Resident welfare societies cannot be granted sec.12A registration

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IN THE ITAT AGRA BENCH

Madhavrao Scindia Enclave Resident Welfare Society

v.

Commissioner of Income-tax, Gwalior

IT APPEAL NO. 176(AGRA) OF 2009

MAY 18, 2012

In the instant case, the admitted facts were that the objects of the assessee society were for welfare of resident of the colony and other maintenance services of the colony. Section 12AA requires that the Commissioner(Appeals) is to satisfy himself about the objects of the society and genuineness of the activities. Whether the object of the society was charitable or not was to be examined. Section 2(15) provides the definition of charitable purposes.

Charity is necessarily altruistic, and involves the idea and aid or benefit to others. Mutual benefit societies and charitable societies both are different type of societies. Mutual society is not charitable for two reasons; firstly, although a member, according to his poverty or misfortune, might share in the funds held by the society for the mutual benefit of the subscribing members, it cannot be said that he had subscribed for a charitable purpose where in truth he had subscribed for the primary purpose of protecting himself or his family or colony; secondly, whereas the possible beneficiaries of a charity have no right to demand anything from the party who administers the charity, in a mutual society a member can claim benefits as of right in return for his own and his co-members’ subscriptions. Charity must be by way of bounty, it cannot be by way of bargain. Therefore, the mutual society would be non-charitable on the further ground that the benefit of the subscribing members is not public benefit, whereas the definition in section 2(15) requires charity to be of a public character. Further, a person incurring expenditure on him by out of his own income does not amount to expenditure on charity. In the instant case, the society was formed for welfare of a colony by the members for the benefit of the members. Such society could not be said to be for the purpose of charity. Before a society could be held to be ‘charitable’ there must be an element of charity to public at large. The society under consideration was a mutual concern of the members who formed the society and the whole idea of this mutual society was that the particular members comprising it should be benefited out of their own contribution.

In the light of above discussions, the assessee society was not a charitable society within the meaning of the Act so that registration under section 12A/12AA could be granted. Therefore, the Commissioner (Appeals) had rightly rejected the assessee’s registration under section 12A/12AA.