2022 (9) TMI 967 - AT - Income Tax

Exemption u/s 11 12 - receipt of hostel fees and transportation charges from students of an educational institutions - proof of charitable activity u/s 2(15) - HELD THAT - Respectfully following the order of Co-ordinate Bench of Tribunal in assessee own case 2019 (1) TMI 92 - ITAT DELHI hold that the assessee is entitled to exemption u/s 11 12 and does not carry on business activities when it receives the hostel fees and transportation charges from students of an educational institutions therefore, order of the authorities below are set aside and grounds of appeal raised by the assessee are allowed.

Issues Involved:
1. Treatment of Hostel and Transport Facilities as Commercial Activities
2. Maintenance of Separate Books of Accounts
3. Charitable Purpose and Profit Generation
4. Previous ITAT Decisions on Similar Issues
5. Exemption under Section 11 of the I.T. Act, 1961
6. Definition of Charitable Trust under Section 2(15) of the I.T. Act
7. Separation of Educational Institution and Trust
8. Condonation of Delay in Filing the Appeal

Issue-wise Detailed Analysis:

1. Treatment of Hostel and Transport Facilities as Commercial Activities
The primary issue was whether the Hostel and Transport facilities provided to students constituted purely commercial activities. The assessee argued these were integral parts of the institution's primary activity and necessary for achieving its main objectives. The Tribunal noted that similar issues in the assessee's own appeals for previous assessment years had been decided in favor of the assessee, confirming that these activities are ancillary to the main educational objectives and not commercial in nature.

2. Maintenance of Separate Books of Accounts
Another issue was the alleged failure of the assessee to maintain separate books of accounts for Hostel and Vehicle running expenses. The assessee clarified that books of accounts were maintained, and the surplus from both heads was demarcated and declared in the Income & Expenditure Account. The Tribunal found that the requirement of maintaining separate books is applicable only if the activities are considered separate businesses, which was not the case here.

3. Charitable Purpose and Profit Generation
The Tribunal referred to the principle that if profits feed a charitable purpose under the trust terms, the activities yielding profit do not alter the charitable character of the trust. This view was supported by the precedent set in Sole Trustee, Lok Shikshana Trust v. CIT, Mysore, which emphasized that the genuineness of the purpose is tested by the obligation to spend money exclusively or essentially on charity.

4. Previous ITAT Decisions on Similar Issues
The Tribunal took cognizance of the judgment in ITA Nos. 6391 & 6392/Del/2017, where it was held that transport and hostel facilities provided by educational institutes to their students and staff are not separate businesses but are subservient to the main educational objectives. This precedent was pivotal in deciding the current appeal in favor of the assessee.

5. Exemption under Section 11 of the I.T. Act, 1961
The assessee contended that the surplus from transport and hostel income should be exempt under Section 11 of the I.T. Act, 1961. The Tribunal agreed, noting that all terms and conditions for the exemption were fulfilled by the assessee, and the activities were not commercial but integral to the educational purpose.

6. Definition of Charitable Trust under Section 2(15) of the I.T. Act
The Tribunal recognized the assessee as a charitable trust within the meaning of Section 2(15) of the I.T. Act, which imparts education and provides transport and hostel facilities as part of its educational activities.

7. Separation of Educational Institution and Trust
The Tribunal found that the CIT(A) erred in separating the educational institution from the Trust, as both are part and parcel of each other. The provision of transport and hostel facilities to students was deemed an integral part of the Trust's educational activities, not incidental business.

8. Condonation of Delay in Filing the Appeal
The Tribunal condoned the delay in filing the appeal, recognizing that the delay was due to reasons beyond the assessee's control, including the earlier counsel's omission and the Corona pandemic. The Tribunal also took into account the Supreme Court's direction to exclude the period from 15.03.2020 to 31.01.2022 in computing the limitation period for filing appeals.

Conclusion
The Tribunal allowed the appeal of the assessee, holding that the hostel and transport facilities provided to students are integral to the educational activities of the Trust and not commercial activities. Consequently, the assessee is entitled to exemption under Sections 11 and 12 of the I.T. Act, 1961. The Tribunal set aside the orders of the authorities below, and all grounds of appeal raised by the assessee were allowed. The appeal was pronounced in the open Court on 19th September 2022.

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