICAL RELIEF. THE CORRECT WAY TO EXP RESS THE NATURE OF THE ACTIVITIES CARRIED ON BY THE ASSESSEE IS TO SAY THAT THE ASSESSEE IS CARRYING ON 'ADVANCEMENT OF ANY OTH ER OBJECT OF GENERAL PUBLIC UTILITY'. WHEN THAT IS THE CASE, TH E ASSESSEE IS HIT BY THE PROVISO GIVEN UNDER SECTION 2(15). THE PROVI SO READS THAT 'ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY' SHALL NOT BE A CHARITABLE PURPOSE, IF IT INVOLVES CARRYIN G ON ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR AN Y ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COM MERCE OR BUSINESS FOR CONSIDERATION, IRRESPECTIVE OF THE APP LICATION OF THE MONEY. THEREFORE, THE CASE OF THE ASSESSEE IS HIT BY PROVISO TO SECTION 2(15) AND THE ASSESSEE IS NOT ENTITLED FOR THE BENEFIT OF SECTION 11 FOR THAT PART OF INCOME GENERATED IN THE HANDS OF THE ASSESSEE FROM RUNNING ITS MICRO FINANCE BUSINESS. A LTERNATIVELY, ONE HAS TO LOOK INTO SECTION 11 (4A). SUB-SECTION ( 4A) PROVIDES THAT EXEMPTION SHALL NOT APPLY IN RELATION TO ANY I NCOME OF A TRUST OR AN INSTITUTION, BEING PROFITS AND GAINS OF BUSIN ESS, UNLESS THE BUSINESS IS INCIDENTAL TO THE ATTAINMENT OF THE OBJ ECTIVES OF THE ASSESSEE AND SEPARATE BOOKS OF ACCOUNT ARE MAINTAIN ED BY SUCH TRUST OR INSTITUTION IN RESPECT OF SUCH BUSINESS. I N THE PRESENT - - ITA 625 /15 35 CASE, THERE IS NO DISPUTE ON THE FACT THAT THE ASSE SSEE IS CARRYING ON THE BUSINESS OF MICRO FINANCE. THE ASSESSEE IS MAINTAINING SEPARATE ACCOUNTS FOR THE ABOVE BUSINESS ACTIVITIES . BUT, THE CRUCIAL QUESTION IS WHETHER RUNNING OF MICRO FINANC E IS A BUSINESS INCIDENTAL TO THE ATTAINMENT OF THE OBJECTIVES OF T HE TRUST OR NOT. BY ANY STRETCH OF IMAGINATION, IT IS NOT POSSIBLE T O HOLD THAT THE BUSINESS OF MICRO FINANCE IS INCIDENTAL TO THE ABOV E STATED OBJECTIVES OF THE ASSESSEE-TRUST. 'INCIDENTAL' MEA NS OFFSHOOT OF THE MAIN ACTIVITIES; INHERENT BY-PRODUCT OF PRINCIP AL ACTIVITIES. ACTIVITIES TO COMPLIMENT AND SUPPORT THE MAIN OBJEC TIVES ARE NOT IN THE NATURE OF INCIDENTAL TO THE BUSINESS. THEY A RE SUPPORTING ACTIVITIES, AT THE MAXIMUM. THE GENESIS OF INCIDENT AL ACTIVITIES MUST BE FROM THE PRINCIPAL ACTIVITIES THEMSELVES. T HERE CANNOT BE ONE SOURCE FOR THE PRINCIPAL ACTIVITIES AND ANOTHER SOURCE FOR INCIDENTAL ACTIVITIES. IN THE PRESENT CASE, EVEN I F ACTIVITIES OF THE ASSESSEE WERE STATED TO BE RELIEF OF POOR, IT WAS N OT POSSIBLE TO CONCLUDE THAT RUNNING OF BUSINESS IN THE FORM OF MI CRO FINANCE IS INCIDENTAL TO CARRYING ON OF MAIN OBJECTIVE OF THE ASSESSEE-TRUST AND IT IS THE MAIN BUSINESS OF THE ASSESSEE. THERE FORE, THE - - ITA 625 /15 36 ASSESSEE IS NOT PROTECTED BY THE PROVISION STATED I N SECTION 11 (4A), EITHER. 8.7. IN THE PRESENT CASE, THE ASSESSEE IS HAVING RESERVES AND SURPLUS AT ` 50,89,576/-. CONTRARY TO THIS, THE ASSESSEE IS HAVING REVOLVING FUND AT ` 66,33,800/-, WHICH WAS AVAILED BY HYPOTHECATION OF THEIR DEBT TO VARIOUS N ECESSARY BANKS. FURTHER, THE ASSESSEE RAISED SECURED LOANS AND UNSECURED LOANS @ 11% TOTALLING TO `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