RWA earned rent by letting out common areas and collected maintenance from residents and seeked charitable trust registration; ITAT Chandigarh rejects RWA’s appeal. Laliet Kumar, a Judicial Member and Manoj Kumar Aggarwal, an Accountant Member of the Income Tax Appellate Tribunal (ITAT) Chandigarh gave this judgement.
The ITAT Chandigarh in a recent judgement has ruled that Resident Welfare Associations (RWA) can’t obtain charitable trust registration as the services provided by RWAs are contractual and reciprocal. This judgement came following a case filed by a RWA from Sector 28, Gurgaon (Haryana) which sought the charitable trust registration, but was denied by the Income Tax Department.
ITAT Chandigarh said that the concept of charity inherently presupposes an element of public benefit.
Charity is based on altruism and philanthropy, where benefits are extended without any expectation of reciprocal advantage. ITAT Chandigarh observed that a Residents Welfare Association (RWA), on the other hand, functions on the principle of mutuality. Every member contributes maintenance charges and, in lieu receives maintenance and common facilities.
ITAT Chandigarh observed that in a RWA setup the relationship between a RWA and its resedents are reciprocal in nature, meaning that those residents who contribute to the RWA fund are also its beneficiaries.
The services provided by RWAs like maintenance of common facilities, security, cleanliness, housekeeping, organising social or cultural programmes, welfare activities, are fundamentally contractual or reciprocal, based on fees collected from the members themselves.
The ITAT Chandigarh concluded that these services cannot, by any stretch of imagination, be compared to charitable activities like relief of the poor, education, medical relief, preservation of environment or any other recognised charitable purposes outlined in Section 2(15) of the Act.
ITAT Chandigarh said: “Absence of profit by itself is not synonymous with charity.”
Chartered Accountant Suresh Surana explained to ET Wealth Online that in this case while examining the application filed in Form No. 10AB, the Commissioner of Income-tax (Exemptions) observed that the RWA’s services were confined to the residents of a specified residential complex. Since the contributors and beneficiaries belonged to the same closed group, the Commissioner concluded that its activities did not constitute a “charitable purpose” within the meaning of Section 2(15).
Accordingly, the application for registration under Section 12AB was rejected by an order dated February 17, 2026. The RWA challenged this decision before the ITAT Chandigarh.
The ITAT Chandigarh observed that the RWA’s activities were essentially governed by the principle of mutuality rather than by the principles applicable to charitable institutions. Every member contributed maintenance charges and, in return, received services and common facilities corresponding to those contributions.
Surana says: “The arrangement was therefore reciprocal in nature, with the contributors and beneficiaries forming substantially the same class.”
According to Surana, the ITAT Chandigarh pointed out that services such as maintenance, security, housekeeping and organisation of social or cultural programmes were rendered to members against consideration and could not be equated with relief of the poor, education, medical relief, preservation of the environment or any other recognised charitable object under Section 2(15).
Surana says, ITAT Chandigarh emphasised that a charitable purpose must contain an element of public benefit and ordinarily involves extending benefits without an expectation of reciprocal advantage.
In the given case, the benefits were restricted exclusively to members and residents of a particular housing complex and were not available to the public at large or to an indeterminate section of the public.
The fact that the RWA operated without a profit motive did not alter this conclusion, since the absence of profit is not, by itself, sufficient to establish that an activity is charitable.
According to the ITAT Chandigarh, treating every collective arrangement formed for the mutual convenience of its members as charitable would erase the legal distinction between mutuality and charity.
The plea regarding inadequate opportunity of hearing also did not help the RWA. Although ITAT Chandigarh acknowledged that a matter may ordinarily be remanded where sufficient opportunity has not been provided, a remand in this case would serve no useful purpose. The rejection was based not on insufficient evidence but on the admitted nature of the RWA’s objects and activities.
Surana says: “Since those activities did not satisfy the statutory requirements of a charitable purpose, a fresh hearing could not have changed the legal position.”
Accordingly, the ITAT Chandigarh held that there was no infirmity in the Commissioner’s order and dismissed the RWA’s appeal.
Surana says that in case of RWAs, any surplus arising from contributions received from members and utilised for their common benefit may ordinarily be protected under the principle of mutuality, subject to fulfilment of the prescribed conditions.
Surana says: “However, Income falling outside the mutual arrangement, such as certain rental income, interest on bank deposits or receipts from non-members, may be taxable.”
