{"id":2698,"date":"2011-02-17T13:54:26","date_gmt":"2011-02-17T08:24:26","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=2698"},"modified":"2011-02-17T13:54:26","modified_gmt":"2011-02-17T08:24:26","slug":"disha-india-micro-credit-vs-cit-itat-delhi-activity-of-giving-micro-finance-earning-interest-is-charitable-purpose","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/disha-india-micro-credit-vs-cit-itat-delhi-activity-of-giving-micro-finance-earning-interest-is-charitable-purpose\/","title":{"rendered":"Disha India Micro Credit vs. CIT (ITAT Delhi)"},"content":{"rendered":"\n\n
Click here to download the judgement (disha_micro_finance_charitable.pdf) <\/strong> <\/a><\/p><\/td>\n<\/tr>\n<\/table>\n

Activity of giving micro-finance & earning interest is \u201ccharitable purpose\u201d
\n<\/strong><\/p>\n

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 \u201ccharitable purpose\u201d u\/s 2(15). On appeal by the assessee, HELD allowing the appeal: <\/p>\n

(i) On the issue whether the assessee has a \u201cprofit motive\u201d 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 \u201ccharity or any other useful object\u201d and intends to apply its profits in promoting those objects<\/strong>. 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<\/strong>;<\/p>\n

(ii) On the issue whether the activity of promoting micro finance services is a \u201ccharitable purpose\u201d 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<\/strong>, subject, however, to the conditions stipulated in s. 11(4A) or the seventh proviso to s.10(23C) (Bharatha Swamukhi Samsthe<\/strong> 28 DTR (Bang)(Trib) 113 followed); <\/p>\n

(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<\/strong> 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<\/strong> 247 ITR 785 (SC) & Agricultural Produce and Market Committee<\/strong> 291 ITR 419 (Bom) followed)<\/p>\n

\nNote<\/strong>: Janalakshmi Social Services vs. DIT<\/strong> 33 SOT 197 (Bang) which held that micro financing if done on commercial lines is not a charitable activity<\/em> was not followed on the ground that there the finance was provided only to a particular section of society and the loans were given at \u201cexorbitant\u201d rates of interest. See also Spandana (Rural & Urban Development Organisation)<\/strong> 40 DTR 153 (Visakha)(Trib) & article: Don’t Malign MFIs<\/strong><\/a>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

On the issue whether the activity of promoting micro finance services is a \u201ccharitable purpose\u201d 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<\/strong>, subject, however, to the conditions stipulated in s. 11(4A) or the seventh proviso to s.10(23C)<\/p>\n

Read more ›<\/a><\/div>\n

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