Please explain the effect of the proviso to Sec. 2(15) by the Finance Act, 2008, on a society registered under Sec. 12A and engaged in micro finance activities.
The objects of the society are to improve the living conditions of the poor people in education, health, social and environmental fields, to take up economic support programmes for women empowerment through SHG's, training for income generating activities, disaster preparation, HIV prevention and the like. The society receives loans from government financial institutions such as Rastriya Makila Kosh and nationalised banks at lower rate of interest and lends to SHG's at higher rate, subject to the maximum rate fixed by the government.
The surplus interest is utilised in conducting various training and relief programmes to achieve the objects listed above and also in further advances to SHG's.
Am I correct in assuming that the society will continue to be eligible for exemption under Sec. 11, since it is covered under the first three limbs of Sec. 2(15), namely, relief of poor, education and medical facilities and the proviso inserted applies only to the fourth limb of “any other object” as explained in Circular No.11 dated December 19, 2008.
Micro credit can be accepted as an object of general public utility, if the rate of interest is comparatively less and the loans are given to women or others below the poverty line as decided by the Tribunal in Asst. Director of Income Tax (Exemption) v Bharatha Swamukti Samsthe (2009) 319 ITR (AT) 422 (Bangalore). Eligibility has to be proved with reference to the nature of the activities and the targeted beneficiaries and not merely because it may fall under the umbrella of micro finance.
The further inference as to whether it will fall within the first three objects or object of “general public utility” may also have to satisfy the same tests. Where the beneficiaries are poor, the Circular referred by the reader should help.