2022 (7) TMI 801 - HC - Income Tax

Exemption u/s 11 - proof of hostel facilities as object of educational activities performed by the society - charitable activity u/s 2(15) - hostel being run by the respondent-assessee, cannot be treated as charitable activity and it is not necessary for functionality of the educational institution - HELD THAT - Tribunal has recorded specific finding that 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. It has been further observed that undisputedly the assessee is carrying out educational activity and running various colleges, especially Medical Colleges and Charitable Hostels and thus income from charitable activities was nil. The assessee is also running hostels for the students as per the UGC Guidelines which is an ancillary activity. The Tribunal has relied upon judgment in the case of Krishna Chatirtable Society 2017 (9) TMI 1030 - ITAT DELHI wherein it has been observed that providing of hostel facilities and transport facilities to the student and staff member of the educational Institute cannot be considered as business activity but as subservient to the object of educational activities performed by the society. - Decided in favour of assessee.

Summary

Issues:
1. Whether the income received from a hostel by an educational institution is exempted under charitable activities?
2. Whether the hostel facilities provided to students and staff of the trust are intrinsic to educational activities and qualify as charitable purpose under Section 11 of the Income Tax Act, 1961?

Analysis:

Issue 1:
The appellant argued that the hostel operated by the respondent-assessee should not be considered a charitable activity and the income generated from it is not exempt. The assessing officer added this income to the total, which was contested by the respondent-assessee. The Income Tax Appellate Tribunal examined the case and found that the hostel facilities were provided only to students and staff of the trust, making it an integral part of the educational activities. The Tribunal referred to a similar case, Krishna Charitable Society Vs. Additional CIT, where it was held that providing hostel and transport facilities to students and staff is not a business activity but supports the educational objectives of the society.

Issue 2:
The Tribunal further emphasized that the respondent-assessee was primarily engaged in educational activities, including running medical colleges and charitable hospitals, with no income from charitable activities declared. The Tribunal concluded that the hostel facilities were incidental to achieving the educational objectives of the trust and fell under charitable purposes exempted under Section 11 of the Income Tax Act, 1961. The Tribunal dismissed the appeal, stating that the findings were factual and no substantial legal question arose from the case.

In summary, the Allahabad High Court upheld the decision of the Income Tax Appellate Tribunal, ruling that the income received from hostel facilities provided to students and staff of the trust is exempt under charitable activities. The Court agreed that the hostel services were integral to educational activities and not separate business endeavors. The judgment highlights the importance of considering the context and purpose of activities when determining their tax-exempt status under relevant laws.