Activity of providing relief to the poor being Charitable in Nature cannot be Denied Exemption in a Corporate World: ITAT [Read Order]

The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) held that activity being charitable in nature towards general public utility cannot be equated with a money lending activity carried out in a corporate world.

The assessee trust was formed in terms of the Deed of Trust dated 08.07.2004 and Amendment Deed dated 29.11.2004 and is engaged in the charitable activity of providing relief to the poor especially in rural areas.

For the year under appeal, the assessee filed its return of income on 30.10.2017 reporting Nil income after claiming exemption under Section 11 of the Income Tax Act.

The case was selected for scrutiny and notice under Section 143(2) of the act along with notice under Section 142(1) was issued to the assessee calling for various details and particulars.

The AO issued a show cause notice to the assessee calling upon the assessee to state as to why provisions of Section 13(8) red with 1st proviso to clause 15 of Section 2 of the Act should not be applied. According to the AO, the activities of the assessee in providing microfinance and insurance was in the nature of trade, commerce or business and hence, the same was hit by the 1st proviso to Section 2(15) of the Income Tax Act and therefore, the assessee was not entitled to benefit of Section 11 of the Income Tax Act.

In response, the assessee filed reply dated 07.12.2019, wherein it was submitted that the microfinance and insurance provided by the assessee to SHG’s falls within the limb “Relief of Poor” under section. 2(15) of the Act and hence, the 1st proviso to section 2(15) of the act was not applicable as the same related only to activities that comes within the limb “Any other object of general public utility”.

Secondly, the assessee also submitted that, the aforesaid activities were carried on even in the earlier years and the same was never regarded as trade, commerce or business and hence, according to the principles of consistency, would apply to the present facts. Finally, it was also contended that, the activity cannot be considered as trade, commerce or business having regard to the dominant purpose test and therefore, it cannot be held as trade, commerce or business.

The AO rejected the contentions of the assessee and has invoked the provisions of Section 13(8) r.w.s 2(15) of the act to reject the claim of exemption under Section 11 of the Income Tax Act.

The AO concluded the assessment by the impugned order passed under Section 143(3) of the act dated 21.12.2019 determining the total income of the assessee trust at Rs.6,21,47,053/- as against the Nil income returned reported by the assessee in the original return. Aggrieved by the order of the AO, the assessee filed appeal before the CIT(A). Then aggrieved by the order of the CIT(A) the assessee appealed before the tribunal.

After hearing both the parties, the tribunal held that the activity being charitable in nature towards general public utility cannot be equated with a money lending activity carried out in a corporate world. Therefore the decisions relied by the DR on this issue is factually different with the present facts of the assessee before the bench. The assessee therefore has the benefit of the decisions rendered by Supreme Court and Andhra Pradesh High Court.

The two member bench consisting of Chandra Pooja (Accountant member) and Beena Pilai (Judicial member) held that the provisos to Section 2(15) shall not be applicable to the present facts of the case. So, the lower authorities are not justified in hoing that the assessee is not engaged in charitable activities and denying exemption under Section 11 of the Income Tax Act. Thus the appeal was allowed.

To Read the full text of the Order CLICK HERE

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