2019 (6) TMI 653 - AT - Income Tax

Exemption u/s 11 - Addition treating the receipt from hostel and transportation facility in the nature of business activity and not allowing the benefit of section 11 - disallowance of claim of depreciation - HELD THAT - Reasoning of the AO to held that fees received for hostel facilities and transportation charges is a separate and distinct activities from education cannot be sustained, because these activities are incidental to the main objects of the trust, i.e., carrying out educational activities and it cannot be reckoned as a separate business activities for which separate books of accounts is required to be maintained. The hostel facility and transportation of students is inextricably linked with the running of school and is part of overall educational activity. In the case of Karnataka Lingayat Education Society 2015 (5) TMI 260 - KARNATAKA HIGH COURT held that providing the hostel to the students and the staff working for the society is incidental to achieve the object of providing education which is object of the society. This issue has also been considered by the Tribunal in assessee s own case 2019 (1) TMI 794 - ITAT DELHI . Respectfully following the same we decide in this issue in favour of the assessee and hold that these activities are incidental to the attainment of the main object of the trust of the education and consequently assessee is entitled for benefit u/s 11. Disallowance of depreciation - HELD THAT - This issuer stands covered in favour of the assessee by the judgment of Hon ble High Court 2017 (3) TMI 896 - ALLAHABAD HIGH COURT .

Issues Involved:
1. Treatment of receipts from hostel and transportation facilities as business activities.
2. Disallowance of claim of depreciation.

Issue-wise Detailed Analysis:

1. Treatment of Receipts from Hostel and Transportation Facilities as Business Activities:

The primary issue in the appeal for the assessment year 2011-12 was the addition of ?41,64,154/- by treating the receipts from hostel and transportation facilities as business activities and not allowing the benefit of section 11 on such receipts. The assessee, a society running educational institutions, was granted registration under section 12AA as a charitable trust. The Assessing Officer (AO) treated the fees received for hostel and transportation facilities as separate business activities, invoking proviso to section 2(15) and applying section 11(4A), on the grounds that no separate books of accounts were maintained for these activities. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the AO's decision.

The Tribunal found that the hostel and transportation facilities were incidental to the main educational activities of the trust and could not be considered separate business activities. This conclusion was supported by the Karnataka High Court in the case of Karnataka Lingayat Education Society, which held that providing hostel facilities to students and staff is incidental to achieving the objective of providing education. The Tribunal also referred to its own decision in the case of Delhi Public School Ghaziabad Society, reinforcing that transport and hostel facilities provided exclusively to students and staff are intrinsic parts of the educational activities.

The Tribunal concluded that these activities are incidental to the attainment of the main objective of education and, therefore, the assessee is entitled to the benefit under section 11. The Tribunal allowed the appeal in favor of the assessee on this issue.

2. Disallowance of Claim of Depreciation:

The second issue was the disallowance of the claim of depreciation amounting to ?2,37,86,974/-. The AO disallowed the depreciation claim based on the Supreme Court's decision in the case of Escorts Ltd. and the assessment order for the assessment year 2010-11. The CIT(A) upheld this disallowance.

The Tribunal noted that the matter of disallowance of depreciation was covered in favor of the assessee by the judgment of the Allahabad High Court in the assessee's own case, reported in 394 ITR 712. The Tribunal observed that the amendment in section 11, inserting sub-section (6) by the Finance Act (No. 2) of 2014, effective from 1.4.2015, which excludes deduction by way of depreciation, is prospective and does not apply to the assessment years in question.

The Tribunal also referred to the Karnataka High Court's decision in DIT (Exemptions) v. Al-Ameen Charitable Fund Trust, which held that the amendment is prospective. The Tribunal concluded that the disallowance of depreciation by the AO was not sustainable and allowed the appeal in favor of the assessee on this issue as well.

Conclusion:

In conclusion, the Tribunal allowed the appeals of the assessee for the assessment years 2014-15, 2012-13, and 2011-12, holding that the receipts from hostel and transportation facilities are incidental to the educational activities and not separate business activities, and that the claim of depreciation is allowable. The Tribunal's decision was based on binding precedents and the relevant legal provisions. The appeals were pronounced in favor of the assessee on 21st May, 2019.

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