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| DATE: | February 17, 2011 (Date of publication) |
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| Click here to download the judgement (disha_micro_finance_charitable.pdf) |
Activity of giving micro-finance & earning interest is “charitable purpose”
The assessee, a micro-finance company, applied for registration u/s 12A for exemption u/s 11. The CIT rejected the application on the ground that (a) the objects showed a profit motive, (b) the assessee was charging an interest rate which was higher than that charged by banks & (c) the activity of giving loans was a business activity and not a “charitable purpose” u/s 2(15). On appeal by the assessee, HELD allowing the appeal:
(i) On the issue whether the assessee has a “profit motive” in pursuing its objects, the fact that the assessee is registered u/s 25 of the Companies Act prima facie shows that the assessee is set up to promote “charity or any other useful object” and intends to apply its profits in promoting those objects. The assessee is prohibited from making payment of any dividend to its members. The Objects provide that the assessee has to promote micro finance services to poor persons and to help them rise out of poverty without the motive of profit;
(ii) On the issue whether the activity of promoting micro finance services is a “charitable purpose” u/s 2(15), as per CBDT Circular No.11 of 2008 dated 19.12.2008, a wide range of objects for the welfare of economically and socially disadvantaged people are covered and entities which pursue these objects will be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated in s. 11(4A) or the seventh proviso to s.10(23C) (Bharatha Swamukhi Samsthe 28 DTR (Bang)(Trib) 113 followed);
(iii) The fact that there is a surplus from the activity of micro financing cannot by itself be a ground to say that the assessee does not exist for charitable purpose particularly when the MOA & AOA provide that the profit shall not be distributed amongst the members but shall be utilized towards the objects (Thanthi Trust 247 ITR 785 (SC) & Agricultural Produce and Market Committee 291 ITR 419 (Bom) followed)
As per the provisions of the Act what should have been considered by the department when dealing with the cases in relation to claim u/s 11,12 & 10(23) for charitable act whether their object are charitable in nature and the the MOA & AOA provide that the profit shall not be distributed amongst the members but shall be utilized wholly towards the objects of the organisation or whether they are working for whole society without any cast, creed, class. Whether general public benefited from their activities or not. Earning surplus or profit can not be a major factor to decide the issue because without earning no one can do charity.