The Lucknow bench of the Income Tax Appellate Tribunal (ITAT) has held that the surplus earned by the Trust by imparting education cannot be treated as business income under the Income Tax Act, 1961.
The Assessing Officer denied the benefit of sections 11 to the Assessee-Trust and made the addition of whole of the excess of income over expenditure treating the same as business income by holding that the assessee had charged a fee which was beyond the prescribed amount of fees decided by the Government authorities.
On the first appeal, the first appellate authority found that these fees/ charges, collected in addition to the tuition fees, were fully recorded and accounted funds and these have been spent for the purposes/ objects of the trust. According to the FAA, even assuming that the assessee-trust had charged some additional fees/ charges which were in violation of the UPTU norms, it was for the UPTU to take appropriate action. It was opined that the A.O. cannot step into the shoes of the UPTU to determine the excess amount, if any, charged. Further, it is now a settled law that “Education” per se is a charitable activity and even if some surplus is earned by the trust while imparting education, the same cannot be considered as a business activity as long as the funds of the trust are used for the purposes/ objects of the trust. Accordingly, the authority held that the assessee was indulging in a business activity is not in accordance with the settled law and, therefore, the surplus of the trust is not to be treated as business income.
Upholding the order of the first appellate authority, the Tribunal held that “Finding no infirmity in the order of ld. CIT(A) on this issue also, we decide this issue in favor of the assessee and against the Revenue.”
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