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2019 (6) TMI 701

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..... bad [2018 (5) TMI 1482 - ITAT DELHI] the hostel facility provided by the assessee society is not in the nature of business and is incidental to the attainment of the main object of the providing education to students. Therefore, provisions of Section 11(4A) will not be applicable to the assessee - decided in favour of assessee Depreciation claim of assessee trust - The assessee has provided the depreciation in the income and expenditure in conformity with the Income Tax Rules applicable to the allowance of depreciation of fixed assets. Various decision of the Hon’ble Apex Court and Hon’ble High Courts relied upon by the Ld. AR highlights the proposition that depreciation should be allowed, even if, the purchase of assets have been claimed by the trust towards application of income - Decided in favour of assessee - ITA No. 3550/Del/2015 - Dated:- 12-6-2019 - Shri G.D. Agrawal, Vice President And Smt. Suchitra Kamble, Judicial Member For the Assessee : Shri Ajay Wadhwa, Adv. For the Revenue : Shri Amit Katoch, Sr. DR ORDER PER SUCHITRA KAMBLE, JUDICIAL MEMBER This appeal is filed against the order dated 23.02.2015 passed by CIT(Appeals)-Muzaffarnagar for AY 2010-11. 2. Gr .....

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..... and income generated from surplus of the above activities are taxable. The Assessing Officer also disallowed depreciation of ₹ 252,75,253/- by observing that allowance will amount to double deduction since 100% application of value of capital expenditure had already been availed by the assessee in the year of investment and on the same value the assessee has claimed depreciation. 4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee. 5. The Ld. AR submitted that as regards Ground nos. 2, 2.1 & 2.2 relating to hostel and transportation fees, there was no profit motive in carrying out these activities. The Ld. AR submitted that the facilities in the College/Institute are not carried with the profit motive. There were meant for promoting the main object of the Institute. In fact the assessee suffered a net loss of ₹ 1,64,023/- on account of providing hostel and transport facilities and it cannot be said that the Institute is engaged in the activities of earning profit. The Ld. AR further submitted that the hostel/transport facility is neither a luxury nor a means to earn profit by the so .....

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..... vice facilities for picking up and dropping of the students to the institute for the purpose of securing education, it has to be construed as essentially related to the realization of the primary charitable objective of education itself. The Ld. AR further submitted that although no surplus is generated out of the facilities provided to the students in the form of hostel/transport, however, even if there is any surplus, it is used by the assessee for providing education to students. It is not the case that the surplus is drawn out by the trustees for their personal benefit. The Ld. AR submitted that the facility provided by the college is restricted only to the college students and cannot be availed by the public at large at their will and at any given hour of time. The provisions of section 11(4) of the Act are not applicable because the college is not running any business undertaking but is simply providing facility out of the assets owned by the college itself. The facility is being provided to a definite set of students connected with the institute and is open at specific timings on the specific routes and to specified student directly connected with the college and is not a co .....

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..... ing tea, etc. The Ld. AR further submitted that the Assessing Officer ignored the fact that the risk and responsibility attached in providing hostel and transport facility to the students. The assessee society has provided tough security and staff. It is, thus, stated by the Ld. AR that apart from making payments to the contractor for hiring buses and for rent expenses, assessee society incurred other connected expenditure such as providing attendants for safety. All such expenses are merged with the expenses debited under different heads and they have not been considered by the Assessing Officer. The Assessing Officer has proceeded to complete the assessment by estimating the mess expenses without giving specific notice u/s 142(1) of the Act. The Assessing Officer acted in a most arbitrary manner to device its own formula so as to work out the disallowance of mess charges. Such disallowance made by the Assessing Officer without providing the comparable cases to the assessee is not only arbitrary and illegal but the same is based on surmises, conjectures and on hypothetical observation. The two cases referred to by the Assessing Officer have no relevance to make disallowance of exp .....

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..... on record. Ground No. 1 is general in nature hence dismissed. As regards to Ground No. 2, 2.1 and 2.2, the issues contested herein have been decided by the Tribunal in case of Delhi Public School, Ghaziabad vs. ACIT (ITA No. 3593/Del/2015, AY 2010-11 order dated 08.05.2018). The Tribunal held as under: 8. We have gone through the record in the light of the submissions on either side. At page No. 4 of the assessment order, the Ld. AO recorded that the assessee society has charged ₹ 3,00,42,296/- towards transport fee which is included in the income and expenditure account and corresponding expenses was debited to ₹ 3,09,33,029/-for providing transport facility to students. There is no dispute that the assessee has been running 37 school buses. The Ld. AO allowed the salary of 7 drivers. The contention of the assessee that 37 buses cannot be run by 7 drivers goes uncontradicted. Further AO did not bring on record as to the use of the vehicles for any other purpose than the conveyance of the children and further its repair and periodical maintenance. It is not the case of the revenue also that the assessee has been deriving any income from the use of these vehicles other .....

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..... society. In view of this we are of the opinion 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 is subservient to the object of educational activities performed by the society. We are also supported by our view by the decision of the Hon ble Allahabad High Court in IT vs. State of UP (1976) 38 STC 428 (All) wherein question arose in Indian Institute of Technology vs. State of UP (1976) 38 STC 428 (All) with respect to the visitors hostel maintained by the Indian Institute of Technology where lodging and boarding facilities were provided to persons who would come to the Institute in connection with education and the academic activities of the Institute. It was observed that the statutory obligation of maintenance of the hostel, which involved supply, and sale of food was an integral part of the objects of the Institute nor could the running of the hostel be treated as the principal activity of the Institute. The Institute could not be held to be doing business. Further means being supplied in a hostel to the scholars, visitors, guest faculty etc. cannot be eligible .....

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..... to the outsider. Hon ble Karnataka High Court in the case of Karnataka Lingayat Education Society in ITA No. 5004/2012 dated 15.10.2014 has held that providing the hostel to the students and the staff working for the society is incidental to achieve the object of providing education and i.e. the object of the society. Therefore, in view of the above decision of the Hon ble Karnataka High Court as well as the decision of a coordinate bench of this Tribunal in ITA No. 4639/Del/2015, we are of the view that the transport activities of the assessee trust are not in the nature of business, inasmuch as the 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 do not apply to the assessee. With this view of the matter, we allow the grounds of appeal. 14. In the result, the appeal of the assessee is allowed. The Hon ble High Court in case of Mallikarjun School Society (supra) held that an educational institute will not cease to be one existing solely for educational purposes since the object is not to make profit. In present case also the assessee society will not ceased to exist as educationa .....

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