The Allahabad High Court while allowing the Income Tax Exemption under Section 11(1) held that the hostel facility by Charitable Educational Trust cannot be treated as a separate business.
The appellant, Daya Nand Pushpa Devi Charitable Trust Ghaziabad is a trust running a Dental College in the name & style of Harsharan Dass Dental College at Ghaziabad. The hostel for residence of the students admitted in the said college is also being run and managed by the trust. The trust claimed that all its activities are covered under Section 2 (15) of the Income Tax Act 1961; and had applied for the registration under Section 12-A of the Income Tax Act, which had been duly granted by the Commissioner, Income Tax, Meerut.
As per the directives of the Dental Council of India by the Gazette notification it is mandatory for the institutions admitting students in the dental education course (BDS) to provide hostel accommodation, based on the number of admissions, to all the boys and girls in the dental college campus itself.
The Assessing Officer concluded that the hostel activities of the trust is separable from its educational activities and the way the hostel and mess activities are being carried on they would fall within the meaning of “business”under section 2(13) and can not be treated as ‘Charitable purposes’ under Section 2(15) of the Income Tax Act. The benefit of Section 11 of the Act cannot be given to the assessee, in as much as, it has not maintained separate books of accounts which is one of the pre- conditions mentioned in Section 11(4A) for grant of such benefits.
Advocate Abhinav Mehrotra on behalf of the appellant contended that the assessee being under statutory obligation to maintain a hostel for the students admitted in the institution, its activity of maintaining the hostel by charging hostel fees is an integral part of the objects of the trust, which is essentially charitable in nature being education. Even if the collected hostel fees has created some surplus as per the analysis of the Assessing Officer but that surplus by itself cannot be said to be profit and gains of a business within the meaning of Section 11(4A) of the Act, as the hostel activity is not independent to the main object of imparting education (Dental education).
On the other hand, Praveen Kumar, the counsel for the revenue, on the other hand, argued that the word “business” in Section 11(4A) of the Act has been used in the context of any activity which is undertaken by a trust or an institution, such activity is covered under the definition of the word “business” in Section 2(13) of the Act as the definition being inclusive, the expression business has to be interpreted it its widest amplitude.
The division bench of Justice Deepak Verma and Justice Sunita Agarwal while allowing the relief to the assessee ruled that the activity of running the hostel is not a separate business activity and surplus income from the hostel fee cannot be treated as profit and gains of a separate business or commercial activity of the trust, it is held that the exemption under Section 11(1) of the Act cannot be disallowed to the assessee.
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