SAKHI-SAHELI MICORFINANCE FORUM, JAIPUR V. COMMISSIONER OF INCOME TAX (EXEMPTION), JAIPUR

ITA 883/JPR/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5700 (ITAT-JAIPUR)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2018-2019
• Appeal Filed On: 11-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VARINDER MEHTA
• Assessee Lawyers: G M MEHTA
• Keywords: Charitable institution; Competent authority; Set aside
• Section: 12A; 12AA

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S,A JAIPUR JH JESK LH0 KEKZ] YS[KK LNL; ,OA JH FOT; IKY JKO] U;KF;D LNL; DS LE{K BEFORE: SHRI RAMESH. C. SHARMA, AM & SHRI VIJAY PA L RAO, JM VK;DJ VIHY LA- @ ITA NO. 883/JP/2018 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2018-19 SAKHI-SAHELI MICROFINANCE FORUM B-49, LS NAGAR, NAYAKHERA, VIDHYADHAR NAGAR, JAIPUR. CUKE VS. THE CIT, (EXEMPTION) JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAYCS 5974 J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI G. M. MEHTA (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI VARINDER MEHTA (CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 27/03/2019 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 14/05/2019 VKNS'K@ ORDER PER: VIJAY PAL RAO, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 25.05.2018 OF THE LD. CIT(E), JAIPUR PASSED U/S 12A A(1)(B) OF THE I.T. ACT. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS:- 1. LD. CIT(E) HAS ERRED IN LAW AND ON FACTS IN REF USING REGISTRATION UNDER SECTION 12AA OF THE IT ACT BY IN VOKING PROVISIONS OF SECTION 12AA(1)(B) OF INCOME TAX ACT AND TREADING THE ASSESSEE CHARITABLE COMPANY REGISTERED UNDER RU LE 19(2) OF ITA NO. 883/JP/2018 SAKHI-SAHELI MICRO FINANCE FORUM VS. CIT(E) 2 THE COMPANIES (INCORPORATION) RULES-2014 AS A BUSIN ESS/SERVICES ENTITY FOR THE PURPOSE OF EARNING INTEREST. (2) LD. PR. CIT(C) WAS NOT JUSTIFIED REFUSING REGIS TRATION U/S 12AA OF IT ACT BY IGNORING ITS OBJECTS (INCORPORATED IN MEMORANDUM OF ASSOCIATION):- (A) OF CHARITABLE ACTIVITY OF THE ASSESSEE COMPANY IN PROVIDING MICRO FINANCE TO ECONOMICALLY AND FINANCIALLY WEAKE R SECTION WITHOUT ANY DISCRIMINATION AS TO CASTE, CREED, RELI GION OR SEX FOR EARNING THEIR LIVELIHOOD AT NOMINAL RATE OF INTERES T ON THEIR PERSONAL GUARANTEE ONLY; (B) OF RELIEF AND HELP TO POOR, OLD, INFIRM AND DES TITUTE PEOPLE OF SOCIETY OR LIKE INSTITUTIONS OR ESTABLISHMENTS; 2. THE ASSESSEE-INSTITUTION WAS FORMED U/S 8 OF THE COMPANIES ACT VIDE CERTIFICATE OF INCORPORATION DATED 01.05.2017. THE MAIN AIMS AND OBJECTS OF THE ASSESSEE ARE TO PROVIDE UNSECURED LO ANS TO ECONOMICALLY AND FINANCIALLY WEAKER SECTION OF THE SOCIETY. THE ASSESSEE FILED AN APPLICATION IN FORM 10A FOR REGISTRATION U/S 12AA O F THE IT ACT ON 24.11.2017. THE LD. CIT(E) FOUND THAT NONE OF THE O BJECTS OF THE ASSESSEE CAN BE CONSIDERED AS CHARITABLE BUT THE OB JECTS ITSELF TALK ABOUT THE BUSINESS ACTIVITIES. SINCE, THE ASSESSEE S MAJOR RECEIPTS ARE IN THE NATURE OF INTEREST ON THE AMOUNT FINANCED, THER EFORE, THE LD. CIT(E) WAS OF THE VIEW THAT THE WHOLE OF THE ACTIVITY OF T HE ASSESSEE IS COMMERCIAL IN NATURE AND CANNOT BE TERMED AS CHARIT ABLE WITHIN THE ITA NO. 883/JP/2018 SAKHI-SAHELI MICRO FINANCE FORUM VS. CIT(E) 3 MEANING OF SECTION 2(15) OF THE ACT. ACCORDINGLY TH E APPLICATION OF THE ASSESSEE SEEKING REGISTRATION U/S 12AA OF THE ACT W AS REJECTED. 3. BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBMIT TED THAT THE MAIN OBJECTS OF THE ASSESSEE IS TO PROVIDE UNSECURED LOA N TO ECONOMICALLY WEAKER SECTION OF THE SOCIETY IN GENERAL AT VERY CO NCESSIONAL RATE OF INTEREST AND TO MEET THEIR DAY TO DAY EXPENSES. HE HAS REFERRED TO THE MEMORANDUM OF ARTICLES OF ASSOCIATIONS OF ASSESSEE AND SUBMITTED THAT IT PROVIDES THAT NO PROFIT OR SURPLUS IS PAYABLE TO PROMOTER OR TRUSTEE. THUS, THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THE OBJECTS OF THE ASSESSEE TO PROVIDE LOAN TO ECONOMICALLY AND FINANC IALLY WEAKER SECTION SOCIETY AT CONCESSIONAL RATE OF INTEREST IS CHARITA BLE IN NATURE AS THE ASSESSEE IS WORKING ON NO PROFIT AND NO LOSS BASIS AND FURTHER, THE SURPLUS IF ANY EARNED BY THE ASSESSEE IS NOT LIABLE FOR PAYMENT TO PROMOTE OR TRUSTEE BUT HAS TO BE APPLIED ONLY FOR T HE OBJECTS OF THE ASSESSEE. THE RATE OF INTEREST CHARGES ON UNSECURED LOAN/MICRO FINANCE RANGING BETWEEN RS. 10,000/- TO RS. 30,000/- PER PE RSON IS JUST 9% PER ANNUM. THE SAID CHARGE OF INTEREST IS TO MEET DAY T O DAY ADMINISTRATION AND OFFICE EXPENSES. THE MAJOR BENEFICIARIES FROM S UCH FINANCE ARE POOR AND WIDOW LADIES HAVING NO OR NEGLIGIBLE SUPPORT OR SOURCE OF INCOME AND WHOM, FINANCE IS NOT AVAILABLE WITHOUT SECURITY . THEREFORE, THE ITA NO. 883/JP/2018 SAKHI-SAHELI MICRO FINANCE FORUM VS. CIT(E) 4 ACTIVITY OF THE ASSESSEE FALLS IN THE AMBIT OF THE TERM AS ADVANCEMENT OF ANY OTHER OBJECT AND GENERAL PUBLIC UTILITY U/S 2(15) OF THE ACT. THE LD. AR HAS POINTED OUT THAT THE LD. CIT(E) HAS HEAV ILY RELIED UPON THE INQUIRY REPORT OF THE AO WHILE REJECTING THE APPLIC ATION OF THE ASSESSEE WITHOUT GIVING AN OPPORTUNITY TO THE ASSESSEE TO CO MMENT ON REPORT OF THE AO. THE LD. AR HAS REFERRED TO THE INCOME AND E XPENDITURE ACCOUNT FOR THE PERIOD W.E.F. 01.04.2017 TO 24.01.2018 WHIC H SHOWS THAT EVEN AFTER CHARGING THE INTEREST AND PROCESSING FEE THER E IS LOSS OF RS. 1,19,952/- ON GROSS RECEIPTS OF RS. 2,50,536/-. THE REFORE THE PROCESSING FEE AND INTEREST CHARGED AT CONCESSIONAL RATE WERE MUCH LOWER THAN THE EXPENDITURE. NO INTEREST WAS PAYABLE TO PROMOTERS W HO HAD CONTRIBUTED IN SHAPE OF SHARES, LOANS OR OTHERWISE, NOR ANY REM UNERATION WAS PAID OR PAYABLE TO THEM. THE ASSESSEE INTUITION WAS WORK ING AS PER STRICT DIRECTION OF THE CENTRAL GOVERNMENT AS THE INSTITUT ION IS REGISTERED U/S 8 OF THE COMPANIES ACT AS CHARITABLE COMPANY. THE BEN EFICIARIES IN GETTING LOANS ARE POOR, INFIRM AND DESTITUTE PEOPLE OF THE SOCIETY AT LARGE TO WHOM THE ASSESSEE PROVIDES LOAN WITHOUT SE CURITY THEREFORE, THE REJECTION OF APPLICATION FOR REGISTRATION U/S 1 2AA OF THE IT ACT BY THE LD. CIT(E) IS NOT JUSTIFIED. IN SUPPORT HIS CON TENTIONS, HE HAS RELIED UPON THE FOLLOWING DECISIONS:- ITA NO. 883/JP/2018 SAKHI-SAHELI MICRO FINANCE FORUM VS. CIT(E) 5 CIT VS IILM FOUNDATION ACADEMY (2016) 290CTR 583. CIT VS. GOPI RAM GOYAL CHARITABLE TRUST (2017) 392 ITR 285. CIT VS. YAMUNA EXPRESS IND. DEV. AUTHORITY (2017) 3 95 ITR 18. CIT VS AMELIORATING INDIA (2017) 399 ITR 196. 4. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT THE LD. CIT(E) HAS CARRIED OUT NECESSARY ENQUIRY TO SATISFY ITSELF ABOUT THE ACTIVITIES OF THE ASSESSEE. ON EXAMINATION OF THE RECORD AND PART ICULARLY PROFIT AND LOSS OF THE ASSESSEE THE LD. CIT(E) FOUND THE ACTIV ITIES OF THE ASSESSEE CANNOT BE TERMED AS CHARITABLE AS PER SECTION 2(15) OF THE ACT BUT ALL THESE ACTIVITIES ARE IN THE NATURE OF TRADE AND COM MERCE/BUSINESS. THEREFORE, WHEN THE GROSS RECEIPTS FOR SUCH ACTIVIT Y EXCEED 20% OF THE TOTAL RECEIPT THEN IT WILL NOT BE TERMED AS CHARITA BLE ACTIVITY AS PER PROVISO TO SECTION 2(15) OF THE IT ACT. HE HAS RELI ED UPON THE ORDER OF THE LD. CIT(E). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE ASSESSEE INSTITUTION WAS RE GISTERED AS A COMPANY U/S 8 OF THE COMPANIES ACT, THEREFORE THE O BJECT OF FORMATION OF THE ASSESSEE COMPANY ITSELF IS CHARITABLE AS PRO VIDED U/S 8 OF THE COMPANIES ACT. HOWEVER, AT THE TIME OF GRANTING REG ISTRATION U/S 12AA OF THE ACT THE COMPETENT AUTHORITY HAS TO CONSIDER WHETHER THE OBJECTS ITA NO. 883/JP/2018 SAKHI-SAHELI MICRO FINANCE FORUM VS. CIT(E) 6 OF THE INSTITUTION ARE CHARITABLE IN NATURE AND ACT IVITIES ARE CARRIED OUT TO ACHIEVE OR PROMOTE SUCH OBJECTS. THUS THE SCOPE OF INQUIRY IS ONLY TO ASCERTAIN THE CHARITABLE NATURE OF OBJECTS AND GENU INENESS OF THE ACTIVITIES. THE LD. CIT(E) HAS CARRIED OUT THE INQU IRY THROUGH AO AS ALLEGED BY THE LD. AR OF THE ASSESSEE HOWEVER, WE F IND THAT THERE IS NO BAR FOR SUCH INQUIRY TO BE CONDUCTED FOR ASCERTAINI NG GENUINENESS OF THE ACTIVITIES OF THE ASSESSEE SUBJECT TO THE CONDITION THAT THE ASSESSEE SHOULD BE CONFRONTED AND GIVEN AN OPPORTUNITY TO RE PLY THE OUTCOME OF SUCH INQUIRY IF ANY AGAINST THE ASSESSEE. FURTHER, THE LD. CIT(E) HAS ARRIVED TO THE CONCLUSION THAT THE ACTIVITIES OF TH E ASSESSEE ARE NOT CHARITABLE IN NATURE BY CONSIDERING THE NATURE OF O BJECTS AND ACTIVITIES BEING PROVIDING FINANCE TO WEAKER AND DESTITUTE PER SONS OF THE SOCIETY AND PRIMARILY TO THE ECONOMICALLY WEAKER WOMEN. THE REFORE, THE PRIMARY OBJECT OF THE ASSESSEE IS TO PROVIDE MICRO FINANCE ASSISTANCE TO THE WEAKER SECTION OF THE SOCIETY AT CONCESSIONAL R ATE OF INTEREST AND WITHOUT ANY SECURITY. THE ACTIVITY OF THE ASSESSEE HAS TO BE ANALYZED IN LIGHT OF THE OBJECTS OF THE ASSESSEE THAT THE FORMA TION OF THE ASSESSEE COMPANY WITH CHARITABLE OBJECTS AND NOT WITH PROFIT MOTIVE. THE EXPRESSION CHARITABLE PURPOSE AS PER PROVISIONS OF SECTION 2(15) OF THE ACT INCLUDES ANY OTHER OBJECTS AND GENERAL PUBLIC U TILITY AND THEREFORE, IF ITA NO. 883/JP/2018 SAKHI-SAHELI MICRO FINANCE FORUM VS. CIT(E) 7 THE OBJECTS OF THE ASSESSEE ARE IN ADVANCEMENT OF A NY OBJECT TO BENEFIT TO PUBLIC OR A SECTION OF PUBLIC THEN IT IS DISTING UISHED FROM BENEFIT TO AN INDIVIDUAL OR GROUP OF INDIVIDUAL AND WOULD BE REGA RDED AS CHARITABLE PURPOSE. WE FIND THAT THE PRIMARY AND PREDOMINANT O BJECT OF THE ASSESSEE ARE TO PROMOTE THE WELFARE OF THE ECONOMIC ALLY WEAKER AND DESTITUTE PERSONS OF THE SOCIETY BY WAY OF PROVIDIN G FINANCE AT CONCESSIONAL RATE OF INTEREST AND WITHOUT ASKING FO R ANY SECURITY. THUS PRIMA FACIE THE OBJECT OF THE ASSESSEE ARE CHARITAB LE IN NATURE IN TERMS OF SECTION 2(15) OF THE ACT. HOWEVER THE LD. CIT(E) HAS CONDUCTED INQUIRY THROUGH AO AND THE ASSESSEE WAS NOT GIVEN A N OPPORTUNITY TO REPLY TO SUCH ADVERSE INQUIRY AGAINST THE ASSESSEE. FURTHER, THE LD. CIT(E) HAS ALSO NOT CONSIDERED THE VERY PURPOSE OF FORMATION OF THE ASSESSEE U/S 8 OF THE COMPANIES ACT WITH CHARITABL E OBJECT. IT IS PERTINENT TO NOTE THAT SECTION 8 OF THE COMPANIES A CT PROVIDES THE REGISTRATION OF COMPANIES WITH CHARITABLE OBJECTS A ND ALSO ENSURES THAT THE ACTIVITY AS WELL AS THE FUNDS OF THE COMPANY CA NNOT BE USED FOR THE INDIVIDUAL BENEFIT BUT IT SHOULD BE STRICTLY AS PER THE OBJECTS OF THE COMPANY. EVEN IN THE CASE OF WINDING UP/ DISSOLUTIO N OF THE COMPANY IF ANY ASSET REMAINS AFTER SATISFACTION ON DEBT AND LI ABILITY THE SAME SHALL BE TRANSFERRED TO ANOTHER COMPANY REGISTER U/S 8 OF THE COMPANIES ACT ITA NO. 883/JP/2018 SAKHI-SAHELI MICRO FINANCE FORUM VS. CIT(E) 8 THEREFORE, AMPLE SAFEGUARD HAS BEEN PROVIDED U/S 8 OF THE COMPANIES ACT TO PREVENT TO MISUSE OF THE FUNDS AND ACTIVITY OF SUCH COMPANY. SINCE, THE LD. CIT(E) HAS NOT CONSIDERED ALL THESE ASPECT WHILE PASSING THE IMPUGNED ORDER, THEREFORE, IN THE FACTS AND CIR CUMSTANCES OF THE CASE, WE SET ASIDE THIS MATTER TO THE RECORD OF THE LD. CIT(E) FOR CONSIDERING ALL THE RELEVANT FACTS AS WELL AS THE C ONTENTIONS OF THE ASSESSEE AND ALSO TO GIVE AN OPPORTUNITY TO THE ASS ESSEE OF HEARING AND PRESENT ITS CASE TO EXPLAIN EACH AND EVERY OBJECTIO N OF THE LD. CIT(E) BEFORE PASSING FRESH ORDER. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14/05/2019. SD/- SD/- JESK LH0 KEKZ FOT; IKY JKO (RAMESH. C. SHARMA) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 14/05/2019. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SAKHI-SAHELI MICROFINANCE FORUM, JAI PUR. 2. IZR;FKHZ@ THE RESPONDENT- CIT(E), JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) ITA NO. 883/JP/2018 SAKHI-SAHELI MICRO FINANCE FORUM VS. CIT(E) 9 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 883/JP/2018} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR