While allowing the appeal filed by Society for Educational Excellence, Delhi bench of Income Tax Appellate Tribunal ( ITAT ) recently ruled that hostel and transport activities of Education Trust are not commercial in nature.
The assessee in the present case is a registered trust running an educational institution in the name of Academy of Business and Engineering Science (ABES) and registered under section 12A of the Income Tax Act 1961 and eligible for exemption under section 11 of the Act. The Assessee has filed its return of income for the relevant assessment year and declared total income as nil.
During the course of assessment proceedings, the Assessing Officer (AO) noticed that the Assessee carrying on certain activities such as hostel activities wherein total revenue of Rs. 3.12 crores were earned and certain expenses were also incurred. The AO was of the opinion that the Assessee is carrying on the business and also the hostel activities are falls under the object of general public utility and therefore, the assessee should have maintained separate books of account of hostel activities. Accordingly, he added the same into the total income of the Assessee against the nil income declared by the Assessee and also disallowed various expenses incurred by the Assessee.
Before the AO the counsel for the Assessee advocate PC Yadav and advocate Ravi Gupta submitted that providing hostel, mess and transport facilities to the students which are studying in the colleges of the assessee is as per AICTE guidelines. It was further stated that the NBA Accreditation also requires these facilities. He also contended that these facilities are not separate but part of the educational activities of the Assessee and the Assessee is not carrying on any business activity in the form of hostel and transport facilities provided to the students of the society.
However, the AO refused to accept the contention of the Assessee by holding that running hostel, mess and transport activities is in the form of business and therefore the assessee should have maintained separate books of accounts under section 11(4A) of the Act and confirmed the addition made by him.
On appeal, the CIT(A) also upheld the order passed by the AO and confirmed the addition also. Thereafter, the Assessee carried the matter before the Tribunal on further appeal.
The Tribunal bench comprising of Judicial Member Suchitra Kamble and Accountant Member Prashant Maharishi objected the findings of the lower authorities and observed that the sole issue involved in the present case is whether the hostel activities carried on by the assessee are business activities and therefore, the provisions of section 11(4A) of the Act are applicable or not.
The division bench further held that section 11(4A) of the Act provides that provision of section 11() to (3A) shall not apply in relation to any income of the trust being profits and gains of the business, unless the business is incidental to the attainment of the objectives of the trust and separate books of accounts are maintained in respect of such business. Therefore transport and hostel facility surplus cannot be considered as business income of the society as these activities are incidental to the main object of the assessee society of education. While concluding the issue the Tribunal bench declared that in the present case the hostel and transport activities of the Assessee trust are not in the nature of the business. Further, the activity of the hostel and transport is also incidental to the attainment of the main object of the trust of the education. Therefore, the provisions of section 11(4A) of the Act does not apply to the Assessee.
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