2020 (7) TMI 42 - AT - Income Tax

Exemption u/s 11 - whether the hostel facilities providing to the needy students falls under the educational activities and, therefore, where the last limb the proviso to sec. 2(15) is applicable to the assessee trust? - HELD THAT - On due analysis of record, we are of the view that the AO has unnecessarily created an artificial distinction. The assessee is not admitting other persons in the building. It is providing facility only to the students, and there are lots of rules and regulations, bye-laws for admitting students, according to their merits in education. Thus, taking into account overall facts and circumstances, we are of the view that the assessee is entitled for benefit of sections 11 and 12 of the Income Tax Act. We have no hesitation to find the assessee activities towards providing hostel facilities to the student is purely an educational activities and, therefore, not coming under the proviso to Sec. 2(15) of the Act. Hence, the Ld. AO is directed to give relief to the assessee on this issue. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT - Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited 2020 (5) TMI 359 - ITAT MUMBAI

Summary

Issues Involved:
1. Applicability of Proviso to Section 2(15) of the Income Tax Act, 1961 to the activities of the assessee trust.
2. Whether providing hostel facilities to needy students constitutes "educational activities".
3. Consideration of surplus generation in determining the nature of the trust's activities.
4. Procedural issue regarding the pronouncement of the order beyond the 90-day period due to the Covid-19 pandemic.

Issue-Wise Detailed Analysis:

1. Applicability of Proviso to Section 2(15) of the Income Tax Act, 1961:
The primary issue is whether the activities of the assessee trust, specifically providing hostel facilities to needy students, fall under "advancement of general public utility" in the nature of trade, commerce, or business as per the proviso to Section 2(15) of the Income Tax Act, 1961. The assessee argued that their main activity is educational, and thus the proviso should not apply.

2. Whether Providing Hostel Facilities Constitutes "Educational Activities":
The Tribunal examined whether providing hostel facilities to students can be considered as imparting education within the meaning of Section 2(15) of the Act. The AO contended that hostel facilities do not equate to educational activities. However, the Tribunal highlighted that hostel facilities are an essential part of the educational process, contributing significantly to the overall development of students. The Tribunal noted that the trust has been providing these facilities for over 60 years and has consistently been recognized as a charitable institution under Sections 12AA and 80G(5) of the Act.

3. Consideration of Surplus Generation:
The AO argued that the generation of surplus indicated that the trust's activities were in the nature of trade, commerce, or business. The Tribunal countered this by stating that the generation of surplus is immaterial if it is used for fulfilling the trust's objectives. The trust's surplus in the assessment year 2013-14 was significantly higher than in previous years, but this did not alter the charitable nature of its activities. The Tribunal emphasized that the trust's main activity of providing hostel facilities falls within the ambit of "education" as per Section 2(15), making the generation of surplus irrelevant for tax purposes.

4. Procedural Issue Regarding Pronouncement of Order Beyond 90 Days:
The Tribunal addressed the procedural issue of pronouncing the order beyond the 90-day period due to the Covid-19 pandemic. Citing the case of DCIT vs. JSW Ltd. and the unprecedented disruption caused by the pandemic, the Tribunal concluded that the period of lockdown should be excluded when computing the limitation period under Rule 34(5) of the Appellate Tribunal Rules, 1963. The Tribunal referenced the Supreme Court and Bombay High Court's extensions of limitation periods due to the pandemic, supporting their decision to pronounce the order beyond the typical 90-day timeframe.

Conclusion:
The Tribunal allowed the assessee's appeal, directing the AO to give relief to the assessee by recognizing the provision of hostel facilities as an educational activity and not applying the proviso to Section 2(15) of the Act. The procedural delay in pronouncing the order was justified due to the exceptional circumstances of the Covid-19 pandemic.