Delhi HC Orders 12A Registration For Not-Yet-Operating Charity Project Despite Planned Rent; Sends 80G Application Back For Separate Inquiry

Orientals Ardaas Foundation, a company incorporated under Section 8 of the Companies Act, 2013, applied for registration under Section 12A(1)(ac)(iii) of the Income Tax Act, 1961, and approval under Section 80G(5)(iii).

The Commissioner of Income Tax (Exemptions) rejected both applications, reasoning that the proposed accommodation project might involve charging rent or selling units and therefore be commercial in nature.

The ITAT set aside the rejection orders and directed that both applications be granted, finding it premature to infer commercial activity before operations began.

The Revenue appealed, while the Foundation also filed writ petitions seeking relief.

Under Section 12A(1)(ac)(iii) of the Income Tax Act, 1961, the preliminary assessment of a charitable organisation’s application focuses on its objects, project and purpose; the possibility that it may charge for services does not, by itself, establish commercial activity, since charitable services need not always be provided free of charge.

Approval under Section 80G(5)(iii), read with the third proviso to Section 80G(5), involves a distinct and deeper inquiry because it enables donors to claim tax benefits. Grant of Section 12A registration does not automatically entitle an institution to Section 80G approval; the relevant statutory requirements must be independently examined by the competent authority.

No judicial precedents were cited.

The Court held that, at the preliminary registration stage, the CIT(E) could not conclude that the Foundation would operate commercially merely because it might charge occupants for accommodation. The Foundation’s objects and project had to be considered, and recovery of partial, subsidised or concessional charges was not inherently inconsistent with charitable activity. The Foundation had also undertaken not to sell the units outright.

However, the ITAT’s direction to grant Section 80G approval was unsupported by an inquiry into the separate statutory requirements for that approval. The CIT(E)’s rejection of the Section 80G application had followed from its rejection of Section 12A registration, but allowing the latter did not automatically establish entitlement to the former.

It allowed the Revenue’s appeal concerning Section 80G, set aside the ITAT’s order on that issue and remitted the application to the CIT(E) for decision in accordance with law within 30 days of receipt of a certified copy of the judgment.

The Foundation was permitted to submit a further representation and supporting material.

The writ petitions and pending applications were disposed of accordingly.