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ITAT holds RWAs are entitled to exemption under Income Tax A

Court :

Brief :

Citation :
2008-TIOL-80-ITAT-DEL Greater Kailash II Welfare Association v. CIT

The case in hand was decided by third member of the Tribunal on account of differences between the judicial and accountant member on the question of law i.e. 'Whether CIT was right in refusing registration to association u/s 12-A of the Act.' Assessee i.e. Greater Kailash II Welfare Association was a society registered under the Societies Registration Act,1860 and applied for regstration u/s 12-A claiming itself to be a charitable institution. Registration was denied by the CIT on the ground that Resident Welfare Asssociations (RWA) is formed for the welfare of residents of its colony which is an identifiable group of people and thus working for mutual benefit of its members. He held that the its objects were not in consonance with Sec.2(15) of the Act and moreover objects (i),(vi) and (vii) were restricted for the benefit of residents of the colony only thus it cannot be said that these were for charitable purposes within the terms of Sec.2(15) as it does not satisfy the test of benefit for public at large in an impersonal manner. It is ironical that both the parties relied on the judgement of Ahmedabad Rana Caste Association Vs CIT in support of their stand and thus the dispute was regarding the applicability of the test laid down by the court in the said case to the facts of the case in hand. The order of CIT was appealed against by assessee in front of the Tribnal where however due to difference of stand taken by the Accountant member and Judicial member, the matter was decided by the third member after hearing the rival submissions. The counsel for the assessee brought to the notice of the Tribunal an amendment done to the objects of the Association in a meeting of the members which was as under : "All the income, earnings, movable immovable properties of the Society, shall be solely utilized and applied towards the promotion of its aims and objects only set forth in the Memorandum of Association and no profit thereof shall be paid or transferred directly or indirectly by way of dividends, bonus, profits or in any manner, whatsoever, to the present or past members of the Society or to any person claiming through any or more of the present or past members. No member of the Society shall have any personal claim on any movable or immovable properties of the Society or make any profit, whatsoever, by virtue of his membership." It was contended that the objects of the society was not restricted to the benefit of residents of the colony alone but for the people of Delhi in general or say public in general. In support of this it was pointed out that the the association had made 8 parks which were also used by residents of adjoining colonies, it incurred expenditure on diwali mela and horticulture, that there were around 15000 members which was not a small member who were taken without any consideration of caste creed, etc. thus it was contended that the objects of Association had common quality of impersonal or public nature. It was further argued that whlie deciding about the registration, what is to be looked into is that the objects should be charitable and the activities should be genuine and not how and where the funds are to be utilised. Facilities were for common good to be enjoyed by all and thus assessee's case fell within the ambit of the decision of Supreme Court in the case of Ahmedabad Rana Caste Association (Supra). On the other hand the Revenue referring to the meaning of charitable purpose as given in Sec.2(15) which includes relief of poor, education, medical relief, and the advancement of any other object of general public utility contended that objects of association were for the benefit of residents of the colony only and specially object (i),(vi) and (vii) were rstricted to them so it cannot be said that it was for any general public utility. The membership was restricted to owners or tenants of buildings within the colony and comprised just 15000 members which acc. to him was a very small number and can't be termed as general public. Further expenditures like on parks, horticulture, melas etc. was for self i.e. the welfare of the residents of the colony and not for public. Having heard the rival submissions, Tribunal noted that, „« it will be sufficient if a well-defined section of public gains from the object thus an object beneficial to a section of the public would be an object of general public utility. There just has to be a common quality which unifies those within the class concerned and the only requirement is that the quality should be of impersonal nature and not personal; „« it is settled law that an object to be of charitable purpose, need not benefit the entire mankind or for that matter entire country or state and it is enough for an object to qualify as charitable if it benefits a section of public as distinguished from any particular individual. There should not be personal element which takes out a group from the section of the community for such purposes; „« at the time of registration the only factors to be looked into is whether objects are for charitable purposes and the activities of the institution are genuine and not how and where the income is to be spent; Coming to the definition of charitable purpose as per Sec.2(15) which includes relief of poor, education, medical relief and any other object of general public utility, Tribunal held that assessee's case will fall into the last category i.e. 'any other object of general public utility'. Though the number of members were 15000, it was not an insignificant number if one looked at Ahmedabad Rana Caste Assn's case where the number was just 2400 and still the courts held the said association to be charitable. Moreover despite the fact that membership was restricted to owners or tenants of buildings in GK-II, the benefits from it were not restricted to them and were available to people of surrounding areas and for that matter people of Delhi in general and whoever came to the locality without being discriminated against. Also residents of GK-II did not remain static but changed with the change of landlords and tenants without any restriction.The common quality unifying the beneficiaries is not in their individual capacity or that they are particular individuals but by virtue of they being residents of GK-II irrespective of caste, creed etc. which makes it impersonal. The benefits are to be enjoyed by all residents and others who came there and society is formed for their benefit which has nothing personal about it. The fulfillment of objects of the association does not have an element of personal benefit to a particular person. Thus in view of the above, for registration u/s 12-A it is enough if the objects of the institution are beneficial to a section of the public and does not have to be of benefit to the entire world to come within the terms of objects of general public utility as given in Sec.2(15) as long as common unifying quality is impersonal i.e. not for benefit of a particular individual or in personal capacity.

on 15 February 2008
Published in Corporate Law
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