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Income Tax Appellate Tribunal, AHMEDABAD – BENCH ‘B’
Before: SHRI RAJPAL YADAV, VICE- & SHRI WASEEM AHMED
PER RAJPAL YADAV, VICE-PRESIDENT: ITA No.2935/Ahd/2014 is directed at the instance of the assessee against order of the ld.DIT(Exemptions), Ahmedabad dated 29.9.2014 vide which application of the assessee for grant of registration under section 12AA of the Income Tax Act, 1961 has been rejected. ITA No.643/Ahd/2018 is directed by the assessee against order of ld.CIT(A)-7, Ahmedabad dated 4.12.2017 passed for the Asstt.Year 2014-15. First we take ITA No.2935/Ahd/2014 for adjudication.
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Grievance of the assessee is that the ld.DIT(Exemption) has erred in rejecting its application for grant of registration under section 12AA of the Act.
Brief facts of the case are that the assessee-trust has filed an application for registration under section 12AA of the Act in form no.10A which was received in the office of DIT(Exemption) on 29.3.2014. The stand of the assessee was that it was created under deed of settlement on 15.9.1987. It got registered under Bombay Trust Act vide registration no.E-6844/Ahmedabad. According to the assessee, it was registered under section 12A of the Income Tax Act vide order No.HQ.III/179 dated 2.3.1988. Assessee further submitted that it was established primarily with the object of carry on educational activities. However, in view of enactment of Gujarat Private University Act, 2009 for establishing deemed university in the State of Gujarat, assessee-trust resolved to establish “Indus University” by becoming a sponsoring trust, and accordingly, invested roughly Rs.5 crores by way of endowment fund with GSFC, and Indus University was notified in Gujarat Government Gazette in April 2012. The assessee has contended that it had continued to carry on other charitable activities, such as boarding facilities to the students of Indus University etc. According to the assessee, it has misplaced its certificate, and therefore, applied for fresh one for grant of registration under section 12AA on 29.3.2014.
On receipt of application, the ld.DIT(Exemption) issued show cause and called for various details. On an analysis of details and submission of the assessee, the ld.DIT held that the assessee is only
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running hostel, which could not be construed as running an educational institution. Observation made by the ld.DIT in the concluding part of the order reads as under: “4.4 Education activity is no more with the applicant trust. Running of hostel could have been incidental if the hostel was for applicant trust's own students. But all educational activity stands transferred to the Indus University, Therefore, now Hostel is nothing but business activity. Although the applicant trust has not shown any evidence that hostel is given at a huge concession rate or free to all poor children but even if that was proved, still it amounts to activity of General Public Utility and since income from this activity is more than Rs.25 lakhs, it is hit by proviso to section 2(15).”
While impugning the above order, the ld.counel for the assessee submitted that consistent approach of ITAT, Ahmedabad with regard to the issue, whether running hostel is akin to running an educational institution is that hostel is to be treated at par with an educational institution. He brought to our notice, decision of the ITAT in ITA No.993/Ahd/2017 pronounced on 12.7.2018 (authored by one us – VP) where an identical issue was considered. This order was followed in CO No.68/Ahd/2017 arising out of ITA No.748/Ahd/2017 in the case of Shree Deshi Lohana Vidhyarthi Bhavan for A.Y.2013-14. The Tribunal in its order dated 29.6.2020 has followed order of the Co-ordinate Bench in ITA no.993/Ahd/2017. He thereafter brought to our notice certain other decisions viz. Akash Educational Society Vs. JCIT, Noida rendered in ITA No.6391 & 6392/Del/2017. Copies of head-notes of these decisions have been placed on record. Similarly, copy of decision in the case of Krishna Charitable Society Vs. ACIT, Ghaziabad rendered in ITA No.4639/Del/2015 has been placed on record. He further relied upon the decision of Hon’ble Karnataka High Court in the case of CIT Vs. Karnataka Lingayat Education Society wherein identical issue arose
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before the Hon’ble High Court. He also relied upon the decision of Hon’ble Kerala High Court in the case of Unity Hospital P.Ltd., Vs. State of Kerala and others wherein hostel building was considered as a building meant for educational activities.
On the other hand, the ld.DR relied upon the order of ld.DCIT(Exemption) and submitted that the ld.DIT(Exemption) has made reference to the order of ITAT, Chennai in the case of Young Women’s Christian Association of Madras, 41 taxamnn.com 142. Relevant part of this decision has been reproduced by the ld.DIT in the impugned order.
We have considered rival contentions and gone through the record carefully. We find that identical issue was considered by us in the case of Shree Ahmedabad Lohana Vidyapith Bhavan (supra). The relevant part of discussion made by the Tribunal reads as under:
“6. Short question required to be adjudicated by the Tribunal is, whether providing hostel facility to the students by appellant-trust is to be considered as imparting education within the meaning of section 2(15) of the Act or it would fall within the clause “advancement of any other object of general public utility” provided in the proviso appended to section 2(15) of the Act. The AO was of the opinion that providing hostel facility is not an activity akin to education. Hence, the activity performed by the assessee would not fall within the meaning of clause 2(15) giving meaning of expression “charitable purpose”. He construed “advancement of any other object of general public utility” falling within the ambit of proviso appended to section 2(15). For harbouring this plea, basically the ld.AO has not assigned any reason, rather simply observed that hostel facility cannot be construed as imparting education. Before considering reasons assigned by the Revenue authorities below, we deem it appropriate to understand the meaning and objects of this facility. It is pertinent to note that human personality is shaped by the experiences of life. When a child is born, family provides a protective environment for the child. At the beginning, interactions are limited latter
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social interactions increase, and the process of socialization starts. Education is a part of child development. Though it started with the birth and lasted till the time of death, but formal education of language and others are being imparted in the school and colleges. Hostel is an essential institution for the students to stay in big cities and hostel plays an important role in education and training of these students. They provide residential opportunities for the students to continue the process of education. It is a place where students stay for pursuing formal education away from their homes. The concept of hostel is not only limited to place of residence, rather it is a human practical laboratory for development of students. It is a center of education. Students learn as much as from their teachers as well as fellows during hostel stay. It enriches understanding of the curriculum through analytical discussion amongst the students living in the hostels, and may contribute to character building as well. Students in hostel not only learn the theoretical material, they also learn how to enhance their personal abilities and learn to live independently. Hostel life has an impact upon the behavioral as well as personality development of students. It is one of the essential components of an educational institution. Some of the institutions like IITs, Medical Colleges provide compulsory stay in the hostel. Thus, how the AO can segregate this component from the concept of education provided in the main provision of section 2(15) ? If it is accepted that hostel is just an essential part of educational institution, then all that discussions made by the AO would be irrelevant. The simple reason is that assessee-trust came into existence in the year 1947. It has been providing hostel facilities for more than 60 years. It has always been treated as a charitable institution. In the assessment year 2010-11 a scrutiny assessment was made. Its status of “charitable institution” was accepted even after introduction of section 2(15) in the statute book. Not only it has been treated as “charitable institution” by giving registration under section 12AA of the Act, but under section 80G(5) it has again been recognized as “charitable institution”.
Let us take note of reasons assigned by the AO. When the assessee has pointed out that it has been granted registration under section 12AA and 80G(5) of the Act, then the AO has observed that such registration was granted after looking into the objects of the trust. The AO observed that the assessee failed to submit any evidence showing that it is actually imparting education by conducting classes. The ld.AO failed to note that the stand of the assessee was always to the effect that, to run hostel particularly for the students is an activity according to the object of the trust, and it is an aid for attaining educational objects. The AO thereafter made an analysis of alleged profit earned by the assessee. He looked into gross receipts minus expenditure, and surplus generated during the year. It is pertinent to note that surplus in the assessment year 2013-14 is Rs.13.82 crores. Otherwise, in all other years, it is in between Rs.2 to 4 lakhs. The assessee has to maintain building. It has to
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incur expenditure in capital field. If a small percentage of surplus is being generated then how all of a sudden the “charitable activity” would become “trade, commerce or business” ? If the main activity of the assessee i.e. providing hostel facilities to the students fall within the ambit of expression “education” employed in the main provision of section 2(15) then generation of surplus would be immaterial because ultimately is to be ascertained whether surplus is being used for the purpose of fulfilling all the objects of the trust or not. If the surplus is being applied on the objects of the trust or being accumulated as provided in the scheme, then nothing is to be taxable. On due analysis of record, we are of the view that the AO has unnecessarily created an artificial distinction. The assessee is not admitting other persons in the building. It is providing facility only to the students, and there are lots of rules and regulations, bye-laws for admitting students, according to their merits in education. Thus, taking into account overall facts and circumstances, we are of the view that the assessee is entitled for benefit of sections 11 and 12 of the Income Tax Act. If the assessee is entitled for benefit of sections 11 and 12, then the amount spent from the corpus fund for construction of building is also to be looked into with that angle. We set aside both the orders of the Revenue authorities and restore this issue to the file of the AO. The ld.AO shall re- determine taxable income of the assessee and after providing benefit under sections 11 and 12.”
There is no disparity on the facts. The assessee-trust came into existence in 1987. In the past, it has been treated as trust engaged in providing education. According to the assessee, it was granted registration under section 12AA also. The department should have verified from its record whether registration number referred by the assessee in its reply i.e. HQ-III/179 dated 2.3.1988 is a correct reference or not. If it was a correct reference then they should have continued with registration unless it is cancelled. Since registration certificate was not possessed by the assessee, therefore, it was applied afresh. This fact could be verified by the department with record maintained by it. Leaving apart this controversy, we are of the view that there is no disparity in the ratio of law between one we have discussed in the case of Shree Ahmedabad Lohana Vidyapith Bhavan (supra) vis-à-vis present
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one in our hand. We have held that running a hostel is akin to a running educational institution which falls within the provision of section 2(15) of the Act. In other words, this activity is to be considered per se charitable as contemplated in section 2(15) of the Act. Therefore, the assessee is entitled for the registration under section 12AA of the Act. Accordingly, we reverse order of the ld.DIT(Exemption) and allow the application of the assessee for grant of registration under section 12AA of the Act. The ld.DIT is directed to issue registration certificate in favour of the assessee.
In the result, appeal of the assessee is allowed. 9. Now we take ITA No.643/Ahd/20108. The grounds of appeal read as under: “1. That the learned Commissioner of Income Tax (Appeals] has erred in law by confirming the rejection of exemption claimed u/s 11 and 12 of the Act and therefore the Id.AO should be directed to allow the said exemption/benefit, while computing the total income. 2. That the learned Commissioner of Income Tax (Appeals) has erred in law by allowing the set-off and carry forward of earlier years deficit of Rs.3,95,71,831/-under the head "Income from Business and Profession" and therefore the Id. AO should be directed to allow the same as per the provisions of Act under the head "Income from Other Sources" while computing Total Income. 3. That the learned Commissioner of Income Tax (Appeals] has erred in law by not properly allowing the claim of depreciation and therefore the Id. AO should be directed to allow the same, while computing Total Income.
Since income of the assessee has been determined by the AO on the premise that the assessee is to be treated as a charitable institution engaged in providing education. Therefore, he has not extended the benefit of sections 11 and 12 of the Act. In other words, he has not computed income by taking recourse to sections 11 and 12 of the Act.
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We have allowed the application of the assessee for grant of registration and directed the Department to issue certificate of registration under section 12AA of the Act; meaning thereby, the assessee will be entitled to claim exemptions under sections 11 and 12 of the Act. Therefore, exercise of determining taxable income has to be carried out afresh at the level of the AO. We set aside both the orders i.e. order of the ld.CIT(A) and that of AO dated 4.12.2017 and 28.3.2016 passed under section 250 passed by the CIT(A) and 143(3) of the Act by the AO respectively. The ld.AO shall re-determine the income of the assessee after giving benefit of sections 11 and 12 of the Act.
In the combined result, appeal of the assessee in ITA No.2935/Ahd/2014 is allowed, while ITA No.643/Ahd/2018 is allowed for statistical purpose.
Pronounced in the Open Court on 23rd September, 2021
Sd/- Sd/- (WASEEM AHMED) (RAJPAL YADAV) ACCOUNTANT MEMBER VICE-PRESIDENT
Ahmedabad; Dated, 23/09/2021