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TMI Blog2021 (11) TMI 876X X X X Extracts X X X X X X X X Extracts X X X X ..... ers case.[ 2021 (5) TMI 1002 - ITAT MUMBAI] Whether the income generated by the assessee from renting out the hall can be classified as educational activity in the manner provided under section 2(15) of the Act? - The activity of renting out the hall cannot be categorized as educational activity but the status of the assessee will not change being a charitable organization. It is for the reason that this activity is the ancillary activity which is supporting the assessee to achieve its goals of primary activities. Furthermore, there is no prohibition under the Act that the assessee being a charitable organization cannot carry on the business which is incidental to the attainment of the objective of the trust. Rather subsection (4A) to section 11 of the Act, authorizes the educational institution to carry on the business which is incidental to the attainment of the main objective of the trust. In this connection, we draw support and guidance from the judgement of Hon ble Delhi High Court in case of DGIT (Exemption) vs. ICAI reported [ 2013 (7) TMI 205 - DELHI HIGH COURT ] Deduction claimed by the assessee being corpus fund under the provisions of section 11(1)(d) - Dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is not at all applicable on the facts of the appellant's case. 3. In law and in the facts and circumstances of the case of appellant, the Ld. CIT(A) erred in confirming the action of Assessing officer who has applied Section 2(15) considering activities of the Appellant in nature of Trade and commerce without appreciating the fact that they are educational activities. 3.1 In law and in the facts and circumstances of the case of appellant, the Ld. CIT(A) has erred in confirming the action of Assessing officer who has failed to appreciate the submission filed before him regarding the Appellant Trust which was engaged in providing hostel facility as per the constitution and also as accepted while granting registration was purely activities of charitable purpose. It be so held now. 4. In law and in the facts and circumstances of the case of appellant the Ld. CIT(A) erred in confirming the action of Assessing officer who has erred in denying the exemption of ₹ 32,68,165/- claimed u/s 11(1)(d) of the Act. 5. In law and in the facts and circumstances of the case of appellant the Ld. CIT(A) erred in confirming the action of Assessing officer in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the hall facility by the members and the public except for the recovery of electricity, gas and cleaning charges. However, any person using the hall facility, if desires, was allowed to give the donation to the trust. But the same was not compulsory. Rather it was the wish of the person, using the hall facility, to donate the money to the trust. The assessee has received a sum of ₹32.68 lakhs against the use of the hall facility created by it. The breakup of the same stands as under: Income Amount (in Rs.) To rental income from Khijda Pole Bldg. others 5,25,000 To interest received 13,28,321 To donation 32,81,165 To admission fees 1,705 Student Subscription 2,50,000 Misc. Income 15,786 Trust Membership Fees 9,618 Total 54,11,595 8. The assessee also submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture was increasing every year as evident from the income and expenditure account of various years (AYs 2011-12 to 2015-16). Thus, the AO held that the activity of hostel facility and renting out of the hall is nothing but a commercial activity therefore the same cannot be allowed exemption under section 11 of the Act. As such, the assessee has shown the rent charged from the parties in the garb of donation in order to claim the benefit of exemption. Thus the ultimate use of the money received by the assessee from letting out activity is of no relevance as provided in the proviso to section 2(15) of the Act. In view of the above the AO denied the exemption claimed under section 11 of the Act and treated the amount of surplus of income over the expenditure amounting to ₹ 3,10,343/- as income of the assessee. 12. Likewise, the AO also found that the amount of donation of ₹32,68,165/- was directly taken to the balance sheet instead of routing through the income and expenditure account which was treated as corpus donation under section 11(1)(d) of the Act. Thus the AO disallowed the same and added to the total income of the assessee. 13. Aggrieved assessee prefer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature. Moreover such activity is also not emanating from the objects for which the trust was registered. Accordingly, there was no nexus between the activity carried out by the assessee viz a viz the objects of the trust. 19.1 It was mandatory for the assessee to maintain separate books of accounts for the activity of renting out the hall for social functions. But the assessee has not done so which is violation of the provisions of section 11(4A) of the Act. 19.2 The learned DR also pointed out that sufficient details have not been furnished by the assessee in support of the corpus donation received by it. The learned DR vehemently supported the order of the authorities below. 20 We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the assessee owns 2 buildings. One of the building is located at Khidja pole Ahmadabad which has been let out on rental basis. The rent qua to this building was shown under the head income from house property. 21. The new building located at Kankaria Ahmadabad. The building was comprising of hostels and the hall. The hostel was given to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill the time of death, but formal education of language and others are being imparted in the school and colleges. Hostel is an essential institution for the students to stay in big cities and hostel plays an important role in education and training of these students. They provide residential opportunities for the students to continue the process of education. It is a place where students stay for pursuing formal education away from their homes. The concept of hostel is not only limited to place of residence, rather it is a human practical laboratory for development of students. It is a center of education. Students learn as much as from their teachers as well as fellows during hostel stay. It enriches understanding of the curriculum through analytical discussion amongst the students living in the hostels, and may contribute to character building as well. Students in hostel not only learn the theoretical material, they also learn how to enhance their personal abilities and learn to live independently. Hostel life has an impact upon the behavioral as well as personality development of students. It is one of the essential components of an educational institution. Some of the instituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urplus is being used for the purpose of fulfilling all the objects of the trust or not. If the surplus is being applied on the objects of the trust or being accumulated as provided in the scheme, then nothing is to be taxable. 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. If the assessee is entitled for benefit of sections 11 and 12, then the amount spent from the corpus fund for construction of building is also to be looked into with that angle. We set aside both the orders of the Revenue authorities and restore this issue to the file of the AO. The ld.AO shall re-determine taxable income of the assessee and after providing benefit under sections 11 and 12. 23. It is also pertinent to note that there was no change in the aims ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section2(15) of the Act would not apply to the assessee. 26. Now the 2nd controversy revolves whether the income generated by the assessee from renting out the hall can be classified as educational activity in the manner provided under section 2(15) of the Act. In this regard, we note that the activity of renting out the hall cannot be categorized as educational activity but the status of the assessee will not change being a charitable organization. It is for the reason that this activity is the ancillary activity which is supporting the assessee to achieve its goals of primary activities. Furthermore, there is no prohibition under the Act that the assessee being a charitable organization cannot carry on the business which is incidental to the attainment of the objective of the trust. Rather subsection (4A) to section 11 of the Act, authorizes the educational institution to carry on the business which is incidental to the attainment of the main objective of the trust. In this connection, we draw support and guidance from the judgement of Hon ble Delhi High Court in case of DGIT (Exemption) vs. ICAI reported in [2013] 35 taxmann.com 140 (Delhi):- The expressions trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate books of accounts as required under the provisions of section 11(4A) of the Act. Thus, the assessee is not eligible for exemption for the income generated from the renting out of the hall. In this regard, we note that none of the authority below has touched upon the issue whether the assessee is maintaining separate books of accounts or not for the activity of renting out the hall. Accordingly, we are not inclined to entertain such contention of the learned DR for the Revenue. 29. We are also conscious to the fact that at the time of hearing the learned DR and the AR has cited many judgements but we do not find necessary to incorporate all of them as well as deal with them individually but suffice to hold that those judgements were rendered in the different context. Thus the principles laid down therein are not applicable to the case of the present case. 30. With respect to the deduction claimed by the assessee for ₹ 32,68,165.00 being corpus fund under the provisions of section 11(1)(d) of the Act, in this connection we find that it was denied by the authorities below on the reasoning that the assessee is not engaged in the educational activity and therefore no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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