The Income Tax Appellate Tribunal (ITAT), Mumbai bench has held that the exemption under the Income Tax Act cannot be denied to an education trust merely because it provided hostel, transportation and mess facilities to the students.
The assessee society, running an Institute for professional courses have obtained registration under Section 12AA of the Income Tax Act, 1961. The assessee is also running hostel and transport facility for its students for which separate fee is charged. The Assessing Officer held that hostel and transport facility provided to the students are separate businesses and are not covered in the definition of charitable purpose u/s 2(15) of the Act. The Assessing Officer further held that since no separate books of accounts are maintained for this business, the assessee is not entitled to exemption under section 11(4A) of the Act and income generated from the surplus of the above activities are taxable.
The Tribunal noticed the decision of the High Court in Mallikarjun School Society wherein it was held that an educational institute will not cease to be one existing solely for educational purposes since the object is not to make a profit.
“In the present case also the assessee society will not cease to exist as educational institute because it is providing hostel facility or transportation facility or mess facility, as it is incidental to the educational purpose of the assessee society. Therefore, in view of the Hon’ble Uttarakhand High Court decision in case of Mallikarjun School Society (supra) and orders of the co-ordinate bench in case of Delhi Public School Ghaziabad, 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. Thus, Ground Nos. 2, 2.1 and 2.2 are allowed,” the Tribunal held.
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