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2016 (10) TMI 968 - AT - Income TaxEligibility of exemption u/s 11-12 - whether the hostel facility of the school provided exclusively to students of the dental college is not an integral part of education u/s 2(15) ? - maintain separate books of accounts for claiming exemption with respect to profits/income over expenditure earned from such activitiesHeld that - CIT(Appeals) has given a categorical finding that no separate books of accounts for hostel activities were undertaken. Having relied upon the judgment of DIT(E) v. Willington Charitable Trust 2010 (10) TMI 153 - Madras High Court he denied the benefit of exemption u/s. 11 of the Act with respect to hostel activities. Even during the course of hearing, these findings of CIT(Appeals) was not controverted and therefore, of the view that in the absence of separate books of accounts, the assessee is not entitled for benefit of exemption u/s. 11 of the Act with respect to hostel activities and in light of these facts, if any depreciation with respect to hostel activities are already allowed while calculating the income/other expenditure from the main activities of the assessee, the same may be disallowed in accordance with law. Therefore, no infirmity in the order of CIT(Appeals) and accordingly confirmed - Decided against assessee
Issues Involved:
1. Whether the hostel facility provided by the assessee is an integral part of "education" under section 2(15) of the Income-tax Act. 2. Whether the hostel activity is a separate business activity under section 11(4A) of the Income-tax Act. 3. Whether the assessee maintained separate books of accounts for the hostel activities as required under section 11(4A). 4. Whether the disallowance of ?34,88,089/- out of total expenses incurred against the hostel activity was justified. Issue-wise Detailed Analysis: 1. Integral Part of "Education" under Section 2(15): The assessee contended that the hostel facility is an integral part of the educational activities, thus qualifying for exemption under section 11. The CIT(A) rejected this argument, stating that the hostel activity is an independent activity and cannot be termed as incidental to running an educational institution. The CIT(A) relied on the definition of "charitable purpose" under section 2(15) and judicial pronouncements, including the Supreme Court's decision in Trustees Lokshikshan Trust vs. CIT, which clarified that "education" refers to systematic instruction and schooling, not extending to activities like running a hostel. 2. Separate Business Activity under Section 11(4A): The CIT(A) held that even if the hostel activity is considered incidental to the main educational activities, the assessee is not entitled to exemption under section 11(4A) because it did not maintain separate books of accounts for the hostel activities. The CIT(A) emphasized that the hostel fees charged were comparable to market rates, indicating a commercial motive. Therefore, the hostel activity was considered a separate business activity. 3. Maintenance of Separate Books of Accounts: The assessee argued that it maintained separate accounts for hostel activities, showing a deficit. However, the CIT(A) found that the assessee did not maintain separate books of accounts as required under section 11(4A). The Tribunal also confirmed this finding, stating that the absence of separate books of accounts disqualified the assessee from claiming exemption under section 11 for the hostel activities. 4. Disallowance of ?34,88,089/-: The CIT(A) upheld the disallowance of ?34,88,089/- out of total expenses incurred against the hostel activity, stating that the assessee could not substantiate its claim. The Tribunal agreed with this finding, noting that the assessee failed to produce separate books of accounts for the hostel activities, justifying the disallowance. Conclusion: The Tribunal confirmed the CIT(A)'s order, denying the benefit of exemption under section 11 for the hostel activities due to the failure to maintain separate books of accounts. The Tribunal also upheld the disallowance of ?34,88,089/- related to hostel expenses. The appeal of the assessee was dismissed. Pronouncement: The judgment was pronounced in the open court on September 21, 2016.
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