“Commercial Activity”: ITAT denies Section 10(23C) Exemption to Trust Running Hostels for Non-Students [Read Order]
The Assessing Officer had denied the exemption, determining taxable income at ₹6.21 crore, citing that the trust was engaged in activities beyond education, including providing hostel facilities to non-students
The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has ruled that Shree Vallabh Seva Kendra, a charitable trust, is not eligible for exemption under Section 10(23C)(vi) of the Income Tax Act, 1961, for the assessment year 2018–19.
The assessee, Shree Vallabh Seva Kendra, filed its return declaring nil income after claiming exemption of ₹17.86 crore under Section 10(23C)(vi). The Assessing Officer had denied the exemption, determining taxable income at ₹6.21 crore, citing that the trust was engaged in activities beyond education, including providing hostel facilities to non-students.
The Commissioner of Income Tax (Appeals), NFAC, however, allowed the exemption. The Revenue appealed before the ITAT in the present case.
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The Departmental Representative argued that the Exemption under Section 10(23C)(vi) requires the institution to exist solely for education. The trust was engaged in several non-educational activities, such as providing social welfare services and conducting awareness programs.
Hostel facilities were extended not just to its own students but also to students of other schools, which constituted a separate commercial activity. Hostel charges (₹370/day for girls, ₹430/day for boys) were comparable to wages in Gujarat, proving that the activity was not charitable.
The assessee contended that it was a registered trust under Sections 12A and 10(23C)(vi) of the Income Tax Act. Hostel facilities supported education and were integral to the trust’s objectives. Hostel fees charged were significantly lower than commercial establishments (₹11,000–₹13,000 per month compared to ₹27,000–₹30,000 charged by hotels).
Surplus income was reinvested in educational infrastructure, such as school buildings. The representative also cited precedents like Surat Art Silk Cloth Manufacturers Association (SC) and ITAT/High Court rulings supporting that hostel activities linked to education remain charitable.
After analyzing facts and precedents, the ITAT held that Providing education is a charitable activity.
It was also agreed to that Hostel facilities integrated with education for the trust’s own students are charitable.
However, it was pointed out that running hostels separately for non-students and generating surplus of over ₹6.12 crore was a commercial activity and that fees charged were not merely nominal but significantly higher, placing the activity within the mischief of Section 2(15) and outside Section 10(23C)(vi).
It was thus noted that the CIT(A) erred in treating separate hostels as incidental to education.
The bench relied on the Supreme Court ruling in Ahmedabad Urban Development Authority (2022), holding that charitable institutions cannot engage in trade, commerce, or business beyond incidental limits.
The tribunal therefore held that while education and integrated hostel facilities for students are charitable activities, operating hostels for students of other institutions on commercial terms amounts to a business activity and falls outside the scope of Section 10(23C)(vi).
The ITAT Bench comprised Dr. B.R.R. Kumar, Vice-President, and Ms. Suchitra Kamble, Judicial Member, allowed the Revenue’s appeal, upholding the denial of exemption under Section 10(23C)(vi) of the Income Tax Act to Shree Vallabh Seva Kendra.
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