Case Law Details
Sowgood Foundation Vs CIT (Exemption) (ITAT Delhi)
Charging Fees for Environmental Education Doesn’t Destroy Charity: Delhi ITAT Grants 12A Registration
The Delhi ITAT held that an organisation engaged in environment protection, farming awareness and sustainability education cannot be denied registration under section 12A merely because it earns fee-based receipts from schools or receives payments subjected to TDS.
In the case of Sowgood Foundation, the CIT(Exemption) had rejected 12A registration on the ground that the assessee was carrying on commercial activities by providing environmental education programmes and services to schools for consideration. The Department also relied on business receipts, TDS under section 194J/194JB, filing of ITR-6 and alleged violation of the 20% threshold under the proviso to section 2(15).
However, the Tribunal carefully examined the objects of the foundation, which included promotion of environmental protection, farming education, waste management awareness and sustainability initiatives in schools and institutions.
The ITAT held that the assessee’s activities squarely fell under the specific limb of “preservation of environment” under section 2(15), and not under the residuary category of “advancement of any other object of general public utility.” Therefore, the restrictive proviso relating to commercial receipts and 20% threshold was held to be inapplicable.
The Tribunal further ruled that mere deduction of TDS by payers or filing of ITR-6 before grant of registration cannot automatically convert a charitable institution into a commercial entity. Relying on CIT(E) v. Aroh Foundation, the ITAT observed that TDS deduction by the payer cannot prejudice the exemption claim of the recipient trust.
The ITAT also rejected the Department’s objection regarding filing the application under a wrong proviso, holding that such bona fide technical mistakes cannot defeat substantive charitable registration claims. Accordingly, the Tribunal directed grant of registration under section 12A subject to verification of relevant facts.
FULL TEXT OF THE ORDER OF ITAT DELHI
This assessee’s appeal is directed against the Commissioner of Income Tax (Exemption), Delhi’s order dated 30.05.2025, having DIN and order no. ITBA/EXM/F/EXM45/250/2025-26/1076570562(1) involving proceedings under section 12AB of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).
Heard both the parties. Case file perused.
2. Next comes the sole substantive issue between the parties herein regarding the assessee’s entitlement to claim section 12A registration. There is hardly any dispute that the assessee/appellant M/s. Sowgood Foundation is a non-profit company incorporated on 09.01.2020 with objects stated to be in the nature of “protection of environment” and related activities. It has filed an online application in Form 10AB on 16.10.2024 before the CIT (Exemptions), Delhi seeking registration under section 12A(1)(ac) (iv) of the Act. The CIT(E) passed an order in Form 10AD dated 30.05.2025, under section 12AB(1)(b)(ii) (B) and rejected the registration under section 12A on the following grounds:
a) the applicant had chosen an inapplicable limb, namely section 12A which is intended for cases where an existing registration has become inoperative by virtue of the first proviso to section 11(7); whereas, in this case, there was no prior operative registration at all.
(b) the applicant was not engaged in charitable activity but in commercial provision of services to schools for a fee.
c) in AY 2024-25, the applicant had shown business receipts of Rs. 16,01,700 on which TDS was deducted u/s 194JB.
d) the applicant had itself filed ITR-6 in AYs 2023-24 and 2024-25, evidencing its own understanding that its activities were business-oriented; and
e) the financials showed receipts from “sale of services” of Rs.24,37,936 in FY 2023-24 and Rs.10,22,560 in FY 202223, which were commercial in nature and exceeded 20% of total receipts. On this basis, the CIT(E) held that the applicant failed to establish “genuineness of charitable nature of its activities” and rejected the application for registration u/s 12A.
The aggrieved assessee is before us.
3. The learned counsel of the assessee argued that the assessee’s objectives are to articulate/devise & develop curricula in farming & distribute & educate through such curricula in schools/NGO’s/institutions or any other organization. The learned AR of the assessee states that the total fund received by the assessee are from CSR activity of the donor companies and private school fees paid by the private school. Out of the total funds available to the assessee of which 2/3rd comes from CSR Funds and donation and 1/3rd comes from fee from private schools. It is submitted by the learned counsel of the assessee that the learned CIT(E) has not raised any objection on the object clauses of the assessee Trust. The learned counsel further stated that the assessee filed ITR-VI because TDS was deducted and at the time of filing the return the assessee was not granted registration u/s 12A. Hence, assessee had no option but to file return in ITR-VI. With regard to other objections of the learned CIT(E) that assessee had no prior registration and yet filed for registration u/s 12A(1)(ac)(iv), the learned AR pointed out that the application was made under 12A(1)(ac) (iv) only because the previous application was not approved by the learned CIT(E). The learned AR further referred to the decision of the hon’ble supreme court in the case of Ahmedabad Urban Development Authority Vs. ACIT 449 ITR 1 (SC) and referred to Section 2(15) to justify its claim for registration.
4. Per contra the learned DR raised the issue that the assessee had deducted TDS on the payment received from private school and has itself filed ITR -VI claiming it not eligible u/s 12A of the Act. The learned DR relying on Commissioner of Customs v. Dilip Kumar & Co., 2018 9 SCC 1, submitted that the Supreme Court has consistently held that tax exemptions and favourable statutes are to be strictly construed, and the burden lies squarely on the assessee to establish eligibility. In the context of charitable registration, the learned DR stated that courts have emphasized that if the Commissioner finds that activities are predominantly commercial, registration can be refused at threshold (see, e.g., American Hotel & Lodging Association Educational Institute v. CBDT, 301 ITR 86 (SC) which held that scrutiny of genuineness is permissible at registration stage).
5. The learned DR defended the CIT(E)’s order stating that the CIT(E) examined the Commercial receipts and identified objective financial indicators such as i) business receipts of Rs. 16,01,700/-in AY 2024-25 with TDS under section 194JB; ii) “Sale of services” of Rs. 24,37,936 in FY 2023-24 and Rs. 10,22,560 in FY 2022-23; and iii) filing of ITR-6 for AYs 2023-24 and 2024-25 and relied on Queen’s Education Society v. CIT, 372 ITR 699 (SC), where the Court clarified that where surplus and fee- based activities reveal a profit motive, the institution may lose its charitable character. While that case dealt with section 10(23C), the principle is equally relevant: the authority must look at the substance of activities, not merely stated objects.
6. The learned DR submitted that there is no vested right to registration in presence of commercial dominance and relied on Ahmedabad Urban Development Authority v. ACIT, 449 ITR 1 (SC)) to underscores that the dominant object test and the proviso to section 2(15) are designed to deny charitable status where “advancement of any other object of general public utility” involves substantial commercial activity. Even where an entity has facially charitable objects, the pattern of receipts and activities can disentitle it from exemption.
7. The learned DR further submitted that the assessee’s contention that the first proviso to section 2(15) “can only be invoked by the Assessing Officer at assessment stage after registration” is misconceived. Relying on Ananda Social and Educational Trust v. CIT, 426 ITR 340 (SC) the Id DR stated that the Courts have clarified that at registration stage, the Commissioner is to examine the object clause and the genuineness of activities, which necessarily implies a prima facie application of section 2(15). If, on the material, activities appear commercial and not genuinely devoted to a charitable object, registration can be refused. The Id DR submitted that if, under the guise of environmental programmes, the entity is selling packaged educational services to schools for a fee and generating substantial service revenue, the Commissioner is entitled to conclude that the dominant purpose is not charity but organized commercial activity. In many decisions, including Institute of Chartered Accountants of India v. DGIT (Exemptions), 358 ITR 91 (Del), courts have recognized that even statutory/professional bodies can lose exemption where the nature of activity is predominantly commercial. The same principle applies even if the stated object is environment related.
8. at The Id DR submitted that there is no bar on considering revenue pattern at registration stage. The CIT(E) has not conducted a full assessment; he has only relied on high-level financials and return-filing pattern to assess genuineness. This is squarely permitted by American Hotel & Lodging Association (supra), where the Supreme Court held that registration/approval stage, the authority may call for documents and rely on them to satisfy itself about the nature of activities. Therefore, there is no jurisdictional overreach.
9. The learned CIT (DR) submitted that the Scope of enquiry at registration stage includes examination of accounts and relied on the Delhi High Court in DIT(E) v. Meenakshi Amma Endowment Trust, 354 ITR 219 which held that the Commissioner is justified in examining accounts and activities to see if they are in line with stated objects and to refuse registration if they are not. The Id DR stressed that use of ITR-6 and 194JB TDS as strong corroborative facts to assessee’s own understanding that it is engaged in business/professional services. The Id DR stated that the financials show significant “sale of services” receipts Rs. 24.37 lakh and Rs. 10.22 lakh in two successive years exceeding 20% of total receipts. While the 20% threshold appears in the context of the proviso to section 2(15) for GPU cases, the point here is more basic: the revenue profile is overwhelmingly fee-based, with demonstrated pattern of voluntary donations, grants or non-commercial support typical of genuine charities. Such a profile supports the Commissioner’s conclusion that activities are commercial and that the assessee has failed to discharge its onus of establishing genuineness.
10. The CIT(DR) submitted that the Scope of enquiry at registration stage includes examination of accounts and relied on the Delhi High Court in DIT(E) v. Meenakshi Amma Endowment Trust, 354 ITR 219 which held that the Commissioner is justified in examining accounts and activities to see if they are in line with stated objects and to refuse registration if they are not. The Id DR stressed that use of ITR-6 and 194JB TDS as strong corroborative facts to assessee’s own understanding that it is engaged in business/professional services. The Id DR stated that the financials show significant “sale of services” receipts Rs. 24.37 lakh and Rs. 10.22 lakh in two successive years exceeding 20% of total receipts. While the 20% threshold appears in the context of the proviso to section 2(15) for GPU cases, the point here is more basic: the revenue profile is overwhelmingly fee-based, with demonstrated pattern of voluntary donations, grants or non-commercial support typical of genuine charities. Such a profile no supports the Commissioner’s conclusion that activities are commercial and that the assessee has failed to discharge its onus of establishing genuineness.
11. The learned CIT(DR) stated that Courts have repeatedly held that objects on paper are not conclusive; the actual activities must be examined (CIT v. Surya Educational & Charitable Trust, 355 ITR 280 (P&H)). Here, actual activities are fee-based programmes for schools, yielding professional/service income. The Commissioner has compared the stated objects with the actual pattern of receipts and found dissonance; that is a classic genuineness enquiry.
12. We have heard the rival submissions and have perused the material available on record. We find that the objects for which the company is established are:
1. To promote protection of environment and to spread awareness about significance of the plantation and farming and other allied activities.
2. To provide education about importance of farming and composting to the young generation from the school level itself.
3. To make collaborations with schools, Collages and other educational Institutions for setting up of a Farm Based Open Class Room Learning in Schools.
4. To establish an academy to train individuals about Nature Awareness, who in tum can work with children. To create leaders who can lead the way for environment awareness.
5. To establish, operate & promote education, environment & development on sustainability through farming, & management, education nationally waste
6. To establish or assist in the provision & promotion of any structure for holistic development of children, youth and adults
7. To establish support systems that create a culture of education through farming and waste management and inculcate values & skills that empower people to make environmentally friendly choices.
8. To research & advocate an providing education & development through environment, farming and waste management.
13. It is in this factual backdrop of rival pleadings that we advert to the first and foremost issue herein as to under which limb the assessee’s case is covered u/s 2(15) of the Act. The Revenue’s endeavour all along is that it is an entity engaged in advancing “object of general public utility”; and, therefore, its case is covered under the proviso read with clauses (1) and (2) thereto since it has been found to have been carried out commercial activities going by the specified 20% threshold of the total receipts.
14. We find no merit in the Revenue’s instant first and foremost contention as going by the assessee’s above extracted object clauses “To promote protection of environment and to spread awareness”; it is covered under “fifth” limb of section 2(15) of the Act which also takes into account water sheds, forests and wild life than the last head of “general public utility”. We further wish to emphasize here that section 2(15) proviso read with clauses (i) & (ii) gets attracted only an instance of assessee’s concerned carrying out objects of general public utility i.e. the seventh/last limb than those preceding the same. We reject the Revenue’s first and foremost stand and hold that the learned CIT(E) has erred in law and on facts in holding the assessee as an entity covered under the last limb of general public utility u/s 2(15) of the Act. His further case that the asseesee is engaged in carrying out commercial activities as well as violating the specified threshold of 20% (supra) also stand reversed on the very analogy therefore.
15. Next comes the Revenue’s further case that the assessee had shown business receipts of Rs.16,01,700/- which had also been subjected to TDS deduction under section 194JB of the Act. Hon’ble jurisdictional high court in CIT (E) v. Aroh Foundation (SC) (2025) 476 ITR 504 (Del) has further settled the issue in the assessee’s favour and against the department that such an action deducting TDS on the deductor’s part could not adversely affect the deductee/trust’s exemption claim under section 11 of the Act.
16. The Revenue’s further stand that the assessee is not entitled for section 12 registration since having filed income tax return in AY 2023-24 and 2024-25 also meets the same outcome as it was not a registered trust on the date of filing thereof. Learned CIT(DR)’s last endeavour that the assessee had applied for registration under a wrong proviso is found to be mere a technical issue wherein such a bona fide mistake could not be altogether ruled out. We thus direct the learned CIT(E) to verify all the relevant facts going by Niravadya Foundation Vs. Commissioner of Income-tax (exemption) [2025] 173 Taxmann.Com 179 (Ahmedabad – Trib.) that a section 12A application could not be rejected for such a technical reason. We accordingly accept the assessee’s instant sole substantive grievance and hold it entitled for section 12A registration in light of our foregoing detailed discussion subject to all just exceptions.
17. This assessee’s appeal is allowed in above terms.
Order pronounced in the open court on 11th May, 2026
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