Madras High Court
Kalanjiam Development Financial ... vs The Income Tax Officer (Exemptions) on 9 May, 2025
Author: C.Saravanan
Bench: R.Suresh Kumar, C.Saravanan
2025:MHC:1209
T.C.A.No.966 of 2015
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on 12.11.2024
Pronounced on 09.05.2025
CORAM:
THE HONOURABLE MR.JUSTICE R.SURESH KUMAR
and
THE HONOURABLE MR.JUSTICE C.SARAVANAN
T.C.A.No.966 of 2015
and
M.P.No.1 of 2015
Kalanjiam Development Financial Services,
2nd Floor, 1-A, Vaidyanathapuram East,
Near Seventh Day Adventists School,
Kennet Road Cross,
Madurai – 625 016. ... Appellant / Respondent
Vs.
The Income Tax Officer (Exemptions),
Madurai. ... Respondent / Appellant
Prayer: Appeal under Section 260A of the Income Tax Act, 1961, against
the order of the Income Tax Appellate Tribunal, “C” Bench, Chennai dated
7th August 2015 in I.T.A.No.625/Mds/2015.
1/29
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T.C.A.No.966 of 2015
For Appellant : Mr.R.V.Easwar
Senior Counsel
Assisted by Mrs.G.Vardini Karthik
and Mr.Bhardwaj Seshadri
for M/s.J.Sree Vidya
For Respondent : Mrs.V.Pushpa
Senior Standing Counsel
JUDGMENT
(Judgment of the Court was delivered by C.SARAVANAN, J.)
This Tax Case Appeal is directed against the Impugned Order dated
07.08.2015 passed by the Income Tax Appellate Tribunal (hereinafter
referred to as “Appellate Tribunal”) in I.T.A.No.625/Mds/2015.
2. By the Impugned Order, the Appellate Tribunal has allowed the
appeal filed by the Respondent Income Tax Officer against the order dated
02.12.2014 passed by the Appellate Commissioner in I.T.A.No.0097/2011-
2012.
3. The Appellate Commissioner had earlier reversed the decision of
the Assessing Officer in Assessment Order dated 30.12.2011 for the
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Assessment Year 2009-2010 and had thereby allowed
I.T.A.No.0097/2011-2012 of the Appellant vide order dated 02.12.2014.
4. The Assessing Officer had earlier passed an adverse Assessment
Order dated 30.12.2011 for the Assessment Year 2009-2010 wherein the
benefit of exemption under Section 11(4A) of the Income Tax Act, 1961
(hereinafter referred to as “IT Act”) was denied to the Appellant which
decision now stands affirmed by the Appellate Tribunal vide the impugned
Order dated 07.08.2015.
5. At the time of admission on 30.09.2015, following substantial
questions of law were framed for being answered in this appeal:-
i. Whether on the facts and in the circumstances of the
case, the Appellate Tribunal was right in holding that
microfinance would fall under “any other object of
general public utility” and not “relief of the poor”,
even after giving a factual finding that the activities
of the assessee take care of the poor?
ii. Whether on the facts and circumstances of the case,
the Tribunal was right in holding that since interest
was not subsidies, microfinance would amount to a
business transaction? and
iii. Whether on the facts and circumstances of the case,
the Tribunal was right in not following the decision of
the co-ordinate benches in the cases of Kurinji Social
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Welfare Society Vs. ACIT and Socio Economic
Development Association Vs. ITO, contrary to the
ruling of the Supreme Court in the case of Honda
Siel Power Products Ltd. Vs. CIT [(2007) 295 ITR
0466 (SC)]
6. The brief facts of the case are that the Appellant is a “Charitable
Trust” engaged in lending money to self-help groups, claimed exemption
under Section 11(4A) of the IT Act. The said activity of lending money
carried out by the Appellant is recognized as a microfinance by the
Finance Ministry.
7. The business model of the Appellant indicates that it borrows
money from various Banks and in turn lends money to small borrowers
through self-help groups.
8. The Appellant charged processing fees ranging between 2% to
2.5% on the amount lent to such borrowers who approached the Appellant
through self-help groups. On the aforesaid income from processing fees
collected, the Appellant claimed exemption under Section 11(4A) of the IT
Act, which has been denied.
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9. The Appellant was also issued with a registration under Section
12AA of the IT Act as a Trust under Section 12A of the IT Act by the
Commissioner of Income Tax – I, Madurai vide proceedings dated
30.07.2003 bearing reference C.No.464/164/2002-03/CIT-I.
10. In this appeal, we are not concerned with the situation
contemplated in Section 12 of the IT Act. The scope of enquiry is
confined to Section 11(4A) of the IT Act.
11. The point for consideration in this appeal is whether in the facts
of the present case, the Appellant was entitled to the benefit of exemption
under Section 11(4A) of the IT Act or not?
12. To understand the lis, it will be very useful to refer to sub-
section (4A) to Section 11 of the IT Act. Sub-section (4A) to Section 11
of the IT Act is reproduced hereunder:-
“(4A). Sub-section (1) or sub-section (2) or sub-section
(3) or sub-section (3A) shall not apply in relation to any
income of a trust or an institution, being profits and
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gains of business, unless the business is incidental to the
attainment of the objectives of the trust or, as the case
may be, institution, and separate books of account are
maintained by such trust or institution in respect of such
business.”
13. Sub-section (4A) to Section 11 of the IT Act as extracted above
was inserted into the IT Act vide Section 6 of the Finance (No.2) Act,
1991 (49 of 1991) with effect from 01.04.1992. Prior to the above
amendment, sub-section (4A) to Section 11 of the IT Act read as under:-
“(4A) Sub-section (1) or sub-section (2) or sub-section
(3) or sub-section (3A) shall not apply in relation to any
income, being profits and gains of business, unless-
(a) The business is carried on by a trust wholly for
public religious purposes and the business
consists of printing and publication of books
or publication of books or is of a kind notified
by the Central Government in this behalf in the
Official Gazette; or
(b) The business is carried on by an institution
wholly for charitable purposes and the work in
connection with the business is mainly carried
on by the beneficiaries of the institution,
and separate books of account are maintained by the
trust or institution in respect of such business.”
14. We are not concerned with the sub-section (4A) to Section 11 of
the IT Act as it stood prior to the amendment. The language in sub-section
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(4A) to Section 11of the IT Act as it read as above in Paragraph 12 makes
it clear that it is an exception to the sub-sections (1), (2), (3) and (3A) to
Section 11 of the IT Act. It gives another avenue for exemption over and
above exemption in sub-section (1) to Section 11 of the IT Act.
15. Sub-section (4A) to Section 11 of the IT Act states that
provisions of sub-section (1) or sub-section (2) or sub-section (3) or
sub-section (3A) shall not apply in relation to “any income of a trust or
institution, being profits and gains of business, unless the business of such
trust or institution is incidental to attainment of the objectives of the trust
or institution as the case may be, institution and separate books of account
are maintained by such trust or institution in respect of such business”.
16. Therefore, to understand the scope of sub-section (4A) to
Section 11 of the IT Act, one has to read sub-section (1), sub-section (2),
sub-section (3) and sub-section (3A) to Section 11 of the IT Act. They are
to be read in conjunction with each other.
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17. Sub-section 1 to Section 11 of the IT Act exempts the following
categories of income from payment of tax. They are as follows:-
Income derived from property held under trust Income in the
form of
voluntary
contributions
(a) (b) (c) (d)
wholly for In part only for income in the
charitable or such purposes, the i. Created on or form of
religious trust having been voluntary
created before the after the 1st day contributions
purposes, to the of April, 1952, made with a
extent to which commencement of for a charitable specific
this Act, to the
such income is purpose which direction
extent to which that
applied to such such income is tends to they shall form
purposes in India; applied to such promote part of the
and, where any purposes in India; international corpus of the
such income is and, where any welfare in trust or
accumulated or such income is which India is institution,
set apart for finally set apart for interested, to subject to the
the extent to condition
application to application to such that
which such
such purposes in purposes in India, income
such voluntary
is contributions are
India, to the to the extent to
applied to such invested
extent to which which the income purposes
or
the income so so set apart is not deposited in one
excess of fifteen outside India, or more of the
accumulated or and
per cent of the forms or modes
set apart is not in income from such ii. For charitable or specified in sub-
excess of fifteen property. religious section (5)
per cent of the purposes, maintained
income from such created before specifically for
property. the 1st day of such corpus.
April, 1952, to
the extent to
which such
income is
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Income derived from property held under trust Income in the
form of
voluntary
contributions
applied to such
purposes
outside India.
Provided that the
Board, by general
or special order,
has directed in
either case that it
shall not be
included in the
total income of
the person in
receipt of such
income.
18. For the sake of clarity, sub-section (1) to Section 11 of the IT
Act is reproduced below:-
“11. Income from property held for charitable or religious
purposes.- (1) Subject to the provisions of sections 60 to 63, the
following income shall not be included in the total income of the
previous year of the person in receipt of the income—
(a) income derived from property held under trust wholly for
charitable or religious purposes, to the extent to which such
income is applied to such purposes in India; and, where any
such income is accumulated or set apart for application to
such purposes in India, to the extent to which the income so
accumulated or set apart is not in excess of fifteen per cent
of the income from such property;
(b) income derived from property held under trust in part only
for such purposes, the trust having been created before the
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commencement of this Act, to the extent to which such
income is applied to such purposes in India; and, where any
such income is finally set apart for application to such
purposes in India, to the extent to which the income so set
apart is not in excess of fifteen per cent of the income from
such property;
(c) income derived from property held under trust—
(i) created on or after the 1st day of April, 1952, for a
charitable purpose which tends to promote
international welfare in which India is interested, to
the extent to which such income is applied to such
purposes outside India, and
(ii) for charitable or religious purposes, created before
the 1st day of April, 1952, to the extent to which such
income is applied to such purposes outside India:
Provided that the Board, by general or special order, has
directed in either case that it shall not be included in the
total income of the person in receipt of such income;
(d) income in the form of voluntary contributions made with a
specific direction that they shall form part of the corpus of
the trust or institution, subject to the condition that such
voluntary contributions are invested or deposited in one or
more of the forms or modes specified in sub-section (5)
maintained specifically for such corpus.”
19. As per Explanations 1, 2, 3, 4 & 5 of sub-section (1) to Section
11 of the IT Act, if the income from the property is not applied or is not
deemed to have been applied for charitable or religious purposes in India
during the previous year and is accumulated or set apart, either in whole or
in part, for application for such purposes in India, such income so
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accumulated or set apart shall not be included in the total income of the
previous year of the person in receipt of the income.
20. Explanations 1, 2, 3, 4 & 5 of sub-section (1) to Section 11 of
the IT Act are reproduced below:-
Section 11(1)
Explanation 1 of Explanation 2 of Explanation 3 of Explanation 4 of Explanation 5 of
sub-section 1 to sub-section 1 to sub-section 1 to sub-section 1 to sub-section 1 to
Section 11 Section 11 Section 11 Section 11 Section 11
Explanation 1.— Explanation 2.— Explanation 3.— Explanation 4.— Explanation 5.—
For the purposes Any amount For the purposes For the purposes For the purposes
of clauses (a) and credited or paid, of determining the of determining the of this sub-
(b),— out of income amount of amount of section, it is
(1) in computing referred to in application under application under hereby clarified
the fifteen per cent clause (a) or clause (a) or clause (a) or that the
of the income clause (b) read clause (b), the clause (b),— calculation of
which may be with Explanation provisions of sub- income required
(i) application for
accumulated or 1, to any fund or clause (ia) of to be applied or
charitable or
set apart, any trust or clause (a) of accumulated
religious purposes
such voluntary institution or any section 40 and during the
from the corpus as
contributions as university or sub-sections (3) previous year
referred to in
are referred to in other educational and (3A) of shall be made
clause (d) of this
section 12 shall institution or any section 40A, without any set
sub-section, shall
be deemed to be hospital or other shall, mutatis off or deduction
not be treated as
part of the medical mutandis, apply or allowance of
application of
income; institution as they apply in any excess
income for
referred to in computing the application of
(2) if, in the charitable or
sub-clause (iv) or income any of the year
previous year, the religious
sub-clause (v) or chargeable under preceding the
income applied to purposes:
sub-clause (vi) or the head "Profits previous year.
charitable or
sub-clause (via) and gains of (ii) application for
religious purposes
of clause (23C) of business or charitable or
in India falls short
section 10 or profession". religious
of eighty-five per
other trust or
cent of the income Explanation 3A. purposes, from
institution any loan or
derived during —For the
registered under
that year from purposes of this borrowing, shall
section 12AA or not be treated as
property held sub-section,
section 12AB, as
under trust, or, as where the application of
the case may be, income for
the case may be, property held
being
held under trust in under a trust or charitable or
contribution with religious
part, by any institution
a specific
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Section 11(1)
amount— direction that it includes any purposes:
shall form part of temple, mosque,
(i) for the reason
the corpus, shall gurdwara, church
that the whole or
not be treated as or other place
any part of the
application of notified under
income has not
income for clause (b) of sub-
been received
charitable or section (2) of
during that year,
religious section 80G, any
or
purposes. sum received by
(ii) for any other such trust or
reason, institution as
voluntary
then—
contribution for
(a) in the case the purpose of
referred to in sub- renovation or
clause (i), so repair of such
much of the temple, mosque,
income applied to gurdwara, church
such purposes in or other place,
India during the may, at its option,
previous year in be treated by such
which the income trust or institution
is received or as forming part of
during the the corpus of the
previous year trust or the
immediately institution,
following as does subject to the
not exceed the condition that the
said amount, and trust or the
institution,—
(b) in the case
referred to in sub- (a) applies such
clause (ii), so corpus only for
much of the the purpose for
income applied to which the
such purposes in voluntary
India during the contribution was
previous year made;
immediately
(b) does not apply
following the
such corpus for
previous year in
making
which the income
contribution or
was derived as
donation to any
does not exceed
person;
the said amount,
(c) maintains
may, at the option
such corpus as
of the person in
separately
receipt of the
identifiable; and
income (such
option to be (d) invests or
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Section 11(1)
exercised at least deposits such
two months prior corpus in the
to the due date forms and modes
specified] under specified under
sub-section (1) of sub-section (5) of
section 139 for section 11.
furnishing the
Explanation 3B.
return of income,
—For the
in such form and
purposes of
manner as may be
Explanation 3A,
prescribed) be
where any trust or
deemed to be
institution has
income applied to
treated any sum
such purposes
received by it as
during the
forming part of
previous year in
the corpus, and
which the income
subsequently any
was derived; and
of the conditions
the income so
specified in
deemed to have
clause (a) or
been applied shall
clause (b) or
not be taken into
clause (c) or
account in
clause (d) of the
calculating the
said Explanation
amount of income
is violated, such
applied to such
sum shall be
purposes, in the
deemed to be the
case referred to in
income of such
sub-clause (i),
trust or institution
during the
of the previous
previous year in
year during which
which the income
the violation takes
is received or
place.
during the
previous year
immediately
following, as the
case may be, and,
in the case
referred to in sub-
clause (ii), during
the previous year
immediately
following the
previous year in
which the income
was derived.
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21. As per Sub-section (4) to Section 11 of the IT Act, the
expression “Income derived from property held under Trust” includes
“Income from business undertaking” held by Trust.
22. For the sake of clarity, Sub-section (4) to Section 11 of the IT
Act is reproduced below:-
“(4) For the purposes of this section "property held under trust"
includes a business undertaking so held, and where a claim
is made that the income of any such undertaking shall not
be included in the total income of the persons in receipt
thereof, the Assessing Officer shall have power to determine
the income of such undertaking in accordance with the
provisions of this Act relating to assessment; and where any
income so determined is in excess of the income as shown in
the accounts of the undertaking, such excess shall be
deemed to be applied to purposes other than charitable or
religious purposes.”
23. Therefore, income from “business undertaking” or Trust so
held by a Charitable or Religious Trust can also be exempted from
payment of tax under Section 11 of the IT Act, provided, such business is
incidental to the attainment of the objectives of the Trust or Institution, as
the case may be and separate books of account are maintained by such
trust or institution in respect of such business.
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24. As per sub-section (4) to Section 11 of the IT Act, where a claim
is made by Trust or Institution that the income of such undertaking shall
not be included in the total income of such Trust or Institution in receipt of
such income, the Assessing Officer has the power to determine income of
such undertaking in accordance with the provisions of the Act relating to
Assessment.
25. Where any income so determined is found to be in excess of the
income as shown in the accounts of the said undertaking, such excess
income shall be deemed to be the income applied for the purposes other
than for “charitable purposes” or “religious purposes”.
26. Similarly under Section 12 of the IT Act, “voluntary
contributions” received by a Trust created wholly for charitable or
religious purposes or by an institution established wholly for such
purposes is deemed to be income derived from property held under trust
wholly for charitable or religious purposes for the purpose of Section 11 of
the IT Act.
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27. Therefore, to claim the benefit of sub-section (4A) to Section 11
or 12 of the IT Act, the endeavor of the Appellant should be show that the
income from its lending business or income from contribution was
“Income derived from property held under Trust” within the meaning
of sub-section (4) to Section 11 of the IT Act.
28. For the aforesaid purpose, the provisions of that Sections and
Section 13 shall apply accordingly. For clarity, Section 12 of the IT Act is
reproduced below:-
“Section 12.- Income of Trust or Institution from
Contributions.
(1) Any voluntary contributions received by a trust
created wholly for charitable or religious
purposes or by an institution established wholly
for such purposes (not being contributions made
with a specific direction that they shall form part
of the corpus of the trust or institution) shall for
the purposes of Section 11 be deemed to be
income derived from property held under trust
wholly for charitable or religious purposes and
the provisions of that Section and Section 13 shall
apply accordingly.
(2) The value of any services, being medical or
educational services, made available by any
charitable or religious trust running a hospital or
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medical institution or an educational institution,
to any person referred to in clause (a) or clause
(b) or clause (c) or clause (cc) or clause (d) of
sub-section (3) of Section 13, shall be deemed to
be income of such trust or institution derived
from property held under trust wholly for
charitable or religious purposes during the
previous year in which such services are so
provided and shall be chargeable to income-tax
notwithstanding the provisions of sub-section (1)
of Section 11.
Explanation.- For the purposes of this sub-
section, the expression “value” shall be the value
of any benefit or facility granted or provided free
of cost or at concessional rate to any person
referred to in clause (a) or clause (b) or clause (c)
or clause (cc) or clause (d) of sub-section (3) of
Section 13.
(3) Notwithstanding anything contained in Section
11, any amount of donation received by the trust
or institution in terms of clause (d) of sub-section
(2) of Section 80G [in respect of which accounts
of income and expenditure have not been
rendered to the authority prescribed under clause
(v) of sub-section (5C) of that Section, in the
manner specified in that clause, or] which has
been utilised for purposes other than providing
relief to the victims of earthquake in Gujarat or
which remains unutilised in terms of sub-section
(5C) of Section 80G and not transferred to the
Prime Minister's National Relief Fund on or
before the 31st day of March, 2004 shall be
deemed to be the income of the previous year and
shall accordingly be charged to tax.”
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29. Merely because the Appellant had obtained registration under
Section 12AA of the IT Act ipso facto does not mean that the Appellant is
automatically entitled to the benefit of exemption either under Section 11
or under Section 12 of the IT Act.
30. Similarly, merely because a Certificate under Section 80G(5)(vi)
of the IT Act was given to the Appellant on 07.04.2015 ipso facto would
also not mean that the Appellant was exempt from payment of tax either
under Section 11 or Section 12 of the IT Act. Approval under Section
80G(5)(vi) of the IT Act, merely entails a donee a deduction on the
donations made to a “Charitable Institution”.
31. To avail the benefit under Section 11 and Section 12 of the IT
Act, the Appellant/Assessee shall comply with the requirements of Section
12A of the IT Act by following the procedure under Section 12AA of the
IT Act.
32. To claim the benefit of exemption under Section 11 of the IT
Act, an Assessee shall satisfy that income was:
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from property held by it as a “Charitable under Section
Trust”; or 11(1)(a) to (c) of the
IT Act
from voluntary contributions made with a under Section
specific direction that they shall form part 11(1)(d) of the IT Act
of the corpus of the Trust or Institution,
subject to the condition that such
“voluntary contributions” are invested or
deposited in one more of the forms or
modes specified in sub-section (5) of
Section 12 of the IT Act maintained
specifically for such corpus; or
from business of the Trust which was under Section 11(4A)
incidental to the attainment of the of the IT Act
objectives of the Trust or Institution,
provided separate books of account were
maintained by such Trust or Institution in
respect of such business; or
from voluntary contributions received by a under Section 12 of
Trust created wholly for “Charitable the IT Act
Purposes” or “Religious Purposes” or by
an Institution established wholly for such
purposes.
33. Apart from the above, the Appellant/Assessee has to comply
with the procedural requirements stipulated in these provisions.
34. In the present case, the attempt of the Appellant/Assessee is to
claim exemption on income derived from the processing fees collected by
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the Appellant/Assessee from the small borrowers through self-help groups
under Section 11 of the IT Act by applying the exception provided in sub-
section (4A) to Section 11 of the IT Act to the facts of the case.
35. While dealing with the scope of sub-section (4A) to Section 11
of the IT Act, the Hon'ble Supreme Court in “New Noble Educational
Society Vs. Commissioner of Income Tax”, (2023) 6 SCC 649, observed
as under:-
“76. In view of the above discussion, it is held that
charitable institutions and societies, which may be
regulated by other State laws, have to comply with
them just as in the case of laws regulating education
(at all levels). Compliance with or registration under
those laws, are also a relevant consideration which
can legitimately weigh with the Commissioner or
other authority concerned, while deciding
applications for approval under Section 10(23-C).
77. This reasoning equally applies especially in Section
11(4-A) which speaks of profits incidental which
specifies that exemption in relation to income or
trust of an institution which are profits or means of
business cannot be exempted “unless the business is
incidental, trust or as the case may be institution
and separate books of accounts are maintained by
such trusts or institution in respect of such
business”. Thus, the underlying objective of the
seventh proviso to Section 10(23-C) and of Section
11(4-A) are identical. These have to be read in the
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light of the main provision which spells out the
conditions for exemption under Section 10(23-C) —
the same conditions would apply equally to the other
sub-clauses of Section 10(23-C) that deal with
education, medical institution, hospitals, etc.”
36. The Impugned Order of the Tribunal has referred to the
Definition of “Charitable Purpose”. The dispute in the present case
pertains to the Assessment Year 2009-2010 for the relevant Previous
Assessment Year 2008-2009. In other words, it pertains to the income of
the Appellant/Assessee between 01.04.2008 and 31.03.2009 which was
assessable during the Assessment Year 2009-2010 between 01.04.2009
and 31.03.2010 as per the limitation prescribed under Section 153 of the
IT Act as it prevailed then.
37. The definition of “Charitable Purpose” as in Section 2(15) of
the IT Act is relevant for the grant of Certificate under Section 12A of the
IT Act following the procedure under Section 12AA of the IT Act. During
the period in dispute, the expression, “Charitable Purpose” was defined
in Section 2(15) of the IT Act as follows:-
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“2(15). “charitable purpose” includes relief of the poor,
education, medical relief and the advancement of any other
object of general public utility.”
38. However, by an amendment to the above definition vide clause
(15) of Section 2 by the Finance Act, 2008 with effect from 01.04.2009,
the above definition was altered to read as under:-
“2(15). “charitable purpose” includes relief of the poor,
education, medical relief and the advancement of
any other object of general public utility.
Provided that the advancement of any other object
of general public utility shall not be a charitable
purpose, if it involves the carrying on of any activity
in the nature of trade, commerce or business or any
activity of rendering any service in relation to any
trade, commerce or business for a cess or fee or any
other consideration irrespective of the nature of use
or application or retention of the income from such
activity.”
39. Therefore, the Proviso to definition in Section 2(15) of the IT
Act inserted with effect from 01.04.2009 which makes it clear that the
advancement of any other object of general public utility shall not be
considered as a charitable purpose, if it involves the carrying on of any
activity in the nature of trade, commerce or business, or any activity of
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rendering any service in relation to any trade, commerce or business, for a
cess or fee or any other consideration, irrespective of the nature of use or
application, or retention, of the income from such activity is not relevant.
40. The Tribunal has also referred to the above amendment brought
to the definition of “Charitable Purpose” in Section 2(15) of the IT Act.
The Tribunal has also referred to Paragraph 180 of the Finance Minister’s
Budget Speech in Paragraph 8.2 of the Impugned Order wherein it has
been stated as follows:-
“180. “Charitable Purpose” includes relief of the poor,
education, medical relief and any other object of general
public utility. These activities are tax exempt, as they
should be. However, some entities carrying on regular
trade, commerce or business or providing services in
relation to any trade, commerce or business and earning
incomes have sought to claim that their purposes would
also fall under “Charitable Purpose”. Obviously, this
was not the intention of Parliament and hence I propose
to amend the law to exclude the aforesaid cases.
Genuine charitable organizations will not in any way be
affected.” (Emphasis supplied).”
41. As mentioned above, the Assessment Year in question is 2009-
2010. It would relate income earned by the Appellant/Assessee between
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01.04.2008 and 31.03.2009. Such income is assessable during the
Assessment Year 2009-2010 starting from 01.04.2009 and 31.03.2010.
42. Therefore, the amendment to the definition of “Charitable
Purpose” which appears to have influenced the Tribunal while coming to
a conclusion that the Appellant/Assessee was not entitled to exemption
under Section 11(4A) of the IT Act is misplaced. The cardinal principle of
law is that any amendment to any Act or provision is prospective unless it
is made applicable retrospectively.
43. The above amendment which came into force with effect from
01.04.2009 vide clause (15) of Section 2 by the Finance Act, 2008 is
relevant only for the income earned during the Previous Assessment Year
2009-2010 assessable during the Assessment Year 2010-2011. Therefore,
reference to the above amendment vide Finance Act, 2008 with effect
from 01.04.2009 is misplaced and is of no relevance to the facts of the
case.
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44. The question to be answered is whether the exceptions provided
in sub-section (4A) to Section 11 of the IT Act is attracted or not?. As
mentioned above, to claim exemption under sub-section (1) only if income
is derived from the property held in Trust or income in the form of
voluntary contributions made with a specific direction that they shall form
part of the corpus of the Trust or institution, subject to the condition that
such voluntary contributions are invested or deposited in one or more of
the forms or modes specified in sub-section (5) maintained specifically for
such corpus or the business is incidental to the object of the Trust or
institution.
45. Sub-section (2), sub-section (3) and sub-section (3A) are to be
read along with sub-section (1) to Section 11 of the IT Act.
46. A reading of sub-section (1), (2), (3), (3A) and the Explanation
to sub-section (1) and sub-section (4A) indicates that although such
Section (4A) to Section 11 of the IT Act is uninfluenced by sub-section
(1), (2), (3) and (3A) of the IT Act, income of the Trust or an institution
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can be exempted even if such income is from business incidental to the
attainment of the objective of the Trust.
47. In this case, the main objective of the Appellant/Assessee itself
is microfinance i.e., to do lending operation in the microfinance sector to
earn commission ranging from 2% to 2.5%. It is not charitable in nature.
48. The business carried on by the Appellant/Assessee by lending
operation is not incidental to the attainment of the objectives of the
Appellant/Assessee as a “Charitable Institution”. Rather, it is main
business object. Therefore, the Appellant/Assessee cannot claim the
benefit of exemption either under Section 11(1) or under Section 11(4A)
of the IT Act as held by the Hon’ble Supreme Court in “New Noble
Educational Society Vs. Commissioner of Income Tax, (2023) 6 SCC
49. In the present case, the income that is the subject matter of
assessment is neither from property nor from contributions to be exempted
under Sections 11 & 12 of the IT Act nor from a business of the Trust
which is incidental to the object of the Trust.
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50. In view of the above discussion, the decisions of the Appellate
Tribunal in “Kurinji Social Welfare Society Vs. ACIT” in
I.T.A.No.1594/Mds/2009 and “Socio Economic Development
Association Vs. ITO”, 2011 TIOL 754-ITAT, Chennai are held irrelevant
to the facts of this case. The ruling of the Hon'ble Supreme Court in
“Honda Siel Power Products Limited Vs. CIT”, (2007) 295 ITR 0466
(SC) cannot be applied to the facts of this case. Merely because
microfinance has emerged as an effective tool for alleviating poverty in
many countries and further impetus was given in setting up such
institutions ipso facto would not mean that the Appellant/Assessee was a
“Charitable Institution” and income from lending business was incidental
for its object.
51. Therefore, the claim of the Appellant has been rightly rejected
by the Appellate Tribunal vide Impugned Order in I.T.A.No.625/Mds/2015
dated 07.08.2015.
52. We therefore answer the substantial questions of law against the
Appellant/Assessee and in favour of the Respondent Income Tax
Department.
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53. Accordingly, this Tax Case Appeal stands dismissed. No costs.
Connected Miscellaneous Petition is closed.
[R.S.K., J.] [C.S.N., J.]
09.05.2025
Neutral Citation : Yes / No
jas / arb
To:
1.The Income Tax Officer (Exemptions),
Madurai.
2.The Income Tax Appellate Tribunal,
“C” Bench, Chennai.
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R.SURESH KUMAR, J.
and
C.SARAVANAN, J.
jas / arb
Pre-Delivery Judgment in
and
09.05.2025
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