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Income Tax Appellate Tribunal, [ DELHI BENCH: ‘B’ NEW DELHI ]
Before: SHRI ANIL CHATURVEDI & SHRI YOGESH KUMAR U.S.
PER YOGESH KUMAR U.S., JM
This appeal is filed by the assessee against the order dated 28.03.2018 of the ld. Commissioner of Income Tax (Appeals) (hereinafter referred to CIT (Appeals) Ghaziabad, for assessment year 2014-15.
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The assessee has raised the following substantive grounds of appeal :-
“1. Because, the order of Id. lower authority is bad in law and against the facts and circumstances of the case and hence is unsustainable.
Because, the Id. commissioner of income tax (appeals) grossly erred in upholding addition of Rs.67,31,240/ as amount recd. from students over academic fee, being towards transportation /Mess etc. facilities as a separate business activity in terms of section 11(4A), by wrongly placing reliance on irrelevant material and defeating the pronouncements of hon'ble courts/tribunals hence findings on the issue are perverse.
Because, Id. lower authority further erred in the addition against the principle of consistency in as much as in earlier and even in subsequent years said activities is considered as part of 'education' and benefit u/s 11/12 is allowed with 100% similar facts beside similar receipts with identical facts are not considered a separate business activity by revenue authorities itself even in other cases, hence addition is against all the cannons of law.
Because, without prejudice to above but only as an alternative, the Id. lower authority erred in not appreciating that assessee had maintained sufficient separate accounts for above activities and further failed to appreciate that even Id. AO himself calculated separate surplus in said activities on the basis of said accounts hence order upholding rejection of exemption u/s 11-12 even after invoking ( A 4 ) 11 for said activities is illegal.
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Because, without prejudice to above but only as an alternative, the Id. lower authority also erred in not appreciating the fact that in any eventuality admittedly assessee has already utilized more than 85% of its income for 'charitable purposes' and so any surplus will also be exempt u/s 11-12 .
Therefore, in terms of above grounds hon’ble court may kindly be pleased to delete total addition by allowing exemption u/s 11 & 12 to the activities under question.”
Brief facts of the case are that, the assessee filed return showing NIL
income, thereafter the case of the assessee was selected for scrutiny under
CASS. Subsequently, assessment proceedings have been initiated against the
assessee, the A.O. was of the opinion that the excess fees collected over the fee
fixed by the authorities in the form of book bank/medical fee etc of Rs.
98,90,800/- is to be taxed as business income u/s 164 (2) of the Act.
Accordingly, Ld. A.O. taxed un-utilization of Rs. 7,02,78,875/-. The assessee
filed application u/s 154 wherein a sum of Rs. 31,59,560/- was further
deducted, being the fee receivable written off. Therefore the addition remained
to Rs. 67,31,240/-.
Aggrieved by the assessment order, the assessee has preferred an appeal
before the CIT(A). The CIT(A) has partly allowed the appeal filed by the
assessee on 28/03/2018 by sustaining the addition of Rs. 67,31,240/-.
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Aggrieved by the order of the Ld.CIT(A) dated 28/03/2018, the assessee
is in appeal before this Tribunal on the grounds mentioned above.
The Ld. Counsel for the assessee vehemently submitted that the Revenue
has accepted the case of the assessee on earlier as well as subsequent years
with identical facts i.e. Assessment Year 2010-11, 2011-12, 2012-13, 2015-16,
2016-17 & 2018-19 and in all the said assessment years no additions were
made in respect of the amount received from the students over academic fee,
being towards transportation/mess etc. facilities as separate business activity
in terms of Section 11 (4A) of the Act. The Ld. Counsel for the assessee has
taken us through the various judgments and submitted that the addition made
by the Revenue authority for the year under consideration is deserves to be
deleted.
Per contra, the Ld. DR submitted that, the assessee has charged fees
beyond the guidelines given by the Government, therefore, the same is deserves
to be treated as separate business income and liable for taxation.
We have heard the parties perused the material available on record and
gave our thoughtful consideration.
It is not in dispute that the Revenue has accepted the case in the earlier
as well as subsequent years with identical facts wherein no additions were
made in respect of the amount received from the students over academic fees
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towards transportations/mess etc. The assessee has provided those orders at
page No. 79 to 118 of the paper book. Further, we observe that the Hon’ble
Allahabad High Court in the case of Daya Nanda Pushpa Devi Charitable Trust
Vs. ACIT, Ghaziabad in ITA No. 103/2017 reported in (2021) 128 Taxman.com
118 (Allahabad) held that activity of running hostel is an integral part of
education so as to out of clutches of Section 11(4A) of the Act, though the
assessee had maintain sufficient separate account in as much as separate
ledger account for the same maintained. The relevant portion of the same are
as hereunder:-
“21. While considering the scope of sub-section (4A) of Section 11 which came into effect by the Finance (No.2) Act 1991 w.e.f. 01.04.1992, in Assistant Commissioner of Income Tax Vs. Thanthi Trust9, the Apex Court had noted that the substituted sub-section (4A) gave trust and institution a wider latitude than the earlier sub-section (4A). In the wide language of sub-section (4A),a trust is entitled to the benefit of Section 11, if it utilises the income of its business for the purpose of achieving its charitable objects. In this way, the trust is allowed to create a corpus by indulging in business activity to feed the charity. As the provision stands, all that is required for the business income of the trust or institutions to be exempted from the tax is that the business should be incidental to the attainment of the objectives of the trust or institution. A business whose income is utilised by the trust or the institution for the purpose of achieving the objectives of the trust or the institutions, is, surely, a business which is incidental to the attainment of the objectives of the trust. It was, thus, held that the substituted sub-section (4A) is more beneficial to a trust or institution than the original provision.
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It can, thus, be seen that sub-section (4A) of Section 11 presupposes a business venture of the trust or institution which is though independent to its main activity but incidental to the attainment of the objectives of the trust. The "business" as mentioned in the said sub-section can be an adventure or concern in the nature of trade, commerce or manufacture.
Having held that the applicability of the sub-section (4A) of Section 11 presupposes income from a business, being profit and gains of the business, the test applied is whether the activity which is pursued is integral or subservient to the dominant object or is independent/ancillary/incidental to the main object or forms a separate activity in itself. The issue whether the institution is hit by sub-section (4A) of Section 11 of the Act will essentially depend upon the individual facts of the case of the institutions where considering the nature of the individual activity, it will have to be tested whether the same forms incidental, ancillary, connected activity (ies) and whether the same was carried out pre-dominantly with the profit motive in the nature of trade, commerce etc.
……………………………
The element of trade and commerce in the hostel activity cannot be found so as to bring the same within the meaning of "business". The grounds taken by the revenue that the assessee was carrying on the commercial activity which is not incidental to the objects of the trust and that the assessee has not complied with the provisions under Section 11 (4A) of the Act by not maintaining separate books of accounts of the income of the said business even if said business is said to be incidental to the objectives of the trust,
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are found faulty. The revenue has committed wrong in holding that the business carried on by the assessee having no direct relationship with the objectives of the trust, the mandate of Section 11(4A) of the Act had to be complied with. There was no material on record with the revenue to hold that the hostel activity is a separate business. From any angle, it could not be proved by the revenue that the income from the hostel fee can be treated as profit and gains of the separate business or commercial activity and that it is not an integral part and parcel of education, which is the main objective of the trust.
Applying the theory of dominant purpose in the facts of the present case it can be safely concluded that the surplus, if any, generated out of the activity of maintaining halls and residents for the students being an integral part of the main object of education, was liable to be treated as income from the property held by the trust wholly for charitable purposes and was, therefore, deductible from the total income of the trust (person in receipt of the income) by granting exemption under Section 11 of the Act.
…………………..
In view of the above noted legal position, any interpretation or meaning given to the word "business" in the literal parlance cannot be read into the Income Tax Act as the word "business" has been defined in the Act itself. The Court has to read the statute namely the Income Tax Act to find out as to whether the activity of the assessee in maintaining the hostel would be exempted under Section 11(1) of the Act and whether the provisions
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of Section 11(4A) would be attracted in the facts and circumstances of the case.
Having held that the activity of running the hostel is not a separate business activity and surplus income from the hostel fee cannot be treated as profit and gains of a separate business or commercial activity of the trust, it is held that the exemption under Section 11(1) of the Act cannot be disallowed to the assessee.”
In view of the above settled position of law and considering the fact that
the Revenue has accepted the case of the assessee on earlier as well as
subsequent years with identical facts, we are of the opinion that the grounds of
appeal of the assessee deserves to be allowed, accordingly the additions made
by the A.O which was sustained by the CIT(A) is hereby deleted by allowing the
Grounds of Appeal and consequently we hold that the assessee is entitled for
the benefit u/s 11/12 of the Act.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on : 13/03/2023.
Sd/- Sd/- ( ANIL CHATURVEDI ) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 13/03/2023 *MEHTA/R. N, Sr. PS*
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