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Income Tax Appellate Tribunal, DELHI BENCH: ‘G’ NEW DELHI
Before: SHRI N. K. SAINI & MS SUCHITRA KAMBLE
This appeal is filed by the assessee against the order dated 13/05/2015 passed by CIT(A), Ghaziabad for Assessment Year 2010-11.
The grounds of appeal are as under:-
1. That the Ld. CIT(A) Ghaziabad erred on facts, surrounding circumstances and in law in sustaining impugned estimated addition of Rs. 794030/-, on extraneous, irrelevant, illogical and hypothetic grounds having no legal sanctity, thereby ignoring the well settled law of hon’ble Supreme Court that in case of ‘ambiguity’ provisions to be construed in manner that benefits assessee.
That the Ld. CIT(A) further erred on facts and surrounding circumstances 2. in failing to appreciate that the said hostel had been established inside the campus of educational institution, solely for providing boarding and lodging facilities to its own students at moderate charges and that too, in compliance with the obligatory norms, standard guidelines and requirement of AICTE coupled with own objects of the society completely based on bare necessity and welfare of its own students with no element of business or profit motive.
3. That the Ld. CIT(A) also erred on facts, surrounding circumstances and in law in failing to appreciate that the said hostel, situated within the campus and exclusively meant for its own students cannot be treated at par with the commercial hostels, (having business and profit motive) located in town/city, owned by private persons and are being utilized for general public, having no linkage with any educational institution.
That the Ld. CIT(A) further erred on facts, surrounding circumstances and 4. in law in ignoring the fact that the said hostel being an integral part of the educational institutions, the surplus remaining at the end of the year is transferred to the corpus fund and is utilized in consonance with provisions of sections 11 and 12 of I.T. Act.
That the Ld. CIT(A) also erred on facts, surrounding circumstances and in 5. law, ignoring the vital fact that no depreciation has ever been claimed, which in turn, lends support to the genuine plea of the appellant that the hostel that is not a business/ commercial asset and its surplus cannot be construed as ‘profit’. Likewise, there is also no legal requirement for maintenance of separate books of account, as its hostel running is not a business activity.
That without prejudice to above, the department has not brought any material of whatsoever nature, on record in support of its case and therefore the entire assessment and appellate proceedings prima facie are based on speculation, assumptions, presumptions, misconception, misinterpretation and mis-conclusion.
7. That considering the totality of surrounding circumstances coupled with mis applicability of the concept of ‘business’ or ‘profit’ the impugned first appellate order is liable to be quashed in the interest of equity and justice.”
The assessee is an educational society registered with Registrar of Scoieties, Meerut, registered on 18.12.2000. The assessee is also registered u/s 12AA and u/s 80G of the Income Tax Act, 1961. The assessee is affiliated with various universities and boards. The assessee filed its return of income on 19.01.2011 declaring Nil income. During the F.Y. 2009-10, the assessee received Rs.18,29,000/- hostel fees from students. The Assessing Officer completed the assessment at total income of Rs. 12,65,900/- by making addition of Rs. 12,65,900/- in two heads i.e. Income from business amounting to Rs. 7,94,030/- and Income from other sources amounting to Rs. 4,71,874/-.
Being aggrieved by the Assessment Order the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
The Ld. AR submitted that the collection of the hostel fees is not a business activity. Students are selected through councils of universities and boards by conducting state level entrance examinations in which students belonging to all over U.P. and other states also take part, so it is the responsibility of the assessee to provide boarding and lodging facilities to the students which is also a condition by universities and boards while granting approvals to the assessee. The bye laws of the assessee society also permits to provide the hostel facility to the students which is an essential part and parcel of the educational activity because no education can be provided to any student without boarding and lodging facility either he/she is a day scholar or hostelier. The Ld. AR further submitted that all the students using the hostel facility belongs only to the assessee institutes and no outside student is allowed to take any facility of the hostel. The comparison of commercial hostels with the assessee hostel by the Assessing Officer is not proper as those hostels are running only for profit & commercial purpose and not providing educational activity. The Ld. AR further submitted that in case of the assessee there is full occupancy in the hostel and the students are provided all the basic amenities including security at very nominal fees. There is no profit motive involved in providing hostel facility. The Ld. AR submitted that the students have been given other facilities as well such as library, conference hall, class room etc. and hostel building is part of these facilities and cannot be separated from these other activities. Most of the expenses are incurred jointly and it is not possible to bifurcate and allocate these expenses separately. The Ld. AR submitted that only mess expenses are a direct expenditure related with the hostel which is separately shown in the income and expenditure account of Rs. 6,69,600/-. The Ld. AR further submitted that any surplus remained at the end of the year is transferred to the corpus fund and is utilized as per Section 11 and 12 of the Income Tax Act, 1961. From the audit report it is clear that the assessee has applied more than 85% of its receipts on the educational purposes. The Ld. AR further submitted that there is no separate account opened for the hostel and all the hostel fees is deposited with the institutes accounts running under the society. The Ld. AR submitted that no depreciation was claimed by the assessee on hostel building and other hostel assets as the hostel activity is not a commercial activity so it is not necessary to maintain separate books of accounts. The Ld. AR further submitted that as per Section 11(4A) of the Act, the business activities are exempt if the activities are provided by charitable organizations to the attainment of the objectives on the organization. The Ld. AR submitted that there is another addition of Rs. 4,71,874/- which was made in the head of income from other sources as accrued interest on FDR’s while the assessee has taken the amount of interest which was actually received (i.e. on maturity of FDR) during the year. The assessee has never taken the accrued interest on FDR’s in the past years which is its accounting policy and is followed every year. Therefore, the Ld. AR submitted that the CIT(A) and Assessing Officer was not correct in making these additions. The Ld. AR relied upon the decision of the Hon’ble Uttarakhand High Court in case of Mallikarjun School Society vs. CCIT (2018) 90 taxmann.com 160 and also relied on the order of the Tribunal in case of Krishna Charitable Society vs. Addl. CIT in order dated 15.09.2017. The Ld. AR also relied upon the order of Tribunal in case of Delhi Public School Ghaziabad, Society vs. ACIT being ITA No. 3593/Del/2015 dated 08.05.2018.
6. The DR relied upon the Assessment Order and the order of the CIT(A).
We have heard both the parties and perused all the records. It is pertinent to note that all the students using the hostel facility belongs only to the assessee institutes and no outside student is allowed to take any facility of the hostel. This fact was not disputed by the Revenue at any point of time. The Assessing Officer has not brought on record that the hostel fees are utilized for the purpose other than the education of the students which are availing facility of hostel. It is therefore, clear that the material on record suggests that hostel facility is only for providing the accommodation to the students who are not the resident of the state where the assessee institute is operating. The Ld. AR also pointed out that the bye laws of the assessee society also permits to provide the hostel facility to the students which is an essential part and parcel of the educational activity because no education can be provided to any student without boarding and lodging facility either he/she is a day scholar or hostelier. In case of Krishna Charitable Society vs. Addl. CIT similar question had arisen. The co-ordinate bench held as under:
“11. We have carefully considered the rival contentions and perused the orders of the lower authorities and other judicial pronouncement placed before us. In the grounds No. 1 – 3 assessee is contesting that addition made by the Ld. Assessing officer treating hostel places provided to college student as business of the society and text the alleged surplus of Rs. 9887873/- as business income of the appellant. It was not the case of the revenue that assessee has rented out these hostels to the case of revenue that assessee is primarily engaged in the business of providing hostel facilities to the students. The above issue is no more res integra in view of the decision of the Hon’ble Karnataka High Court in CIT versus Karnataka lingayat education society in dated 15.10.2014 wherein it has been held that providing hostel to the students/staff working for the society’s incidental to achieve the object of providing education, namely the object of the society. In view of this we are of the opinion that providing of hostel facilities and transport facilities to the student and staff member of the educational Institute cannot be considered as business activity but is subservient to the object of educational activities performed by the society. We are also supported by our view by the decision of the Hon’ble Allahabad High Court in IIT versus state of UP, (1976) 38 STC 428 (All) wherein question arose in Indian visitors’ hostel maintained by the Indian Institute of Technology where lodging and boarding facilities were provided to persons who would come to the Institute in connection with education and the academic activities of the Institute. It was observed that the statutory obligation of maintenance of the hostel, which involved supply, and sale of food was an integral part of the objects of the Institute nor could the running of the hostel be treated as the principal activity of the Institute. The Institute could not be held to be doing business. Further meals being supplied in a hostel to the scholars, visitors, guest faculty etc. cannot be exigible to sales tax where main activity is academics as held in Scholars home Senior Secondary School 42 VST 530. Further, the reliance placed by the lower authorities on the decision of the Hon’ble Madras High Court in case of DCIT versus Wellington charitable trust is also misplaced because in that case, the only activity of that particular trust was renting out of the property and not education. We are also not averse to considering the latest legal developments too where in the recently introduced new legislation of Goods and service tax it is provided that no GST would be chargeable on the hostel fees etc. recovered from the students, faculties and other staff for lodging and boarding as they are engaged in education activities. Therefore we reverse the finding of the lower authorities and held that transport and hostel facilities surplus cannot be considered as business income of the assessee society which is mainly engaged in business activities and these activities are subservient to the main object of education of the trust.”
The Hon’ble High Court in case of Mallikarjun School Society (supra) held that an educational institute will not cease to be one existing solely for educational purposes since the object is not to make profit. In present case also the assessee society will not ceased to exist as educational institute because it is providing hostel facility, as it is an incidental to the education purpose of the assessee society. Therefore, in view of the Hon’ble Uttarakhand High Court decision in case of Mallikarjun School Society (supra) and orders of the co- ordinate bench in case of Krishna Charitable Society as well as Delhi Public School Gaziabad, the hostel facility provided by the assessee society is not in the nature of business and is incidental to the attainment of the main object of the providing education to students. Therefore, provisions of Section 11(4A) will not be applicable to the assessee. Hence appeal of the assessee is allowed.
In result, appeal of the assessee is allowed. 8.
Order pronounced in the Open Court on 31st May, 2018.