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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-2’, NEW DELHI
Before: SHRI J. SUDHAKAR REDDY
This is an appeal filed by the Assessee directed against the order dated 12.2.2015 of the Ld.Commissioner of Income Tax (Appeals)-I, Noida pertaining to the Assessment Year (A.Y.) 2010-11.
Facts in brief:- The Assessing Officer has brought out the facts of the case from page 1 to 3 of his order which is extracted for ready reference. “This is a case of society which was Registrar of Society, U.P. vide registration no.377/2003-04 on 14.7.2003. The society has been granting registration u/s 12AA of the Income Tax Act, 1961 (the Act) by the then Ld.CIT, Ghaziabad vide order no. C.No.57(32)/Registration/Gzb/2003-04/3471 dt. 20.11.2003. In this case return of income was filed on 30.09.2010 declaring Nil income. The case was selected under scrutiny through CASS and statutory notice u/s 143(2) dated 13.09.2011 was. issued and properly served upon the assessee within stipulated time as per law. On change of incumbent another notices u/s I43(2) and 142(1) along with detailed questionnaire dated 0l.06.20l2 dated 01.06.2012 were issued fixing the date for compliance on 08.06.2012. Again on change of incumbent another notices u/s 143(2) dated 07.11.2012 was issued to the assessee fixing the date for compliance on 20.11.2012. In compliance these notices Shri Mukesh Jain, FCA/Authorized Representation of the assessee attended the proceedings from time to time and furnished
~ 2 ~ necessary details/explanation as called. The books of accounts produced, have been test checked. The case was discussed with him. 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.”
For the various reasons given in his order the A.O. held that, the activity of running of hostel and transportation are business activities. He rejected the claim of the assessee that these activities are incidental to its main objective of education and that, running of a hostel and mess is mandatory as per the regulations.
~ 3 ~ 3.1. He was of the view that the assessee violated S.13(1)(bb) of the Act. He further held that the assessee has not maintained separate books of accounts as required under the statute and hence exemption u/s 11 of the Act is to be denied.
Aggrieved the assessee carried the matter in appeal. The First Appellate Authority extracted the order of the A.O. from page 2 to page 17 of his appellate order. There after he reproduced the grounds as well as the written submissions of the assessee from page 17 to page 25 of the order. Thereafter at page 26 he concluded that the income from the hostel/mess activity, is business income and as the assessee society has failed to maintain separate books of accounts for this activity, there is violation of provisions of S.11 (4A) of the Act. Thus he held that the income from hostel and mess activities are liable to be taxed for violations of S.11(4A) of the Act.
Aggrieved the assessee is in appeal before me.
After hearing rival contentions I find that the assessee is running a nursing college, and the students are mainly girls. It was also submitted that the All India Counsel for Technical Education has laid down rules that such nursing colleges should maintain hostel for providing the students a safe and secured environment. These facts are not controverted by the revenue authorities. The only ground on which the AO has come to a conclusion that the running of the hostel is business, was the fact that certain surplus was generated in this activity.
In my considered view, running of a hostel, which included a mess for the inhouse 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 AO to the extent confirmed by the First Appellate Authority is hereby vacated.
~ 4 ~ 7.1. Even otherwise the AO 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.
In the result assessee’s appeal is allowed.
Order pronounced in the Open Court on 10th November,2015.