The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) has denied eligibility for charitable purposes under Section 2(15) of the Income Tax Act, 1961, to services related to trade or business.
The Assessee was a trust registered under Section 12A of the Income Tax Act, vide certificate issued by the Commissioner of Income Tax, Karnataka – II, The Assessee Trust was formed with the objectives as reproduced in the order of assessment and the assessee has been carrying out activities to fulfill the objectives. The assessee has over the years consciously and in fulfillment of its objectives, lent monies to the downtrodden, who have no option of availing loans and has provided the means to install themselves as earning members of the community.
Mr. Ravishankar representing the assessee submitted that the idea and understanding of the AO with regard to the scope of amendment to Section 2(15) of the Income Tax Act was 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 Section 2(15) of the Income Tax Act, was 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 Section 2(15) of the Income Tax Act, had clarified the charitable purpose mentioned in Section 2(15) of the Income Tax Act, 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 Section 11 of the Income Tax Act
Mr. D.K. Mishra representing the revenue relied on the order of lower authorities and submitted that the assessee is charging exorbitant rate of interest to its borrowers and the activity of the assessee cannot be considered as charitable activities and exemption under Section 11 of the Income Tax Act cannot be granted to the assessee
In the tribunal opinion, whether the assessee has for its object the advancement of any other object of general public utility is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service In relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of general public utility will be only a mask or a device to hide the true purpose which was trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible
The Assessee who claim that their objects are charitable purposes within the meaning of Section 2(15), of the Income Tax Act, would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business.
The Coram of Madhumita Roy (Judicial Member) and Chandra Poojari (Accountant Member) noted that nothing has been spent by the assessee, which could be considered in the nature of charity and therefore, the benefit under the proviso to Section 2(15) of the Income Tax Act, was not available to the assessee. ITAT did not find any merit in the argument of the counsel for the assessee to support various grounds raised by the assessee. Accordingly, all the grounds of assessee are dismissed and appeals of the assessee are dismissed, in the result, appeals of the assessee are dismissed.
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