Hostel Fee Income is ‘Income from Charitable Activities’, not Business Income: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi bench has held that the hostel fee income received by a charitable Trust imparting education amount to “income from charitable activities” and the same cannot be treated as income from profit and gain from business and profession” under the Income Tax Act, 1961.

The assessee was established to impart education and other charitable activities covered under section 2 (15) of The Income Tax Act. The trust is imparting education for a bachelor’s degree in the field of engineering, pharmacy, business administration, and hotel management, etc. and running engineering and professional college under the name and style of HRIT College of engineering at Ghaziabad.

The income tax department has observed that the hostel and mess facilities to the students who are not attached to the educational institutions of the assessee trust and the income generated from the hostel fees are the business income of the assessee.

The Tribunal observed that it is not the case of the revenue that income generated out of the hostel fees is not used for educational purposes.

“In this case, it is not denied that student who pays the hostel fees do not get an education in classrooms. Hon Supreme Court held so in the facts of the case that the trustee had carried on a lucrative business of printing, under the name of “Karnataka Prakashana Mandal”, at Belgaum, and, thereafter, it was shifted to Hubli where he started publishing a daily newspaper called “SamyuktaKarnatak”. The printing business must have been lucrative because investments of profits from it, together with some possible “donations”, expanded the assets of the re-declared trust of 1962 so much, that the schedule attached to the trust deed of 1962 shows their value to be Rs. 2,97,658,” the Tribunal said.

Relying on the decisions of the co-ordinate bench of the Tribunal, the Tribunal directed the assessing officer to not to treat the excess of Rs 8591641/– as taxable income on account of hostel receipts under section 11 (4A) of The Income Tax Act.

“As hostel fee income is subservient to the main object of the education and therefore the learned assessing officer is directed to treat the same as not a business income but income derived from the charitable activities of ‘education’,” the Tribunal said.