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Income Tax Appellate Tribunal, DELHI BENCH “D ”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. These are the appeals filed by the assessee against the order of the ld CIT(A)-Ghaziabad dated 02.03.2015 and 10.09.2015 for the Assessment Year 2010-11 and 2011-12. 2. The assessee has raised the following grounds of appeal in Assessment Year 2010-11:- “1. That on the facts and circumstances of the case and in the law the learned commissioner of income-tax (Appeals) has grossly erred in confirming the additions made by Assessing Officer treating Hostel facility provided to college students as business of the appellant society considering the alleged surplus of Rs. 61,08,599/- as business income in the hand of appellant society. The observation made and basis adopted are erroneous, unjustified, unwarranted, bad in law and are without sufficient material on records.
2. That the Learned Commissioner of Income-tax ( Appeals) has grossly erred in confirming the additions made by A.O. holding that hostel/ mess facility for students is separate business activity in terms of section 11(4A) merely on irrelevant consideration like surplus should have been reimbursed to students or used to reduce fee or giving contents of some website about fall in demand for rooms at Meerut etc, even after accepting that maintenance of such hostel is mandatory as per the concerned controlling Authority and it was an integral and inalienable part of educational activity. Thus finding is perverse.
3. That the learned assessing officer has failed to appreciate the fact that maintaining hostel/mess facility to students is an essential & integral part of “education” u/s 2(15) of the Act and not a separate business activity covered under section 11(4A) as also accepted in the past assessments and there is no change in law about the first three limbs of section 2(15) even after 01.04.2009, , hence overall surplus of the society as worked out in Income & Expenditure account of the society and consequently used and invested in the fulfillment of the main objectives of the society resulting into Kanha Charitable Trust Vs. Addl. CIT, ITA No. 3297 & 5987/Del/2015 (Assessment Year: 2010-11 and 2011-12) application of income and as such exempt under the provisions of section 11 to 13 of the Act and learned Commissioner of Income- tax (Appeals) has also confirmed the view taken by Assessing officer.
4. That the Learned Commissioner of Income-tax ( Appeals) has also erred on facts and in law to confirm the disallowance made by Assessing officer Rs. 1,89,91,092/- being the deprecation as claimed by debiting the same to the Income & Expenditure Account of the Society for the purposes of working out the surplus in the hands of the society. The assessing officer has failed to bring any material on records to establish that the appellant has availed hundred percent application of the value of capital expenditure in the year of investment thereby inviting disallowance of the depreciation on such capital expenditure quoting double deduction. During the course of assessment proceedings, the Society‟s council has submitted details of Gross Income and its Application of income of relevant year and preceding five years to justify that addition in Fixed Assets could not be utilized as application of income in past years due to excess utilization in past years, hence the same could not be termed as double claim of depreciation. Hence the disallowance of the depreciation is not only unjustified but it is illegal and bad in the eyes of law.”
The assessee has raised the following grounds of appeal in Assessment Year 2011-12:-
1. That on the facts and circumstances of the case and in the law the learned commissioner of income-tax (Appeals) has grossly erred in confirming the additions made by Assessing Officer treating Hostel facility provided to college students as business of the appellant society considering the alleged surplus of Rs. 14,22,076/- as business income in the hand of appellant society. The observation made and basis adopted are erroneous, unjustified, unwarranted, bad in law and are without sufficient material on records.
2. That the Learned Commissioner of Income-tax ( Appeals) has grossly erred in confirming the additions made by A.O. holding that hostel/ mess facility for students is separate business activity in terms of section 11(4A) merely on irrelevant consideration like surplus should have been reimbursed to students or used to reduce fee or giving contents of some website about fall in demand for rooms at Meerut etc, even after accepting that maintenance of such hostel is mandatory as per the concerned controlling Authority and it was an integral and inalienable part of educational activity. Thus finding is perverse.
3. That the learned assessing officer has failed to appreciate the fact that maintaining hostel/mess facility to students is an essential & integral part of “education” u/s 2(15) of the Act and not a separate business activity covered under section 11(4A) as also accepted in the past assessments and there is no change in law about the first three limbs of section 2(15) even after 01.04.2009, , hence overall surplus of the society as worked out in Income & Expenditure account of the society and consequently used and invested in the fulfillment of the main objectives of the society resulting into application of income and as such exempt under the provisions of section 11 to 13 of the Act and learned Commissioner of Income- tax (Appeals) has also confirmed the view taken by Assessing officer.
4. That the Learned Commissioner of Income-tax ( Appeals) has also erred on facts and in law to confirm the disallowance made by Assessing officer Rs. 2,07,65,942/- being Page | 2 Kanha Charitable Trust Vs. Addl. CIT, & 5987/Del/2015 (Assessment Year: 2010-11 and 2011-12) the deprecation as claimed by debiting the same to the Income & Expenditure Account of the Society for the purposes of working out the surplus in the hands of the society. The assessing officer has failed to bring any material on records to establish that the appellant has availed hundred percent application of the value of capital expenditure in the year of investment thereby inviting disallowance of the depreciation on such capital expenditure quoting double deduction. During the course of assessment proceedings, the Society‟s council has submitted details of Gross Income and its Application of income of relevant year and preceeding five years to justify that addition in Fixed Assets could not be utilized as application of income in past years due to excess utilization in past years, hence the same could not be termed as double claim of depreciation. Hence the disallowance of the depreciation is not only unjustified but it is illegal and bad in the eyes of law.”
Brief facts of the case is that the assessee is a trust registered u/s 12AA of the Act and, also recognized u/s 80G(5) of the Income Tax Act, 1961. It is running an engineering college under the name and style of “Krishna Institute of Management and Technology” at Moradabad. Over and above the educational fees it also receives hostel fees and transportation fees and also earn interest on the surplus funds.
For AY 2010-11 it filed its return of income on 31.08.2010 declaring Nil income. The assessment u/s 143(3) of the Act was passed by the ld Assessing Officer on 28.03.2013 determining the total taxable income of the assessee at Rs. 6108599/-. The ld Assessing Officer has held that hostel receipts earned by the assessee of Rs. 9297000/- does not fall under the definition of education as per section 2(15) of the Act. According to the ld Assessing Officer the hostel fees earned by the assessee is a business activity. He therefore held that assessee should have maintained separate books of account as provided u/s 11(4A) of the Act. Though ld Assessing Officer treated the hostel facilities as business income of the assessee however, out of total expenditure shown of Rs. 10317499/- of hostel expenditure he only allowed Rs. 3188401/- out of salary, electricity, interest, gardening and other expenses as well as bus running and maintenance expenses. The ld Assessing Officer further disallowed the depreciation of Rs. 2019769/- relying on the decision of the Hon'ble Supreme Court in case of Escorts Ltd and Hon'ble Kerala High Court in case of Lissie Medical Institution. 6. Assessee aggrieved with the order of the ld Assessing Officer preferred appeal before the ld CIT(A), who vide order dated 02.03.2015 dismissed the appeal of the assessee. 7. Aggrieved the assessee preferred appeal before us. 8. The limited issues in the present appeal is whether the hostel facilities provided to college students is part of the „educational activity‟ of the assessee or is carried out as business by the Page | 3 Kanha Charitable Trust Vs. Addl. CIT, & 5987/Del/2015 (Assessment Year: 2010-11 and 2011-12)
appellant society. If it is a business then whether the assessee should have maintained a separate books of account or not. The second issue involved in the appeal is that assessee is entitled to deprecation of Rs. 18991092/- as debited in the income and expenditure account.
On the first issue the ld Authorised Representative submitted that now the above issue is covered in favour of the assessee in view of the decision of Hon'ble Karnataka High Court in CIT Vs. Karnataka Lingayat Education Society dated 15.10.2014 wherein, it has been held that providing hostel to the students and staff working in the society is incidental to achieve the object of providing education which is the object of the society.
On the second issue he submitted it is now covered by the decision of the Hon'ble Delhi High Court in Case of DIT (Exemption) versus M/s Indraprastha Cancer Society ITA No. 240/2014 dated 18/11/2014 in favour of the assessee.
The ld DR vehemently relied on the orders of the lower authorities.
We have carefully considered the rival contentions and perused the orders of the lower authorities. With respect to the hostel facilities provided by the assessee society we have decided the identical issue in case of Krishna Charitable Society Vs. Addl CIT, Range-1, Ghaziabad in ITA No. 4639/Del/2015 for Assessment Year 2011-12 dated 15.09.2017 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 tax 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 students who are not parted education in the above institutes. It was also not 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 ITA No. 5004/2012 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 Institute of Technology v. State of U.P. (1976) 38 STC 428 (All) with respect to the 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 Page | 4 Kanha Charitable Trust Vs. Addl. CIT, & 5987/Del/2015 (Assessment Year: 2010-11 and 2011-12)
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. can not 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. In the result Ground No. 1 – 3 of the appeal of the assessee are allowed.”
The facts and circumstances of the case is identical to the facts before us. The ld DR could not submit a single incident where the hostel facilities and transport facilities were provided to anybody other than students and staff of the trust. In view of this, we reverse the finding of the lower authorities and held that transport and hostel facilities are part of the „educational activities‟ of the assessee and they cannot be considered different then activities of the society of „education‟. The hostel and transport facilities is incidental to achieve the object of providing education as per object of the trust. In view of this ground No. 1 to 3 of the appeal are allowed.
Ground No. 4 of the appeal is with respect to the depreciation which is covered in favour of the assessee by decision of Hon'ble Delhi High Court in DDIT Vs. Indraprastha Cancer Society dated 18.11.2014. Therefore, respectfully following the decision of the Hon'ble Delhi High Court where the decision of the Hon'ble Supreme Court relied upon by the ld Assessing Officer are considered, ground No. 4 is allowed directing the Assessing Officer to delete the disallowance of depreciation of Rs. 18991092/-.
In the result in ITA No. 3297/Del/2015 filed by the assessee is allowed.
Now we come to the Assessment Year 2011-12, both the parties agreed that all the grounds of this appeal are similar to the grounds of appeal
of the assessee for AY 2010-11. They also stated that their arguments are also similar.
17. We have carefully considered the rival contentions and also perused the orders of the lower authorities and are convinced that issue involved in this appeal are similar to the issues in appeal of the assessee for AY 2010-11. Therefore, for the similar reason as given by us while deciding ground No. 1 to 3 of the appeal for AY 2010-11 we also allow ground No. 1 to 3 of Page | 5