The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ), in Delhi Public School vs. ACIT, held that running transport by an educational institution is not in the nature of business but is incidental to achieve the trust’s main object of providing education.
The assessee runs a school and provides transportation service to the students and staff of the school upon paying a fee. The Assessing Officer (A.O.) disallowed a sum of rupees 1,73,20,960/-in relation to the activity of the assessee running the school buses, on the ground that the said activity amounts to a business in view of the proviso to Section 2 (15) of the Income Tax Act, 1961 as such the assessee was not entitled for exemption under section 11 (4A) of the Act.
The A.O. noted that surpluses generated from running of transport business was not distributed to the students nor was reduced from the fee of the next year. He also pointed out that the institution could run without the transport facility and that the education fee structure was different from transport fee structure. The Commissioner of Income Tax (Appeals) (CIT(A)) also confirmed the decision of the A.O. Aggrieved, the assessee appealed to ITAT.
The Counsel for the assessee argued that the activity of running school buses is intrinsic part of the activity of running a school and that the dominant objective of the assessee in running the buses is to facilitate the activity of education. The Counsel for the Revenue contended that the assessee had been running the buses for the purpose of income which was in no way connected with providing the education.
The Bench comprising of President G.D. Agrawal and Judicial Member K. Narasimha Chary found that the issue was no longer res integra and that the same had been already decided by the Coordinate bench of the Tribunal in the case of Krishna Charitable Society vs. Addl CIT, wherein it was held that transport and hostel facility surplus cannot be considered as business income of the society as these activities are incidental to the main object of the assessee society of education.
Relying on the decision of the Coordinate bench, the Bench observed “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.”
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