Commissioner Of Income Tax-I,Tiruchirapalli v. M/S.kurinji Social Welfare Societyno

In the High Court of Judicature at MadrasDated : 18.8.2021 Coram The Honourable Mr.Justice T.S.SIVAGNANAM and The Honourable Mr.Justice SATHI KUMAR SUKUMARA KURUP Tax Case Appeal No.280 of 2011 Commissioner of Income Tax-I,Tiruchirapalli ...Appellant Vs M/s.Kurinji Social Welfare SocietyNo.30, Pandamangalam Road,Woraiyur, Trichy – 620 003. ...RespondentAPPEAL under Section 260A of the Income Tax Act, 1961againsttheorderdated03.12.2010passedinITA.No.1594/Mds/2009 on the file of the Income Tax AppellateTribunal, Chennai 'D' Bench. TCA.No.280 of 2011:-This Appeal filed against the Commissioner of Income Tax-1,TrichirappalliinC.No.6162E(A2)/CIT-1/TRY/2008-09dated10/08/2009. For Appellant : Mr.J.Narayanasamy, SSCFor Respondent : Mr.Shanmugarajan Judgment was delivered by T.S.SIVAGNANAM,J We have elaborately heard Mr.J.Narayanasamy, learned SeniorStanding Counsel appearing for the appellant - Revenue andMr.Shanmugarajan, learned counsel appearing for the respondent –assessee. 2. This appeal is directed against the order dated03.12.2010 passed in ITA.No.1594/Mds/2009 on the file of theIncome Tax Appellate Tribunal, Chennai 'D' Bench (for short theTribunal). 3. The appeal was admitted on 08.1.2011 to decide thefollowing substantial questions of law : https://hcservices.ecourts.gov.in/hcservices/ “i. Whether, on the facts andcircumstances of the case, the Income TaxAppellate Tribunal was right in holding thatthe applicant society is entitled toregistration under Section 12AA and approvalunder Section 80G of the Income Tax Act? ii. Whether, on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in holding thatthe applicant society was engaged in thebusiness of micro finance by borrowing fundsat the rate of 13.5% interest from the banksand lending them to the self help groups at35%, showing 15% as interest and 20% asservice charges, which was nothing butadditional interest in the garb of servicecharges ? And iii. Whether, on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in ignoring theamendment to Section 2(15) of the Income TaxAct, 1961 brought about by the Finance Act,2008 wherein it was made clear that theadvancement of any other object of generalpublic utility shall not be a charitablepurpose if it involves carrying on anyactivity in the nature of trade, commerce orbusiness or rendering any service relatingto trade, etc., by way of cess or fee or anyother consideration?” 4. The respondent – assessee is a society registered underthe provisions of the Tamil Nadu Societies Registration Act,1975 and they are engaged in the activity of micro finance forupliftment and development of rural women, who are below thepoverty line. The assessee, which was established during theyear 1991, was registered in the year 2005 and they submitted anapplication on 24.2.2009 seeking registration under Section 12AAof the Act. The Commissioner of Income Tax-I, Tiruchirapalli(for short, the CIT), by order dated 10.8.2009, rejected theapplication on the ground that the assessee is not engaged incharitable activity, rather the assessee is charging interest onthe amount lent to the self help group and service charges fordoing documentation, account writing, etc., on behalf of theself help group and it tantamounts to charging fee/considerationfor the services to the self help group. 5. Aggrieved by the order of rejection of the applicationfor registration under Section 12AA of the Act, the assessee https://hcservices.ecourts.gov.in/hcservices/ preferred an appeal to the Tribunal, which, by the impugnedorder, allowed the appeal. Challenging the correctness of thesame, the Revenue is before us by way of this appeal. 5. Aggrieved by the order of rejection of the applicationfor registration under Section 12AA of the Act, the assessee https://hcservices.ecourts.gov.in/hcservices/ preferred an appeal to the Tribunal, which, by the impugnedorder, allowed the appeal. Challenging the correctness of thesame, the Revenue is before us by way of this appeal. 6. The undisputed facts are that the respondent – assesseeis a society registered under the provisions of the Tamil NaduSocieties Registration Act. The CIT did not dispute the factthat the assessee has been engaged in the business of microfinance for women self help group by obtaining funds fromnationalized banks. The reason for rejecting the application forgrant of registration under Section 12AA of the Act is solely onthe ground that the assessee borrows funds from the nationalizedbanks, which have lent funds at 13.5% interest on diminishingbasis. The funds obtained from the nationalized banks are lentor advanced as loan to the women self help group and interest atthe rate of 15% is being charged. Added to that, the CIT pointedout that 20% is being charged as service charges and there areother charges also collected for the purpose of documentation,writing accounts, etc., and taking note of the amounts, whichhave been collected by the assessee over and above interest atthe rate of 15%, it would show that the assessee is not engagedin a charitable activity and that the activity done by themwould tantamount to charging fee or consideration for theservices rendered. 7. The Tribunal has done a thorough factual exercise andhas found that the genuinity of the society is not in doubtsince both the State and the Central Governments have beengranting funds to the assessee. Furthermore, the Tribunal, onfacts, has found that the beneficiaries are 2700 in number andapart from extending loan to the women of the self help group,other activities like construction of 110 latrines are alsocarried on by the assessee in rural areas. The Tribunal has alsonoted that apart from interest on loan, the assessee has incomeunder the head charges on documentation, entrance fee andinspection charges. 8. When the activity of the assessee, which grants reliefto the poor is not in dispute, the genuinity of the claim madeby the assessee for registration ought not to have been rejectedsolely on the ground that certain service charges are beingcollected. Admittedly, women of the self help groups are people,who come from the marginalized society and they are poor ruralwomen, who do not have the wherewithal to approach thenationalized banks for availing loan. If the assessee does notcarry on such activity by rendering financial assistance to thewomen of self help groups, they will have to be under the mercyof the private financiers, who are charging exorbitant rate ofinterest. Considering all these aspects, the Tribunal grantedrelief to the respondent assessee. In our considered view, there is no question of law much less substantial question of lawarising for consideration in this appeal, as the entire matteris factual and much of the factual position with regard to thegenuinity of the assessee have not been disputed either by theTribunal or the CIT. 9. The learned Senior Standing Counsel appearing for theappellant – Revenue submits that the CIT recorded a finding thatthe interest charged would be 35%. 10. However, we find that there is nothing on record toshow that the assessee has charged 35% interest. The interestcharged is at 15% per annum and 20% is charged as servicecharges and obviously, the service charges cannot be onrecurring basis. Therefore, the said conclusion arrived at bythe CIT is not based on any material. 11. We find no good grounds to interfere with the orderpassed by the Tribunal. 9. The learned Senior Standing Counsel appearing for theappellant – Revenue submits that the CIT recorded a finding thatthe interest charged would be 35%. 10. However, we find that there is nothing on record toshow that the assessee has charged 35% interest. The interestcharged is at 15% per annum and 20% is charged as servicecharges and obviously, the service charges cannot be onrecurring basis. Therefore, the said conclusion arrived at bythe CIT is not based on any material. 11. We find no good grounds to interfere with the orderpassed by the Tribunal. 12. Accordingly, the above tax case appeal is dismissed andthe substantial questions of law are answered against theRevenue. No costs.Sd/- Assistant Registrar(CS VII) //True Copy// Sub Assistant Registrar RSTo1. The Income Tax Appellate Tribunal, Chennai 'D' Bench. 2. The Assistant Commissioner of Income Tax, Company Circle, Trichy. 3. The Commissioner of Income Tax-1, No.4, Williams Road, Cantonment, Trichirappalli. +1cc to Mr.J.Narayanasamy , Advocate, S.R.No.41263+2ccs to M/s.Saran Raj, Advocate, S.R.No.41608 VSN-II[co]NSK 22/09/2021 TCA.No.280 of 2011