Activity of Obtaining Loan from Banks to Advance Self-help Groups and Poor is a Charitable Activity: ITAT [Read Order]

The Cuttack bench of the Income Tax Appellate Tribunal (ITAT) has held that the activity of obtaining loan from banks to advance self-help groups and poor persons can be treated as the charitable activity.

The assessee, in its income tax returns, disclosed income from Micro Finance project of Rs.7,22,42,784/- and corresponding expenditure on this project at Rs.6,58,94,988/-. Thus, there was surplus income of Rs.63,47,796/- from this activity for which, according to the assessee, income tax exemption is available as the same would amount to charitable activity. The Assessing Officer held that the above activities are business activity.

The assessee explained that in the activity of micro-financing, the assessee obtained the loan from banks and or financial institutions and advanced the same to self-help group and poor persons.

The first appellate authority granted relief to the assessee by relying on the decision in Visakhapatnam, Income Tax Appellate Tribunal in the case of Spandana (Rural & Urban Development Organisation) v ACIT, wherein it was held that microfinance activity is a charitable activity as it alleviates poverty and also benefits socio-economically weaker sections of the society.

The Tribunal noted that the department could not controvert the submissions of the assessee.

“No material could be brought on record to show that the loan was advanced of any big amount or loan was advanced to any economically affluent persons. Thus, we find merit in the contention of the assessee that the activity was carried out with the object of providing relief to the poor. In the circumstances, we find no error in the order of the CIT(A), which was passed following the decisions of Visakhapatnam Bench of the Tribunal in the case of Spandana (Rural & Urban Development Organisation) (supra), Bangalore Bench of the Tribunal in the case of ADIT (E) vs Bharatha Swamukhi Samsthe (supra), Delhi Bench of the Tribunal in the case of Disha India Micro Credit (supra), Cuttack Bench of the Tribunal in the case of Bharat Integrated Social (supra), Hon’ble High Court of Bombay in the case of CIT vs. Agricultural Produce and Market Committee (supra), Hon’ble Supreme Court in the case of CIT vs. Sales Tax vs Sai Publication Fund (supra),” the Tribunal said.