SOCIETY FOR CREATIVE AND INTELLECTUAL DEVELOPMENT,GHAZIABAD vs. JCIT, GHAZIABAD

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ITA 3620/DEL/2015Status: DisposedITAT Delhi01 December 2016AY 2010-116 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal allowed the assessee's appeal. It held that running a hostel, including a mess for in-house students, is an incidental and essential activity for running an educational institution like a nursing college. Therefore, it is not a separate business activity, but rather integral and interconnected to the primary object of running the college. The Tribunal noted that the Assessing Officer's observation that no separate books of account were maintained was not a ground to dismiss the claim, as the objective of maintaining separate books is to ascertain the financial results of a particular activity, which can be achieved even if not strictly maintained separately, as demonstrated by the AO's own computation of income from hostel activities. The Tribunal respectfully followed its own decision in the case of Nightingale Education Society vs. JCIT (supra), which had identical facts and reasoning. The order of the AO, to the extent confirmed by the First Appellate Authority, was vacated.

What were the facts?

The assessee, Society for Creative and Intellectual Development, is an educational institution that filed its return of income for Assessment Year 2010-11 declaring NIL income. The Assessing Officer (AO) made an addition of Rs. 33,28,825/- on account of hostel surplus, treating it as business income under Section 11(4A) of the Income Tax Act, 1961. The AO rejected the assessee's contention that running the hostel was not a business, as the surplus was utilized for charitable purposes, was in line with AICTE norms, and the hostel was integral to the society's educational object. The AO also noted the absence of separate books of account for the hostel. The assessee appealed to the Commissioner of Income Tax (Appeals), who upheld the AO's order. The assessee then filed an appeal before the Income Tax Appellate Tribunal (ITAT). The assessee highlighted that similar assessments for prior and subsequent years did not result in such additions.

What were the issues?

1. Whether the surplus generated from running a hostel is to be treated as business income under Section 11(4A) of the Income Tax Act, 1961, when the hostel is integral to the educational activities of a society registered under Section 12AA and the surplus is utilized for charitable purposes. Assessee's Contention: The assessee argued that running the hostel is a composite and inseparable activity of its main educational object and cannot be treated as a separate business. They also contended that separate books of account are not mandatory if the entire surplus is used for the society's objects. The assessee relied on the AICTE norms requiring a hostel for student safety and security, and that the hostel is not for outsiders. They cited the ITAT decision in Nightingale Education Society vs. JCIT (ITA No.3323/Del/2015) for Assessment Year 2010-11, where similar observations by the AO were made, and the Tribunal held that running a hostel was an integral and interconnected activity to running a nursing college, not a separate business. Revenue's Contention: The revenue, through the Assessing Officer, treated the hostel surplus as business income under Section 11(4A). The AO noted that while AICTE has conditions for maintaining a hostel, there is no condition for generating surplus. The AO also pointed out that the fees charged were comparable to market prices and that no separate books of account were maintained.

Which sections of the Income-tax Act were involved?

Section 11(4A),Section 12AA,Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH “SMC-1”, NEW DELHI

Before: SHRI S.V. MEHROTRA

For Appellant: Shri Sanjeev Jain, CA
For Respondent: Shri S. K. Jain, Sr. DR

O R D E R PER S.V. MEHROTRA, A.M :

This is an appeal filed by the assessee against the order dated 27.03.2015 passed by the Commissioner of Income Tax (Appeals), Ghaziabad, u/s 143(3) of the Income Tax Act, 1961 (in short “the Act”) relating to A.Y. 2010-11. 2. Brief facts of the case are that the assessee’s society was registered with the Registrar of Society, Delhi vide No.S-28752 of 2005 on 15.12.2005. It was granted Registration u/s 12AA of the Act by Ld. Commissioner of Income Tax, Meerut vide order C.No.40(27)/Regn/GZB/1997-98/19097 dated 31.12.1997. The assessee was running an Institution in the name & style of “Shiva Institute of Management Studies” at 365-365, Pandav Nagar, Industrial Area, NH-24, BSR Road, Ghaziabad. The assessee had filed return of income declaring NIL income. The Assessing Officer made an addition of Rs.33,28,825/- on account of surplus of hostel treating the same as business income u/s 11(4A) of the Act. He rejected the assessee’s claim that activity of running hostel was not a business because surplus was utilized for charitable purposes and it was as per requirement of AICTE norms and hostel was not isolated unit and was inclusive of the main object of the society i.e. education. The Assessing Officer also pointed out that no separate books of account had been maintained. At the outset, Ld. counsel pointed out that in assessee’s own case for subsequent years and earlier years no addition had been made by Assessing Officer. In this regard, he referred to following assessment orders :-

Assessment Year Page No. of Paper Book 2006-07 15 2007-08 61 2008-09 74 2009-10 86 2011-12 122

3.

He pointed out that these assessments, except for Assessment Year 2008-09, were u/s 143(3) of the Act and in none of the year, addition had been made on this count. He pointed out AICTE norms required maintaining hostel which is not meant for outsider. Ld. counsel referred to the decision in the case of Nightingale Education Society vs. JCIT in for Assessment Year 2010-11, order dated 10.11.2015 and pointed out that similar observation was made by the Assessing Officer as is evident from para 3 – 4 of Tribunal’s order. He pointed out that the Tribunal allowed the assessee’s appeal, inter-alia, observing that running of hostel was not a separate business activity but integral and interconnected to running a nursing college. He pointed out that this decision is applicable to the facts of the present case.

4.

I have considered the submissions of both the parties and had perused the record of the case. I find that Assessing Officer has inter-alia observed as under :-

“Perusal of record shows that the assessee is running hostel. No separate books of accounts have been maintained. The assessee has claimed that activity of running hostel is not a business because it is utilized for charitable purpose and it is as per requirement of ACITE norms and hostel is not an isolated unit, it is inclusive of the main object of society i.e. education. In this regard it is to submit that undoubtedly certain condition has been fixed for maintaining hostel to certain extent by AICTE but nowhere condition of generating surplus has been mentioned. Had it not been business the assessee could have reimbursed its surplus to the beneficiaries or the members of the hostel, else could have reduced the cost of subsequent year to the fees charged from per student. It is further to point out that the charge of fees per student is also comparable with market price which ranges between Rs. 3,000/- to Rs. 4,000/-; per student. During the course of assessment assessee has submitted its reply which is perused and found that assessee has relied upon the claim of exemption on the Hostel receipt on following two scores. i) Hostel, transportation is a composite activity of the main object of the society, it is non separable and cannot be treated as business. ii) The maintenance of separate books of accounts is not mandatory and It is not required as the whole surplus of organization is used for attainment of object of the society i.e. education.”

5.

Identical observations were made in the case of Nightingale Education Society (supra) by Assessing Officer which is evident from para 2 of Tribunal’s order wherein Tribunal has, inter-alia, reproduced following observations of Assessing Officer :-

“3. Assessment of surplus of mess/Hostel as business income u/s 114(A) of the Act and disallowance of Hostel expenses as application. Perusal of record shows that the assessee is running hostel and received Rs. 71,87,825/- on account of hostel mess. No separate books of accounts have been maintained. The assessee has claimed that activity of running hostel not a business because it is utilized for charitable purpose and it is as per requirement of ACITE norms and hostel is not an isolated unit, it is inclusive of the main object of the society i.e. education. In this regard it is to submit that unfortunately certain condition has been fixed for maintaining hostel to certain extent by AICTE but nowhere condition of generating surplus has been mentioned. Had it not been business the assessee could have reimbursed its surplus to the beneficiaries or the members of the hostel, else could have reduced the cost of subsequent year to the fees charged from per student, it is further to point out that the charge of fees per student is also comparable with market price which ranges between Rs. 3,000/- to 4,000/- per student. During the course of assessment assessee has submitted us reply which is perused and found that assessee has relied upon the claim of exemption on the Hostel receipt on following two scores. (i) Hostel, transportation is a composite activity of the main object of the society it is non-separable and cannot be treated as business;

(ii) The maintenance of separate books of accounts is not mandatory and it is not required as the whole surplus of organization is used or attainment of object of the society i.e. education; (iii) The society is running a nursing college and students are mainly girls to prove them safe and secure environment hostel is must for the institute; (iv) Hostel is not meant for outsiders.”

6.

Ld. counsel has pointed out that the hostel is not for outsider. Thus, the facts of the present case are identical to the facts in the case of Nightingale Education Society (supra) wherein it has been held in para 7 and 7.1 as under :-

“7. In my considered view, running of a hostel, which included a mess for the in house students, is an incidental activity, essential for running a nursing college. Thus it is not a separate business activity as held by the revenue authorities. It is not only incidental, but it is also integral and interconnected to running a nursing college. Hence the question of maintaining separate books of accounts does not arise. Thus the order of the A.O. to the extent confirmed by the First Appellate Authority is hereby vacated. 7.1 Even otherwise the A.O. was able to arrive at the revenues and expenses connected and relatable to the activity of running hostels and mess by the assessee. He had brought the surplus to tax by separately computed the income from these activities. This demonstrates that the claim of the Revenue that no separate books of accounts are maintained is to be dismissed for the reason that, the object of maintenance of separate books of accounts is only for the purpose of ascertaining the financial results of that particular activity. And this object is achieved, the question of holding that there is violation of S.11(4A) of the Act does not arise.”

7.

Respectfully, following the decision of the Tribunal in the case of Nightingale Education Society (supra), the assessee’s appeal is allowed.

8.

In the result, the assessee’s appeal is allowed. Order pronounced in the open court on this 01st day of December, 2016.

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