TMI Blog2016 (10) TMI 968X X X X Extracts X X X X X X X X Extracts X X X X ..... me/other expenditure from the main activities of the assessee, the same may be disallowed in accordance with law. Therefore, no infirmity in the order of CIT(Appeals) and accordingly confirmed - Decided against assessee - ITA No. 4238/DEL/2015 - - - Dated:- 21-9-2016 - Shri Sunil Kumar Yadav, Judicial Member Appellant by : Shri Akhilesh Kumar, Advocate Respondent by : Shri S.K. Jain, Sr. DR ORDER This appeal is preferred by the assessee against the order dated 02.03.2015 of the CIT(Appeals), Muzaffarnagar inter alia on the following grounds:- 1. Because, the order of learned lower authority is bad in law and against the facts and circumstances of the case and hence is unsustainable. 2. Because, the learned commissioner of income tax (appeals) grossly erred in upholding, that the 'hostel facility' of the school provided exclusively to students of the dental college is not an integral part of education u/s 2(15) but is a separate business activity in terms of section 11(4A), by wrongly placing reliance on irrelevant material findings on the issue are perverse and against the settled law. 3. Because, above finding of the learned lower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o it. The AO has also observed that the assessee is providing hostel facilities to students against the hostel fees which was included in the fee receipt and the corresponding expenses was also exclusively shown in Income Expenditure Account for providing hostel facilities to students. Besides treating the hostel fees charged per student at higher side in comparison with market price, the AO has also observed that the assessee has not maintained separate accounts for the hostel activities. He accordingly invoked the provisions of section 11(4A) and disallowed the exemption claimed with respect to the profit earned from hostel activities. Besides, he also disallowed the depreciation claimed with respect to hostels. 3. Aggrieved, the assessee preferred an appeal before the CIT(Appeals) with the submission that the activities for running hostel is also one of the object and it has maintained separate accounts of Income Expenditure of such activities and showed a deficit of ₹ 68,198 from such activity, as the assessee has shown gross income of ₹ 66,20,000 and expenditure of ₹ 66,88,198 resulting into a loss of ₹ 68,198. 4. The CIT(A) re-examined the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant Paras of the order are reproduced as under:- The sense in which the word education has been used in section 2(15) in the systematic instruction schooling or training given to the young is preparation for the work of life. It also connotes the whole course of scholaristic instruction which a person has received. The word education has not been used in that wide and extended sense according to which every acquisition of further knowledge constitutes education. According to this wide and extended sense, travelling is education because as a result of travelling you acquire fresh knowledge. Likewise, if you use newspaper and magazines, see pictures, visit art galleries, museums and zoos, you thereby add to your knowledge. Again when you grow up and have dealings with other people some of whom are not straight, you learn by experience and thus add to the knowledge of ways of the world. If you are not careful your wallet is liable to be stolen or you are liable to be cheated by some unscrupulous person. The thief who removes your wallet and the swindler who cheats you teach you a lesson and in the process make you wiser though poorer. If you visit a night club, you get acquaint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstrated very successfully the profit element involved in running hostel activity. The profit motive is clear from the fees charged which is as per market rate. 2. If the above activity is not covered under the head education whether it is a charitable activity, made any other hints of section 2(15). A close perusal of language of section 2(15) clearly establishes that hostel business is not charity as provided in section 2(15) of the IT Act. As per section 2(15) charity includes:- (i) Relief of the poor. Running of hostel for the students of the school is not relief to poor. . (ii) Education- It has already been discussed in earlier paras that it is not education. (iii) Medical relief- Definitely not. (iv) Preservation of environment (including watershed forests and wildlife). Hostel running is definitely not covered in this as well. (v) Preservation of moments or places or objects of artistic or historic interest not covered in this category. (vi) Advancement of any other object of general public utility. Hostel running for the children of school are not advancement of general public utility. The appellant has also not argued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was as follows:- (4A) Sub-section (1) or sub-section 2 or sub-section (3) or sub-section (3A) shall not apply in relation to any income, being profits and gains of business, unless- (a) the business is carried on by a trust wholly for public religious purposes and the business consists of printing and publication of books or publication of books or is of a kind notified by the Central Government in this behalf in the Official Gazette ; or (b) the business is carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution, and separate books of account are maintained by the trust or institution in respect of such business. The explanatory note to the finance bill explains the intent of the legislature in the following form:- 73. Under another amendment it is proposed to provide that exemption from income tax will not be available to any religious or charitable trust or institution in respect of any profit gains of business. In other words, irrespective of whether any business is carried on by such a trust or institution or the business undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the explanatory note is reproduced as under.- 15.8 In order to bring exemption of charitable or religious trust in line with the corresponding provisions in section 10(23C) (iv) or (v) sub-section (4A) of section 11 has been amended to permit trust and institutions to carry out business activities if the business activities are incidental to the attainment of its objective. The charitable or religious trust will no longer lose complete exemption from income tax. However, the profit gains from such business activity will be subjected to tax. A close perusal of the above amendment leaves no doubt that profit from business activity which is not incidental to the attainment of the objective of the trust will be taxable. Further if the business activity is incidental then the appellant is required to maintain separate 'books of accounts. Therefore, there are two condition to be simultaneously fulfilled if the business profit of a trust has to get the benefit of section 11 (4A). First the business has to be incidental to the main object and second separate books are maintained. In the present case, the appellant has not disputed the fact that it has not maintained sep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld under trust wholly for charitable or religious purposes shall not be included in the total income of the previous year of the trust or institution if the business is incidental to the attainment of the objective of the trust or, as the case may be, institution and separate books of account are maintained in respect of such business. Therefore there is no doubt that the law as laid down by the Hon'ble Supreme Court squarely covers the facts of the appellant's case and since he has not maintained separate books of account exemption. u/s 11(4A) has been rightly denied. In the case of PHD chamber of commerce and industry the Hon'ble Supreme Court has granted leave on SLP filed by the department DIT v/s PHD chamber of commerce and industry (2014) 51 Taxmann.com 380(SC). The appellant has also admitted that in PHD chamber of commerce there have been business without a motivation as to profits. This is not the case of the appellant. The A.O. has categorically brought on record the profit motive, by comparing the activity of running a hostel of the appellant with other persons in the market. The Hon'ble High Court has also observed that exemption un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c Utility. The Hon'ble Court has held in para 18 of their order that the object of the authority is to provide shelter to the homeless people,' therefore, there is no objectionable material to treat these institutions as non-charitable . The appellant is not appreciating the fact that the exemption on account of running of education has not been denied by the AO. The AO has only denied exemption u/s 11 to the activity of transportation and sports for which separate fee has been charged. The Hon'ble High Court was not analyzing this aspect in the matter of CIT vs. LDA. Since, the facts are different this case also doesn't help the appellant. 2. PHD chamber of commerce and industry vs. DIT Delhi (2013) - This case has also been discussed in detail in earlier paras of this order and does not help the appellant. Similarly, the other case laws on which the appellant has relied are not applicable to the instant case. The appellant's main argument is that even if an institute which is carrying out educational activity is indulging into commercial venture will not be hit by sec.11(4A) of the IT Act. The argument is 11( 4A) is to be read with other objects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, namely, the object of the society. Further, reliance was also placed upon the judgment of Hon ble Supreme Court in the case of ACIT v. Thanthi Trust, 247 ITR 785 (SC) in which it was held that a business whose income is utilised by the trust or the institution for the purpose of achieving the objectives of the trust or the institution is, surely, a business which is incidental to the attainment of the objectives of the trust. In support of his contention that if the assessee did not carry any business activity for earning profit, it was entitled for exemption u/s. 11 of the Act, further reliance was also placed upon the following judgments:- (i) DIT v. Lala Lajpatrai Memorial Trust [2016] 383 ITR 345 (Bom) (ii) PHD Chamber of Commerce Ind. V. DIT, [2013] 357 ITR 296 (Del) (iii) DIT v. Apparel Export Promotion Council [2000] 244 ITR 736 (Del) (iv) CIT v. Bridaranyak Mandal (Trust) [2009] 319 ITR 363 (All) 7. The ld. DR, on the other hand, has contended that the assessee was running a separate activity for running hostel by charging a handsome hostel fees from the students, in comparison to rates prevailing in the market. It was further contended that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to maintain separate books of accounts of hostel activities. In this regard, a specific query was raised by the lower authorities with regard to maintenance of separate books of accounts with respect to hostel activities and the assessee could not produce separate books of accounts. Even during the course of hearing, a specific question was raised whether the assessee has maintained separate books of accounts with respect to hostel activities, the answer was in the negative. 10. Now as per the provisions of section 11(4A) of the Act, the assessee is required to maintain separate books of accounts in respect of such business for claiming exemption with respect to profits/income over expenditure earned from such activities. The relevant provision is extracted below for the sake of reference:- (4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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