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ADG Ceremonial & Welfare Directorate Integrated HQ Ministry of Defence, Room No. 53, Wing 7, West Block III R K Puram, Vs. DIT (Exemptions) New Delhi
January, 23rd 2015
                                                                  I.T.A. No.: 2996/Del/11
                                                                              AWPO Vs DIT

                                                                                 Page 1 of 7

                            DELHI A BENCH, NEW DELHI

                [Coram: Pramod Kumar AM and C. M. Garg JM]

                             I.T.A. No.: 2996/Del/11

Army Welfare Placement Organization                          .................. .Appellant
ADG Ceremonial & Welfare Directorate Integrated HQ
Ministry of Defence, Room No. 53, Wing 7, West Block III
R K Puram, New Delhi 110066 [PAN: AABAA5180B]


DIT (Exemptions)
New Delhi `                                                ............... . ... Respondent

Appearances by:
None. for the appellant
A Mishra, for the respondent

Date of concluding the hearing:        20 th   January, 2015
Date of pronouncing the order:         22 nd   January, 2015

                                  O R D E R

Per Pramod Kumar, AM:

1.    By way of this appeal, the assessee appellant has challenged correctness
of the order dated 10 th January 2011 passed by the Director of Income Tax
(Exemptions), declining registration under section 12 A of the Income Tax Act,

2.    Grievances raised by the assessee appellant are as follows:

      1.     That, on the facts and in the circumstances of the case, the
      learned DIT has erred in holding that the appellant is not a
      commercial organization, and, therefore, is not engaged in charitable
      activity within the meanings of that expression under section 2 (15)
      of the Income Tax Act, 1961.

      2.    That, on the facts and in the circumstances of the case, the
      learned DIT has erred in rejecting the application filed by the
      appellant for registration of the appellant under section 12AA read
      with section 12 A of the Act
                                                               I.T.A. No.: 2996/Del/11
                                                                           AWPO Vs DIT

                                                                            Page 2 of 7

3.     The appeal is delayed by 73 days but the assessee appellant has moved a
petition seeking condonation of this delay, and this petition is supported by an
affidavit from Brigadier R K Sharma, managing director of the assessee
institution. As stated in the condonation petition, the impugned order was
served at the reception desk at ADG- Ceremonial and Welfare ' s office in the
Ministry of Defence, just a day before the republic day 2011, but it was
misplaced by the outside agency which was outsourced the work. When
documents were retrieved by one Col Bajawa on 18 th May 2011, the assessee
immediately had consultation with a firm of chartered accountants and then an
eminent tax advisor. In accordance with the advice received from these
professionals, the appeal was finally filed on 26 th May, 2011. We have carefully
perused this petition and we have also taken into account the stand of the
learned Commissioner- DR on the said petition. In our considered view, the
explanation of the assessee, particularly as assessee is a defence establishment
which has very little to do with the outside world and as the assessee is not
expected to be well conversant with nuances of tax laws, deserves to be
accepted. We, accordingly, condone the delay and proceed to take up the matter
on merits.

4.     The assessee is, as stated in its rule book ­ which is placed before us at
pages 1 to 58 of the compilation filed before us, is a welfare and non-profitable
organization set up by the Indian Army. Its aims and objectives, in the backdrop
of the fact that army personnel, particularly in the lower ranks, retire at a
young age and many of them make the ultimate sacrifice to protect the nation
thus leaving their widows and wards to be taken care of by the Indian army, are
as follows:

      (a)   To arrange placement for the retiring/ retired army personnel
      in public and private sectors in India;

      (b)   To arrange placement of their widows and their wards in civil;

      (c)  To assist all the registrants in developing soft skill, personality
      developments and also help them in their career counselling and

      (d)   To deal with all such things as are incidental or conducive by
      the society to the attainment of the objects, or any of them, or
      welfare of the retired army personnel, their widows and the wards of
      the widows;
                                                                 I.T.A. No.: 2996/Del/11
                                                                             AWPO Vs DIT

                                                                              Page 3 of 7

      (e)   To arrange registration and placement for the dependents of
      serving/ retired army personnel; and

      (f)   To conduct all the above welfare activities on NO PROFIT NO
      LOSS BASIS to the extent possible. All the income, earning, movable
      and immovable properties of the society shall be solely utilized and
      applied towards promotion of aims and objectives set forth in the
      memorandum of association. Being a welfare/ not for profit
      organization, no payments shall be made, or transferred directly or
      indirectly, by way of dividends, bonus, profits, or, in any manner
      whatsoever, to the present or past beneficiaries of the society or to
      any person claiming, through any one or more of the present or past
      beneficiaries. No beneficiary of the society shall have any personal
      claim on any movable or immovable properties of the society or
      make any profits whatsoever.

5.     The assessee appellant filed an application under section 12 A seeking
registration under section 12 A of the Act, which is a sine qua non for being
treated as a charitable institution eligible for tax exemption under section 11.
However, this application was rejected by the learned Director by observing as

      On a perusal of the documents submitted, it was found that the main
      objective of the organization is to give placement to the members of
      the organization who register with them by paying the placement fee
      charges to the organization (particularly it is only for the ex-army
      personnel and their dependent and widows). It is purely a
      commercial activity and violation of Section 2(15) of the Income Tax
      Act, and there is no charitable activity conducted by the assessee. In
      view of the above, it is simply a placement agency which charges fee
      for their services, it does not qualify any merit for grant of a
      certificate which is the basic and one of conditions to be satisfied for
      granting registration under section 12 A of the Income Tax Act.
      Accordingly, the application filed by the applicant for grant of
      registration under section 12 A is rejected.

6.     The assessee is aggrieved and is in appeal before us. None appeared for
the assessee, but we have heard the learned Departmental Representative,
perused the material on record and duly considered facts of the case in the light
of the legal position. Having regard to all these factors, having regard to the fact
that the issue in appeal lies in a narrow compass of material facts, and also
having regard to the reasons we will set out in a short while in this order, we
deem it appropriate to proceed with the matter ex parte qua the assessee.
                                                                  I.T.A. No.: 2996/Del/11
                                                                              AWPO Vs DIT

                                                                               Page 4 of 7

7.     We have noted that, in essence, the basic reason for rejecting the
registration under section 12A is alleged violation of section 2(15) in the
working of the assessee institution. Section 2 (15) defines charitable purposes,
in an inclusive definition, as " relief of the poor, education, medical relief, and
the advancement of any other object of general public utility" . There is ,
however, an explanation to this sub section to the effect that " advancement of
any other object of general public utility shall not be a charitable purpose, if it
involves the carrying on of any activity in the nature of trade, commerce or
business, or any activity of rendering any service in relation to any trade,
commerce or business, for a cess or fee or any other consideration, irrespective
of the nature of use or application, or retention, of the income from such
activity " though only in a situation in which aggregate receipts on account of
such a cess or fees exceed Rs 25 lakhs in a financial year. In plain words, thus,
even if an assessee is pursuing an object of general public utility, such an
activity will cease to be an activity for charitable purposes, if

      (a)    the activity is in the nature of trade, commerce or business; or

      (b)    the activity of rendering any service in relation to any trade,
             commerce or business, for a cess or fees or for any other
             consideration (irrespective of the nature of use or application, or
             retention, of the income from such activity) when aggregate of such
             fees or cess exceed Rs 25 lakhs in a previous year.

8.     It is thus clear that so far as charging of fees or any other consideration
for rendition of a service is concerned, the fact of rendition of the service vitiate
charitable nature of the activity only when the service is rendered to a trade,
commerce or business, and, in addition to that factor, the aggregate of such fees
etc is concerned exceeds Rs 25 lakhs. In a situation, however, in which the
service is rendered to an entity other than trade, commerce or business, such a
rendition of service does not affect charitable nature of the activity. In the
present case, the service is rendered to ex-army personnel, their widows and
dependents, rather than to any trade, commerce or business, and, therefore,
second limb of Explanation to Section 2(15) has no application. As regards the
question, whether the activity is in the nature of trade, commerce or business or
not, on the ground that the assessee is charging a registration fee from some of
the registrants, we may refer to rule 23(d) of the assessee appellant- a copy of
which was placed before us at pages 1-58 of the compilation of papers, which
provides as follows:
                                                                 I.T.A. No.: 2996/Del/11
                                                                             AWPO Vs DIT

                                                                              Page 5 of 7

      23(d) Fees

      Nominal fees as mentioned below will be charged from the registrants for
      meeting the operational expenditure of the establishment:-

         i.   Offices                               Rs 750
        ii.   Junior Commissioned Officers          Rs 500
       iii.   Other ranks                           Rs 300
       iv.    Veernaris (widows)                    Free
        v.    Widow' s wards/ dependents            Free
       vi.    Dependents of serving/retired
              army personnel                        Rs 500

9.      We find that the nominal fees for the registration, which is a onetime
fees, is barely enough to meet even partial costs of running this establishment,
and the fact that such a nominal fees is charged from the registrants, in our
humble understanding, cannot change the fundamental character of this
charitable activity. Not only that the scale of fees is too modest and the facility
of registration is restricted only to serving or former army personnel, and their
dependents, the unambiguous objective of the assessee institution is to promote
welfare of the army personnel and their dependents. There are no reasons to
doubts bonafides of this well intended initiative of the Indian Army, by way of
Army Welfare Placement Organization which is working under direct control of
the Ministry of Defence in the Government of India. There is nothing on record
whatsoever to suggest that this organization is set up on any commercial basis.
It is only elementary that the mere fact that a fees is received from the
registrants, by itself, cannot convert a charitable activity into a commercial
activity. This position is recognized by the statue itself in second limb of
Explanation to Section 2(15), a specific reference made is to the receipt of such
fees from trade, commerce and business, and a further monetary limit is set out
even on aggregate of fees even from trade, commerce or business. If receiving a
fees simplicitor could be reason enough to hold that an activity can only be
charitable activity, there could not have been any justification for such riders in
the statute itself. That apart, time and again, the fundamental essence of a
business activity is to earn profits but then a plain look at the objective (f), as
reproduced in paragraph 4 earlier in this order, would show that clearly and
unambiguously profit making cannot be an objective in this case. The assessee
institution is set up by the Indian Army and it seeks to promote the wellbeing of
their personnel after their retirement from the service, as also of the widows
and dependents of the brave army men who sacrifice their lives, and help them
integrate in the civil society by taking up suitable employment. This is surely an
activity of general public utility, and, therefore, covered by the definition of
                                                                I.T.A. No.: 2996/Del/11
                                                                            AWPO Vs DIT

                                                                             Page 6 of 7

` charitable purposes' under section 2(15). The true test for deciding whether an
activity is business activity is (i) whether the said activity undertaken with a
profit motive, or (ii) whether the said activity has continued on sound and
recognized business principles, and pursued with reasonable continuity. Clearly,
therefore, in a situation in which an activity is not undertaken with a profit
motive or on sound and recognized business principles, such an activity cannot
be considered to be a business activity. We may, in this regard, usefully refer to
the following observations made by Hon 'ble Delhi High Court in the case of the
Institute of Chartered Accountants of India Vs DGIT (Exemption) [(2011)
347 ITR 99 (Del)] :

      Therefore, while construing the term `business ' for the said section,
      the object and purpose of the section has to be kept in mind. We do
      not think that a very broad and extended definition of the term
      ` business ' is intended for the purpose of interpreting and applying
      the first proviso to s. 2(15) of the Act to include any transaction for a
      fee or money. An activity would be considered "business" if it is
      undertaken with a profit motive, but in some cases this may not be
      determinative. Normally the profit motive test should be satisfied
      but in a given case activity may be regarded as business even when
      profit motive cannot be established/proved. In such cases, there
      should be evidence and material to show that the activity has
      continued on sound and recognized business principles, and pursued
      with reasonable continuity. There should be facts and other
      circumstances which justify and show that the activity undertaken is
      in fact in the nature of business .

10.    There has to be, therefore, something more than mere charging a fees by
an institution which can demonstrate that activity undertaken is in the nature of
business, and the onus of demonstrating that fact is on the revenue authorities.
The reason for this onus is simple; nobody can be expected to prove a negative,
as was held by Hon ' ble Supreme Court in the case of K P Varghese Vs ITO
[(1981) 131 ITR 597], and the assessee cannot, therefore, be asked to prove
that the assessee is not carrying on an activity with business motive. A perusal
of the impugned order, however, indicates that the only reason for which the
assessee is held to be pursuing business activity is charging of fees and there is
no other legally sustainable finding to support that conclusion. In view of these
facts, as also bearing in mind, we are of the considered view that the learned
Director of Income Tax (Exemptions) was indeed in error in rejecting the
registration under section 12 A, as sought by the assessee. We, therefore, direct
                                                                 I.T.A. No.: 2996/Del/11
                                                                             AWPO Vs DIT

                                                                               Page 7 of 7

the learned Director to grant the registration under section 12A of the Income
Tax Act, 1961. Order, accordingly.

11.  In the result, the appeal is allowed in the terms indicated above.
Pronounced in the open court today on 22 nd day of January, 2015.

      Sd/-                                                    Sd/-
   C M Garg                                                  Pramod Kumar
(Judicial Member)                                          (Accountant Member)

New Delhi, the 22 nd day of January, 2015.

Copies to:   (1)    The appellant                 (2)     The respondent
             (3)    Commissioner                  (4)     CIT(A)
             (5)    Departmental Representative
             (6)    Guard File

                                                                By order etc

                                                                   Assistant Registrar
                                                        Income Tax Appellate Tribunal
                                                             Delhi benches, New Delhi
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