Charitable Activity Need Not Be Free Of Cost; Subsidised Services Can Qualify: Delhi High Court

The Delhi High Court has held that charitable activities need not necessarily be provided free of cost, observing that charging partial, subsidised or concessional amounts for accommodation or services does not by itself make an organisation's activities commercial.

The division bench of Justices Dinesh Mehta and Aditi Choudhary made the observation while directing the Income Tax Department to grant registration under Section 12A of the Income Tax Act, 1961, to Orientals Ardaas Foundation Delhi, a company incorporated under Section 8 of the Companies Act, 2013.

It held that at the preliminary stage of considering an application for registration, the authority must examine the organisation's objects, project report and the purpose for which it is established. It cannot conclusively presume that the organisation would undertake commercial activities merely because it proposes to charge for accommodation or services.

“Charging a partial, subsidised or concessional amount is also a kind of charitable activity, because charitable activity does not necessarily mean that services have to be given for free,” it observed.

The Court was hearing appeals filed by the Income Tax Department, challenging an ITAT order that had set aside the rejection of the Foundation's applications for registration under Section 12A and approval under Section 80G of the Income Tax Act.

CIT(E) had rejected the applications in September 2024, reasoning that the Foundation's activities could be commercial in nature because it proposed to charge rent for accommodation or might sell units outright.

ITAT subsequently set aside the rejection orders and directed the grant of the registrations.

The High Court agreed with ITAT that the authority could not determine with certainty, before the Foundation's activities had commenced, whether it would carry on commercial activities.

As such, the Court rejected Revenue's appeal against ITAT's direction. However, it accepted Revenue's appeal concerning approval under Section 80G, holding that the requirements for registration under Section 12A and approval under Section 80G are different.

It observed that Section 12A registration involves a preliminary examination of the objects of the trust or institution, whereas Section 80G approval requires a deeper inquiry because donations to an approved institution may entitle donors to tax deductions.

The Court held that ITAT could not direct the grant of Section 80G approval without the competent authority conducting the necessary inquiry.

It accordingly set aside ITAT's order insofar as it directed approval under Section 80G and remanded the application to CIT(E) for fresh consideration.

For Appellant: Senior Standing Counsel Shlok Chandra with Junior Standing Counsel Naincy Jain and Advocates Ujjwal Jain and Udit Dad.

For Respondent: Senior Advocate Ajay Vohra and Advocate Abhishek Singhvi.