M/s Spandana Rural & Urban Development Organisation (SRUDO), Guntur, Visakhapatnam v. The ACIT, Circle-2(1), Guntur

ITA 364/VIZ/2009 | 2005-2006
Pronouncement Date: 17-02-2010 | Result: Partly Allowed

Appeal Details

RSA Number 36425314 RSA 2009
Assessee PAN AABTS9855J
Bench Visakhapatnam
Appeal Number ITA 364/VIZ/2009
Duration Of Justice 7 month(s) 25 day(s)
Appellant M/s Spandana Rural & Urban Development Organisation (SRUDO), Guntur, Visakhapatnam
Respondent The ACIT, Circle-2(1), Guntur
Appeal Type Income Tax Appeal
Pronouncement Date 17-02-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 17-02-2010
Assessment Year 2005-2006
Appeal Filed On 22-06-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO.364/VIZAG/2009 ASSESSMENT YEAR : 2005-06 SPANDANA (RURAL & URBAN DEVELOPMENT ORGANISATION) GUNTUR ACIT CIRCLE-2(1) GUNTUR (APPELLANT) VS. (RESPONDENT) PAN NO.AABTS9855J APPELLANT BY: SHRI G.V.N. HARI CA RESPONDENT BY: SHRI SUBRATA SARKAR DR ORDER PER SHRI S.K. YADAV JUDICIAL MEMBER:- THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) ON VARIOUS GROUNDS WHICH ARE AS UNDER:- 1) APPELLANT SUBMITS THAT THE COMMISSIONER OF INCOME T AX (APPEALS) IS NOT JUSTIFIED IN HOLDING THAT THE APPELLANT IS N OT ELIGIBLE FOR EXEMPTION IN RESPECT OF ITS SURPLUS OF INCOME OVER EXPENDITURE UNDER THE PROVISIONS OF SECTIONS 11 12 12AA AND 13 OF THE INCOME TAX ACT. 2) APPELLANT SUBMITS THAT THE CIT(A) IS NOT JUSTIFIED IN HOLDING THAT THE MICRO FINANCING ACTIVITIES CARRIED IN BY THE APPELL ANT ARE NOT CHARITABLE IN NATURE BEING EXEMPT UNDER THE PROVISI ONS OF SECTION 11 OF THE INCOME TAX ACT. 3) WITHOUT PREJUDICE TO GROUNDS URGED UNDER (2) ABOVE APPELLANT SUBMITS THAT EVEN ASSUMING BUT NOT CONCEDING THAT T HE ACTIVITIES OF MICRO FINANCE CARRIED ON BY THE APPELLANT ARE IN TH E NATURE OF A BUSINESS ACTIVITY EVEN THEN ITS SURPLUS IS EXEMPT UNDER THE PROVISIONS OF SECTION 11 OF THE INCOME TAX ACT IT HAVING MAINTAINED SEPARATE BOOKS OF ACCOUNT IN RESPECT OF THIS ACTIVITY. 4) APPELLANT SUBMITS THAT THE CIT(A) IS NOT JUSTIFIED IN HOLDING THAT IT HAD VIOLATED THE PROVISIONS OF SECTION 11 ON ACCOUN T OF THE FUNDS BEING DIVERTED TO M/S. SPANDANA SPOORTHI INNOVATIVE FINANCIAL SERVICES LTD. WHEREAS SUCH FUNDS WERE NO T SO DIVERTED IN ANY MANNER WHATSOEVER AND HAVE ONLY BEE N UTILIZED IN THE COURSE OF ITS REGULAR ACTIVITY. 5) APPELLANT SUBMITS THAT THE CIT(A) IS NOT JUSTIFIED IN HOLDING THAT IT HAD VIOLATED THE PROVISIONS OF SECTION 11 IN ADVANC ING AN AMOUNT TO M/S. SPANDANA MUTUAL BENEFIT TRUST WHEREAS THE SAI D 2 AMOUNT HAS BEEN ADVANCED ONLY IN THE COURSE OF ITS REGULAR OPERATIONS TOWARDS ACQUISITION OF AN ASSET AND DOES NOT AMOUNT TO ANY VIOLATION OF THE PROVISIONS OF SECTION 11 OF TH E INCOME TAX ACT. 6) APPELLANT SUBMITS THAT THE CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE ASSESSING OFFICERS ACTION IN DISALLOWING THE AMOUN T OF RS.38 31 698/- MADE TOWARDS PROVISION OF LOAN LOSS. 2. THOUGH THE ASSESSEE HAS RAISED VARIOUS GROUNDS O F APPEAL BUT THEY RELATE MAINLY ON TWO ISSUES I.E.:- I) WHETHER THE REGISTRATION U/S 12A WAS PROPERLY GRANT ED TO THE ASSESSEES. II) WHETHER THE ACTIVITIES UNDERTAKEN BY THE ASSESSEES ARE CHARITABLE ACTIVITIES AND ITS INCOME IS ELIGIBLE FO R DEDUCTION U/S 11 & 12 OF THE I.T. ACT. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND DOCUMENTS PLACED ON RE CORD AND WE FIND THAT THE ASSESSING OFFICER HAS OUT RIGHTLY DISALLOWED TH E CLAIM OF EXEMPTION OF THE INCOME ON THE GROUND THAT THE ASSESSEE WAS NOT GRAN TED THE REGISTRATION U/S 12A OF THE I.T. ACT. THE A.O. HAS OBSERVED THAT WH ATEVER REGISTRATION WAS GRANTED BY THE CIT IT WAS IN THE NAME OF SPANDANA (RURAL DEVELOPMENT ORGANISATION) AND NOT TO THE ASSESSEE WHICH IS A SP ANDANA (RURAL & URBAN DEVELOPMENT ORGANISATION). THE A.O. FURTHER HOLD T HAT SINCE THE CLAIM OF EXEMPTION OF INCOME WAS RAISED WITHOUT HAVING A VAL ID REGISTRATION IN THE NAME OF THE ASSESSEES THE ASSESSEE HAS NO RIGHT OR LOCUS-STANDII TO RAISE SUCH CLAIM AND THUS REJECTED. 4. AN APPEAL WAS PREFERRED TO CIT(A) BUT THE ASSESS EE DID NOT FIND FAVOUR WITH HIM THOUGH HE HAS TRIED TO EXPLAIN THAT HE HAS MADE AN APPLICATION FOR REGISTRATION U/S 12A WITH THE COMMISSIONER OF INCOM E TAX IN THE NAME OF SPANDANA (RURAL & URBAN DEVELOPMENT ORGANISATION) B UT THE CIT HAS INADVERTENTLY GRANTED THE REGISTRATION IN THE NAME OF SPANDANA (RURAL DEVELOPMENT ORGANISATION) AND THIS FACT REMAINED UN NOTICED BY THE ASSESSEE TILL THE ASSESSING OFFICER RAISED AN OBJECTION DURI NG THE COURSE OF ASSESSMENT IN THIS REGARD. BUT THE CIT(A) WAS NOT CONVINCED W ITH THE EXPLANATIONS OF THE ASSESSEES AND HE CONFIRMED THE ORDER OF THE A.O. 3 5. NOW THE ASSESSEE IS BEFORE US AND DURING THE COU RSE OF HEARING OF THE APPEAL THE LD. COUNSEL FOR THE ASSESSEE HAS INVITE D OUR ATTENTION TO THE APPLICATION FILED WITH THE COMMISSIONER OF INCOME T AX IN FORM 10A WHICH IS APPEARING AT PG.22 OF THE COMPILATION OF THE ASSESS EES WITH THE SUBMISSIONS THAT APPLICATION FOR REGISTRATION WAS SUBMITTED TO THE CIT IN THE NAME OF SPANDANA (RURAL & URBAN DEVELOPMENT ORGANISATION). IN ORDER TO PROVE ITS FILING WITH THE CIT HE FILED A PHOTOCOPY OF THE DE LIVERY BOOK OF THE CHARTERED ACCOUNTANT WITH THE SUBMISSION THAT IT WAS FILED ON 27 TH OF NOVEMBER 1997. THIS DELIVERY BOOK BEARS THE STAMP AND SIGNATURE OF THE OFFICE OF THE CIT VIJAYAWADA. HE FURTHER CONTENDED THAT WHILE GRANTI NG THE REGISTRATION CERTIFICATE THE CIT MENTIONED THE NAME OF THE ASSE SSEES AS SPANDANA (RURAL DEVELOPMENT ORGANISATION) LAKSHMIPURAM GUN TUR INSTEAD OF SPANDANA (RURAL & URBAN DEVELOPMENT ORGANISATION). IN THIS LETTER HE MADE A REFERENCE OF APPLICATION DATED 26 TH NOVEMBER 1997 WHEREAS THE APPLICATION BEARS THE DATE OF 23.11.1997 WHICH WAS SUBMITTED TO THE CIT OFFICE ON 27.11.1997. THE LD. COUNSEL FOR THE ASSE SSEE FURTHER CONTENDED THAT THE REVENUE HAS DOUBTED THIS APPLICATION ON AC COUNT OF VARIATION OF DATES IN THE APPLICATION AND THE DATES MENTIONED IN THE R EGISTRATION CERTIFICATE. BUT THE REVENUE HAS NOT BROUGHT OUT ANY OTHER APPLICATI ON IN WHICH THE NAME OF THE ASSESSEE WAS MENTIONED AS SPANDANA (RURAL DEVEL OPMENT ORGANISATION) IN RESPONSE TO WHICH THE REGISTRATIO N DATED 22.1.1998 WAS GRANTED. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO PLACED A RELIANCE UPON THE REGISTRATION CERTIFICATE GRANTED BY THE REGISTR AR OF SOCIETIES WHICH IS APPEARING AT PG. 21 OF THE COMPILATION OF THE ASSES SEES. DURING THE COURSE OF HEARING OF THE APPEAL ASSESSEE WAS ASKED TO FILE S OME OTHER EVIDENCE IN ORDER TO PROVE THAT AFTER FILING OF THIS APPLICATIO N OR GRANT OF REGISTRATION ASSESSEES HAS BEEN USING ITS NAME ONLY AS SPANDANA (RURAL & URBAN DEVELOPMENT ORGANISATION). IN RESPONSE THERETO ASS ESSEE HAS FILED THE COPIES OF RETURN OF INCOME FOR THE ASSESSMENT YEAR 2002-03 2003-04 2004- 05 & 2005-06 IN WHICH THE NAME OF THE ASSESSEE WAS MENTIONED AS SPANDANA (RURAL & URBAN DEVELOPMENT ORGANISATION). THESE COPIES OF RETURNS ARE AVAILABLE AT PG.118 TO 121 OF THE COMPI LATION OF THE ASSESSEES. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT THE ERROR IN THE NAME OF THE ASSESSEE IN THE REGISTRATION CERTIFICAT E WAS OCCURRED DUE TO THE 4 MISTAKE OF STAFF OF THE CIT OFFICE FOR WHICH ASSESS EE CANNOT BE HELD RESPONSIBLE AND CANNOT BE DENIED THE EXEMPTION U/S 11 TO WHICH ASSESSEE IS ENTITLED AFTER GRANT OF REGISTRATION. WHATEVER ERR OR WAS DONE IT WAS DONE BY THE STAFF OF THE CIT AND THE CIT SHOULD HAVE RECTIF IED THE ERROR IN THE NAME OF THE ASSESSEES OF HIS OWN BUT HE DID NOT DO THE SAME . ON THE OTHER HAND THEY HELD THE ASSESSEE TO BE RESPONSIBLE FOR IT AND DENIED THE EXEMPTION TO THE ASSESSEES. 6. THE LD. D.R. ON THE OTHER HAND HAS PLACED A HEAV Y RELIANCE UPON THE ORDER OF THE CIT(A). THE LD. D.R. FURTHER SUBMITTE D THAT IN THE REGISTRATION CERTIFICATE THE REGISTRATION WAS GRANTED BY THE CI T VIJAYAWADA TO SPANDANA (RURAL DEVELOPMENT ORGANISATION) GUNTUR ON THE BAS IS OF AN APPLICATION DATED 26.11.1997 WHEREAS THE ASSESSEES APPLICATIO N APPEARING AT PG.22 OF THE COMPILATION OF THE ASSESSEE BEARS THE DATE 23 RD NOVEMBER 1997 WHICH WAS SUBMITTED TO THE OFFICE OF CIT ACCORDING TO HIM ON 27.11.1997. THE VARIATION OF DATES CLEARLY INDICATES THAT THERE CAN NOT BE A POSSIBILITY OF MAKING TWO VITAL ERRORS BY THE CIT VIJAYAWADA IN THE LETT ER GRANTING REGISTRATION. HAD IT BEEN SO THE ASSESSEE WOULD HAVE FILED AN AP PLICATION TO CIT FOR CORRECTION OF THESE ERRORS. BUT IT DID NOT DO SO. AS SUCH THERE IS NO REGISTRATION U/S 12A IN THE NAME OF THE ASSESSEES A ND THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S 11 OF THE I.T. ACT. 7. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CA REFUL PERUSAL OF THE AUTHORITIES BELOW AND THE DOCUMENTS AVAILABLE ON RE CORD WE FIND THAT THE REVENUE AUTHORITIES HAVE REJECTED THE CLAIM OF EXEM PTION U/S 11 OF THE I.T. ACT RAISED BY THE ASSESSEES ON THE GROUND THAT NO R EGISTRATION U/S 12A WAS GRANTED IN THE NAME OF THE ASSESSEES. BEFORE THE L OWER AUTHORITIES THE ASSESSEE HAS SPECIFICALLY POINTED OUT ITS APPLICATI ON SUBMITTED FOR GRANT OF REGISTRATION WHICH IS AVAILABLE AT PG.22 OF THE COM PILATION OF THE ASSESSEES AND FROM A CAREFUL PERUSAL OF THIS APPLICATION WE FIND THAT IT WAS SUBMITTED TO CIT VIJAYAWADA AND THE NAME OF THE ASSESSEE WAS GI VEN AS SPANDANA (RURAL & URBAN DEVELOPMENT ORGANISATION) AND ITS AD DRESS WAS GIVEN AS D.NO.550-39 1 ST LANE LAKSHMIPURAM GUNTUR-522008. THIS APPLICATI ON BEARS THE DATE AS 23 RD NOVEMBER 1997. THIS APPLICATION WAS SUBMITTED TO 5 THE CIT ON 27.11.1997 AS IS EVIDENT FROM THE DELIVE RY BOOK OF ITS CHARTERED ACCOUNTANT IN WHICH THE SEAL OF THE OFFICE OF THE C OMMISSIONER OF INCOME TAX VIJAYAWADA IS THERE. THIS DOCUMENT IS AVAILAB LE AT PG.23 OF THE COMPILATION. NO DOUBT IN THE REGISTRATION CERTIFIC ATE THE DATE OF APPLICATION WAS STATED TO BE 26.11.1997 WHEREAS THE DATE OF AP PLICATION APPEARING AT PG.22 IS DATED 23.11.1997 AND IT WAS SUBMITTED TO C IT OFFICE ON 27.11.1997. BUT THE REVENUE HAS NOT BROUGHT OUT ANY OTHER APPLI CATION ON RECORD TO STATE THAT THIS IS A CORRECT APPLICATION IN RESPONSE TO W HICH THE REGISTRATION U/S 12A WAS GRANTED TO THE ASSESSEES. REVENUE AUTHORITIES HAVE SIMPLY DRAWN AN INFERENCE ON THE VARIATION IN THE DATES THAT THIS W AS NOT THE APPLICATION WHICH WAS SUBMITTED TO THE OFFICE OF THE CIT. WE HAVE AL SO CAREFULLY EXAMINED THE REGISTRATION CERTIFICATE APPEARING AT PG. 24 AND WE FIND THAT THE REGISTRATION CERTIFICATE WAS SENT TO THE PRESIDENT SPANDANA (RU RAL DEVELOPMENT ORGANISATION) ON THE SAME ADDRESS OF THE SPANDANA ( RURAL & URBAN DEVELOPMENT ORGANISATION). THE ERROR IS ONLY WITH REGARD TO THE WORD AND URBAN WHICH ARE TO BE INSERTED BETWEEN THE WORDS RURAL AND DEVELOPMENT. SINCE THE MISTAKE IS INVISIBLE THE ASSESSEE MIGHT HAVE LOST ITS SIGHT TO NOTICE THE MISTAKE IN THEIR NAME OF THE AS SESSEES. DURING THE COURSE OF HEARING OF THE APPEAL IN ORDER TO ASCERTAIN A B ONAFIDE OF THE ASSESSEES WE DIRECTED HIM TO FILE THE COPY OF RETURNS FOR EAR LIER YEAR FILED AFTER THE GRANT OF REGISTRATION CERTIFICATE I.E. 22.1.1998. IN RES PONSE THERETO ASSESSEE HAS FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2002-03 TO 2005-06. IN ALL THESE RETURNS HE HAS GIVEN THE SIMILAR PAN NO. I.E. AABTS 9855J AND IN THESE RETURNS HE HAS MENTIONED THE NAME OF THE ASSESSEES AS SPANDANA (RURAL & URBAN DEVELOPMENT ORGANISATION). THESE RETURNS WER E FILED ON 27.9.2002 30.6.2003 31.8.2004 & 3.10.2005 MUCH BEFORE THE CO MMENCEMENT OF THE ASSESSMENT PROCEEDINGS. MEANING THEREBY; IF ASSESS EE HAD NOTICED ERROR IN THE CERTIFICATE GRANTED BY THE CIT HE COULD HAVE A SKED THE CIT TO MAKE A RECTIFICATION IN THE CERTIFICATE GRANTED TO IT. WHA TEVER MISTAKE WAS OCCURRED IT WAS ON ACCOUNT OF MISTAKE OF THE STAFF OF THE CIT O FFICE FOR WHICH ASSESSEE CANNOT BE HELD RESPONSIBLE. THE MISTAKE WHICH IS A PPARENT ON THE RECORD CAN BE RECTIFIED EITHER BY THE AUTHORITIES CONCERNED OF HIS OWN OR AT THE INSTANCE OF THE AFFECTED PARTIES. IN THE INSTANT CASE THE ASSESSEE DID NOT NOTICE THE ERROR IN ITS NAME IN THE REGISTRATION CERTIFICATE A ND HAS BEEN CONTINUOUSLY 6 FILING RETURN IN THE NAME OF SPANDANA (RURAL & URBA N DEVELOPMENT ORGANISATION). THE ASSESSEE REALIZED THE MISTAKE I N ITS NAME APPEARING IN THE REGISTRATION CERTIFICATE FIRST TIME WHEN THE AS SESSING OFFICER HAS POINTED IT OUT AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER DID NOT CONSIDER IT TO BE A MISTAKE IN THE NAME OF THE ASSESSEES MENTIONED IN THE REGISTRATION CERTIFICATE; HE RATHER TREATED THI S REGISTRATION CERTIFICATE TO BE GRANTED TO A PERSON OTHER THAN THE ASSESSEES AND DE NIED THE EXEMPTION TO THE ASSESSEE. AFTER THESE FINDINGS THE ASSESSEE H AD NO OTHER OPTION TO GET THE REGISTRATION CERTIFICATE RECTIFIED EXCEPT TO PR EFER AN APPEAL BEFORE THE APPELLATE AUTHORITY. 8. KEEPING IN VIEW THE TOTALITY OF THE FACTS AND CI RCUMSTANCES OF THE CASE WE ARE OF THE OPINION THAT THE ERROR IN THE NAME OF THE ASSESSEE APPEARING IN THE REGISTRATION CERTIFICATE IS OCCURRED DUE TO THE MISTAKE ON ACCOUNT OF NEGLIGENCE ON THE PART OF THE STAFF OF THE COMMISSI ONER OF INCOME TAX AND NOT THE ASSESSEES AND AS SUCH HE CANNOT BE HELD RES PONSIBLE FOR THE MISTAKE. THUS THE BENEFIT OF EXEMPTION CANNOT BE DENIED TO T HE ASSESSEES FOR THIS REASONS ONLY. WE HOWEVER DIRECT THE REVENUE TO MA KE NECESSARY CORRECTION IN THE NAME OF THE REGISTRATION CERTIFICATE GRANTED TO THE ASSESSEE AND SHALL TREAT IT TO BE GRANTED TO SPANDANA (RURAL & URBAN D EVELOPMENT ORGANISATION). 9. THE NEXT ISSUE RELATING TO THE NATURE OF ACTIVIT IES UNDERTAKEN BY THE ASSESSEES. THE ASSESSEE SOCIETY WAS ENGAGED IN MIC RO FINANCING ACTIVITIES AND WAS OPERATING IN VARIOUS DISTRICTS OF THE ANDHR A PRADESH. MICRO FINANCE IS A SUPPLY OF LOANS SAVINGS AND THE BASIC FINANCIAL SERVICES TO THE POOR. MICRO FINANCING LOANS ARE SMALL LOANS GRANTED TO THE BASI C SECTORS ON THE BASIS OF THE BORROWERS CASH FLOW AND THE OTHER LOANS GRANTE D TO THE POOR AND LOW INCOME HOUSEHOLDS FOR THEIR MICRO ENTERPRISES AND S MALL BUSINESSES TO ENABLE THEM TO RAISE THEIR INCOME LEVELS AND IMPROVE THEIR LIVING STANDARDS. THE ASSESSEE HAS ALSO UNDERTAKEN WORK IN OTHER AREAS SU CH AS HEALTH. ITS PRIMARY FOCUS CONTINUES TO BE MICRO FINANCE. INITIALLY THE DEMAND WAS SO HUGE THAT PROMOTERS HAD TO STRUGGLE FOR LOAN FUNDS. FUNDS WE RE RAISED THROUGH INNOVATIVE LOCAL FUND RAISING CAMPAIGNS LIKE COLLEC TING AND SELLING OLD NEWS 7 PAPERS. SUBSEQUENTLY LOAN AND GRANT FUNDS RAISED F ROM FRIENDS OF WOMENS WORLD BANK AN APEX INSTITUTION AND AFFILIATE OF W OMENS BANKING BANKS AND OTHER DONORS. THE ASSESSEE CLAIMED AN EXEMPTION U/ S 11 BUT IT WAS DENIED BY THE A.O. ON THE GROUND THAT THE SOCIETY WAS CARR YING ON MICRO FINANCING ACTIVITIES THROUGH BANKS AND BODY CORPORATE AND HAD EARNED SERVICE CHARGES AND COMMISSIONS AND THIS ACTIVITY COULD NOT BE TERM ED AS CHARITABLE ACTIVITY ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT. THE A.O. HAS FURTHER OBSERVED THAT ASSESSEE SOCIETY HAS ADVANCED MONEY TO SPANDANA MUT UAL BENEFIT TRUST WHICH WAS NOT REGISTERED U/S 12A AND THEREFORE NOT MADE INVESTMENT AS PRESCRIBED U/S 11 OF THE ACT. FURTHER MORE THE AS SESSEE HAD ADVANCED MONIES TO SSIFSL A BODY CORPORATE. 10. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WITH THE SUBMISSIONS THAT THE SPANDANA (RURAL & URBAN DEVELO PMENT ORGANISATION) A MICRO FINANCE INSTITUTION (MFI) REGISTERED AS SOC IETY UNDER THE SOCIETIES REGISTRATION ACT OPERATING IN FEW DISTRICTS OF ANDH RA PRADESH. SPANDANA WHICH STARTED AS AN EXPERIMENT STOOD WIDELY REGARDE D AS MOST SUCCESSFUL INSTITUTION IN THE INDIAN MICRO FINANCE SECTOR THAT HAD SET BENCH MARK FOR THE INDUSTRIES ON CRITICAL FINANCIAL AND OPERATIONAL PA RAMETERS. IT WAS FURTHER CONTENDED THAT PROVIDER OF FINANCIAL SERVICES TO TH E POOR INCLUDE DONOR- SUPPORTED NON-PROFIT NON-GOVERNMENT ORGANISATIONS CO-OPERATIVES; COMMUNITY-BASED DEVELOPMENT INSTITUTIONS LIKE SELF- HELP GROUPS AND CREDIT UNIONS; COMMERCIAL AND STATE BANKS; INSURANCE AND C REDIT CARD COMPANIES; WIRE SERVICES; POST OFFICES; AND OTHER POINTS OF SA LE. NGOS AND OTHER NON- BANK FINANCIAL INSTITUTIONS HAVE LED THE WAY IN DEV ELOPING WORKABLE CREDIT METHODOLOGIES FOR THE POOR IN REACHING OUT TO LARGE NUMBERS OF THE POOR. FINANCIAL SERVICES FOR THE POOR HAVE PROVED TO BE T HE POWERFUL INSTRUMENT FOR POVERTY REDUCTION THAT ENABLES THE POOR TO BUILD A SSETS INCREASE INCOMES AND REDUCE THEIR VULNERABILITY TO ECONOMIC STRESS. IT WAS FURTHER CONTENDED THAT TO INCREASE ITS SERVICES OVER TIME AN MFI MUS T CHARGE INTEREST HIGH ENOUGH TO COVER THE COST OF ITS LOANS OTHERWISE T HE MFI WILL LOOSE MONEY. ITS ACTIVITIES WILL SHRINK INSTEAD OF GROWING UNLES S IT IS CONTINUALLY INFUSED WITH FRESH MONEY FROM PRIVATE DONORS OR GOVERNMENTS. TH E ASSESSEE IS OPERATED AS NON-GRANT DEPENDENT MFI EXCELLENTLY WITH LOW OPE RATING COST AMONG PEERS 8 AND TRANSFERRING THE BENEFIT TO THE BORROWERS BY WA Y OF LOW INTEREST RATE AMONG PEERS. 11. IT WAS FURTHER CONTENDED BEFORE THE CIT(A) THAT IN 2002 AN INTERNAL ANALYSIS BY ICICI BANK REVEALED THAT DESPITE CONSIS TENT EVIDENCE OF RIVAL DEMAND FROM CLIENTS ACCESS TO MFI WAS CONSTRAINED DUE TO THE ORGANISATION BASED FINANCING MODEL ADOPTED UNTIL THEN. 12. IT WAS FURTHER EXPLAINED TO THE CIT(A) THAT IN ORDER TO AVAIL THE FINANCIAL HELP THE ASSESSEE HAS JOINED HANDS WITH THE ICICI BANK AND OTHER FINANCIAL INSTITUTIONS SO THAT FUNDS CAN BE ARRANGE D FOR THE MICRO FINANCE TO THE POORER OR THE NEEDY PEOPLE. THE CIT(A) EXAMINE D THE ISSUE BUT WAS NOT CONVINCED WITH THE CONTENTIONS OF THE ASSESSEES AND HE OBSERVED THAT MICRO FINANCING AS AN ACTIVITY IS NOT INCLUDED THE DEFINI TION OF CHARITABLE ACTIVITY THAT IS U/S 2(15) OF THE ACT. SECTION 2(15) INCLUDES TH E RELIEF TO THE POOR. HE FURTHER OBSERVED THAT A MICRO FINANCING ACTIVITY IS TO BE TREATED AS A BUSINESS ACTIVITY HELPING TO PROVIDE RELIEF TO POOR THE REQ UIREMENT OF SECTION THAT IS MAINTENANCE OF THE SEPARATE BOOKS OF ACCOUNTS WITH RESPECT TO SUCH BUSINESS ACTIVITY NEEDS TO BE FULFILLED. THE ASSESSEE HAS NOT MAINTAINED THE SEPARATE BOOKS OF ACCOUNTS WITH RESPECT TO MICRO FINANCING A CTIVITY THEREFORE IT CANNOT BE TREATED AS INCIDENTAL BUSINESS ACTIVITY COVERED U/S 11(4) OF THE ACT. HE ACCORDINGLY HELD THAT PROPERTY HELD IN TRUST WOUL D ALSO INCLUDE A BUSINESS UNDERTAKING AS THE NECESSARY CONDITION HAS TO BE F ULFILLED BEFORE THE INCOME FROM SUCH UNDERTAKING CAN BE CONSIDERED AS EXEMPT U NDER THE PROVISIONS OF SECTION 11 TO 13 OF THE ACT. CIT(A) HAS ALSO DISAL LOWED THE CLAIM OF THE ASSESSEES ON THE GROUND THAT THE ASSESSEE SOCIETY HAS ADVANCED TO SSIFSL AND THE SSIFSL HAS COLLECTED THE INTEREST @ 15% ON THE LENDINGS. HE HAS ALSO OBSERVED WHILE DISALLOWING THE CLAIM THE ASSES SEE THAT IT HAS ADVANCED A LOAN TO ASSOCIATE ORGANISATION WITHOUT COLLECTING A NY INTEREST ON SUCH AMOUNT AND THE SPANDANA MUTUAL BENEFIT TRUST FOR PURCHASE OF SITE FOR THE TRUST. 13. NOW THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL WITH THE SUBMISSION THAT ASSESSEE SOCIETY WAS FORMED TO PERF ORM CHARITABLE ACTIVITIES AS PER ITS OBJECT ENUNCIATED IN ITS MEMORANDUM OF A SSOCIATION. IT HAS ALSO 9 MADE NECESSARY AMENDMENTS TO INCLUDE OTHER CHARITAB LE ACTIVITIES. SO FAR AS NATURE OF MICRO FINANCING ACTIVITY IS CONCERNED TH IS ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF ACIT VS. BHARA THA SWAMUKHI SAMSTHE 28 DTR (BANG) 113 IN WHICH THE TRIBUNAL HAS HELD THAT THE ACTIVITY OF BORROWING MONEY FROM BANKS AND PROVIDING LOANS TO POOR WOMEN FOR THEIR POVERTY ALLEVIATION CAN BE SAID TO BE ENGAGED IN CHARITABLE ACTIVITIES ENTITLED FOR AN EXEMPTION U/S 11 OF THE ACT. IN THAT ORDER THE TR IBUNAL HAS REJECTED THE ARGUMENTS OF THE REVENUE THAT ASSESSEE HAS CHARGED A HIGHER RATE OF INTEREST FROM THE POORER IN MICRO FINANCING ACTIVITY AND HEL D THAT OBJECT OF THE ASSESSEE WAS ALLEVIATION OF POVERTY BY EXTENDING MI CRO CREDITS TO POOR RURAL WOMEN AND IT WAS NOT CHARGING EXORBITANT INTEREST AND THERE BEING NOTHING TO SUGGEST THAT FUNDS WERE USED OR MISUSED FOR PERS ONAL BENEFIT OF THE TRUSTEES. THUS IT WAS ENTITLED TO RENEWAL OF RECOG NITION U/S 80G(5) OF THE I.T. ACT. 14. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTEN DED THAT BEFORE ENTERING INTO MICRO FINANCE ACTIVITY THE ASSESSEE HAS MADE THE NECESSARY AMENDMENTS IN ITS MEMORANDUM AND ARTICLE OF ASSOCIA TION. THE AMENDMENTS WERE MADE IN GENERAL BODY MEETING HELD ON 29 TH NOVEMBER 2001 COPY OF THE SAME IS PLACED AT PG. 20 OF THE COMPILATION OF THE ASSESSEES ACCORDING TO WHICH ONE MORE OBJECTIVE WAS ADDED TO THE OBJECTS O F THE SOCIETY. THE LD. COUNSEL FOR THE ASSESSEES FURTHER CONTENDED IF THE ASSESSEE IS ENGAGED IN CHARITABLE ACTIVITIES WHATEVER INCOME IS GENERATED DURING THE COURSE OF THAT ACTIVITY THE SAME IS TO BE EXEMPTED U/S 11 OF THE ACT. THE REVENUES MAIN OBJECTION IS ONLY WITH REGARD TO THE ADVANCEMENT OF LOAN TO CERTAIN INSTITUTIONS WHICH ARE ALSO ENGAGED IN THESE TYPE O F ACTIVITIES THOUGH HAVING NOT OBTAINED THE REGISTRATION U/S 12A OF THE I.T. A CT. BUT THE ADVANCE WAS GIVEN TO THEM FOR A SHORT PERIOD ON WHICH INTEREST WAS EARNED. THE SAID INTEREST WAS ALSO UTILIZED IN MICRO FINANCING ACTIV ITIES. THUS THE ASSESSEE IS ENTITLED FOR THE EXEMPTION U/S 11 OF THE I.T. ACT. 15. THE LD. D.R. ON THE OTHER HAND HAS PLACED A HEA VY RELIANCE UPON THE ORDER OF THE CIT(A). HE HOWEVER ARGUED THAT FROM T HE ACTIVITIES OF THE ASSESSEE IT CAN BE FOUND OUT THAT SOCIETY HAS BEEN BORROWING FUNDS FROM 10 BANKS AND OTHER INSTITUTIONS AT AN AVERAGE FLOATING RATE OF INTEREST AT 10% P.A. AND LENDING TO POOR WOMEN AT AN AVERAGE FIXED RATE INTEREST OF 15%. IN ADDITION SOCIETY HAS BEEN COLLECTING THE LOAN FEE AT 1% OF THE LOAN AMOUNT PASS BOOK FEES AT RS.2 PER LOAN CARD AND SERVICE CH ARGES ON SNEHA SAVINGS WHICH IS A FEE ON SAVINGS SCHEME OFFERED TO MEMBERS . IF ALL THESE ARE PUT TOGETHER THE RATE OF INTEREST CHARGED FROM THE POO R EXCEEDED AN AVERAGE RATE OF 36%. BY CHARGING SUCH HUGE RATE OF INTERES T IN CONDUCTING MICRO FINANCE BUSINESS WITH POOR WOMEN IT CAN NEVER BE T ERMED A BUSINESS INCIDENTAL TO THE ATTAINMENT OF THE OBJECT OF RELI EF TO THE POOR AS STIPULATED U/S 11(4) OF THE I.T. ACT. INSTEAD OF GIVING RELIE F TO THE POOR THE SOCIETY IS ACTUALLY EXPLOITING THE POOR WOMEN AND EARNING HUGE PROFITS. SOCIETY OFFERS DIFFERENT TYPE OF SAVING SCHEMES TO ITS MEMBER BORR OWERS. THE TOTAL AMOUNT COLLECTED AND OUTSTANDING AS ON 31 ST MARCH 2005 UNDER THRIFT AND SAVINGS WAS RS.13 03 89 700/-. SNEHA SAVINGS ARE LINKED TO THESE LOANS. THE MEMBER WHO AVAILS LOAN FROM THE SOCIETY ARE TO DEPO SIT 10% OF LOAN AMOUNT COMPULSORILY WHICH SERVES AS A COLLATERAL SECURITY OF THE LOAN. THE SOCIETY OFFERS FLOATING RATE OF INTEREST @ 9% P.A. ON SUCH SAVINGS TO THE MEMBERS. 16. IT WAS FURTHER CONTENDED THAT SOCIETY CHARGES I NTEREST AT ABOUT 36% P.A. AT FLOATING RATES ON THE SAVINGS DEDUCTED FROM SUCH LOANS DISBURSED. ON VOLUNTARY SAVINGS ALSO THE SOCIETY OFFERS INTEREST AT 9% P.A. ONLY. THUS IT IS OBVIOUS THAT THE SOCIETY IS DOING BUSINESS WITH ITS MEMBERS BY CHARGING HUGE RATE OF INTEREST ON ITS LENDING AND OFFERING MICRO RATE OF INTEREST TO THE MEMBERS OF THE SAVINGS. THE SOCIETY IS ALSO COLLEC TING 1% OF LOAN DISBURSED TO THE MEMBER BORROWERS AND TRANSFERRED TO DEATH R ELIEF AND REHABILITATION FUND TO PROVIDE COVERAGE TO THE MEMBERS LIFE HER HUSBANDS LIFE AND FOR HER HUT AGAINST FIRE ACCIDENT. THE COVERAGE UNDER THIS CLAIM IS FOR A PERIOD OF 12 MONTHS ONLY FROM THE DATE OF JOINING OF THE MEMBER AND ON EXPIRY OF THE PERIOD. IF EVENTUALLY IT DOES NOT HAPPEN THE SOCI ETY IS NOT UNDER OBLIGATION TO PAY ANY COMPENSATION AND THE MEMBER CEASED TO HA VE ANY COVERAGE THEREAFTER. THE SOCIETY COLLECTS HIGH RATE OF PREM IUM FROM ITS MEMBERS AS AGAINST VERY MEAGER RELIEF PROVIDED TO THE POOR AND THE SURPLUS FUNDS ARE BEING UTILIZED IN MICRO FINANCE BUSINESS FOR EARNIN G INTEREST AT HIGHER RATE. 11 17. THE LD. D.R. FURTHER CONTENDED THAT THE SOCIETY HAS ENTERED INTO AN AGREEMENT UNDER PARTNERSHIP MODEL SCRUTINISATION ET C. OF PORTFOLIOS WITH OTHER BANKS. IT ACTED AS AN AGENT TO ICICI BANK UNDER PA RTNERSHIP MODEL AND COLLECTED COMMISSION WITH SERVICE CHARGES. THE ICI CI BANK IS A COMMERCIAL BANK DOING MICRO FINANCE BUSINESS AS ONE OF ITS BUS INESS ACTIVITY. THE SOCIETY INSTEAD OF DOING CHARITABLE ACTIVITY OF PROVIDING R ELIEF TO THE POOR IS ACTING AS AN AGENT TO PRIVATE COMMERCIAL BANK AND EARNING COM MISSION AND HENCE IT IS NOTHING BUT A BUSINESS ACTIVITY WHICH AGAIN NOT INC IDENTAL TO ATTAIN ITS OBJECTIVES. THE LD. D.R. FURTHER CONTENDED THAT TH E SOCIETY HAS ADVANCED FUNDS TO SPANDANA SPHOORTY INNOVATIVE FINANCIAL SER VICES LTD. A COMPANY DOING MICRO FINANCE BUSINESS AND SPANDANA MUTUAL BE NEFIT SOCIETY BOTH ITS SISTER ORGANISATION AND MEMBERS OF THE SOCIETY ARE HAVING INTEREST IN SUCH ORGANISATION. THE SSIFSL LTD. HAS PAID AN INTEREST @ 10% P.A. ON THE BORROWED FUNDS FROM THE SOCIETY WHEREAS THE (SMBT) SPANDANA MUTUAL BENEFIT SOCIETY HAS NOT PAID ANY INTEREST ON THE FU NDS BORROWED FROM THE SOCIETY. THE LD. D.R. FURTHER CONTENDED THAT THE S MALL BUSINESS INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI) HAD DIRECTED THE ASSESSEE SOCIETY TO TRANSFORM INTO MORE ORGANIZED AND REGULATED ORGANIS ATION AND GET CONVERTED INTO NBFC. FOR THIS PROCESS THE SIDBI HAS GIVEN A GRANT OF 1 CRORE TO CARRY OUT THE PROCESS. THE SOCIETY HAS MET ENTIRE TRANSF ORMATION EXPENSES OUT OF THE GRANT AND BOOK THE EXPENDITURE IN ITS BOOKS BUT NEVER TRANSFERRED INTO NBFC. THE SOCIETY HAS ORIGINALLY ESTABLISHED WITH SOME CHARITABLE OBJECTIVE. LATER IT AMENDED ITS OBJECT TO INCLUDE TO PROVIDE MICRO FINANCE TO POOR WOMEN AS ITS NEW OBJECTIVE. BUT THIS NEW OBJECT W AS NEVER INTIMATED TO THE COMMISSIONER OF INCOME TAX OR THE ASSESSING OFFICER . SINCE THE ASSESSEE WAS ENGAGED IN THE COMMERCIAL ACTIVITY THE REVENUE HAS RIGHTLY REJECTED THE CLAIM OF EXEMPTION TO THE ASSESSEE U/S 11 OF THE I. T. ACT. 18. WE HAVE CAREFULLY EXAMINED THE ORDERS OF THE LO WER AUTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS AND DOCUMENTS PLACED BEFORE US AND THE ORDER OF THE TRIBUNAL IN THE CASE OF ASSISTANT DIRECTOR I NCOME TAX VS. BHARATHA SWAMUKHI SAMSTHE (SUPRA) AND WE FIND THAT THE ASSES SEE IS A SOCIETY REGISTERED WITH THE REGISTRAR OF SOCIETIES IN 1992 IN THE NAME OF SPANDANA (RURAL DEVELOPMENT ORGANISATION). LATER ON CERTAIN AMENDMENTS WERE MADE 12 IN THE OBJECTS OF THE SOCIETY. THE COPY OF THE OBJ ECTS ARE PLACED ON RECORD AND FROM ITS PERUSAL WE FIND THE OBJECTS OF THE AS SESSEES ARE ALMOST FOR CHARITABLE ACTIVITIES. THE ASSESSEE HAS ALSO AMEND ED ITS NAME IN THE MEETING OF GENERAL BODY HELD ON 14 TH APRIL 1997 FROM SPANDANA (RURAL DEVELOPMENT ORGANISATION) TO SPANDANA (RURAL & URBAN DEVELOPMEN T ORGANISATION). THE ASSESSEE HAS ALSO GOT THE REGISTRATION FROM THE COM MISSIONER OF INCOME TAX U/S 12A OF THE I.T. ACT VIDE LETTER DATED 22.1.1998 . IN FOREGOING PARAS WE HAVE CATEGORICALLY HELD THAT REGISTRATION WAS GRANT ED TO THE ASSESSEES THOUGH THERE IS A SLIGHT ERROR IN THE NAME OF THE ASSESSEE S. AS SUCH ON THE BASIS OF THIS REGISTRATION THE ASSESSEE CAN CLAIM THE EXEMP TION U/S 11 OF THE ACT. NOW THE ISSUE BEFORE US IS; WHETHER THE MICRO FINAN CING ACTIVITY IS A CHARITABLE ACTIVITY AND WHETHER THIS WAS AN OBJECT OF THE ASSESSEE AT THE TIME OF ITS FORMATION. FROM A CAREFUL PERUSAL OF RECORD WE FIND THAT THIS OBJECT OF MICRO FINANCE WAS INSERTED UNDER THE HEADINGS AIMS & OBJECTS IN THE MEMORANDUM VIDE RESOLUTION OF THE GENERAL BODY DATE D 29 TH NOVEMBER 2001. NOW THE QUESTION COMES WHETHER ACTIVITIES OF MICRO FINANCING TO THE POOR PEOPLE IS A CHARITABLE ACTIVITY OR IT CAN ONLY BE TERMED TO BE COMMERCIAL ACTIVITY OF THE ASSESSEE. IN THIS REGARD BANGALOR E BENCH OF THE TRIBUNAL HAS EXAMINED THIS ISSUE IN DETAIL IN THE LIGHT OF NATUR E OF ACTIVITIES AND THEY HAVE CATEGORICALLY HELD THAT MICRO FINANCE ACTIVITY IS A CHARITABLE ACTIVITY AND ASSESSEE IS ENTITLED FOR EXEMPTION U/S 11 AND IS AL SO ELIGIBLE FOR RENEWALS AND RECOGNITION OF SECTION 80G(5) OF THE ACT. WHILE HO LDING SO THE TRIBUNAL HAS OBSERVED THAT LOAN WAS GIVEN TO PROJECT MEMBERS OUT OF THE FUNDS BORROWED FROM THE BANKS. THE BENEFICIARIES ARE POOR FAMILIE S. IF THE WOMEN IN THE ASSESSEES PROJECT HAVE TO BORROW MONEY FROM THE MO NEY LENDERS THEY HAVE TO PAY MANY TIMES HIGHER INTEREST THAN WHAT THE ASS ESSEE HAS CHARGED. THE TRIBUNAL FURTHER OBSERVED THAT IN THESE TYPE OF ACT IVITIES ASSESSEE HAS TO INCUR FINANCIAL COST FOR OBTAINING LOANS FROM BANKS AND FOR REGULARIZING THE REST OF THE ACTIVITIES AND TO MEET THE EXPENSES IN THAT ACTIVITIES AND OTHER ADMINISTRATIVE ACTIVITIES OF THE TRUST THE ASSESSEE HAS TO CHARGE THE HIGHER RATE OF INTEREST FROM THE POOR MEMBERS. THE TRIBUNA L FURTHER OBSERVED THAT OBJECT OF THE ASSESSEE WAS FOR ALLEVIATION OF POVER TY BY EXTENDING MICRO CREDITS TO POOR RURAL WOMEN AND IT WAS NOT CHARGING EXORBITANT INTEREST AND THEY ARE BEING NOTHING TO SUGGEST THAT THE FUNDS AR E EVER USED OR MISUSED FOR 13 THE PERSONAL BENEFITS OF THE TRUSTEES. THE RELEVANT OBSERVATION OF THE TRIBUNAL ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE: AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MATERIAL ON RECORD WE FIND THAT THE ASSESSEE TRUST WAS REGISTERED AS A PUBLIC CHARITABLE TRUST IN SEPTEMBER 1997 FOR SPECIFIC PURPOSE OF POVERTY ALLEVIATION AND GENERAL FOR OTHER RELATE D CHARITABLE ACTIVITIES UNDER THE NAME AND STYLE OF M/S. BHARATH A SWAMUKHI SAMSTHE (BSS). THE POVERTY ALLEVIATION OF POOR WOM EN AND THROUGH THEM OF THEIR FAMILIES AS WELL WAS THE OBJ ECT OF THE TRUST. FOR THE SAKE OF CONVENIENCE OBJECTS ARE EXTRACTED FROM THE TRUST DEED OF THE ASSESSEE: (I) THE MAIN OBJECTIVE OF THE TRUST IS TO ALLEVIAT E POVERTY IN A SUSTAINABLE AND SUSTAINED MANNER IF EVEN LARGER NU MBERS OF POOR PEOPLE PARTICULARLY POOR WOMEN. (II) THE TRUST AIMS TO FACILITATE ENTREPRENEURIAL A CTIVITIES BY PROVISION OF MICRO CREDIT TO POOR RURAL WOMEN. IT WILL ALSO WORK TO ENCOURAGE SAVINGS HABIT AMONGST SUCH POOR PEOPLE. IT WILL WO RK TO HELP CREATE FINANCIAL RESOURCES TO SERVE THE POOR WOMEN AND THEIR FAMILIES TO TIDE OVER THE MANY EMERGENCIES THEY FAC E REGULARLY SUCH AS ILL HEALTH ETC. THE TRUST WILL WORK TO FAC ILITATE OVER ALL SOCIAL DEVELOPMENT OF POOR WOMEN THEIR FAMILIES AND THEIR COMMUNITIES TO THE DEGREE POSSIBLE WITH MINIMAL POSSIBLE ADDIT IONAL FINANCIAL INPUT. THE INPUT WILL WORK TO HELP ESTABLISH INSTI TUTIONS TO DO ALL OF THE ABOVE IN A SUSTAINED AND SUSTAINABLE MANNER FOR THE LONG RUN. (III) THE TRUST MAY ALSO ENGAGE IN EDUCATION RESEA RCH HEALTH PROMOTION AND ANY OTHER OBJECTS OF GENERAL PUBLIC U TILITY. (IV) THE OTHER AIMS AND OBJECTS OF THE TRUST SHALL BE: (A) TO PROMOTE THE PRINCIPLES OF SELF-HELP AND SELF-REL IANCE AMONGST THE POOR SECTIONS OF THE POPULATION. (B) TO PROMOTE AND ADMINISTER SCHEMES FOR SELF-EMPLOYME NT OF THE PERSONS BELONGING TO POORER AND DISADVANTAGE D SECTIONS OF THE POPULATION. (C) TO PROMOTE AND ADMINISTER SELF-FINANCING SCHEME FOR IMPROVING HEALTH NUTRITION SANITATION LITERACY A ND HOUSING AMONGST THE POOR AND DISADVANTAGED SECTIONS OF THE POPULATION. (D) TO PROVIDE SUPPORT SERVICES AND ENCOURAGEMENT TO POVERTY ALLEVIATION PROGRAMMES. (E) TO PROVIDE FINANCE FOR POVERTY ALLEVIATION PROGRAMM ES SOCIAL WELFARE PROGRAMMES COMMUNITY DEVELOPMENT PROJECTS PROJECTS FOR PROVIDING HOUSING TO THE POO RER SECTIONS OF THE COMMUNITY. (F) TO ORGANIZE TRAINING PROGRAMMES AND TO PROVIDE EDUCATIONAL FACILITIES TO THE POORER SECTIONS OF TH E COMMUNITY. (G) TO ESTABLISH ADMINISTER MAINTAIN MANAGE OR TO FIN ANCE THE ESTABLISHMENT AND MAINTENANCE OF VOCATIONAL TRA INING 14 CENTRES AND INSTITUTIONS FOR PROVIDING FORMAL AND I NFORMAL EDUCATION BENEFIT OF THE POORER AND DISADVANTAGED SECTIONS OF THE COMMUNITY. (H) TO ORGANIZE LECTURES/SEMINARS/DEMONSTRATIONS/EXHIBITIONS/SYMPOS IA ETC. TO DISSEMINATE USEFUL INFORMATION TO THE PUBL IC. (I) TO ESTABLISH MAINTAIN MANAGE OR FINANCE THE ESTABLISHMENT AND MAINTENANCE OF LIBRARIES FOR THE USE OF THE PUBLIC. (J) TO ESTABLISH MAINTAIN MANAGE OR FINANCE SEPARATE FUNDS LIKE EMERGENCY FUND CALAMITY FUND ETC. TO HELP PO OR FAMILIES AT THE TIME OF DISTRESS. (K) TO PUBLISH OR TO FINANCE THE PUBLICATION OF BOOKS PAMPHLETS TRACTS MAGAZINES ETC. FOR DISSEMINATI ON OF USEFUL KNOWLEDGE AMONGST THE PUBLIC. (L) TO UNDERTAKE AND CARRYOUT RESEARCH IN SOCIAL SCIENC ES OR STATISTICAL RESEARCH. (M) TO UNDERTAKE AND CARRY OUT PROGRAMMES OF CONSERVATION OF NATURAL RESOURCES OR OF AFFORESTATI ON. (N) TO CONDUCT PERFORM OR CARRY ON ANY OF THE ABOVE ACTIVITIES OR ANY ACTIVITY IN PURSUANCE OF THE ABOV E OBJECT EITHER JOINTLY OR IN COLLABORATION WITH ANY OTHER T RUST OR INSTITUTION. (O) TO DESIGN FORMULATE EXECUTE OR CARRY OUT ANY SCHE ME FOR THE FURTHERANCE OR ATTAINMENT OF ANY OF THE ABO VE OBJECTS. (P) TO DO ALL SUCH ACTS DEEDS AND THINGS AS ARE NECESS ARY OR INCIDENTAL TO THE FURTHERANCE OR ATTAINMENT OF THE ABOVE OBJECTS. WE FIND THAT THE MAIN FOCUS OF THE OBJECTS STATED TO BE ALLEVIATION OF POVERTY BY EXTENDING MICRO CREDITS T O POOR RURAL WOMEN. IN ADDITION SEVERAL OTHER OBJECTS WHICH AR E CHARITABLE IN NATURE SUCH AS PROVIDING TRAINING AND SUPPORT PROGR AMMES FOR POVERTY ALLEVIATION EDUCATION ARE ALSO LISTED AS I TS OTHER AIMS AND OBJECTS. THE ASSESSEE HAS EXTENDED LOAN FACILITY FOR THE LA ST FOUR YEARS UNDER VARIOUS GROUPS: FINANCIAL YEAR AMOUNT OF LOANS ADVANCED 2002-03 1 30 16 000 2003-04 4 54 80 000 2004-05 9 49 23 000 2005-06(UPTO SEPTEMBER 2005) 9 41 34 000 THE LOANS WERE EXTENDED TO THE FOLLOWING CATEGORI ES OF ACTIVITIES: 15 (1) AGRICULTURE; (2) HORTICULTURE (3) ANIMAL HUSBANDRY; (4) PETTY SERVICES; (5) PETTY MANUFACTURING; (6) PETTY TRADING; (7) LIFE QUALITY IMPROVEMENT LOANS; (8) CONSUMPTION LOANS. THE ASSESSEE HAS ALSO STATED TO HAVE CONDUCTED SEV ERAL INTERNAL SURVEY TO STUDY THE IMPACT OF ITS PROGRAMM E ON THE BORROWERS WHICH SHOWED ECONOMIC STATUS OR WELL BEIN G OF THE BORROWER. AS PER ITS REPORTS FOR THE FINANCIAL YEA R 2002-03 THE TRUST IS STATED TO HAVE ONLY ONE PROGRAMME NAMELY ` BSS MICROLOAN AND SAVINGS PROJECT WHICH AIMS AT SUSTAINED AND SU STAINABLE POVERTY ALLEVIATION OF BOTTOM LINE POOR RURAL WOMEN AND THEIR FAMILIES USING MICRO CREDIT. ALL BSS LOANS ARE TO BE REPAID IN FIFTY EQUAL INSTALMENTS. THE LOANS EXTENDED ARE STATED T O BE FOR INCOME GENERATING ACTIVITY QUALITY OF LIFE IMPROVEMENT AC TIVITIES INCOME GENERATING ACTIVITIES FALL UNDER THE FOUR CATEGORIE S NAMELY; ANIMAL HUSBANDRY PETTY TRADING PETTY MANUFACTURING AGRI CULTURE AND HORTICULTURE. THE TRUST IN THE COURSE OF ITS ACTIV ITIES HAS AVAILED LOANS FROM OTHER FINANCIAL INSTITUTIONS BY HYPOTHEC ATING BOOK DEBTS OF LENDING OPERATIONS. THE LOANS AVAILED BY ASSESS EE TRUST CARRIED INTEREST RATES RANGING FROM 9 TO 12 PER CENT PAYABL E IN MONTHLY INSTALMENTS. IN SOME OF THE LOAN AGREEMENT THE LEN DER HAS PRESCRIBED THE MAXIMUM RATE OF INTEREST AT 20 PER C ENT FLAT PER ANNUM. SEC. 2(15) OF IT ACT DEFINES :CHARITABLE PURPOSES AS UNDER: CHARITABLE PURPOSE INCLUDES RELIEF OF THE POOR ED UCATION MEDICAL RELIEF AND THE ADVANCEMENT OF ANY OTHER OBJECT OF G ENERAL PUBLIC UTILITY. THUS THE OBJECT OF THE TRUST IS MAINLY CONSTITUTE ALLEVIATION OF BOTTOM LINE POOR RURAL AND URBAN WOMEN AND THEIR FA MILIES BY MEANS OF MICRO CREDIT FACILITIES. THE PROGRAMME IS KNOWN AS BSS MICRO LOAN PROJECT WHICH IS PRESENTLY EXTENDING IT S HELP TO ALL POOR WOMEN. THE ASSESSEE TRUST HAS FOUND THAT THE RURAL AND URBAN POOR WOMEN HAVE BENEFITED FROM THE TRUSTS FUNDING ACTIVITIES AND WERE ABOUT TO COME OUT OF THE DEPTHS OF THEIR POVER TY TO A GREAT EXTENT TO BE ABLE TO LEAD A NORMAL LIFE LIKE ANY OT HER CITIZEN. THIS GOES TO SHOW THAT THE RELIEF TO THE POOR HAS BEEN A IMED AT BY THE TRUSTS MICRO LOAN AND THIS IS CLEARLY A CHARITABLE PURPOSE CONFIRMING TO THE PROVISIONS OF S. 2(15) OF THE I.T. ACT 1961 BOTH AS RELIEF TO POOR AS WELL AS AN OBJECT OF GENERAL PUBLIC UTILITY . THE MICRO CREDIT IS NOW RECOGNIZED AS ONE OF THE M OST POWERFUL EFFECTIVE AND ONE OF THE MOST SUSTAINABLE TOOLS TO ACHIEVE THE GOAL OF POVERTY ALLEVIATION. THIS FACT IS NOW WIDELY RECOGNIZED NOT ONLY IN INDIA BUT THROUGHOUT THE DEVELOPING WO RLD AS WELL AS IN MANY DEVELOPED COUNTRIES. THE ASSESSEE IS UNDISPUT EDLY ENGAGED 16 IN SUCH A POVERTY ALLEVIATION PROGRAMME AND THIS PO INT HAS ALSO BEEN CONSIDERED BY THE IT AUTHORITIES IN EARLIER YE ARS. WHILE GRANTING RECOGNITION UNDER S. 80G IN 1997-98 AND AL SO DURING THE RENEWAL OF RECOGNITION OF PREVIOUS YEAR WHICH WAS GRANTED BY THE JT. CIT AFTER CAREFULLY EXAMINING ALL THE RELEVANT FACTS. THE ASSESSEE IS RUNNING SIMILAR ACTIVITIES SINCE ITS IN CEPTION. SO THERE IS NOTHING ON RECORD TO JUSTIFY THE DISQUALIFICATION O F TRUST FOR RECOGNITION UNDER S. 80G OF THE IT ACT. WITH REGAR DS TO OBJECTION THAT LOANS ARE OBTAINED ON A VERY LOW INTEREST RANG ING FROM 9.5 PER CENT PER ANNUM BY HYPOTHECATING THE BOOK DEBTS AND MOVABLE ASSETS AND LENDING AT A SUBSTANTIALLY HIGHER RATE O F INTEREST TO THE BENEFICIARIES IS CONCERNED WE FIND THAT THE LOANS GIVEN BY THE FINANCIAL INSTITUTIONS AND BANKS ARE AT THE RATES N ORMALLY CHARGED TO ANY OTHER MICRO CREDIT ORGANISATION AND THERE IS NO THING ON RECORD TO SUGGEST THAT SPECIAL BENEFIT HAS ACCRUED TO THE ASSESSEE TRUST FROM THE LOANS. IN FACT THE BENEFIT HAS ACCRUED T O THE WOMEN WHO ARE SERVED WITH FINANCIAL INPUTS FOR THEIR VOCATION S UNDER AN ORGANIZED AND ORDERLY MICRO CREDIT PROGRAMME. THE MICRO CREDIT PROGRAMME HAS RECEIVED PLACE OF PRIORITY EVEN BY TH E GOVERNMENT OF INDIA AND OTHER BODIES CONCERNED WITH THE FINANC IAL WELL BEING OF RURAL WOMEN. THE AMOUNT BORROWED FROM BANKS AND FINANCIAL INSTI TUTIONS IN THE RANGE OF 9.5 PER CENT PER ANNUM IS NOT HIGH CONSIDERING MARKET RATE AND NORMALLY LENT BY THE FINANCIAL INST ITUTIONS TO MICRO CREDIT ORGANISATIONS. THE BORROWED AMOUNTS ARE ADV ANCED TO THE BENEFICIARIES COVERING THE ABOVE EMPLOYMENT TRAIN ING AND ADMINISTRATIVE EXPENSES. THE ULTIMATE BENEFICIARIE S OF THE SCHEME OF THE MICRO LOANS ARE THE POOR WOMEN AND ESPECIALL Y WOMEN WHO HAVE NO ACCESS TO THE CREDIT FACILITIES FROM BANKS AND OTHER FINANCIAL INSTITUTIONS AS NOBODY CAN STAND AS SURET Y FOR THE POOR WITHOUT ADEQUATE SECURITY. THE TRUSTS MOTIVE IS N OT TO GAIN ANY ADVANTAGE IN THIS ACTIVITY BUT TO HELP THE POOR IN UPLIFTING THEIR ECONOMIC STATUS IN THE SOCIETY. SO IT IS NOT JUST IFIABLE TO LEVEL THE ASSESSEE AS A PROFIT MAKING BODY ALONE. FURTHER T HERE IS NOTHING ON RECORD TO JUSTIFY THAT THE ASSESSEE IS A CHARGIN G EXHORBITANT RATE OF INTEREST FROM THE POOR WOMEN MENTIONED ABOVE. T HERE IS NOTHING ON RECORD TO SUGGEST THAT THESE POOR WOMEN ARE CAPABLE OF RECEIVING LOAN AT LESSER INTEREST THAN OFFERED BY T HE ASSESSEE. IN CASE THERE IS AVAILABILITY OF FUNDS/LOANS AT LOWER RATE OF INTEREST NOBODY INCLUDING THE ASSESSEE CAN FORCE THESE POOR WOMEN FOR SUCH ALLEGED HIGHER RATE OF INTEREST ON THE LOANS. THERE IS NOTHING ON RECORD TO SUGGEST THAT THE FUNDS OF THE TRUST AR E USED OR MISUSED FOR PERSONAL BENEFIT OF THE TRUSTEES OR THE IR RELATIVES OR NEAR AND DEAR ONES. THE REVENUE HAS BROUGHT NOTHIN G ON RECORD THAT SURPLUS GENERATED IN THE ABOVE SAID ACTIVITIES ARE NOT PLOUGHED BACK INTO THE ORGANISATION FOR THE BENEFIT OF POOR. THE FINANCIAL SUSTAINABILITY AS A METHOD OF ACHIEVING OUR ULTIMAT E OBJECTIVES SHOULD NOT BE TERMED AS PROFIT MOTIVE. BECAUSE T HE ORGANISATION AIMS AND WORK TO ALLEVIATE POVERTY OF POOR WOMEN. IT IS NOT OUT OF CONTEST TO MENTION HERE THAT DR. RAMESH BELLAMKONDA TRUSTEE AND 17 PROJECT DIRECTOR IS A MEDICAL DOCTOR BY BACKGROUND AND WAS IN MEDICAL PRACTICE ABROAD TILL MARCH 1997. HE HAS L EFT HIS PRACTICE IN FOREIGN TO SERVE HIS MOTHERLAND AND IS ENGAGED IN W ORK OF PROF. MUHAMMED YUNUS AND GRAMEEN BANK OF BANGLADESH INVOL VING HIMSELF MAINLY BY OBSERVING THE DAY-TO-DAY ACTIVITI ES OF THE TRUST. IN VIEW OF THE ABOVE IT IS NOT JUSTIFIED TO HOLD T HAT THE ASSESSEE TRUST IS FINANCIALLY EXPLOITING THE POOR WOMEN BUT IN FACT THE TRUST IS RENDERING GREAT SERVICE TO THE SOCIETY BY THE ABOVE SAID POVERTY ALLEVIATION PROGRAMME. UNDER THE FACTS AND CIRCUMS TANCES WE HOLD THAT THE ASSESSEE SHOULD BE GRANTED RENEWAL OF RECOGNITION UNDER S. 80G OF THE I.T. ACT. THE AO DIRECTED ACCO RDINGLY. 19. IN THE AFORESAID CASE ASSESSEE WAS MAINLY ENGAG ED IN MICRO FINANCING ACTIVITIES AND THE MONEY WAS LENT TO ITS PROJECT MEMBERS AT A RATE OF INTEREST HIGHER THAN THAT OF THE RATE OF IN TEREST THE LOAN WAS BORROWED. IN THAT CASE ALSO ASSESSEE HAS BORROWED THE FUNDS EITHER FROM THE BANK OR OTHER FINANCIAL INSTITUTIONS AND WAS LE NT TO THE PROJECT MEMBERS. THE TRIBUNAL HAS TAKEN A VIEW THAT THIS M ICRO FINANCE ACTIVITY WAS UNDERTAKEN TO ALLEVIATE THE POVERTY AND FOR THE BENEFIT OF SOCIO- ECONOMICALLY WEAKER SECTIONS OF THE SOCIETY AND FOR DOING THIS ACTIVITY A PROPER ORGANIZED SECTOR IS REQUIRED IN WHICH LOT OF EXPENSES ARE TO BE INCURRED. TO MEET THAT EXPENSES ASSESSEE IS BOUND TO CHARGE HIGHER RATE OF INTEREST FROM THE PROJECT MEMBERS. OTHERWISE A SSESSEE COULD NOT UNDERTAKE THE MICRO FINANCE ACTIVITIES AT THE SAME RATE OF INTEREST. THE SIMILAR IS THE POSITION IN THE INSTANT CASE. SINCE THE TRIBUNAL HAS TAKEN A VIEW IN A PARTICULAR SET OF FACTS AND HELD THAT MIC RO FINANCE ACTIVITY IS A CHARITABLE ACTIVITY AS IT ALLEVIATE THE POVERTY AND ALSO FOR THE BENEFIT OF THE SOCIO-ECONOMICALLY WEAKER SECTIONS OF THE SOCIETY WE FIND NO REASON TO TAKE A CONTRARY VIEW IN THIS APPEAL WITH REGARD TO THE NATURE OF ACTIVITY UNDERTAKEN BY THE ASSESSEE. WE THEREFORE HOLD THAT THE MICRO FINANCE ACTIVITY IN THE INSTANT CASE IS A CHARITABLE ACTIVI TY. SINCE THE REGISTRATION HAS ALREADY BEEN GRANTED TO THE ASSESSEES U/S 12A A SSESSEE IS ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT. NOW NEXT ISSUE IS THA T BY JOINING HANDS WITH OTHER FINANCIAL INSTITUTIONS OR THE BANK FOR OBTAIN ING THE LOANS FOR ITS DISBURSEMENT OR ADVANCEMENT TO THE POOR WOMEN THE EXEMPTION CAN BE DENIED TO THE ASSESSEES. AS HELD BY THE TRIBUNAL I N THE AFORESAID CASE THAT THIS MICRO FINANCE ACTIVITY REQUIRES AN ORGANI SED SECTOR FOR PROCURING A LOAN FROM THE BANKS OR OTHER FINANCIAL INSTITUTIONS FOR ITS 18 DISBURSEMENT/ADVANCEMENT OF LOAN TO POOR OR WEAKER SECTION OF THE SOCIETY IN WHICH THE ASSESSEE HAS TO INCUR A LOT OF EXPENDITURE. MORE OVER WHEN A LOAN WAS GIVEN TO THE POOR WOMEN THEY DO NO T HAVE ANY SURETY OR GUARANTEE TO STAND AND MOST OF THE TIMES THE LOA N COULD NOT BE RECOVERED FROM THEM AND THAT ASPECT IS ALSO TO BE T AKEN INTO ACCOUNT BY THE ASSESSEES WHILE GRANTING A LONE TO THE POOR WOM EN. SUPPOSE A LOAN WAS GIVEN TO SOME OF THE POOR WOMEN AND THEY WOULD NOT BE IN A POSITION TO REPAY THE LOANS WHAT THE ASSESSEE WILL DO. HE C ANNOT ENFORCE THE RECOVERY OF THE LOAN BY OTHER MEANS AND ULTIMATELY HE HAS TO WRITE OFF THE LOAN. MEANING HEREBY IN THESE TYPE OF MICRO FINANC E ACTIVITY MOST OF TIMES THE ASSESSEE COULD NOT RECOVER THE LOAN GRANT ED TO THE POOR WOMEN AS NO ONE STOOD AS THE GUARANTOR FOR THEM AT THE TI ME OF ADVANCEMENT OF THE LOAN. NO DOUBT ASSESSEE IS CHARGING HIGHER RATE OF INTEREST FROM THE POOR WOMEN OR THE DOWNTRODDEN OR SOCIO-ECONOMICALLY WEAKER SECTIONS OF THE SOCIETY. THE REASON BEHIND IS THAT MOST OF TIM E THE ASSESSEE COULD NOT RECOVER THE LOAN FROM THESE POOR AND WEAKER SEC TIONS OF THE SOCIETY BESIDE INCURRING HEAVY EXPENDITURE IN MAINTAINING T HE ORGANIZED SECTOR. THESE POOR AND WEAKER SECTION HAPPILY AGREED WITH T HE ASSESSEE FOR LOAN AT HIGHER RATE BECAUSE THEY COULD NOT GET THE LOAN FROM THE FINANCIAL INSTITUTIONS AS THEY REQUIRE A SURETY WHO CAN STAND FOR THEM AND ALSO TO COMPLETE VARIOUS FORMALITIES. 20. SO FAR AS THE ADVANCEMENT OF CERTAIN FUNDS BY T HE ASSESSEE TO OTHER ORGANISATIONS WHO WERE ALSO ENGAGED IN SIMILA R TYPE OF ACTIVITIES ARE CONCERNED WE ARE OF THE VIEW THAT BY ADVANCING A F UND ON INTEREST TO OTHER ORGANISATIONS ASSESSEE HAS ACCOMPLISHED ITS OBJECT OF MICRO FINANCE TO THE SOCIO-ECONOMICALLY WEAKER SECTIONS OF THE SO CIETY AND ALSO TO ALLEVIATE POVERTY BESIDE COLLECTING THE INTEREST ON THE ADVANCED LOAN. MOREOVER THIS FUND WAS ADVANCED FOR A SHORTER PERI OD AND THE ASSESSEE HAS ALSO EARNED AN INTEREST THEREON WHICH WAS UTILI ZED IN MICRO FINANCING ACTIVITY TO THE POOR PEOPLE. WE THEREFORE OF THE V IEW THAT BY JOINING HANDS WITH THE BANKS OR FINANCIAL INSTITUTIONS FOR PROCURING FUNDS/LOANS FOR ITS ADVANCEMENT TO POOR OR NEEDY PEOPLE EXEMPTION U /S 11 CANNOT BE DENIED. 19 21. WHILE REJECTING THE CLAIM OF THE ASSESSEE THE REVENUE HAS NOT TAKEN INTO ACCOUNT THESE FACTORS THAT BY DOING THIS ACTIVITY ASSESSEE IS HELPING THE NEEDY PEOPLE OR THE SOCIO-ECONOMICALLY WEAKER SECTION OF THE SOCIETY AS NO ONE IS GOING TO FINANCE THEM TO MEET THEIR REQUIREMENTS. BY DOING THIS THE ASSESSEE IS ATLEAST HELPING THE POO R AND WEAKER SECTION OF THE SOCIETY IN MEETING THEIR URGENT NEEDS. WE THER EFORE OF THE VIEW THAT FOR THESE REASONS THE EXEMPTION U/S 11 CANNOT BE RE FUSED TO THE ASSESSEES. WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE A.O. TO ALLOW THE EXEMPTION U/S 11 OF THE I.T. ACT. 22. ONE MORE GROUND WAS ALSO IN THIS APPEAL WITH RE GARD TO THE DISALLOWANCE OF THE AMOUNT OF RS.38 31 698/- MADE T OWARDS PROVISIONS OF LOAN LOSS. IN THIS REGARD NO ARGUMENT WAS ADVANCE D DURING THE COURSE OF HEARING OF THE APPEAL. WE HOWEVER CAREFULLY EXAMIN ED THIS GROUND AND WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A). T HIS CLAIM CAN ONLY BE ALLOWED EITHER IN THE CASE OF NBFC OR BANKING INSTI TUTIONS. SINCE THE ASSESSEE IS A CHARITABLE SOCIETY THE PROVISION FOR LOAN LOSS CANNOT BE ALLOWED. ACCORDINGLY WE CONFIRM THE ORDER OF THE CIT(A) IN THIS REGARD AND REJECT THE GROUND OF THE ASSESSEE. 23. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON 17.02.2010 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM DATED 17 TH FEBRUARY 2010 20 COPY TO 1 SHRI Y.S.N. MURTY D.NO.49-52-1/3 FLAT NO.202 C HERUKURI ELEGENCY SHANTHIPURAM SHANKARMAT ROAD VISAKHAPATNAM-530 01 6. 2 THE ACIT CIRCLE-2(1) GUNTUR 3 THE CIT GUNTUR 4 THE CIT(A) GUNTUR 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM