2015 (1) TMI 1109 - AT - Income Tax

Appeal Granted for Tax Exemption: Organization Aiding Army Personnel Deemed Charitable

Army Welfare Placement Organization Versus DIT (Exemptions)

Army Welfare Placement Organization Versus DIT (Exemptions) - [2015] 38 ITR (Trib) 1 (ITAT [Del]) Issues Involved:1. Delay in filing the appeal.2. Rejection of registration under section 12A of the Income Tax Act, 1961.3. Determination of whether the appellant's activities qualify as charitable under section 2(15) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Delay in Filing the Appeal:The appeal was delayed by 73 days. The appellant, a defense establishment, explained that the delay was due to the misplacement of the impugned order by an outsourced agency. The documents were retrieved on 18th May 2011, and the appeal was filed on 26th May 2011 after consulting professionals. Considering the appellant's limited interaction with tax laws and the reasonable explanation provided, the delay was condoned by the Tribunal.2. Rejection of Registration under Section 12A:The appellant's application for registration under section 12A was rejected by the Director of Income Tax (Exemptions). The rejection was based on the observation that the appellant's main objective was to provide placement services to ex-army personnel and their dependents for a fee, which was deemed a commercial activity in violation of Section 2(15) of the Income Tax Act, 1961.3. Determination of Charitable Activities:The Tribunal examined whether the appellant's activities qualified as charitable under section 2(15). The appellant, a welfare and non-profit organization set up by the Indian Army, aimed to arrange placements for retiring/retired army personnel, their widows, and dependents, and to assist them in skill development and career counseling. The Tribunal noted that the nominal fees charged were barely sufficient to cover operational costs and did not change the fundamental charitable nature of the activities. The Tribunal emphasized that the services were provided to individuals rather than any trade, commerce, or business, and thus, the second limb of Explanation to Section 2(15) did not apply.The Tribunal referred to Rule 23(d) of the appellant's rule book, which detailed the nominal fees charged for registration. The Tribunal held that the modest fees and the restriction of services to army personnel and their dependents indicated the charitable intent of the organization. Additionally, the Tribunal highlighted that the appellant operated on a 'No Profit No Loss Basis' and was under the direct control of the Ministry of Defence, further supporting its charitable nature.The Tribunal concluded that the mere charging of fees did not convert a charitable activity into a commercial one. The true test for a business activity includes profit motive and continuity on recognized business principles, neither of which applied to the appellant. The Tribunal cited the Delhi High Court's observations in the case of the Institute of Chartered Accountants of India Vs DGIT (Exemption) to support this view.The Tribunal found that the Director of Income Tax (Exemptions) had erred in rejecting the registration under section 12A. The Tribunal directed the Director to grant the registration under section 12A of the Income Tax Act, 1961.Conclusion:The appeal was allowed, and the Tribunal directed the Director of Income Tax (Exemptions) to grant the registration under section 12A of the Income Tax Act, 1961. The judgment emphasized that the appellant's activities were charitable in nature, and the nominal fees charged did not alter this fundamental character.