QUESTION: You have stated in The Hindu dated July 19, 2010 that the rate of interest should be comparatively less to qualify for being a charitable activity. In the light of the observation of Bhagwati J. in Surat Art Silk Cloth Manufacturers Association's case 121 ITR 1 @25-26 quoted with approval in Thiagarajar Charities case (225 ITR 1010 @ 1025) and the conclusion that carrying on business balancing income and expenditure would be “unsound principle of management”, would the rate of interest being “comparatively less” be an indicator of charity?

The Bangalore Tribunal has held that the activity of micro financing would be a charitable purpose both as “relief to the poor” as well as “an object of general public utility”.

Would it be correct, hence, to say that the proviso would not apply in so far as it falls under the first limb of section 2(15)?

ANSWER: The above letter from V. Ramachandran, Senior Advocate, Chennai, would give hope for treatment of micro finance activities carried out by public trusts and institutions as relief of poor, even without reference to rate of interest being “comparatively less” as a criterion of charity with reference to the Bangalore decision, which was also referred in answer under reference dated July 19. It is true that the lesser rate of interest by itself, may not be conclusive, but it will be a strong point in favour of the claim as evidence of not only philanthropic intent but also of benefit for the under-privileged.

The fact that targeted beneficiaries are poor or are in backward area or such other class of under-privileged persons, should pass muster.

But without such supporting materials, a broad view of micro finance as charitable activity meant for poor, cannot possibly be accepted.