Income Tax Appellate Tribunal - Delhi
Greater Kailash-Ii Welfare ... vs Director Of Income-Tax (Exemptions) on 31 October, 2007
ORDER
R.P. Garg, Vice President
1. On a difference of opinion between the Accountant Member and the Judicial Member the following question of law is referred to me for opinion as Third Member:
Whether, on the facts and in the circumstances of the case and in law, the DIT was justified in refusing to grant registration under Section 12A of the Income Tax Act, 1961?
2. The facts are, that the assessee is a society registered under the Societies Registration Act, 1860, formed with the following objects:
(i) To promote social and recreational activities among residents of Greater Kailash-II in particular and citizens of Delhi in general.
(ii) To foster and promote unity and co-operation among the Welfare Association of Delhi and organize activities beneficial to the public in general,
(iii) To arrange scientific, literary and cultural functions, games and sports, melas, lectures, exhibition, festivals and film shows for the benefit of the general public, (iv) To organize camps for the relief of the poor and to extend assistance for national and public causes,
(v) To open dispensaries to provide medical relief to the needy public.
(vi) To promote the development and achievement of civil amenities and welfare of the residents of the locality.
(vii) To carry on such other activities as may ensure benefits of the residents of Greater Kailash-II and citizens of Delhi.
(viii) To carry out such other activities as the General Body of the Association may decide to undertake for the welfare of the residents but such activities shall be non-political and non-commercial.
3. The appellant Association claimed to be a charitable institution and applied to the Commissioner of Income-tax ('Commissioner') for registration under Section 12A of the Income Tax Act, 1961. The Commissioner, vide order dated 20-6-2006, denied the registration by observing as under:
...The society is engaged in the welfare of the residents of its colony, i.e., benefits are being derived by an identifiable group of persons. It appears to be an organisation working for the mutual benefit of its members....
4. According to the Commissioner, the objects of the assessee society were not in consonance with the provisions of Section 2(15) of the Act. And therefore it is not charitable institution in view of the judgment of the Calcutta High Court in the case of Kedia Jatiya Sahayak Sabha & Fund v. CIT , and the judgment of the Karnataka High Court in the case of CIT v. Bel Employees Death Relief Fund & Service Benefit Fund Association .
5. According to the Commissioner object Nos. (i), (vi) and (vii) cannot be said to be charitable within the ambit of Section 2(15) inasmuch as the benefit from these objects are restricted to the residents of Greater Kailash-II and do not satisfy the test of public at large in any impersonal manner. This has the approval of the learned Accountant Member but the learned judicial member held otherwise. Both have examined the issue in the light of the decision of Ahmedabad Rana Caste Association v. CIT .
6. Both the parties have relied on the above judgment of Ahmedabad Rana Caste Association (supra) in support of their respective stand. Even the proposed order by both the members is based on this judgment. Therefore, the dispute between the parties relates to the application of the test laid down by the court to the facts of the present case.
7. The Accountant Member held that "On perusal of the objects, it is found that object number (vi) is to promote the development and achievement of civic amenities and welfare of the residents of the locality. Thus, this object is only for the benefit of the residents of the colony. Object numbers(i) and (vii) are primarily for the benefit of the residents of the colony although it is also mentioned that these objects are for residents of Greater Kailash-II in particular and citizens of Delhi in general. On reading these objects one gets a clear impression that the objects are primarily for the residents of Greater Kailash-II. The question is whether, all the objects are of general public utility? The case of the learned Counsel is that in view of the decision of Hon'ble Supreme Court in the case of Ahmedabad Rana Caste Association (supra), the residents of Greater Kailash-II form public at large, because all the households of this colony are not members of association. As against the aforesaid, the case of the learned Departmental Representative is that benefiting about 15,000 persons cannot be said to be an object of general public utility. We are of the view that Ahmedabad Rana Caste Association's case (supra) benefited not only the local Rana caste persons but also other persons who entered Ahmedabad from outside and who wanted enter the caste in order to become the beneficiaries of the association as per their customs and usages. Thus, that association catered to the benefit of fairly large number of persons in Ahmedabad and outside Ahmedabad. As against the aforesaid, the main purpose of Clauses (i), (vi) and (viii) is to benefit a limited number of persons residing in Greater Kailash-II. Those persons are identifiable and they do not have impersonal nature. Thus, the words 'residents of Greater Kailash-II' does not specify the test of public at large in any impersonal manner. Therefore, all the objects of the association do not constitute the objects of general public utility. The executive committee can apply any part of income or the whole income to any object. The income can be applied wholly to any of the aforesaid three objects, which are not charitable in nature. Accordingly, we are of the view that the learned Director was right in refusing registration to the association. Apart from, that the amendment to the memorandum to the effect that the income and the property of the association will be solely utilized for promotion of aims and objects etc. was not there before the learned Director. The amendment has not been registered till date. The absence thereof makes a serious dent in charitable nature of the association. This further fortifies the view that learned Director was right in refusing the registration."
8. The Judicial Member on the other hand held that "In the present case, as per the statement made before us, there are 15,000 residents approximately belonging to 3,500 approximate families in Greater Kailash-II Colony in New Delhi, while the members of the assessee society are only 1,500 approximately. So, all the residents are potential beneficiaries even though they are not the members of the assessee society. The number of residents is not small one and is rather more than or equal to small towns in India. In my humble opinion, 15,000 residents of a locality in Delhi irrespective of caste, creed or religion as compared to 2,400 beneficiaries in the case of Ahmedabad Rana Caste Association (supra) can definitely be considered as a section of public. The residents may also change from time to time. Sometimes, persons may join the locality either as tenant or as a land lord and sometimes, the residents may leave the locality for any reason. The common quality which unites all the beneficiaries is that, they are residents of Greater Kailash-II Colony irrespective of caste, creed or religion and there is nothing which could be called as personal. The benefits are to be enjoyed as resident of Greater Kailash-II Colony not in an individual capacity. There is nothing personal in such benefits. The society is formed for the joint benefit to the residents. If any good work is done to augment the objects, then it cannot be said that there is element of personal benefit to any particular person. Such work would essentially be impersonal. Therefore, in my opinion, the test laid down by the Apex court stands satisfied and assessee society is entitled to registration under Section 12A of the Act.
9. The learned Counsel pointed out that a meeting of the members of the association was called on 2-7-2006, in which the following amendment was adopted:
All the income, earnings, movable and 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.
10. This amendment was forwarded to the Registrar of the Societies on8-7-2006, for taking it on record and to be returned as duly registered to the association at an early date. On the basis of these facts the Association submitted that the objects of the association were not only for the residents of Greater Kailash-II but also extends to citizens of Delhi in general, or so to say the public in general. Therefore, it can be said that there was an identifiable common quality of a public or impersonal nature and the case of the Association falls in the ken of the Supreme Court decision in the case of Ahmedabad Rana Caste Association's (supra). The learned Counsel also referred to the decision of Allahabad High Court in the case of Fifth Generation Education Society v. CIT , and submitted that merely because the objects of a charitable trust are general and they do not cease to be charitable. Placing reliance on the decision of Madras High Court in the case of New Life Christ Evangelistic Association v. CIT , it is contended that at the time of registration, what is to be seen is that the objects are charitable in nature and the activities are genuine and not on the fact as to how and where its income was going to be spent for. In any case, the Association has developed eight parks, a few of them, are very large, which cater to the needs of the nearby colonies of Chitranjan Park and Alakhnanda as well. It had fifteen thousand members in Greater Kailash - II which by itself is a very large number; the residents become members without any distinction of caste or creed, and therefore, not personal. Facilities are for common good to be enjoyed by all. He referred to certain expenditure on horticulture and Diwali Mela.
11. As against the aforesaid, the learned Departmental Representative referred to the definition of the term 'Charitable purpose' in Section 2(15), which includes relief of poor, education, medical relief, and the advancement of any other object of general public utility. It was pointed out that in essence the objects of the association were for promoting welfare of the residents of Greater Kailash-II. Such residents numbered only 15,000. This number was not very important nor sufficient enough to be termed as 'general public' These are identified individuals being residents of Greater Kailash-II. The membership of the association was open only to the owners or the tenants of the buildings in Greater Kailash-II. He referred to object Clause members (i), (vi) and (viii), which according to him were only for the benefit of the residents of the colonies. Maintenance of park, holding Diwali Melas were for self i.e., for members of Greater Kailash-II and not for public. Legal expenses were to get Savitri Cinema shifted and not for welfare of the members.
12. The learned Counsel in reply pointed out that the association had carried out the horticulture activities and maintenance of parks which were for general public. Medical camps were also held for public at large. Diwali Milan and other programmes were held where public was free to attend. Therefore, it was argued that the objects of the association cire of general public utility and it was constituted charitable purposes.
13. Parties are heard and rival submissions considered. Both the members agreed about the settled legal position that an object of public utility need not be an object in which the whole of public is interested. It is sufficient if a well-defined section of the public benefits by the objects. Therefore, an object beneficial to a section of the public would be an object of general public utility. The focus is upon the common quality which unites those within the class concerned and asks whether that quality is essentially impersonal or essentially personal. If, the former, the class will rank as a section of public but if later, it will be private. This is what the Supreme Court had observed in the decision of Ahmedabad Rana Caste Association's case (supra).
14. In the case of Ahmedabad Rana Caste Association (supra) the objects of the Association were management of the movable and immovable properties of the Rana caste or community of the City of Ahmedabad, doing acts to improve the education of the community, giving medical help to the community etc. Revenue was of the view that beneficiaries were not the public and the class of community sought to be benefited was very vague and ill-defined and the number was also negligible. Tribunal, however, held that the beneficiaries as found in the constitution were the Rana community meaning thereby the "natives of Ahmedabad only and other community members accepted by the community as per old rules of the community and staying in Ahmedabad. This is a well defined cross section of the public of Ahmedabad, certain and ascertainable. This number is about 2,400 but no minimum number is prescribed to constitute a clear, ascertainable cross-section of the general public. High Court held that beneficiaries did not constitute a community since they were confined only to the members of the Rana caste residing in Ahmedabad and fulfilling one or the other conditions set out in the definition clause. The court held that enquiry must be directed to what the common quality was, which united the parties within the class and whether that quality was essentially impersonal or personal. If the former, the class would rank as a section of the community; if the latter, the answer would be in the negative. According to High Court having regard to the common opinion amongst the people and the conditions of India life if the beneficiaries were the members of the Rana caste residing in Ahmedabad and were natives of Ahmedabad they would be a section of the community because the common quality uniting them within the class would be essentially an impersonal quality. High Court then held that the class of beneficiaries consists of two sections, the comprising members of the Rana sect who are natives of Ahmedabad and the other comprising members of the Rana sect who are residing in Ahmedabad and who have been accepted by the community according to the old usage of the caste. It is difficult to see how this class of beneficiaries can be said to constitute a well-defined section of the public connected together by a common quality or characteristic.
15. Supreme Court held that an object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose, it is not necessary that the object should be to benefit the whole of mankind or all persons in a particular country or State. It is sufficient if the intention to benefit a section of the public as distinguished from a specified individual is present. Supreme Court found itself unable to comprehend how such members of the Rana caste can be regarded as having been introduced into that caste by consideration of their personal status as individual. As a matter of fact the predominant content and requirement of the clause defining 'beneficiaries' in the constitution of the assessee is the factum of their belonging to the Rana community of Ahmedabad. The common quality, therefore, unity the potential beneficiaries into the class consists of being members of the Rana caste or community of Ahmedabad whether as natives or as being admitted to that caste or community under custom or usage. The mere fact that a person of the Rana community who is not an original native of Ahmedabad has to prove his credentials according to the custom and usage of that community to get admitted into that community cannot introduce a personal element.
16. Referring to opening words in Tobacco Securities Trust Co. Ltd., 1951AC 297 of House of Lord, Supreme Court noted that though group of persons indicated was numerous, the nexus between them was employment by particular employers and accordingly the trust did not satisfy the test of public benefit requisite to establish it as charitable. Lord Simonds observed that "A group of persons may be numerous, but, if the nexus between them is their personal relationship to a single propositus or to several propositi, they are neither the community or a section of the community for charitable purposes".
17. The Supreme Court held that the personal element or personal relationship which takes a group out of a section of the community for charitable purposes is of the nature which is to be found in the cases of the aforesaid type. We cannot possibly discover a similar element of personal nature in the members of the Rana Community who settle in Ahmedabad and have been accepted by the Rana community of that place as members of that community. As regards the acceptance of such persons as members of the community or caste, according to custom and usage, it is well-known that whenever a question arises whether a person belongs to a particular community or caste, the custom or usage prevailing in that community must play a decisive and vital part. That cannot be regarded as an element which would detract from the impersonal nature of the common quality.
18. In the case of Kedia Jatiya Sahayak Sabha & Fund (supra) referred to by Commissioner it was held that 'Promoting the social or the material condition of a particular community is not a charitable purpose so as to attract the exemption of Section 4(3)(i) of the Income Tax Act, 1992'; that 'Contributing towards the marriage expenses of a needy person of a specified community and maintaining materials for use in marriage and other social and religious ceremonies are not charitable purpose'; that 'To curtail the unnecessary social luxuries in which members of a particular community indulge and to regulate them properly is not an object of general public utility within the meaning of Section 4(3)(i) of the Income Tax Act'; that 'The establishment of funds for the preservation and erection of monuments to commemorate the member of the great men of a particular community and celebrate events in the community is not a charitable purpose within the meaning of the expression used in the Income Tax Act'; that 'Doing acts and deeds and things for the welfare of a specified community is not necessarily charitable'; that 'Where a society is registered under the Societies Registration Act, 1860 with many objects, no one object can be considered to be primary object, and the others subsidiary. Such a society may, under Section 20 of that Act, have objects which may not be charitable'; and that 'Where some of the objects of a society registered under the Societies Registration Act are not charitable and it is open to the society or its executive committee to spend its income on any of the objects, not necessarily on those which are charitable objects, the income derived by that society cannot be exempt under the provisions of Section 4(3)(i) of the Income Tax Act, 1922'.
19. This case was prior to the decision of the Supreme Court in Ahmedabad Rana Caste Association's case (supra) it is clearly held that an object beneficial to a section of the public is an object of general public utility and to serve a charitable purpose, it is not necessary that the object should be to benefit the whole of mankind or all persons in a particular country or State. It is sufficient if the intention to benefit a section of the public as distinguished from a specified individual is present. Supreme Court expressed itself unable to comprehend how such members of the Rana caste can be regarded as having been introduced into that caste by consideration of their personal status as individual. This case is therefore of no help to the revenue.
20. In Bel Employees Death Relief Fund & Service Benefit it Fund Association's case (supra), the other decision cited by the CIT, it is held, that the rules (of the Fund) unambiguously indicated that the benefit of the scheme or the alleged charitable purpose could be utilized only by specified persons who were required to be the subscribers or their dependants. Contributors to the fund allegedly collected for their personal benefits could not be held to be forming an association for charitable purpose and thus being entitled to the benefit of exemption under Section 11 of the Act. The court held that a perusal of the various provisions of the Act would show that the Legislature had intended to give a restricted meaning to the expression 'charitable purpose' with the object to see that no commercial activities are treated as charitable objects and that any activity for profit or for personal enjoyment or for avoiding tax, is not regarded as a charitable purpose. This case itself has stated that 'A trust is not charitable, unless it benefits the community or a section of the community.' What is excluded is a trust which only confers private benefits.
21. As held by Allahabad High Court in the case of Fifth Generation Education Society (supra), that merely because the objects of a charitable trust are general and they do not cease to be charitable. Before a person can claim the benefit of Section 11 or Section 12, as the case may be, he must obtain registration under Section 12A. The application for registration under Section 12A has to be made in Form No. 10A prescribed by rule 17A of the Income-tax Rules, 1962, before the expiry of one year from the date of creation of the trust or the establishment of the institution whichever is later. It has to be made by the person in receipt of the income of the trust. At that stage, the Commissioner is not required to examine the application of income. All that he may examine is whether the application is made in accordance with the requirements of Section 12 A read with rule 17A of the Income-tax Rules, 1962, and whether Form No. 10A has been properly filled up. He may also see whether the objects of the trust are charitable or not. Merely, because the objects of a charitable trust are general, they do not cease to be charitable. It is also not for the requirement of Section 12A that any activity should be carried on by the charitable society for obtaining registration.
22. Madras High Court in the case of New Life Christ Evangelistic Association (supra) observed that a perusal of the provisions of Section 12 A of the Income Tax Act, 1961 would show that unless a society or trust, as the case may be, is registered under Section 12A of the Act, it would not be entitled to claim the benefits under Sections 11 and 12 of the Act. The caption of the section says "conditions as to the registration of the trust". The two conditions which are provided are, firstly, that the person concerned should have made an application for registration in the prescribed form and in the prescribed manner to the authorities named in that section before 1-07-1973, or before the expiry of the period of one year from the date of the creation of the trust or establishment of the institution. The second condition provides for the keeping of the accounts in a particular manner and further that such accounts should be audited. The language of the section does not show that in order to be able to get registration under Section 12 A of the Act, there is necessity of first establishing as to how the concerned institution or, as the case maybe, the society would be able to claim the exemptions under Sections 11and 12 of the Act. The question of exemptions under Sections 11 and 12 of the Act or, as the case may be, under Section 80G of the Act, would come only when the said exemptions are claimed by the society at the time when it is assessed to tax. To consider whether the said society would be entitled to the benefits under Sections 11 and 12 of the Act or, as the case may be, under Section 80G of the Act would be prejudging the issue before the grant of the certificate. At the stage of grant of certificate under Section12A of the Act, the only enquiry which could possibly be made would be whether the society has actually made an application on time and whether the accounts of the society are maintained in the manner as suggested by the said section. Beyond that, the scope of enquiry would not go.
23. These two cases clarify that at the time of registration, what could be seen is that the objects are charitable in nature and the activities are genuine and not that as to how its income would be going to be spent for. Even if that be the criterion the assessee had demonstrated that it had been spending the income for maintaining the parks which are visited by residents of various localities around Greater Kailash-II. The residents of other colonies also participate in sports, quiz, competitions, cultural programmes etc. under taken by the association. The maintenance and upkeep of the roads is done by the Municipal Corporation of Delhi, but is supervised by the members from time to time. These roads are used by the residents of other colonies when passing through this colony. It was also stated that the beneficiaries of the association include not only the residents of the colony but also people living around the colony. It is noted from the paper book that in the last three years, the Association has carried out the following activities:
- Free health camps on 19-6-2005 and 24th and 25th September, 2005 in association with Rockland Hospital and 'Centre for Sight' respectively for the benefit of citizens.
- Free general OPD for 2 hours daily with SAI Health Clinic, E-281, GK II;
- Arranged lectures on health topics like 'Better health through vegetarian life style management', 'Taking care of your ears and hearing' etc.
- Got five rain-water harvesting projects at different locations sanctioned from the Central Ground Water Authority. Out of these, two projects have already been completed. These were inaugurated on 23-1-2005 and 11-9-2005. With the availability of funds, we hope to complete the remaining three projects by March, 2007.
- Organised Diwali Utsav every year a few days before Diwali.
- Celebrated festivals like Holi, Lorhi, etc. regularly.
- Undertook tree plantation programmes from time to time to improve greenery and ecology in the area.
- Collected Rs. 1.54 lakhs in January 2005 for the Prime Minister's National Relief Fund for help of the Tsunami-affected population.
- Formed a panel of plumbers and electricians and rates fixed for the benefit of the citizens.
- Helped Citizens and particularly senior citizens in property tax matters taking up issues with the Government, formation of panel of architects, giving advice for filling up property tax returns etc.
- Helped in getting electric meters checked particularly those of senior citizens.
- Helped in depositing applications of senior citizens for rebate with the MTNL.
- Prepared and released residents' director.
- Got dense carpeting of roads done from the MCD and took up civic and sanitation issues with the MCD.
- Had interaction with Telecom Regulatory Authority of India aboutcable TV problems.
- Had interaction with Electricity Distribution Co. relating to issues concerning electricity supply, billing etc.
- Took up matters concerning commercial use of residential properties with concerned authority and with High Court with a PIL.
- Took up matter for providing adequate parking space in the Savitri Cinema-Cum-Commercial Complex at the entry point of Greater Kailash-II and unhindered flow of traffic with the DUAC and then with the Delhi High court and Supreme Court of India as the issue concerns daily commuters and citizens of various colonies (more details given in the note in reply to para No. 3 of the directorate's letter).
24. The term 'Charitable purpose' is defined in Section 2(15) of the Act which includes relief of poor, education, medical relief, and the advancement of any other object of general public utility. The case of the assessee falls in the last of the category 'any other object of general public utility'. The objects of the association in essence are for promoting welfare of the residents of Greater Kailash-II. Such residents numbered only 15,000. This number if compared to the number in Ahmedabad Rana Caste Association's case (supra) where the number was 2,400 was not insufficient enough to exclude it from 'general public'. It is true that the membership of the association was open only to the owners or the tenants of the buildings in Greater Kailash-II but its benefits are not restricted to the members alone but to the residents of surrounding areas and whole of Delhi or so to say to whosoever come and enjoy without any discrimination of his being resident of Greater Kailash-II or cast, creed or gender. The object Clause (i), being 'To promote social and recreational activities among residents of Greater Kailash-II in particular and citizens of Delhi in general.' Extends the benefits to citizen of Delhi in general and do not restrict it to residents if Greater Kailash-II alone. Clause (ii) is to foster and promote unity and co-operation among the Welfare Association of Delhi and organize activities beneficial to the public in general. Clause (iii) is to arrange scientific, literary and cultural functions, games and sports, melas, lectures, exhibition, festivals and film shows for the benefit of the general public. Clause (iv) is to organize camps for the relief of the poor and to extend assistance for national and public causes. Clause (v) To open dispensaries to provide medical relief to the needy public. Clause (vi) To promote the development and achievement of civil amenities and welfare of the residents of the locality. It is extended to locality and not restricted to Greater Kailash-II. Clause (vii) is to carry on such other activities as may ensure benefits of the residents of Greater Kailash-II and citizens of Delhi. Clause (viii) is to carry out such other activities as the General Body of the Association may decide to undertake for the welfare of the residents but such activities shall be non-political and non-commercial. It is not necessarily of Greater Kailash-II but residents in general.
25. The residents of Greater Kailash-II are not static. They may also change from time to time. Again members join the locality either as tenant or as a land lord and vice versatile residents may leave the locality for any reason. The common quality which unites all the beneficiaries is not that their personal capacity or that they are particular individual but, they are residents of Greater Kailash-II Colony irrespective of caste, creed or religion and there is nothing which could be called as personal. The benefits are to be enjoyed as resident of Greater Kailash-II Colony. There is nothing personal in such benefits. The society is formed for the common benefit to the residents in general for their better living conditions. The good work done to augment the objects, is not because there is element of personal benefit to a particular person. It would be essentially impersonal. Therefore, in my opinion, the test of Ahmedabad Rana Caste Association is fully satisfied and Association is entitled to registration under Section 12A of the Act.
26. The appeal is therefore to be allowed.