SHREE BANKEY BIHARI EDUCATIONAL SOCIETY(REGD),GHAZIABAD vs. JCIT, GHAZIABAD

PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-

This appeal by the assessee is preferred against the order of the

Commissioner of Income Tax [Appeals] - Ghaziabad dated 29.05.2017

pertaining to assessment year 2010-11.

“1. That the C1T (A) has erred on facts and in law in holding that i) the hostel activity is a business activity ignoring the fact that that appellant was under statutory obligation under Regulations framed by Regulatory Authority i.e. Dental Council of India to maintain hostel for all the boys and girls admitted in dental college, ii) the appellant has not maintained separate books of accounts, iii) in computing surplus of Rs. 1,04,11,658/- as against net deficit of Rs. 2,03,154/- as claimed by the appellant as per audited income and expenditure account for hostel activity prepared on the basis of separately maintained day to day books of account, iv) in disallowing various expenses including depreciation and interest on loans incurred for hostel activity and not allowing application of surplus, if any, towards charitable activity though it is not in dispute that the entire amount of surplus, if any, was utilized for charitable activity as there is net deficit as per audited consolidated income & expenditure account for the year under consideration.

purchase of fixed assets was substantially funded out of bank loans and appellant never claimed application at the time of acquisition and also ignored various other legal submissions.

records carefully perused.

Charitable Society/Trust, registered under the Societies Registration Act

1860, with effect from 18.10.2001. The appellant was granted

registration u/s 12AA of the Income-tax Act, 1961 [hereinafter referred to

as 'The Act'] on 14.06.2002. The appellant is also approved u/s 80G of the

Act. The appellant society has set up a Dental Medical College near

Dasna, Masuri Villlage to impart education for students. The college is

approved by the Dental Counsel of India, New Delhi and affiliated with

Choudhary Charan Singh University, Meerut.

Officer noticed that the assessee is running a hostel for which no separate

books of account have been maintained. The assessee claimed that the

activity of running hostel is not a business because it is used for

charitable purposes and it is as per the requirement of ACITE norms and

the hostel is not an isolated unit but it is Inclusive in the main object of

the society. The Assessing Officer was of the opinion that the assessee is

generating surplus from the hostel activities and was further of the

opinion that had it not been business, assessee could have reimbursed its

surplus to the beneficiaries or members of the hostel, else could have

reduced the cost of subsequent year to the fees charged from per

student.

provisions of section 11(4)(a) of the Act came to the conclusion that the

whole surplus on account of hostel receipts is income of the assessee and

simultaneously, treated the expenses allowable at Rs. NIL and made

addition of Rs. 2,15,32,167/–.

any success.

contended before the lower authorities and placed strong reliance on the

decision of the Hon'ble Jurisdictional High Court in the case of Daya Nand

Pushpa Devi Trust ITA No. 103/2017.

authorities.

authorities below. A perusal of the rules and regulations for running

Dental College notified by the Dental Council of India shows that there

are several mandatory conditions including maintenance of hostel

accommodation for all boys and girls of Dental College and maintenance

of cafeteria, kitchen etc. Following this mandate, the appellant society

established a hostel/mess only for its students and not for outsiders.

Incidentally, till the preceding assessment year, no adverse inference was

drawn by the Assessing Officer in completing the scrutiny assessment.

23.06.2021 in the case of Daya Nand Pushpa Devi Trust [supra],

considering the provisions of section 11(4)A of the Act held as under:

“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 question, therefore, would be whether the hostel activity of the trust which is imparting dental education in the institution established by it is a business activity incidental to the attainment of its objectives or it is an activity which is an integral and inseparable part of the main activity(education) carried on by the assessee. The determinative test shall be the theory of dominant purpose which has all through the years, been upheld to be the determining factor laying down whether the Institution is Charitable in nature or not.

In the instant case, however, there is no dispute about the nature of the institution/trust being charitable in nature. The main activity of the trust being education is covered within the meaning of 'Charitable purposes' defined under Section 2(15) and it has been registered under Section 12-A of the Income Tax Act. In our considered opinion, running of hostel constitutes an integral and inseparable part of the academic activities carried on by the assessee and it is not possible to isolate or insulate it from the main activity and treat as business within the meaning of Section11(4A).

It has to be noticed that the hostel is being run in discharge of a statutory obligation as institution in question cannot impart dental education without providing for the hostel. There is no dispute about the fact that the assessee has provided hostel and mess facilities only to those students who are attached with the educational institution. It is not the case of the revenue that the income generated out of the hostel fees is not used for the educational purposes. Only reason given by the Assessing Officer to deny exemption under sub-section (11)(1) of the Income Tax Act is that the income from the hostel fee is excessive and disproportionate to the income derived by other educational institutions which indulge in similar activity i.e. maintaining hostel for the students admitted in the institution, whether government or private. According to us, such a comparison was not open, in as much as, whether a venture or activity of the assessee is a business venture separable from its main activity and whether such activity constitutes an integral and inseparable part

of the main activity, are matters to be decided on the facts and circumstances of the individual case,i.e. looking to the nature of establishment and its activities. The issues as to whether the fee charged is excessive or what should be the reasonable amount of hostel fee are wholly extraneous to the dominant purpose test. The hostel fee charged would obviously depend upon the facility provided to the students.

Having regard to the object and purpose for which the institution in question has been established by the trust and the mandate of the Dental Council of India in the gazette notification of the year 2007, we find that it is one of the primary duties and objects of the trust to establish, maintain and managed halls and hostel for the residence of the students studying in the institutions established by it. The institution in question being a residential institution, its activity in maintaining the hostel by charging hostel fee (for its maintenance and providing mess facility) is an integral part of the main activity "education" of the assessee. The hostel and mess facility subserves the main object and purpose of the trust and and are inseparable part of its academic activity. It would be unrealistic to segregate the said activity and treat the same as business. A clear distinction is to be made between the activity which is though ancillary or incidental to the main activity but a distinct activity and the one which is an integral or incidental part of the main activity as one single activity.

Such a distinction has been drawn by the Division bench of this Court in Swadeshi Cotton Mills2 wherein this Court was dealing with the batch of cases where different bodies were running canteens. One of the cases was concerned with the Aligarh Muslim University which was maintaining dining halls where it was serving food and refreshments to its resident students. Referring to the observations of the Apex Court in University of Delhi4 It was held therein that it was incongruous to call educational activities of the University same as "carrying on business". The activity of serving food in the dining hall was a minor part of the overall activity of the University. The dining hall service was held to be an integral part of the university while imparting education to the students. It was observed that the dining hall service is indissolubly blended with, and is an inseparable component of educational activity of the university. On the said reason, it was held that the activity of the Aligarh Muslim University of providing food to its residential students is such a minor, subordinate and insignificant part that it would be unreasonable to allow this work to lend a business colour to the university so as to make it an institution carrying on the business of sale of food, for holding it liable to be taxed.

Similarly in the Indian Institute of Technology1, the Division Bench of this Court considering the two above noted decisions has held that:-

"19.The distinction laid down in the aforesaid decisions between a case, on the one hand, where the principal activity of an institution is doing business in a commercial way, and, on the other hand, a case

where its principal activity is predominantly academic or charitable and an activity which may appear to have some incidents of business is only minor, subsidiary and incidental to the principal activity and is an integral part of it, is apposite and affords valuable guidance."

In the said case, the sale of foods stuff to the residents of the visitor's hostel maintained by the Institution (IIT) was subjected to tax under the U.P. Sales Tax. It was observed that it could not be said that the principal activity of the assesse was doing business in a commercial way of buying and selling food stuff. It was, thus, held that the principal activity of the assessee being predominantly academic and the supply of food stuff in its hostel was minor, subsidiary and incidental to the principal activity, it was an integral part of its academic activity.

The Apex Court in Commissioner and Sales Tax5 has held that the question of profit motive or non- profit motive would be relevant only where a person carries on trade, commerce, manufacture or adventure in the nature of trade, commerce etc. It was held that the sole object of the assessee trust therein was to spread the message of Saibaba of Shirdi. The books and literature etc. containing the message of Saibaba were distributed by the trust to the devotees of Saibaba at the cost price. There was no dispute that the primary and dominant activity of the trust was to spread the message of Saibaba. This main activity does not amount to "business". The activity of publishing and selling literature, books and other literature obviously, could not be business as such even without profit motive and it was in a way a

means to achieve the object of the trust through which message of Saibaba was spread.

In Mahatma Gandhi Kashi Vidyapeeth3, the Division Bench of this Court had considered the question as to whether the activity of the assessee therein amounted to business as defined under the U.P. Vat Tax Act' 2003. While interpreting the term "business" which includes any trade, commerce, or manufacture etc.in the definition under the said Act, the Court had held therein that if the main activity was not business then any transaction incidental or ancillary would not normally amount to business unless an independent intention to carry on the business activity, incidental or ancillary, was established. It was held that emphasis has to be laid on the main activity of the person to fall within the definition of business. The inclusion of incidental or ancillary activity in the definition of business presupposes the existence of trade, commerce etc. In the light of the above discussion, considering the definition of "business" under Section 2(13) of the Act ; "Charitable purposes" under Section 2(15) as also the provisions of Section 11, 11(4A) and 12-AA of the Act, in the fact and circumstances of the case, it is apparent that the principal activity of the petitioner is pre-dominantly academic and charging of fees for the accommodation provided to the students admitted in the dental education course, is minor, subsidiary and subservient to the principal activity and is an integral part of its academic activity. It cannot be said that the assessee's principal activity is doing business in a commercial way of letting out the accommodation.

Consequently, the petitioner cannot be said to be doing "business" in terms of sub-section (4A) of Section 11 and its activity of maintaining hostel and charging fees does not fall within the meaning of "business" under Section 2(13) of the Act. The hostel fee cannot be said to be income derived from the "business" of the trust. The said integral activity being directly linked to the attainment of the main objectives of the trust, the requirement of maintaining separate books of accounts with regard to such activity for seeking benefit of exemption under Section 11 (1) of the Act , therefore, not attracted.

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, 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.

The argument of the assessee further is that the balance as shown in the ledger of income and expenditure account of the hostel fees was in negative. There was no surplus over receipt. The assessee had not gained any profit out of the hostel activity. To prove the said point, the assessee had filed the balance sheet showing loss in the said activity.

As regards, the contention of Sri Praveen Kumar learned Advocate for the revenue that the profit motive or profit earning is not an element of any activity to be termed as business. He contends that in the literal parlance, business means any "occupation" and education being an industry or occupation as held in T.M.A Pai Foundation & others6, even an activity relating to or incidental to education has to be treated as business.

This contention of learned counsel for the revenue does not impress the Court, in as much as, it is settled that the taxing statute cannot be interpreted on any presumption or assumption. The Court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what it clearly expressed; it cannot imply anything which is not expressed; it cannot import provision in the statute so as to supply any assumed deficiency. [Reference Commissioner of Sales Tax, U.P. Vs. Modi Sugar Mills Ltd.10] (para 11).

The rule of construction of a taxing statute as discussed in Commissioner of Income Tax, Patiala Vs. M/s Shahzada Nand & sons & others11 is relevant:-

"In a Taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."

We may also note the statement of Hon'ble S.P. Bharucha, J. ( as the Hon'ble Judge then was) speaking for the bench in V.V.S. Sugars Vs. Govt. Of A.P. & others12 as a guiding principle. Relevant paragraph No.4 is quoted as under:-

"4. The said Act is a taxing statute and a taxing statute must be interpreted as it reads, with no additions and no subtractions, on the ground of legislative intendment or otherwise."

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 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 the result, the substantial question of law is answered in favour of the assessee.

considered by the Jurisdictional High Court of Allahabad, we direct the

Assessing Officer to delete the addition. Ground No. 1 with sub-grounds

is allowed.

account of depreciation on fixed assets.

noticed that the assessee has claimed depreciation of Rs. 2,58,53,432/–

in its Income and Expenditure Account. The Assessing officer was of the

firm belief that once the acquisition of assets is taken as application of

income for charitable purposes, value of assets stand written off fully and

no depreciation is allowable. The Assessing Officer, accordingly, made

addition of Rs. 2,58,53,432/- which was confirmed by the ld. CIT(A).

since its inception, the assessee has not claimed cost of assets as

application of income, therefore, there should not be any occasion to

disallow the claim of depreciation. The ld counsel further relied upon the

decision of the Hon'ble Supreme Court in the case of Rajasthan and

Gujarati Charitable Foundation 402 ITR 441 in support of the claim.

and have carefully perused the Fixed Assets Chart. We find force in the

contention of the ld. counsel for the assessee. The cost of assets has not

been claimed as application of income. Even otherwise, the position prior

to 01.04.2015 has been that even though the expenditure incurred for

acquisition of capital asset was treated as application of money for

charitable purposes under section 11(1A) of the Act, yet depreciation

would be allowed on assets so purchased as per the decision of the

Hon'ble Supreme Court in the case of Rajasthan and Gujarati Charitable

Foundation [supra]

Court the Assessing Officer is directed to delete the addition of Rs.

2,58,53,432/–. Ground No. 2 is accordingly allowed.

of loss on sale of fixed assets.

proceedings, the Assessing Officer noticed that loss on sale of fixed assets

amounting to Rs. 2,06,786/- was charged to the income and expenditure

account. The assessee was asked to justify its claim.

acquired/purchased for charitable purposes, acquisition/purchase was

not claimed as application and only the amount of depreciation was

charged from time to time. Therefore, loss on sale of such asset has to be

allowed as deduction.

Officer who made addition of Rs. 2,06,786/–, which was confirmed by the

ld.CIT(A.

stated before the lower authorities.

mentioned elsewhere, the assessee has not taken cost of fixed assets as

application of income. However, the detail of fixed assets, as on

31.03.2010, as exhibited at page 51 of the paper book, shows that the

assessee has claimed depreciation but the same has not been followed in

Block of Assets concept. In the block of assets concept, assets subject to

same rate of depreciation for a block and any sale of asset within the

block, would result in a loss only when the entire Written Down Value of

the block falls short of sale consideration.

forming part of block would lose its identity. Since the depreciation has

not been claimed under the block of assets concept, loss on sale of car

cannot be charged to income and expenditure account, but would go only

to reduce the WDV of the block of assets. We, therefore, do not find any

merit in the claim of the assessee. This ground is dismissed.

4968/DEL/2015 is partly allowed.

The order is pronounced in the open court on 12.11.2021.

Sd/- Sd/-

[KULDIP SINGH] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 12th November, 2021

VL/