Income Tax Appellate Tribunal - Chennai
Grama Vidiyal Trust, Trichy vs Department Of Income Tax on 30 June, 2016
आयकर अपील य अ
धकरण, 'डी' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL
' D' BENCH : CHENNAI
ी चं पज
ू ार , लेखा सद य एवं ी
जी. पवन कुमार या!यक सद य के सम#
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER
I.T.A.Nos.345/Mds./2013, 1437/Mds./2014 &
392/Mds./2015
&
CO No.78/Mds./2013
Assessment years : 2009-10, 2010-11 & 2011-12
&
A.Y.2009-10
The Assistant Commissioner of Vs. M/s.Grama Vidiyal Trust,
Income Tax, 2A,Sathiya Illam, Alli Street,
Circle-I92), Annamalai Nagar,
Trichy. Trichy 620 018.
[PAN AAATG 2928 F ]
(अपीलाथ%/Appellant) (&'यथ%/Respondent
Cross Objector)
अपीलाथ क ओर से/ Appellant by : Mr.Durai Pandian,
Additional CIT DR
यथ क ओर से /Respondent by : Mr.S.Sridhar,Advocate
सन
ु वाई क तार ख/Date of Hearing : 23-06-2016
घोषणा क तार ख /Date of Pronouncement : 30-06-2016
आदे श / O R D E R
PER CHANDRA POOJARI, ACCOUNTANT MEMBER
These three Appeals and cross objections for A.Y 2009-10 filed by the Revenue and the Assessee respectively are directed against the :- 2 -: Grama Vidiyal Trust different orders of the Learned Commissioner of Income Tax(A), Tiruchirapalli dated 07.11.2012, 29.01.2014 & 03.11.2014 pertaining to the assessment years 2009-10, 2010-11 & 2011-12 respectively. Since issues involved in all these Revenue's appeals & Cross objections are common in nature, these appeals & C.O. are clubbed together, heard together, disposed off by this common order for the sake of convenience.
2.1 ITA No.345/Mds./2013 by Revenue (for A.Y 2009-10) On perusing the appeal, we find that the AO had filed the appeal with delay of 14 days. The learned AO has submitted a Petition dated 01.07.2015 seeking condonation of delay and the AO stated in this petition that the delay of 14 days in filing the appeal before this Tribunal is on account of mixing up of papers in his office and it took time to locate the same and as soon as he traced the records, he filed the appeal on 26.02.2013. In our opinion, the reasons explained by the AO for filing the appeal belatedly is bonafide. Accordingly, the delay is condoned.
2.2 ITA No.1437/Mds./2014 by Revenue (for A.Y 2010-11) There was a delay of 18 days in filing this appeal. Consequent to this, the ld. Assessing Officer filed a condonation petition dated 20-
05.2014 for condoantion of delay. We have gone through the
:- 3 -: Grama Vidiyal Trust
condonation petition stating that the delay was occurred on the reason that the AO assigned work of Election duty as observer for the assembly constituencies Vijayawada West, Vijayawada Central, Andhra Pradesh from 12.04.2014 to 09.05.2014 and AO joined duty only on 12.05.2014. Thereafter only he was able to prepare the paper for filing the appeal and he filed the appeal on 23.05.2014 and prayed that delay of 18 days is condoned. In our opinion, the reasons shown are justified and hence, delay in filing the appeal belatedly for 18 days before the Tribunal is condoned and appeal is admitted for adjudication.
2.3. C.O. No.78/Mds./2013 by assessee (for A.Y 2009-10) There was a delay of 14 days in filing this Cross Objections by the assessee. Consequent to this, the ld.A.R filed a condonation petition dated 20.06.2016 for condoantion of delay stating that the said delay in filing the CO is neither willful nor deliberate but due to frequent illness of the Chartered Accountant and also the circumstances beyond the control of Petitioner herein. After considering the same, we are satisfied about the reasons advanced by the ld.A.R for delay of 14 days in filing the appeal. Accordingly, the delay is condoned 3.1 Now the common ground in these three appeals of Revenue is that the CIT(A) failed to observe the fact that after the amendment of :- 4 -: Grama Vidiyal Trust the sec.2(15) of the Act, any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration, irrespective of the nature of use or application shall not be treated as "object of general public utility".
3.2 The assessee has raised grounds in its C.O in support of the order of the Ld.CIT(A) and also raised the grounds that income generated from the micro finance used for the purpose of charitable activities, as such it cannot be said that assessee trust is not engaged in the charitable activities.
4. The crux of the ground of the Revenue's appeal is that the CIT(A) erred in granting exemption u/s.11 of the Act to the assessee for these assessment years, though the assessee carried on the business activities which are hit by the provisions of the section 2(15) of the Act. For clarity, we consider the facts narrated in assessment year 2009-10. The assessee trust is duly registered trust u/s.12A(a) of the Income Tax Act,1961 vide No.163/1988-89 with effect from the assessment year 1998-99 from the Commissioner of Income Tax- 1,Trichy and also registered u/s.80G of the Act. The Trust has been established with the ideology of poverty elimination through empowerment of women. Micro Credit programme has been started with the same idea and the Trust continued the same till December, :- 5 -: Grama Vidiyal Trust 2007. Credit was given at an affordable cost, considering the cost of fund and operation cost, surplus if any which was left over has been spent on education of the poor and needy.
4.1 During the assessment year 2009-10, i.e. the year under consideration, the Assessing Officer has treated this Trust as business entity and taxed accordingly, stating that the micro credit activity carried out by the Trust are not of charitable nature which is defined under Section 2(15) of the Income tax Act. The Authorised Representative of the appellant aggrieved on the decision taken by the Assessing Officer in his submissions made before the undersigned stated that the Grama Vidiyal Trust is working among the poor women to alleviate their poverty and to create self employment scheme for their lively hood by lending money to thousands of poor women at nominal rate of interest.
4.2 The main object of the appellant Trust is stated as under:
1) To introduce a non-traditional credit and savings system, to help the rural poorest of the poor women.
2) To promote self-reliance among women groups (community based organizations) by supporting programme of sustainable development.
3) To provide credit to the rural poor women for programmes like:
a) Income generation activities and micro enterprises development
b) Improving the bio diversity
c) Meeting the basic needs
d) Promoting the existing business and ventures
e) Generation of new employment
f) Redemption of debts
g) Meeting essential and emergency needs
h) Redemption from land mortgage and promote new land purchasing
i) Promoting agricultural productivities :- 6 -: Grama Vidiyal Trust
j) Helping to implement natural resource management like watershed, irrigation and herbal plants development, etc.
k) Training the members of village women association towards awareness, economic development, education and empowerment progress in all respect.
4.3 The AO observed that for financial year 2008-09 in page No. 2 of the assessment order is as under:-
i) That the Grama Vidiyal Trust has not been doing the micro finance loan to (SHGs) during the FY 2008-09.
ii) The new company called Grama Vidiyal Microfinance P. Ltd., registered with a RBI for carrying on the business of non banking financial institutions without accepting public deposits.
iii) From January 2008 onwards all the loan activities of microfinance activities are carried out only in the new company.
iv) The Grama Vidiyal Trust is doing the charitable and non microfinance activities from January 2008 onwards.
v) Before January 2008 Grama Vidiyal Trust has availed loan from various banking and financial institutions for their microfinance activities.
vi) The Grama Vidiyal Trust stated to have passed one resolution in the executive board meeting stating all lending activities carried out by GV Trust will the transferred to Grama Vidiyal Microfinance Ltd from 2008 onwards.
vii) When the issue of resolution passed in the executive board meeting brought to the knowledge of the Authorised Representative of the appellant who strongly objected the version of the Assessing Officer and filed paper book containing the objectives of Grama Vidiyal Trust which :- 7 -: Grama Vidiyal Trust contains general points on page No. 32 and also supplementary Trust deed on page No. 34 as well as Trust amendment deed on page No. 39, Trust supplementary deed on page No. 42.
Thus, according to AO, the assessee's case is hit by proviso to sec.2(15) of the Act . In view of the amendment made by the Finance Act, 2008, he withdrew the exemption u/s.11 of the Act and accordingly, the income of assessee was assessed at maximum marginal rate. Aggrieved, the assessee carried the appeal before the CIT(A).
5. On appeal, the CIT(A) observed that the assessee trust has been carrying on micro financial activities to rural poor women. If the AO has failed to prove that the trust members have misused the funds of the Trust for their personal benefit or could not find any material on record for having acquired any asset in their names out of the funds of the Trust. Since the Trust uses the funds or deposits for its charitable activities, which can be utilized for the next five year from the date of receipt of the funds in discharging towar5ds charitable activities, the Trust has neither sold nor transferred any asset either tangible or intangible including goodwill or technical knowhow attracting the provisions of capital gains tax. The AO failed to bring anything on record for any asset sold/transferred by the Trust during the year under consideration warranting levying of capital gains in the hands of :- 8 -: Grama Vidiyal Trust the assessee trust. Therefore, the AO is directed to delete the addition made on account of capital gains of `8,24,15,000/-. Trust has received contribution from various institutions governmental, conventional and non-conventional in the form of subscriptions, grant, donations, loans, and gift from donors from India and abroad and also received similar assistance from NBFC also and such contribution have been kept as deposits in the banks for subsequent utilization in carrying out the Trust objectives. Therefore, the contention of the Assessing Officer in treating the Trust activities as non-charitable do not stand on any material evidence as well as on legality. Hence the Assessing Officer is directed to delete the additions made treating the assessee Trust as non-charitable and directed to allow the exemption under section 11 of the Income tax Act. 5.1 Regarding the payment of `22,44,016 paid to the activists for social alternatives (ASA), the CIT(A) observed that the assessee Trust has donated this amount for doing charitable activities of the ASA Trust, which is having similar objectives such as lending microfinance self help groups / NGOs /Trusts I Societies and other Association of Persons, formed for activities undertaking for the economic social and educational upliftment of its members. These objectives of the appellant Trust for giving donations or contribution to the similar objective Trusts such as ASA can be seen from the objective clause of the appellant Trust in its supplementary Trust deed [clause 8M(m)]. The Authorised Representative of the appellant has further argued that the contribution to the ASA Trust is thus an eligible deduction :- 9 -: Grama Vidiyal Trust and application of income by the Trust in achieving the objects of the Trust. The appellant Trust as well as ASA Trust are both public charitable Trust and have got 12AA registration along with 80G exemption issued by the Commissioner of Income tax Trichy. As any contribution given to another Trust which is having similar charitable activities the contribution made by the appellant gets the benefit of 80G exemption. On verifying the submissions made by the Authorized Representative of the appellant and also objectives of the Trust, the contribution / donation given to the ASA Trust is in tune with the objectives of the appellant Trust and therefore the CIT(A) directed the Assessing Officer to allow the claim of the appellant Trust.
5.2 As far as the disallowance made by the Assessing Officer for the amount written off claimed by the appellant Trust at `10,75,525, the CIT(A) observed that this amount has been written off in the books of accounts of the appellant Trust after making efforts to recover the amounts of loan given to self help groups being a part of micro financing activity. The Authorised Representative of the appellant further submitted that the Trust is lending moneys to poor women and self help groups in expectation of repayment of the loans taken from the Trust. But in certain circumstances the amounts of loans taken by the women self help groups are not able to be recovered due to natural calamity such as floods, drought and also due to sudden death of the beneficiary family I breadwinner of the women groups, borrower may not be able to repay the loan to the appellant Trust. Under the circumstances, as a charitable measure the Trust will not be able to collect :- 10 -: Grama Vidiyal Trust the amount of loan given to women groups and the loans have to be written off, sometimes adjust these irrecoverable loses against the surplus to help the poor women self help group families. As the appellant Trust failed to recover `10,75,525, the same has been written off as irrecoverable. The same has to be considered and allowed as bad debts which have been written off in the books of the Trust. The claim of the appellant has been examined and its has been normal practice in any finance business to write off irrecoverable debt which the appellant has written off as irrecoverable. He directed the Assessing Officer to allow the amount of bad debt as they were written off in the books of accounts as a part of main Trust activity of micro-financing.
5.3 As far as the claim of depreciation made by the appellant Trust at `64,07,747, the CIT(A) observed that the claim of depreciation is a normal expenditure and the depreciation is calculated according to the Income Tax Act, 1961. The depreciable asset have been acquired on account of capital expenditure in the previous year as well current year. According to CIT(A), the claim of depreciation is an allowable expenditure as part of application of funds of the assessee trust as the purchase of the asset were taken as application of funds in the previous years of the Trust. Aggrieved, the Revenue is in appeal before us. Hence, the Revenue is in appeal before us.
6. The Ld.D.R submitted that after the amnendment of the section2(15), any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration, irrespective of the nature of use or :- 11 -: Grama Vidiyal Trust application shall not be treated as "object of general public utility". Further, he submitted that the assessee's activity of micro-financing is a business and it collects interest, therefore, the assessee's activity cannot not be treated as "charitable purpose". The rate of interest collected is as per normal banks lending procedure. Since the assessee is in financial business, CIT(A) should have affirmed the stand of A.O. The ld.D.R further pointed out that the assessee's micro-financing does not come into the ambit of the definition u/s.2(15) in view of the decisions of ITAT, Chennai and ITAT, Bangalore in the cases of Socio-Economic Development Association vs ITO 2011 TIOL 754-ITAT, Chennai and Janalakshmi Social Services 33 SOT 197 (Bangalore) respectively. The ld.D.R submitted that the assessee during the assessment proceedings has stated before A.O that the assessee stopped the micro- finance activities from January 2008. But before CIT(A) the trust took a totally opposite stand stating that the trust is still carrying micro- financing activity and no opportunity was given by CIT(A) to A.O. to explain this dichotomy. Ld.D.R submitted that the assessee trust is carrying out micro- finance activities in subsequent years because the assessee trust passed a resolution in the Executive Board stating that "all the lending activities carried out by Grarna Vidiyal Trust will be transferred to Grama Vicliyal Micro Finance (P) Ltd. from January 2008 onwards" and in fact a copy of resolution was filed before A.O. during assessment proceedings. Further, ld.D.R submitted that the assessee's micro-financing activity has been transferred to a company in which the same activity is treated as business. The very fact that assessee has treated the activity as "business" in the hand of company :- 12 -: Grama Vidiyal Trust in subsequent assessment years shows that the micro-finance is not a charitable activity in nature and it is the self admission of assessee, that it is pure business activity. Further, ld.D.R mentioned that the CIT(Appeals) has erred in, accepting the assessee's contention that the trust has neither sold or transferred any asset either tangible or intangible including goodwill or technical knowhow attracting the provisions of capital gains and also that the assessee's representative has admitted during the assessment proceedings that the trust has received `8.24 crore from Grama Vidiya Micro Finance Ltd. towatds the transformation consideration of transfer of capital assets from. the-' Gráma Vidiyal Trust to Grania Vidiya Micro Finance Ltd. The grievance of the Revenue is that the CIT(A) has not adjudicated the contention of A.O that `8.24 crores was credited to the capital a/c. of assesseë trust directly which shows that the assessee trust has treated it as a receipt. Ld.D.R submitted that the assessee cannot claim deduction towards payment to ASA Trust, as the activities of the Trust are not charitable in nature and also the assessee cannot write off an amount of 10,75,525/- since the assessee trust is not continuing the business during the relevant period. Further, ld.D.R submitted that the assessee had claimed the entire expenditure prior to previous year relevant to assessment year 2009-10, as application of income. In other words, the assessee has claimed the cost of capital asset as revenue expenditure in earlier year and hence again claiming depreciation would be double deduction. Hence, ld.D.R pleaded that the order of Ld.CIT(A) may be set aside.
:- 13 -: Grama Vidiyal Trust 7. On the other hand, ld.A.R supported the order of Ld.CIT(A). Further
regarding the cross objections, the assessee raised the following grounds for adjudication.
1. The order of the Commissioner of Income Tax (Appeals), Tiruchipalli dated 7.11.2012 in LT.A.No.170/2011-12/the order of the Deputy Commissioner of Income Tax, Circle 1(2), Tiruchirapalli dated 16.12.2011 for the above mentioned Assessment Year in so far as the issues raised in the present Cross Objections is contrary to law, facts, and in the circumstances of the case.
2. The CIT (Appeals)/DCIT erred in not considering the statement of total income which formed part of the return of income filed for the Assessment Year under consideration and further erred in not noticing the fact of application of the income/receipts generated in the previous year relating to the Assessment Year under consideration as per the prescription of section 11 of the Act without assigning proper reasons and justification.
3. The CIT(Appeals)/DCIT failed to appreciated that the issue of the activities relating to the micro finance in relation Trustees to the provisions in section 11 of the Act would be academic in nature and ought to have appreciated that in the light of the application of the receipts/income earned/generated by the Assessee/Respondent herein for the objectives of the Assessee/Respondent Trust, the contradiction in the stand as well as the findings should not be construed as fatal to the exemption as prescribed in section 11 of the Act.
4. The CIT(Appeals)/DCIT failed to appreciated that the lull in the charitable activities/the minimum charitable activities carried out in the previous year relating to the Assessment Year under consideration consequent to transformation/hiving off the mirco finance activities would not disentitle the Assessee/Respondent :- 14 -: Grama Vidiyal Trust Trust from making the claim for exemption within the scope of section 11 of the Act.
5. The CIT(Appeals)/DCIT failed to appreciated that in any event the activities of the Assessee/Respondent Trust would not fall within the last limb of the definition provision in section 2(15) of the Act and ought to have appreciated that the activities even though minimum in the previous year relating to the Assessment Year under consideration due to transformation, had focused on relief to poor, medical aid and promoting education which were first three limbs of the definition provision.
6. The CIT(Appeals)/DCIT failed to appreciate that the power of withdrawal of exemption u/s 11 of the Act in the process of framing the assessment was narrow as well as limited and hence ought to have appreciated that the action of withdrawing such exemption in treating the status of the Assessee/Respondent Trust as AOP on the consideration of the facts of the case was wrong, incorrect, unjustified, erroneous and not sustainable both on facts and in law.
7. The CIT(Appeals)/DCIT failed to appreciate that in any event the activity of micro finance should not be considered as an activity outside the purview of the definition provision in section 2(15) of the Act and ought to have appreciated that on consistent scrutiny of the returns of income filed in the immediately preceding Assessment Years, the said activity of micro finance aimed at giving relief to poor was accepted as a charitable activity within the scope of the said section.
8. The CIT(Appeals)/DCIT failed to appreciated that there was no proper opportunity given before passing the impugned order as well as the assessment order and any order passed in violation of the principles of natural justice is nullity in law.
:- 15 -: Grama Vidiyal Trust
8. We have heard both the parties and perused the material on record. Sec. 11 of the Act stipulates that the income from property held for charitable or religious purpose shall not be included in the total income of the previous year of the person in receipt of the income to be given effect in the manner as specified therein. The term 'charitable purpose' has not been defined under the statute; but for the inclusive nature of the term as specified under s. 2(15) of the Act, which as existed before the amendment is as follows :
"Sec. 2(15) : "Charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility."
As per Finance Act, 2008, the said provision was amended adding a 'proviso' w.e.f. 1st April, 2009 as follows :
"Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration irrespective of the nature of use or application or retention of the income from such activity."
The AO has taken a stand that by virtue of the amendment as above, the assessee is not entitled to exemption u/s.11 of the Act. 8.1. The ld. AR submitted that, the idea and understanding of the AO with regard to the scope of amendment to sec.2(15) is thoroughly wrong and misconceived. There is no trade or business in the activities pursued by the assessee in running of micro finance business and will not take it outside the purview of charity and hence, that the "proviso" added to sec.2(15) of the :- 16 -: Grama Vidiyal Trust Act, is not at attracted to the case in hand. He also submitted that the statute, as it stood earlier, had clarified the charitable purpose mentioned in sec.2(15) of the Act, had clarified the charitable purpose mentioned in s. 2(15) by the words "not involving the carrying on of any activity for profit". By virtue of the existence of these clarifying words, if there was any element of profit it was enough liable to be reckoned as charitable purpose right from the inception of the Act in 1961 till 1st April, 1984, when the words "not involving the carrying on of any activity for profit" were deleted. Thus the contention is that after 1st April, 1984, there is no allergy to profit and if the profit feeds charity, it stands cleared for exemption under s. 11 of the Act. 8.2. To analyse the scope and object of the amendment, we have gone through the "Budget Speech" of the Minister for Finance in the Finance Bill 2008, reported in (298 ITR (St.) 33 at page 65 :
"180. 'Charitable purpose' includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under 'charitable purpose'. Obviously, this was not the intention of Parliament and hence I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected"
(Emphasis supplied).
8.3 The learned counsel points out that, the amendment was brought about as a measure of rationalization and simplification, streamlining the definition of charitable purpose and not as a measure of taxation. It is also :- 17 -: Grama Vidiyal Trust stated that the concept of charity in India is wider, simultaneously adding that, by virtue of the amendment, the position that existed prior to 1st Feb., 1984 has been brought back and that is all. This however will not tilt the balance in any manner in the case of the assessee so as to take the activities outside the charitable purpose, particularly in view of the fact that micro finance business will not constitute any trade or business. According to the ld. AR, to perform charity, income is inevitable and contended that the activities being pursued by the assessee may constitute a trade or business, if it is not applied for the purposes of charity. Contrary to this, the ld. DR submitted that though the object of the assessee is to carry on charitable activities, but it does not carry those charitable activities, and it was only carrying on micro finance business in a commercial manner, which cannot be construed as charitable activity. In other words, it was contended by the ld. DR that the assessee carried on activities in a business oriented manner, it will definitely come within the fourth limb of the amended sec.2(15) of the Act, where the prohibition of activity in the nature of trade, commerce or business for any activity of rendering service or any other consideration, irrespective of the nature of the use or application or retention of the income of such activity is specified and hence, not entitled to any exemption. 8.4. To analyze the activities carried on by the assessee, we have to go through the nature of activities pursued by the assessee and perusal of that activities carried on by the assessee, cannot be oust the involvement of "trade, commerce or business" or "any service in connection with trade, commerce or business" as contemplated under the statute. Further, :- 18 -: Grama Vidiyal Trust we note that there is substantial variation in the statutory position as it existed earlier to 1st April, 2009, where the assessee has been given exemption under section 11 of the Act and the position available after amendment to section 2(15) of the Act, brought into effect from 1st April, 2009. Yet another important aspect to be noted in this context is that, after the amendment by incorporating proviso to section 2(15), the 4th limb as to the advancement of "any other object of general public utility"
will no longer remain as charitable purpose, if it involves carrying on of :
(a) any activity in the nature of trade, commerce or business,
(b) any activity of rendering any service in relation to any trade, commerce or business for a cess or a fee or any other consideration, irrespective of the nature of use or application or retention of the income from such activity.
8.5. The first limb of exclusion from charitable purpose under cl. (a) will be attracted, if the activity pursued by the institution involves any trade, commerce or business. But the situation contemplated under the second limb [cl. (b)] stands entirely on a different pedestal, with regard to the service in relation to the trade, commerce or business mentioned therein. To put it more clear, when the matter comes to the service in relation to the trade, commerce or business, it has to be examined whether the words "any trade, commerce or business" as they appear in the second limb of cl. (b) are in connection with the service referred to the trade, commerce or business pursued by the institutions to which the service is given by the :- 19 -: Grama Vidiyal Trust assessee. If the said words are actually in respect of the trade, commerce or business of the assessee itself, the said clause [second limb of the stipulation under cl. (b)] is rather otiose. Since the activity of the assessee involving any trade, commerce or business, is already excluded from the charitable purpose by virtue of the first limb [cl. (a)] itself, there is no necessity to stipulate further, by way of cl. (b), adding the words "or any activity of rendering any service in relation to any trade, commerce or business ..................". As it stands so, giving a purposive interpretation to the statute, it may have to be read and understood that the second limb of exclusion under cl. (b) in relation to the service rendered by the assessee, the terms "any trade, commerce or business" refers to the trade, commerce or business pursued by the recipient to whom the service is rendered and in such circumstances, the activities carried on by the assessee cannot be considered as charitable activities.
8.6. The activities carried on by the assessee cannot be considered as activities of medical relief or education or relief of the poor. It is true that the activities carried on by the assessee take care of the poor people also. But those activities cannot be classified under any of the specific activities of relief of the poor; education or medical relief. The correct way to express the nature of the activities carried on by the assessee is to say that the assessee is carrying on 'advancement of any other object of general public utility'. When that is the case, the assessee is hit by the proviso given under section 2(15). The proviso reads that 'advancement of any other object of general :- 20 -: Grama Vidiyal Trust public utility' shall not be a charitable purpose, if it involves carrying on any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business for consideration, irrespective of the application of the money. Therefore, the case of the assessee is hit by proviso to section 2(15) and the assessee is not entitled for the benefit of section 11 for that part of income generated in the hands of the assessee from running its micro finance business. Alternatively, one has to look into section 11 (4A). Sub-section (4A) provides that exemption shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the assessee and separate books of account are maintained by such trust or institution in respect of such business. In the present case, there is no dispute on the fact that the assessee is carrying on the business of micro finance. The assessee is maintaining separate accounts for the above business activities. But, the crucial question is whether running of micro finance is a business incidental to the attainment of the objectives of the trust or not. By any stretch of imagination, it is not possible to hold that the business of micro finance is incidental to the above stated objectives of the assessee-trust. "Incidental" means offshoot of the main activities; inherent by-product of principal activities. Activities to compliment and support the main objectives are not in the nature of incidental to the business. They are supporting activities, at the maximum. The genesis of incidental activities must be from the principal activities themselves. There cannot be one source for the principal activities :- 21 -: Grama Vidiyal Trust and another source for incidental activities. In the present case, even if activities of the assessee were stated to be relief of poor, it was not possible to conclude that running of business in the form of micro finance is incidental to carrying on of main objective of the assessee-trust and it is the main business of the assessee. Therefore, the assessee is not protected by the provision stated in section 11 (4A), either."
8.7. The assessee is lending money at commercial rate prevailing in the market. By advancing loans at that rate of interest, it cannot be considered as an activity carried on by the assessee as charitable and for the benefit of the public. When the assessee carried on micro finance activity in a commercial line, then it is not a charitable activity but an activity to expand the finance business by contracting weaker section of the public and it does not involve any charitable activity. Therefore, looking into the activities carried on by the assessee, we fully agree with the findings of the AO and this view of ours is squarely covered by the decision of the Tribunal in the case of Janalakshmi Social Services (33 SOT 197) (Bang.). The assessee relied on various judgments, which cannot be applied to the facts of the present case, as the assessee is carrying on micro finance business in a commercial manner so as to earn profit and there is no iota of charity carried on by the assessee so as to grant exemption under sec.11 of the Act.
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9. Further, the same view was taken by this Tribunal in the case of Kalanjiam Development Financial Services for assessment year 2009-10 in ITA No. 625/Mds/2015 vide order dated 07.08.2015.
10. Hence, in our opinion, the CIT(A) not justified in granting exemption u/s.11 of the Act to the assessee. Accordingly, we reverse the order of the Ld.CIT(A) and restore the order of the AO.
11. Regarding allowing of bad debts `10,75,525/-, in our opinion the CIT(A) is not justified in granting deduction as bad debts as that business of assessee trust, which is not continuing during the relevant period and in case of discontinued business, the claim of assessee u/s.36(1)(vii) cannot be allowed. This ground is rejected.
12. The Revenue raised one more ground is with regard to deletion of 8.24 crores, which was credited to the capital account of the assessee Trust by the CIT(A), though it was treated as revenue receipt by the AO.
12.1 The facts of the issue are that the assessee had shown `8,24,15,000/- under the head "capital fund" in the balance sheet. The assessee given explanation to the AO that this amount represents 'transformation consideration' on transfer of capital assets from M/s.Grama Vidiyal Trust to M/s.Grama Vidiyal Micro Finance Ltd., and it is being a capital receipt exempted from tax. The AO is of the opinion :- 23 -: Grama Vidiyal Trust that the assessee has transferred capital asset in terms of sec.2(14) of the Act. It is related to transfer of good will and thus, the entire amount of `8,24,15,000/- is treated as income of assessee under the head "capital gain". The CIT(A) has given a relief to the assessee by observing that there is no material to suggest that the assessee had transferred any asset so as to levy capital gain and he deleted the addition. Aggrieved by the order of CIT(A), Revenue is in appeal before us.
12.2 We have heard both the parties and perused the material on record. The assessee took a plea befoe the AO that this impugned amount has been received on transfer of capital asset from M/s.Grama Vidiyal Trust to M/s.Grama Vidiyal Micro Finance Ltd. Contrary to this observation of the AO, the CIT(A) observed that there is no transfer of any asset, as such there is no levy of capital gain tax at `8,24,15,000/-. This findings of the CIT(A) is not based on any positive material. Hence, the facts brought on record not enough to give any findings on this issue. Therefore, the entire issue is remitted to the file of AO for fresh consideration after giving opportunity of hearing to the assessee. 13.1 The next ground raised in this appeal is with regard to allowability of depreciation on the assets on which the entire cost of assets has been allowed as application of income in earlier assessment years.
:- 24 -: Grama Vidiyal Trust 13.2 We have heard both the parties and perused the material on record. In our opinion, this issue came for consideration before this Tribunal in the case of M/s Kongunadu Arts & Science College Council Gnanambigai Mills Post Coimbatore 641 029 in I.T.A.No.2097/Mds/2014 vide order dated 26-06-2015 for assessment year 2010-11. The Co-ordinate Bench of this Tribunal held as follows:-
"5. We have considered the rival submissions on either side and also perused the material available on record. We have also gone through the provisions of section 32 of the Act which provides for depreciation. Depreciation has to be allowed on the cost of the asset. In this case, the cost of the asset was allowed u/s 11 of the Act as application income since the assessee is a charitable institution entitled for exemption u/s 11. Therefore, the cost of the asset becomes NIL. When the cost of the asset becomes NIL, there is no question of allowing any depreciation. If the depreciation is allowed then it would amount to double deduction. The income of the charitable institution has to be computed on commercial principle in case the assessee is not claiming exemption u/s 11 of the Act. The assessee can also claim depreciation in case the exemption u/s 11 was denied by the Assessing Officer. Whatever may be the reasons, since the cost of the asset is NIL as the cost was already allowed as application of income, this Tribunal is of the considered opinion that the assessee is not entitled for depreciation. Section 32 of the Act falls in Chapter IV under computation of business income, however, section 11 falls in Chapter III which provides for incomes which do not form part of the total income. Therefore, this Tribunal is of the considered pinion that provisions of section 11 of the Act will override section 32. In other words, if the assessee claims exemption u/s 11 under Chapter III of the Act, it :- 25 -: Grama Vidiyal Trust cannot claim depreciation u/s 32 of the Act. Therefore, we are unable to uphold the order of the CIT(A). Accordingly, the order of the CIT(A) is set aside and that of the Assessing Officer is restored."
In view of this, there is no question of allowing any depreciation in the assessment year under consideration on the assets which Written down value (WDV) had become 'Nil'. Thus, this ground of the Revenue is allowed.
14. The other ground raised in appeal of Revenue in ITA No.392/Mds./2014 (A.Y. 2011-12) is that the CIT(A) erred in law in allowing the assessee's claim of `3.70 crores as "corpus Donation"
without appreciating that there is no specific direction from the members about what portion of the subscription amount would be taken as "Corpus Donation".
15. After hearing both the parties, we are of the opinion that if the voluntary contributions received by the Trust created, partly or wholly, for charitable purpose, then in term of sec.2(24)(iia) of the Act it forms the part of the corpus fund of the Trust and it is a capital receipt. In the present case, since we have observed that assessee is not a charitable trust, it is engaged in the commercial activity and is not entitled for exemption u/s.11 of the Act. The assessee is required to give details of receipt of `3.70 crores and it is to be proved by assessee that it is not a revenue receipt and if it is in the field of capital receipt, :- 26 -: Grama Vidiyal Trust capital receipt would not be liable for the exemption u/s.11 of the Act. Accordingly, this issue is remitted to the file of AO to examine afresh and assessee shall furnish necessary details. The ground of Revenue is partly allowed for statistical purposes.
16. Regarding Cross objections, the argument of ld.A.R is that the income generated from business activities was applied for the charitable purpose. Hence, exemption u/s.11 of the Act is to be granted. In our opinion, the plea of the ld.A.R is totally misconceived. Once the assessee is not entitled of exemption u/s.11 of the Act, the application of income by the assessee for charitable purpose is irrelevant so as to grant exemption once again u/s.11 of the Act. Hence, Cross objections filed by the assessee is dismissed.
17. In the result, appeal of Revenue in 345/2013 is partly allowed for statistical purposes and Cross Objection by assessee is dismissed.
18. ITA No.1437/Mds/2014 & ITA No.392/Mds./2015 (A.Y 2010-11 & 2011-12) :
In these assessment years under consideration, assessee carried on micro insurance business in addition to micro finance business. In view of our findings in ITA No.345/Mds./2013 in para Nos.8 to 9, we are of the opinion that the assessee is not entitled for exemption u/s.11 of the Act. Accordingly, this ground of the Revenue in both the appeals is allowed.
:- 27 -: Grama Vidiyal Trust 18.1 The next ground is relating to receipt of corpus donation of `3.7
crores in the assessment year 2011-12. This issue is remitted to the file of AO withr similar direction given in para No.15 in ITA No.345/Mds./2013 for assessment year 2009-10.
18.2 The other ground is with regard to allowability of depreciation on assets as application of income. This ground is also dismissed as discussed in para No.13.2 in ITA No.345/Mds./2013 for assessment year 2009-10.
19. In the result, the appeal of the Revenue in ITA No.345/Mds./2013 is partly allowed for statistical purposes, & Cross objection by the assessee is dismissed, and the appeal of Revenue in ITA No.1437/Mds./2014 is allowed and the appeal of Revenue in ITA No.392/Mds./2015 is partly allowed for statistical purposes.
Order pronounced on 30th June, 2016, at Chennai.
Sd/- Sd/-
(जी. पवन कुमार) (चं पज
ू ार )
(G.PAVAN KUMAR) (CHANDRA POOJARI)
या!यक सद य/JUDICIAL MEMBER लेखा सद य /ACCOUNTANT MEMBER
चे नई/Chennai
दनांक/Dated: 30th June, 2016
K S Sundaram
आदे श क &त'ल(प अ)े(षत/Copy to:
1. अपीलाथ /Appellant 3. आयकर आयु*त (अपील)/CIT(A) 5. (वभागीय &त&न/ध/DR
2. यथ /Respondent 4. आयकर आयु*त/CIT 6. गाड2 फाईल/GF