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2021 (7) TMI 905 - AT - Income TaxExemption u/s 11 - charitable activity u/s 2(15) - assessing hostel surplus as business income of the assessee - assessee is a Society running Educational Institutes, Medical Colleges and Charitable Hospitals which is affiliated with All India Counsel for Technical Education - HELD THAT - It is undisputed that assessee is carrying educational activity and running various Colleges especially Medical Colleges and Charitable Hospitals. The income from charitable activities declared by the assessee was NIL and the assessee earned gross receipt on account of educational activity whereas the assessee is also running hostels for the students as per the UGC Guidelines which is an ancillary activity. In the absence of any evidence to show that the hostel facilities were provided to anybody other than students and staff of the trust, the hostel facilities provided by the educational institution shall be construed to be the intrinsic part of the educational activities of the assessee and they cannot be considered different than activities of the society of education - The addition amounting made by the AO and sustained by the CIT(A) is not correct. CIT(A) and the AO failed to consider that the hostel facility is incidental to achieve the object of providing education as per object of the trust and hence comes under the charitable purpose which is exempt under Section 11 - Appeal of the assessee is allowed.
Issues:
1. Addition of hostel surplus as business income 2. Relevance of website information in the case 3. Invocation of provisions of section 11(4A) of the IT Act Issue 1: Addition of Hostel Surplus as Business Income The appeal was filed against the addition of ?3,92,25,432 as hostel surplus by the JCIT, Range-2 Ghaziabad, treating it as business income. The appellant argued that the hostel facility was an integral part of the educational society's main purpose, which is providing education, and not a business activity. The appellant emphasized that the hostel was maintained as per ACITE norms and guidelines. The Tribunal referred to various legal precedents and highlighted that providing hostel facilities to students and staff is subservient to the educational activities of the society. The Tribunal held that the hostel facility is incidental to achieving the objective of providing education and, therefore, falls under charitable purposes exempt under Section 11 of the Income Tax Act, 1961. As no evidence showed that the hostel was provided to anyone other than students and staff, the addition made by the Assessing Officer and confirmed by the CIT(A) was deemed incorrect. The appeal was allowed, overturning the previous decision. Issue 2: Relevance of Website Information The appellant contested the findings of the AO and the CIT(A) based on information from a website that was deemed irrelevant to the case. The appellant clarified that the website referred to privately run PGs in Ghaziabad, not the hostel facilities provided to students by educational institutions. The Tribunal did not find the website information pertinent to the case and focused on the actual nature of the hostel facilities provided by the appellant to support the argument that the hostel activity was integral to the educational institute's functioning. Issue 3: Invocation of Section 11(4A) of the IT Act The appellant challenged the invocation of provisions of section 11(4A) of the IT Act by the AO to make the addition. The Tribunal considered the appellant's status as a Charitable Society registered under various sections of the Income Tax Act, emphasizing that the hostel activity was essential for the educational institute's operations. The Tribunal concluded that the hostel facility was not a business activity but a part of the educational activities of the society, falling under charitable purposes exempt under Section 11 of the IT Act. Therefore, the invocation of section 11(4A) was deemed unjustified and arbitrary, leading to the allowance of the appellant's appeal. In conclusion, the Tribunal ruled in favor of the appellant, allowing the appeal and overturning the addition of hostel surplus as business income. The judgment highlighted the integral nature of hostel facilities to educational activities and emphasized that such activities are subservient to the main objective of providing education, qualifying for exemption under charitable purposes.
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