2018 (5) TMI 1482 - AT - Income Tax

Exemption u/s 11 - charitable purpose u/s 2(15) - Whether or not the activity of running school buses exclusively for the facility of the students and staff, is an intrinsic part of the activity of running a school? - Held that - the transport facility is not provided to the outsider - the transport activities of the assessee trust are not in the nature of business, inasmuch as the transport is also incidental to the attainment of the main object of the trust of the education - thus section 11(4A) does not apply - decided in favor of assessee

Summary

Issues:
1. Whether running transport by an educational institution falls under the definition of education u/s 2(15) of the IT Act?
2. If the above activity is not covered under education, whether it is a charitable activity u/s 2(15) of the IT Act?
3. If the activity is commercial, whether it is incidental to the running of the school?
4. If it is incidental, whether separate books of accounts are mandatory as provided in section 11(4A) of the IT Act?

Analysis:
1. The appellant, an educational institution running a school with transport facilities, challenged the disallowance of a sum related to the transport activity by the Assessing Officer (AO) under Section 2(15) of the IT Act. The AO contended that the surplus generated from the transport business was not distributed to students, indicating a commercial motive. The AO also disallowed depreciation based on legal precedents.

2. The Commissioner of Income-tax (Appeals) (CIT(A)) raised four core questions, determining that the fee charged was commercial, not charitable, and the institution did not qualify for exemption under Section 11(4A) of the Act. The appellant argued that the transport activity was integral to education, falling within the definition of 'education' under Section 2(15) of the Act.

3. The appellant's submissions included the argument that running school buses was intrinsic to the school's activity, aimed at facilitating education. Legal precedents were cited to support the contention that transport and hostel facilities were incidental to educational activities and not standalone business activities.

4. The Tribunal analyzed the facts, noting that the transport facility was solely for students and staff, aligning with the objective of providing education. Citing judicial decisions, the Tribunal held that transport activities of the trust were not business-related, as they were essential for educational purposes. Consequently, the provisions of Section 11(4A) of the Act did not apply, and the appeal of the assessee was allowed.

This detailed analysis of the judgment showcases the key legal arguments, interpretations of relevant sections, and the application of legal precedents in determining the outcome of the case.