ORDER
S. R. Raghunatha, Accountant Member.- The appeal is filed by the assessee against the order of rejecting the approval claimed u/s.80G of the Income Tax Act, 1961 (in short “the Act”) by the Commissioner of Income Tax (Exemption), Chennai, (in Short “ld.CIT(E)”) dated 29.08.2024.
2. At the outset, it is found that the present appeal was filed by the assessee with a delay of 118 days and the assessee had filed an affidavit bringing out the reasonable cause for such delay and after going through the same and hearing the both parties, the same is found to be sufficient and hence the delay is condoned for adjudication of appeal on merits.
3. The brief facts of the case emanating from the records are that the assessee is a public charitable trust incorporated on 25.09.2003 and had filed its Form 10AB claiming registration u/s.80G(5)(iii) of the Act on 20.02.2024. The said application filed by the assessee was rejected by the ld.CIT(E) by deeming the activities of the assessee to be in the nature of a Business Correspondent and concluded that the activities of the assessee trust is of micro-finance while it is not charitable in nature.
4. Before us, the Ld.AR submitted that the objects of the assessee trust include Socio-economic empowerment of women, dalits, tribals and vulnerable communities, Promotion of human rights and access to basic resources, Providing food, shelter, medical aid, education to the poor and needy, Running rehabilitation homes and welfare institutions, Promotion of education, health care and community development, Formation of self-help groups and microcredit programmes for the poor, Conducting awareness programmes, seminars and development activities and further argued that the activities pursued by the appellant in providing services of opening of bank accounts, facilitating receipts & disbursement of old age pension sanctioned by state government, acting as an intermediary of welfare delivery are integrally connected with upliftment of poor and marginalized community and was done with charitable objective without any profit motive. The Ld.AR by placing reliance on the above objects of the Trust argued that unless there is a clear and demonstrable deviation from its stated objects, the assumption of business activities carried out by the Trust does not hold good.
5. The Ld.AR placed on record the paperbook containing 363 pages and took us to the relevant pages demonstrating that the objects of the trust are duly satisfied by the activities of the trust are indeed charitable in nature. The Ld.AR also demonstrated from the annual report of the assessee that the loans distributed by the assessee are also charitable in nature in implementing the specific schemes of the government for the downtrodden and argued these activities were also intrinsically linked to poverty alleviation and empowerment.
6. The Ld.AR also took us to each of the activities of the trust and submitted that the assessee had been providing educational support to hundreds of students and various other support to widows, unmarried women etc. It was also submitted that the assessee was enjoying the registration u/s.12A of the Act both under the old regime and under the new regime.
7. The Ld.AR further submitted by placing on record the financials of the assessee for the assessment year 2021-22 to 2023-24 that the assessee’s incidental surplus from the activities conducted by them are around 10% of the gross receipts thereby further establishing the absence of any profit motive from the activities conducted by them and argued that the ld.CIT(E) had not pointed out any commercial exploitation or profit maximization by the assessee trust and pleaded for directing the ld.CIT(E), Chennai to grant approval u/s.80G of the Act.
8. The Ld.DR on the contrary submitted that the assessee is acting as a business correspondent for the State Bank of India and is earning service charges from such activities and argued that the above activities of the assessee cannot be treated as charitable in nature and pleaded for dismissing the appeal of the assessee.
9. We have heard the rival submissions and perused the materials available on record and gone through the order of the ld.CIT(E) along with the paper book filed. We find merit in the arguments of the Ld.AR and we further note that the assessee was incorporated in the year 2003 and has been addressing the issues faced by the downtrodden people with an intent to ensure socio economic empowerment of such people.
10. The Income Tax Department had recognized the activities pursued by the assessee as charitable and granted the registration u/s.12A of the Act under the old regime on 30.11.2008. Similarly, under the new regime, the registration sought for u/s.12A of the Act was also granted by the Department for five years on 30.09.2021 by reckoning the activities carried out by the assessee as charitable. In this background, we find it deem fit to adjudicate the findings recorded by the ld.CIT(E) for rejecting the registration sought for u/s.80G of the Act.
11. The main reason given by the ld.CIT(E), Chennai for rejecting the grant of registration is on the ground that the activities of the Assessee are in the nature of Business Correspondent which understanding of the ld.CIT(E) is found to be unacceptable in the absence of any findings demonstrating the commerciality in the overall activities of the trust. The Trust Deed itself authorizes activities such as formation of self-help groups, micro-credit programmes and developmental initiatives, which necessarily involve interaction with financial systems, and therefore, any facilitative role played by the Trust in this regard cannot be divorced from its objects or characterized as an independent business.
12. Moreover, there is no material on record to demonstrate that the Trust is driven by a profit motive, or that it carries on systematic commercial operations with a view to earning profits. There is no distribution of surplus to trustees or members, and any income generated is wholly applied towards the objects of the Trust. In fact, from the perusal of the financial statements we find that there is no abnormal surplus or profit emanating and further we are of the view that the activities carried out by the assessee trust brought out in the annual reports placed on record (Page No.76 to 96) would fall within the ambit of relief to poor.
13. The absence of profit motive is a crucial factor which distinguishes a charitable activity from a business activity, and in the present case, the assessee had demonstrated that the activities carried out are not with the intention to make profit and the functioning of the Trust indicate that it operates in a not-for-profit framework, utilizing its resources for the benefit of the target beneficiaries.
14. In view of the above facts, we are inclined that the activities of the assessee Trust are purely charitable in nature, carried out in furtherance of its stated objects, and any incidental activity cannot alter the essential character of the Trust and various activities provided by the assessee would fall within the ambit of uplifting of poor, medical relief, education etc. which activities of the trust cannot be completely ignored for the purpose of granting approval u/s.80G of the Act.
15. It is also a settled position of law that at the stage of granting approval u/s.80G of the Act, the competent authority is required to examine only the nature of objects and the genuineness of activities, and not to sit in judgment over the application of income or to recharacterize incidental activities as business, in the absence of any evidence of profit-oriented conduct. Further, we are of the view that the provisions in proviso to Section 2(15) of the Act would not get attracted to the facts of the case since the activities carried out by the assessee trust falls within the ambit of relief to poor.
16. Accordingly, considering the charitable objects of the Trust and the genuineness of its activities which would fall within the ambit of relief to poor, the assessee Trust is held to be eligible for approval u/s.80G of the Act. The rejection of the application is therefore unsustainable and is set aside and the ld.CIT(E) is directed to grant approval u/s.80G of the Act.
17. In the result, appeal filed by the assessee is allowed.
