In Credit Guarantee Fund Trust For Micro and Small Enterprises v. ITO, the Mumbai ITAT reversed the order denying the exemption under s. 12A to the assessee Trust. i.e CGTSME, and held that mere imposition of fee for services does not destroy its charitable nature and the Revenue cannot invoke section 2(15)of the Income Tax Act in such a case.
The appellant-Trust was set up by the Government of India and SIDBI as part of credit Guarantee scheme seeks to provide guarantee for the credit facilities sanctioned and disbursed by the lending institutions to the new or existing Small Scale Industrial manufacturing units, including IT and Software Industries, without any collateral security and/or third party guarantee. In the year 2001, the appellant obtained registration u/s 12A. While completing assessment for the year 2008.09, the assessing officer denied to give exemption benefit to the assessee by pointing out that the assessee have received income by way of interest on investment, guarantee fee, annual service fee, miscellaneous receipts, pension interest income and recoveries by MLI’s on claim paid etc. According to the officer, these activities are in the nature of trade, commerce or business and, therefore, hit by the proviso to section 2(15) of the Act.It was further observed that the contributions made by the settlors to the corpus fund of the Trust is a taxable receipt.
The bench noted that the CIT(A) has no power to adjudicate the matters relating to adjudication. In this regard, the bench noticed the decision of the Madhya Pradesh High Court in Madhya Pradesh Madhyam, wherein the Court pointed out the distinction between the proceedings for registration and the assessment proceedings. In the said decision, the Court further observed that, the income-tax authorities are bound by the registration and once an institution has been registered as charitable, the assessing authority cannot go behind registration to say that the institution does not exist for charitable purposes, as understood by section 2(15) of the Act. In view of the above decision, the bench clarified that in the assessment proceedings, it would be open for assessing authority to examine as to whether or not any particular income or receipt is eligible for the benefit of section 11 or 12 of the Act, “what we are only trying to say is that during the subsistence of registration under section 12A of the Income Tax Act, it is not competent for the assessing authority to revisit the nature of the objects of the assessee Trust and say that the same does not fall within the meaning of ‘charitable purpose’ defined in section 2(15) of the Income Tax Act.”
Quashing the orders of the lower authorities, the bench noted that the object and purpose of the assessee Trust is to enable the small scale industries and micro enterprises to pursue their income generation activities. The said object is sought to be achieved by providing guarantees or counter guarantees to the lending institutions who disburse loans or provide other credit facilities to the small scale industries and micro enterprises.
“We may again emphasize that the object and purpose of the assessee Trust is to help the small scale industries and micro enterprises by ensuring that they get ability to obtain loans from lending institutions. No doubt, there is an element of fee or charges levied by the assessee Trust, but the point is, is there a profit motive which would enable such activity to be characterized as a trade, commerce or business.”
It was noted that neither the adjudicating authorizes nor the IT department have a contention that the quantum or object of fee charged by the assessee Trust betrays any profit motive, but the only point made is that certain fee/charges have been levied for activities rendered to the beneficiaries, and therefore, it should be seen as ‘trade, commerce or business’.
“As we have seen earlier, mere action of charging fee for services, by itself, would not justify invoking of the proviso to section 2(15) of the Act unless it is established that the purpose and object is profit motive. Considering the entirety of circumstances we are unable to find any credible reasoning taken by the Revenue to say that the purpose and object of the assessee Trust falls within the meaning of expression ‘trade, commerce or business’ used in the proviso to section 2(15) of the Act. In fact, as we had noted earlier, the assessee Trust has been settled on27/07/2000 by the Government of India and SIDBI. The trust deed brings out the objects and purpose for which the assessee Trust has been set up, namely, to mitigate the difficulties faced by the small scale industries and micro enterprises in availing credit facilities from various lending institutions. It is also to be noted that the object and purpose of the Trust is focussed on small scale industries and micro enterprises and is not available to entrepreneurs at large. Apart there-from, it is also prescribed in the scheme operationalized by the Trust that the benefits are to be made available only to credit facilities aggregating upto Rs.10.00 lacs sanctioned and disbursed by the lending institutions. Therefore, considering the focused area of the Trust, it could not be inferred that there is any profit motive so as to view the activities to be ‘trade, commerce or business’ as understood for the purposes of proviso to section 2(15) of the Act.”
Read the full text of the order below.