Janodaya Trust, Bangalore V. Asst.DIT, Bangalore

ITA 763/BANG/2016

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 4278 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 28-10-2020
• Assessment Year: 2009-2010
• Appeal Filed On: 07-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHI MISHRA
• Keywords: Charitable institution; Bad and doubtful debts; Cancellation of registration; Set aside
• Section: 12A; 11

Judgement Text

ITA NO.763/BANG/2016 JANODAYA TRUST, BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL BBENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.763/BANG/2016 ASSESSMENT YEAR: 2009-10 M/S. JANODAYA TRUST NO.3, 9 TH CROSS, 5 TH MAIN JAYAMAHAL EXTENSION BANGALORE-560 046 PAN NO : AAATJ0800F VS. ACIT (EXEMPTIONS) CIRCLE-17(1) BANGALORE APPELLANT RESPONDENT APPELLANT BY : SMT. SHEETAL BORKAR, A.R. RESPONDENT BY : SHRI PRIYADARSHI MISHRA, D.R. DATE OF H EARING : 13.01.2021 DATE OF PRONOUNCEMENT : 16.02.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 2.2.2016 PASSED BY LD. CIT(A)-14, BENGALURU A ND IT RELATES TO THE ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD. CIT(A) IN CONFIRMING THE REJECTION OF EXEMPTION U/S 11 CLAIME D BY THE ASSESSEE. THE EFFECTIVE GROUNDS OF APPEAL OF THE A SSESSEE READ AS UNDER: ITA NO.763/BANG/2016 JANODAYA TRUST, BANGALORE PAGE 2 OF 12 1. THE CIT(A) GROSSLY ERRED IN IGNORING THE FACTS THAT THE APPELLANT WAS GRANTED REGISTRATION UNDER SECTION 12A OF THE ACT A ND THE SAME WAS INTACT EVEN AS ON DATE AND THEREFORE HE OUGHT TO HAVE APPR ECIATED THAT THE ADDITIONS AS MADE DENYING THE BENEFIT OF SECTION 11 WAS BAD IN LAW. 2. THE CIT(A) FURTHER GROSSLY ERRED IN IGNORING THE BI NDING DECISION OF THIS HONBLE TRIBUNAL IN THE CASE OF ASST. DIRECTOR OF I NCOME-TAX (EXEMPTIONS) VS. BHARATHA SWAMUKHI SAMSTHE DT. 24.12.2008 IN ITA NO.1121/BNG/2008 (A.Y. 2005-06) WITH REGARD TO MICRO FINANCE ACTIVIT IES OF THE APPELLANT TRUST. 3. THE CIT(A) FURTHER GROSSLY ERRED IN SERIOUSLY IGNOR ING THE BINDING CIRCULAR RELIED ON BY THE APPELLANT VIZ., CIRCULAR NO.11/200 8 F.NO.134/34/2008-TPL DATED 19.12.2008 WHEREIN IT HAS BEEN CATEGORICALLY CLARIFIED THAT EVEN IF A TRUST CARRIES ON COMMERCIAL ACTIVITY INCIDENTALLY, THE SAME IS NOT VIOLATIVE OF SECTION 11(4A) OF THE ACT. 4. WITHOUT PREJUDICE, THE CIT(A) OUGHT TO HAVE APPRECI ATED THAT THE CASE OF THE APPELLANT WAS MAINLY PROVIDING RELIEF OF THE PO OR SINCE THE APPELLANT TRUST MAINLY WORKS FOR UPLIFTMENT OF UNDER PRIVILEG ED WOMEN/DESTITUTE/WOMEN PRISONERS RELEASED FROM JAIL ETC AND THEREFORE THE CASE OF THE APPELLANT IS COVERED UNDER SECTION 2(15 ) CLAUSE (I) ITSELF AND ACCORDINGLY HE OUGHT TO HAVE REVERSED THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER. 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE IS A CHARITABLE TRUST AND IT WAS GRANTED REGISTRATI ON U/S 12A OF THE INCOME-TAX ACT,1961 ['THE ACT' FOR SHORT] ON 27-07- 1987. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UN DER CONSIDERATION DECLARING NIL INCOME, AFTER CLAIMING EXEMPTION U/S 11 OF THE ACT. DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE A.O. NOTICED THAT THE TRUST ASSESSEE HAS AMENDED ITS TRUST DEED BY EXPAND ING ITS OBJECTS. THE NEW OBJECT ENABLED THE ASSESSEE TRUST TO UNDERTAKE MICROFINANCE ACTIVITIES. THE A.O. NOTICED THAT THE ASSESSEE HAS BORROWED FUNDS FROM BANKS AND FINANCIAL INSTITUTION S @ 9.5% TO 11.5%. IT HAS CHARGED INTEREST @ 14% ON THE LOANS GIVEN BY IT TO SELF-HELP GROUP, WOMEN ETC. FURTHER, IT HAS COLLEC TED CHARGES OF RS.200 TO RS.300/-. ACCORDINGLY, THE A.O. TOOK THE VIEW THAT THE EFFECTIVE RATE OF INTEREST CHARGED BY THE ASSESSEE WOULD WORK OUT TO 17% TO 18%. THE A.O. ALSO NOTICED THAT THE INCOME FROM MICRO ITA NO.763/BANG/2016 JANODAYA TRUST, BANGALORE PAGE 3 OF 12 FINANCE ACTIVITY HAS INCREASED FROM YEAR TO YEAR SI NCE FINANCIAL YEAR 2003-04. ACCORDINGLY, THE A.O. TOOK THE VIEW THAT THE ACTIVITIES OF THE TRUST HAVE SHIFTED MAJORLY TO MICRO FINANCE ACT IVITIES. HE ALSO OBSERVED THAT NO PRIOR PERMISSION OF DIT EXEMPTION APPEARS TO HAVE BEEN TAKEN IN RESPECT OF THE AMENDMENT MADE TO THE OBJECTS OF THE TRUST. 4. THE ASSESSEE IS RUNNING A WOMEN HOSTEL AS PER TH E ORIGINAL OBJECTS. THE A.O. DEPUTED AN INSPECTOR TO THE HOST EL, WHO REPORTED THAT THE HOSTEL IS BEING RUN ON COMMERCIAL LINES AN D THE TRUST IS CHARGING RENT AT PREVAILING MARKET RATE. HE ALSO R EPORTED THAT THE HOSTEL WAS STARTED TO ACCOMMODATE POOR OR DESTITUTE OR HOMELESS WOMEN, BUT SUCH KIND OF WOMEN ARE STAYING THERE. I NSPECTOR ALSO REPORTED THAT THE TRUST IS CHARGING RS.10,000/- AS ADVANCE AND RS.5,300/- P.M. FOR TWIN SHARING ROOM AND RS.4,000/ - P.M. FOR ROOMS OCCUPIED BY 4 PERSONS. ACCORDINGLY, THE A.O. TOOK THE VIEW THAT THE ASSESSEE IS RUNNING THE WOMEN HOSTEL ON CO MMERCIAL LINES EVEN THOUGH THE PREMISES WERE ALLOTTED BY BDA FOR R UNNING THE HOSTEL FOR POOR AND DESTITUTE WOMEN. THE AO ALSO O BSERVED THAT THE ASSESSEE HAS NOT OBTAINED PERMISSION OF RBI FOR CON DUCTING MICRO FINANCE ACTIVITIES AND IT ALSO DID NOT GET PERMISSI ON OF BDA FOR USING ITS PREMISES FOR MICRO FINANCE ACTIVITIES. 5. THE A.O. ALSO TOOK THE VIEW THAT THE MICRO FINAN CE ACTIVITIES CARRIED ON BY THE TRUST ARE HIT BY THE AMENDMENT MA DE TO SECTION 2(15) OF THE ACT, SINCE GROSS RECEIPTS HAS EXCEEDED THE PRESCRIBED LIMIT. ACCORDINGLY, HE TOOK THE VIEW THAT THE ACTI VITIES OF THE ASSESSEE CANNOT BE TREATED AS CHARITABLE IN NATURE. HE ALSO EXPRESSED THE VIEW THAT THE ASSESSEE IS GENERATING SURPLUS YEAR AFTER YEAR, WHICH IS NOT POSSIBLE IF THE ASSESSEE I S INVOLVED IN RELIEF OF POOR. ACCORDINGLY, THE A.O. REJECTED THE CLAIM OF EXEMPTION U/S ITA NO.763/BANG/2016 JANODAYA TRUST, BANGALORE PAGE 4 OF 12 11 OF THE ACT. THE A.O. ALSO OBSERVED THAT HE HAS MADE A PROPOSAL FOR CANCELLATION OF REGISTRATION U/S 12A OF THE ACT TO DIRECTOR OF INCOME TAX (EXEMPTION). ACCORDINGLY, HE DENIED EXE MPTION U/S 11 OF THE ACT AND COMPUTED TOTAL INCOME OF THE ASSESSE E BY RS.81.69 LAKHS. 6. THE LD CIT(A) CONFIRMED THE ASSESSMENT ORDE R PASSED BY THE AO AND HENCE THE ASSESSEE HAS FILED THIS APPEAL BEF ORE US. 7. THE LD. A.R. SUBMITTED THAT THE ASSESSEE IS ENGA GED IN THE ACTIVITY OF PROVIDING RELIEF TO POOR, PARTICULARLY FOR POOR AND DESTITUTE WOMEN. ITS CHARITABLE ACTIVITIES, INTER ALIA, INCL UDE RUNNING A WOMENS HOSTEL AT CONCESSIONAL RATES. AS PER THE R EPORT OF THE INSPECTOR OF INCOME TAX, THE RENT CHARGED BY THE AS SESSEE WAS IN THE RANGE OF RS.5300/- &RS.4000/- PER MONTH DEPENDI NG UPON NUMBER OF BEDS IN A ROOM. THE AO HAS HELD THAT THE RATES CHARGED BY THE ASSESSEE ARE AT PAR WITH COMMERCIAL RATES, E VEN THOUGH THE REPORT OF INSPECTOR WAS NOT CONFRONTED WITH THE ASS ESSEE. THE LD A.R, HOWEVER, SUBMITTED THAT THE ABOVE SAID RATE IN CLUDES ROOM RENT, 3 TIMES MEALS, WATER AND ELECTRICITY. THE LD A.R SUBMITTED THAT THE AO DID NOT CONSIDER THE BREAK-UP DETAILS O F THE RENT. ACCORDINGLY, THE LD. AR. SUBMITTED THAT THE RENT CH ARGED BY THE ASSESSEE CANNOT BE CONSIDERED TO BE AT COMMERCIAL R ATES. 8. THE LD A.R SUBMITTED THAT THE POOR AND DESTI TUTE WOMEN WOULD NOT BE ABLE TO AVAIL LOAN FROM BANKS AND FINA NCIAL INSTITUTIONS AT LOWER RATE OF INTEREST, AS IT WOULD BE DIFFICULT FOR THEM TO COMPLY WITH THE BANKING NORMS. HENCE, IN ORDER T O ENABLE THEM TO AVAIL LOANS AT LOWER RATES OF INTEREST, THE ASSE SSEE HAS ACTED AS A NODAL AGENCY IN OBTAINING LOANS FOR THEM. THE ASSE SSEE HAS AVAILED LOANS FROM BANKS AND FINANCIAL INSTITUTIONS FOR INT EREST AT THE RATES ITA NO.763/BANG/2016 JANODAYA TRUST, BANGALORE PAGE 5 OF 12 RANGING FROM 9.5% TO 12.5%. IN TURN, IT HAS GIVEN LOAN TO THE MEMBERS @ 14%. THE LD. A.R. SUBMITTED THAT EXTRA I NTEREST CHARGED BY THE ASSESSEE IS ONLY TO SAFE GUARD ITS I NTERESTS, I.E., FOR MEETING THE ADMINISTRATIVE EXPENSES, POSSIBLE DEFAU LTS/BAD DEBTS AND OTHER ALLIED EXPENSES. THERE IS NO PROFIT OBJE CTIVE INVOLVED IN GIVING LOANS TO THE BENEFICIARIES. SHE SUBMITTED T HAT THE RATE OF INTEREST OF 14% CHARGED BY THE ASSESSEE CANNOT BE C ONSIDERED AS EXORBITANT INTEREST AS OBSERVED BY THE AO, AS THE S AME IS EQUAL TO THE NORMAL RATE OF INTEREST CHARGED BY COMMERCIAL B ANKS. THE LD. A.R. SUBMITTED THAT THE A.O., WITHOUT GIVING ANY BA SIS HAS OBSERVED THAT THE EFFECTIVE RATE OF INTEREST WOULD WORK OUT TO 17%/18%, WHICH IS AGAINST THE FACTS. ACCORDINGLY, SHE SUBMI TTED THAT THE CASE LAW RELIED UPON BY THE AO IS DISTINGUISHABLE. THE LD. AR. RELIED ON FOLLOWING CASE LAWS TO CONTEND THAT MICRO FINANCE A CTIVITIES WOULD ALSO FALL UNDER THE CATEGORY OF RELIEF TO POOR:- A) ITA NO.1121/BANG/2008 DATED 24.12.2008 IN THE CASE OF ADIT VS. BHARATHASWAMUKHI SAMSTHE B) ITA NO.265/CTK/2017 DATED 24.9.2018 IN THE CASE OF ITO VS. ADHIKAR 9. THE LD. A.R. FURTHER SUBMITTED THAT THE AO HAS T AKEN THE VIEW THAT THE MICRO FINANCE ACTIVITIES FALL UNDER T HE CATEGORY OF CARRYING OF TRADE, COMMERCE OR BUSINESS AND HENCE T HE PROVISO TO SECTION 2(15) OF THE ACT WOULD APPLY TO THE ASSESSE E, SINCE THE GROSS RECEIPTS FROM THE ABOVE SAID ACTIVITY HAS EXCEEDED THE LIMIT PRESCRIBED IN THE PROVISO. THE LD A.R SUBMITTED TH AT THERE IS NO PROFIT MOTIVE INVOLVED IN CARRYING ON MICRO FINANCE ACTIVITIES AND HENCE IT WOULD NOT FALL UNDER THE CATEGORY OF TRADE , COMMERCE OR BUSINESS MENTIONED IN THE PROVISO TO SEC. 2(15) OF THE ACT. FURTHER, THE ASSESSEE IS A CHARITABLE TRUST PROVIDING RELIEF TO THE POOR. THE PROVISO TO SEC. 2(15) SHALL APPLY ONLY TO THOSE TRU STS WHICH CARRY ON ITA NO.763/BANG/2016 JANODAYA TRUST, BANGALORE PAGE 6 OF 12 OBJECTS OF GENERAL PUBLIC UTILITY. HENCE THE PROVIS O TO SEC. 2(15) WOULD NOT APPLY TO IT. FURTHER, THE LD. A.R SUBMIT TED THAT THE AO HAS ALSO OBSERVED THAT THE ASSESSEE IS MAKING SURPL US YEAR AFTER YEAR. SHE SUBMITTED THAT SURPLUS GENERATED BY THE ASSESSEE YEAR AFTER YEAR WOULD NOT DIS-ENTITLE IT FROM CLAIMING E XEMPTION U/S 11 OF THE ACT, WHEN THE SURPLUSES ARE USED FOR THE OBJECT S OF THE TRUST. IN SUPPORT OF ABOVE SAID PROPOSITIONS, THE LD. AR. PLA CED RELIANCE ON THE FOLLOWING CASE LAWS:- A) CIT VS. LUCKNOW DEVELOPMENT AUTHORITY (2014) 98 DTR 0183 (ALLAHABAD) B) AHMEDABAD URBAN DEVELOPMENT AUTHORITY VS. ACIT (201 7) 396 ITR 323 (GUJARAT) 10. THE LD. A.R. SUBMITTED THAT THE AO HAS ALSO EXPRESSED THE VIEW THAT THE AMENDMENT MADE BY THE ASSESSEE TO THE OBJECT CLAUSE OF THE TRUST DEED WAS NOT INTIMATED TO DIT (E) AND HIS APPROVAL WAS NOT OBTAINED. HOWEVER, THE SAID AMENDMENT IS ONLY A SUPPLEMENT TO THE MAIN OBJECTIVE OF PROVIDING RELIEF TO POOR W OMEN. HENCE, NON-INTIMATION OF THE SAME TO DIT(EXEMPTION) WOULD NOT RESULT IN DENIAL OF EXEMPTION U/S 11 OF THE ACT. IN SUPPORT OF THIS PROPOSITION, THE LD. A.R. PLACED HER RELIANCE ON TH E FOLLOWING TWO CASE LAWS: A) ITA NO.86/BNG/2012 DATED 14.9.2012 IN THE CASE OF KRUPANIDHI EDUCATIONAL TRUST VS. DIT(E), B) ITA NO.5948/MUM/2012 IN THE CASE OF ITO(E)1(1), MUM BAI VS. BHANSALI TRUST, MUMBAI DATED 31.8.2015. 11. ACCORDINGLY, THE LD. A.R. SUBMITTED THAT NON E OF THE REASONS GIVEN BY THE AO TO DENY EXEMPTION U/S 11 WAS JUSTIF IED. ACCORDINGLY SHE CONTENDED THAT THE THE LD. CIT(A) W AS NOT JUSTIFIED ITA NO.763/BANG/2016 JANODAYA TRUST, BANGALORE PAGE 7 OF 12 IN CONFIRMING THE REJECTION OF EXEMPTION CLAIMED BY THE ASSESSEE U/S 11 OF THE ACT. 12. THE LD. D.R., ON THE CONTRARY, PLACED HEAVY REL IANCE ON THE ORDER PASSED BY THE A.O. THE LD D.R SUBMITTED THAT THE ASSESSEE WAS CHARGING RENT IN ITS WOMENS HOSTEL AT COMMERCI AL RATES. HE FURTHER SUBMITTED THAT THE A.O. HAS OBSERVED THAT T HE EFFECTIVE RATE OF INTEREST CHARGED BY THE ASSESSEE UNDER MICRO FIN ANCE ACTIVITIES CARRIED ON BY THE ASSESSEE WOULD WORK OUT TO 17% TO 18% AND HENCE, THE SAME WOULD NOT FALL UNDER THE CATEGORY O F RELIEF TO POOR. ACCORDINGLY, THE LD. D.R. SUBMITTED THAT THE ASSESS EE WOULD BE COVERED BY THE PROVISO TO SECTION 2(15) OF THE ACT AS THE MICRO FINANCE ACTIVITY WOULD FALL UNDER THE CATEGORY OF T RADE, COMMERCE OR BUSINESS. THE LD. D.R. SUBMITTED THAT THE CHENNAI BENCH OF TRIBUNAL IN THE CASE OF ITO VS. KALANJAIN DEVELOPME NT FINANCIAL SERVICES (ITA NO.625/CHE/15 DATED 2.12.2014) HAS HE LD THAT THE ACTIVITY OF PROVIDING FINANCE AT COMMERCIAL RATES C ANNOT BE CONSIDERED AS CHARITABLE ACTIVITY. HE SUBMITTED TH AT THE BENGALURU BENCH OF TRIBUNAL HAS ALSO EXPRESSED AN IDENTICAL V IEW IN THE CASE OF JANALAKSHMI SOCIAL SERVICES VS. DIT (2009) 33 SO T 197 (BANG). THE LD. D.R. FURTHER SUBMITTED THAT THE ASSESSEE IS EARNING SURPLUS YEAR AFTER YEAR AND IT WOULD SHOW THAT THE MAIN OBJ ECTIVE OF THE ASSESSEE IS NOT CHARITABLE IN NATURE. 13. IN THE REJOINDER, THE LD. A.R. SUBMITTED THAT T HE ASSESSEE HAS BEEN CARRYING THE VERY SAME ACTIVITIES IN THE PAST AND ALSO IN THE SUBSEQUENT YEARS. THE A.O. HAS ACCEPTED THE ACTIVI TIES OF THE ASSESSEE AS CHARITABLE IN NATURE IN THOSE YEARS. O NLY DURING THE YEAR UNDER CONSIDERATION, THE AO HAS TAKEN DIFFEREN T VIEW AND DENIED EXEMPTION U/S 11 OF THE ACT. SHE SUBMITTED T HAT THE ACTIVITIES CARRIED ON BY THE ASSESSEE FALL UNDER TH E CATEGORY OF RELIEF ITA NO.763/BANG/2016 JANODAYA TRUST, BANGALORE PAGE 8 OF 12 TO POOR AND THE SAME HAS BEEN ACCEPTED BY THE AO IN THE PAST AND IN THE SUBSEQUENT YEARS. HENCE THE AO SHOULD NOT H AVE TAKEN A DIFFERENT VIEW DURING THE YEAR UNDER CONSIDERATION ALONE. 14. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSE D THE RECORD. WE NOTICE THAT THE LD CIT HAS GRANTED REGISTRATION U./ S 12A OF THE ACT TO THE ASSESSEE ACCEPTING THAT THE ASSESSEE IS A PU BLIC CHARITABLE TRUST. THE ORIGINAL OBJECTS OF THE ASSESSEE TRUST AS PER TRUST DEED DATED 02-04-1987 READ AS UNDER:- THE OBJECTS FOR WHICH THE TRUST HAS BEEN CREATED I S FOR CHARITABLE PURPOSES AND OBJECT OF PROMOTION INTEGR AL DEVELOPMENT OF PEOPLE PHYSICAL, EDUCATIONAL, MENT AL, PSYCHOLOGICAL, ECONOMIC, SOCIAL AND CHARACTER DEVEL OPMENT OF DESERVING AND NEEDY PEOPLE IN INDIA. THE ACTIV ITIES OF THE TRUST SHALL BE AIMED AT IMPROVING AND DEVELOPING TH E LIVING CONDITIONS AND GENERAL WELFARE OF THE PEOPLE IN IND IA AND THEIR ENVIRONMENT, INCLUDING FARMERS AND OTHER INDIGENT P EOPLE, IRRESPECTIVE OF LANGUAGE, RACE, COMMUNITY, CASTE, R ELIGION OR CREED. SUBSEQUENTLY, IT HAS AMENDED THE TRUST DEED BY REGI STERING A ADDENDUM TO TRUST DEED, THROUGH WHICH FOLLOWING C LAUSES WERE INSERTED AS PARAGRAPH NOS. 4.3A AND 4.5A:- 4.3A TO FACILITATE WOMEN INTO MAINSTREAM EMPOWERM ENT ACTIVITIES. THE BOARD OF TRUSTEES ARE EMPOWERED TO PROMOTE HOSTELS, PRODUCTION CENTRES, SMALL SCALE INDUSTRIES , INCOME GENERATION ACTIVITIES, TRAINING INSTITUTIONS OR CEN TRES AND ENTREPRENEURSHIP INITIATIVES FOR ECONOMIC SELF-RELI ANCE OF WOMEN. 4.5A THE BOARD OF TRUSTEES ARE FURTHER EMPOWERED AT THEIR DISCRETION TO LEND THE FINANCES RAISED THROUGH LOAN S, FOR MICRO ITA NO.763/BANG/2016 JANODAYA TRUST, BANGALORE PAGE 9 OF 12 FINANCE ACTIVITIES OF SELF HELP GROUPS, WOMEN ENTRE PRENUERS, ASSOCIATIONS, SOCIETIES, REGISTERED SANGHAS AND IND IVIDUALS WHO ARE THE BENEFICIEARS OF JANODAYA UNDER EDP ACTI VITIES. IT IS PERTINENT TO NOTE THAT BOTH THE ABOVE CLAUSES WERE INSERTED UNDER THE HEADING POWERS, FUNCTIONS AND DUTIES OF THE BOARD OF TRUSTEES. THUS THE MAIN OBJECTS OF THE TRUST REMA IN INTACT AND THE ABOVE SAID CLAUSES GIVE POWER TO THE TRUSTEES TO AC HIEVE MAIN OBJECTIVES THROUGH THE ABOVE SAID ACTIVITIES ALSO. 15. NOW WE SHALL EXAMINE VARIOUS REASONS GIVEN BY THE AO FOR REJECTING THE CLAIM OF EXEMPTION U/S 11 OF THE ACT. THE FIRST REASON GIVEN IS THAT THE ASSESSEE IS CHARGING EXORBITANT I NTEREST RATES ON THE LOAN GIVEN TO THE WOMEN. THE AO HAS OBSERVED T HAT THE ASSESSEE HAS AVAILED LOANS FROM BANKS, FINANCIAL IN STITUTIONS ETC AT INTEREST RATE RANGING FROM 9.5% TO 11.50% AND IT HA S CHARGED INTEREST ON THE LOANS GIVEN BY IT @ 14%. THE AO HA S ALSO OBSERVED THAT THE ASSESSEE HAS CHARGED RS.200/- - RS.300/- O VER AND ABOVE THE INTEREST RATE OF 14%. ACCORDINGLY HE HAS HELD THAT THE EFFECTIVE RATE OF INTEREST WOULD WORK OUT TO 17% TO 18%. AS CONTENDED BY LD A.R, THE AO HAS NOT GIVEN THE BASIS FOR OBSERVING T HAT THE EFFECTIVE RATE OF INTEREST WOULD WORK OUT TO 17% TO 18%. HEN CE, WE ARE OF THE VIEW THAT IT IS MERELY A SURMISE ENTERTAINED BY THE AO. THE QUESTION IS WHETHER THE RATE OF INTEREST OF 14% CHA RGED BY THE ASSESSEE IS AN EXORBITANT RATE?. THE LD A.R SUBMIT TED THAT THE ASSESSEE IS CONSTRAINED TO CHARGE INTEREST AT A HIG HER RATE THAN THE COST OF BORROWING, SO THAT IT CAN ABSORB ADMINISTRA TIVE AND ALLIED EXPENSES AND ALSO POSSIBLE DEFAULTS BY THE BORROWER S, WHICH IS AN INHERENT RISK IN THE FINANCING ACTIVITIES. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS CHARGED INTEREST @ 14%, WHICH IS N ORMAL INTEREST CHARGED BY COMMERCIAL BANKS FOR LENDING DURING THE PERIOD UNDER CONSIDERATION. ACCORDINGLY THE LD A.R HAS CONTENDE D THAT THE RATE ITA NO.763/BANG/2016 JANODAYA TRUST, BANGALORE PAGE 10 OF 12 OF INTEREST CHARGED BY THE ASSESSEE CANNOT BE CONSI DERED TO BE EXORBITANT. WE FIND MERIT IN THE SAID CONTENTIONS. AS SUBMITTED BY LD A.R, THE RATE OF INTEREST OF 14% IS THE NORMAL R ATE CHARGED BY THE BANKS FOR ITS LENDING AND HENCE THE SAID RATE CANNO T BE CONSIDERED TO BE AT EXORBITANT RATE, AS OBSERVED BY THE TAX AU THORITIES. HENCE THE CASE LAWS RELIED UPON BY THE TAX AUTHORITIES, V IZ., KALANJIAM DEVELOPMENT FINANCIAL SERVICES (SUPRA) AND JANALAKS HMI SOCIAL SERVICIES (SUPRA) ARE DISTINGUISHABLE ON FACTS. 16. THE NEXT REASON GIVEN BY THE AO IS THAT THE ASSESSEE IS RUNNING A WOMENS HOSTEL CHARGING RENT OF RS.5,300/ - PER MONTH FOR TWIN SHARING ROOM AND RS.4000/- PER MONTH FOR F OUR SHARING ROOM. ACCORDING TO THE AO, WHICH IS BASED ON REPOR T GIVEN BY AN INSPECTOR, THE ABOVE RATES ARE COMMERCIAL RATES. W E NOTICE THAT THE AO DOES NOT APPEAR TO HAVE CONFRONTED THE INSPECTOR S REPORT WITH THE ASSESSEE. NO COMPARABLE CASES TO PROVE THE ABO VE SAID SUBMISSION HAS ALSO BEEN BROUGHT ON RECORD. IN ANY CASE, THE LD A.R SUBMITTED THAT THE ABOVE SAID RATE INCLUDES THR EE TIMES MEALS, ELECTRICITY CHARGES, WATER CHARGES ETC. UNDER THES E SET OF FACTS, IN THE ABSENCE OF ANY OTHER COMPARABLE CASE, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE SUBMISSIONS MADE BY LD A.R ON THIS ISSUE. HENCE DO NOT FIND ANY MERIT IN THE ABOVE SAID OBSER VATION OF THE AO. 17. THE NEXT REASON GIVEN BY THE AO IS THAT TH E ASSESSEE IS GENERATING SURPLUS YEAR AFTER YEAR. FURTHER, ITS I NCOME FROM FINANCING ACTIVITIES HAS BEEN INCREASING YEAR AFTER YEAR. THE IMPORTANT POINT TO BE NOTED HERE IS THAT, SO LONG A S THE ASSESSEE HAS BEEN UTILIZING ITS INCOME DERIVED FROM THE PROP ERTY HELD UNDER THE TRUST FOR ITS CHARITABLE OBJECTIVES, THE PROVIS IONS OF SEC.11 DO NOT DENY EXEMPTION TO A CHARITABLE TRUST. HENCE, MERE GENERATION OF ITA NO.763/BANG/2016 JANODAYA TRUST, BANGALORE PAGE 11 OF 12 SURPLUS CANNOT BE A REASON TO DENY EXEMPTION U/S 11 OF THE ACT. THE AO MIGHT HAVE HIGHLIGHTED THIS ASPECT TO DRIVE THE POINT THAT THE ACTIVITIES OF THE ASSESSEE ARE CARRIED ON COMME RCIAL LINES AND HENCE THE PROVISO TO SEC.2 (15) WOULD BE HIT. BE FORE US, THE LD A.R PLACED HER RELIANCE ON THE DECISION RENDERED BY HON 'BLE ALLAHABAD HIGH COURT IN THE CASE OF LUCKNOW DEVELOPMENT AUTHO RITY (SUPRA) AND AHMEDABAD URBAN DEVELOPMENT AUTHORITY (SUPRA). IN BOTH THE CASES, IT WAS HELD THAT WHEN THE PROFIT MAKING WAS NEITHER THE AIM NOR OBJECT OF THE TRUST, THEN THE INCIDENTAL SURPLU S GENERATED WHILE CARRYING ON ITS ACTIVITIES WOULD NOT RENDER ANY ACT IVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS. HENCE, THIS REASONI NG OF THE AO WOULD ALSO FAIL. 18. THE NEXT REASONING GIVEN BY THE AO IS THAT THE MICRO FINANCE ACTIVITIES CARRIED ON BY THE TRUST WOULD BE HIT BY THE PROVISO TO SEC. 2(15) OF THE ACT. THE DECISION RENDERED BY HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF LUCKNOW DEVELOPMENT AUTHORITY (SUPRA) AND AHMEDABAD URBAN DEVELOPMENT AUTHORITY (SUPRA), WHIC H IS REFERRED ABOVE, ALSO ADDRESSES THIS POINT. IN THE A BSENCE OF PROFIT MOTIVE, THE ACTIVITIES CANNOT BE CONSIDERED AS INVO LVING TRADE, COMMERCE OR BUSINESS. THE LD A.R FURTHER SUBMITTED THAT THE ACTIVITIES CARRIED ON BY THE ASSESSEE WOULD FALL UN DER THE CATEGORY OF RELIEF TO POOR AND HENCE THE PROVISO TO SEC,2(15) WOULD NOT BE APPLICABLE. IN VIEW OF THE ABOVE, THIS REASONING W OULD ALSO FAIL. 19. THE NEXT REASONING GIVEN BY THE AO IS THAT THE ASSESSEE HAS NOT GOT APPROVAL FROM DIT (E) FOR THE AMENDMENT MAD E TO THE TRUST DEED. THE AO HAS ALSO OBSERVED THAT HE HAS FORWARD ED A PROPOSAL TO THE DIT(E) FOR CANCELLATION OF REGISTRATION GRAN TED TO THE ASSESSEE U/S 12A OF THE ACT. THE LD A.R SUBMITTED THAT THE AO HIMSELF HAS GRANTED EXEMPTION IN ALL THE YEARS EXCEPT THE YEAR UNDER ITA NO.763/BANG/2016 JANODAYA TRUST, BANGALORE PAGE 12 OF 12 CONSIDERATION AND FURTHER THE REGISTRATION GRANTED U/S 12A ALSO REMAIN INTACT TILL DATE. IN ANY CASE, THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE WAS HAVING REGISTRATI ON U/S 12A OF THE ACT DURING THE YEAR UNDER CONSIDERATION. IN THAT C ASE, THE PROPOSAL OF THE AO, IF ACCEPTED, WOULD APPLY TO THE FUTURE Y EARS ONLY. HENCE THE EXEMPTION U/S 11 SHOULD NOT HAVE BEEN DENIED BY THE AO FOR THE YEAR UNDER CONSIDERATION ON THIS REASONING. 20. IN VIEW OF THE ABOVE SAID DISCUSSIONS, WE A RE OF THE VIEW THAT NONE OF THE REASONS GIVEN BY THE AO WOULD ENABLE HI M TO REJECT THE EXEMPTION U/S 11 OF THE ACT. ACCORDINGLY, WE ARE O F THE VIEW THAT THE LD CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE A SSESSMENT ORDER PASSED BY THE AO FOR THE YEAR UNDER CONSIDERATION. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) AND DIRECT THE AO TO GRANT EXEMPTION U/S 11 OF THE ACT TO THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 21. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH FEB, 2021 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 16 TH FEB, 2021. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.