COMMISSIONER OF INCOME TAX AND ANOTHER V. M/S DURGA CHARITABLE SOCIETY

IAPL/42/2022

AI Insights

The case revolves around the dispute concerning the taxability of income generated from hostel facilities operated by M/S Durga Charitable Society, which runs educational institutions including medical colleges and charitable hospitals. The Commissioner of Income Tax appealed against the Tribunal's decision which had earlier ruled that the income from these hostels was not taxable as business income but was part of the charitable activities. The main contention from the appellant was that the hostel operations should be treated as a business activity, while the respondent argued that these facilities were ancillary to the educational services provided and thus should remain exempt from taxation under the charitable activities clause.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 733282 (HC-ALLAHABAD)
• Appeal Type: Others
• Pronouncement Date: 13-07-2022
• Assessment Year: misc
• Other Referred Cases: Krisha Charitable Society vs. Addl. CIT, CIT VS. Kanataka Lingayat Education Society, Indian Institute of Technology vs. State of UP, DCIT vs. Wellington Charitable Trust
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: ASHISH BANSAL; SHALINI GOEL
• Assessee Lawyers: ASHISH AGRAWAL
• Keywords: Charitable activity; Educational institution; Exempt income; Income tax appellate tribunal; Hostel income
• Section: 11

Judgement Text

"Court No. - 3 Case :- INCOME TAX APPEAL No. - 42 of 2022 Appellant :- Commissioner Of Income Tax And Another Respondent :- M/S Durga Charitable Society Counsel for Appellant :- Ashish Agrawal Counsel for Respondent :- Ashish Bansal,Shalini Goel Hon'ble Surya Prakash Kesarwani,J. Hon'ble Jayant Banerji,J. Heard Sri Ashish Agrawal, learned counsel for the appellants and Sri Ashish Bansal, learned counsel for the respondent-assessee. Learned counsel for the appellants submits that the hostel being run by the respondent-assessee, cannot be treated as charitable activity and it is not necessary for functionality of the educational institution. He, therefore, submits that respondent-assessee received income from this hostel and other activities, which is not exempted and such income has rightly been added by the assessing officer. Learned counsel for the respondent-assessee opposes the contention of the learned counsel for the appellant. We have perused the order of the Income Tax Appellate Tribunal. In para no.7 of the impugned order, the Income Tax Appellate Tribunal has held as under:- \"We have heard both the parties and perused all the relevant material available on record. There is delay of 32 days in filing the present appeal which was explained by the Ld. AR at the time of hearing, the same is genuine, hence the delay is condoned. The assessee is a Society running educational Institutes, Medical Colleges and Charitable Hospitals which is affiliated with All India Counsel for Technical Education.\" It is also, undisputed that assessee is carrying educational activity and running various colleges especially Medical Colleges and Charitable Hospitals. The income from charitable activities declared by the assessee was Nil and the assessee earned gross receipt of Rs.61,62,60,476/- on account educational activity whereas the assessee is also running hostels for the students as per the UGC Guidelines which is an ancillary activity. In case of Krisha Charitable Society vs. Addl. CIT in ITA No.4639/Del/2015 for AY 2011-12 dated 15.09.2017, the Tribunal held as under: \"11. We have carefully considered the rival contentions and perused the orders of the lower authorities and other judicial pronouncement placed before us. In the grounds no. 1-3 assessee is contesting that addition made by the Ld. AO treating hostel places provided to college student as business of the society and text the alleged surplus of Rs. 98,87,873/- as business income of the assessee. It was not the case of the revenue that assessee has rented out these hostels to the students who are not parted education in the above institutes. It was also not the case of revenue that assessee is primarily engaged in the business of providing hostel facilities to the students. The above issue is no more res integra in view of the decision of the Hon'ble Karnataka High Court in ClT VS. Kanataka Lingayat Education Society in ITA No. 5004/2012 dated 15/10/2014 wherein it has been held that providing hostel to the students/staff working for the society's incidental to achieve the object of providing education, namely the object of the society. In view of this we are of the opinion tht providing of hostel facility and transport facility to the student and staff member of the educational institute cannot be considered as business activity, but it subservient to the object of educational activity performed by the society. We are also supported by our view by the decision of the Hon ble Allahabad High Court in IT vs State of UP (I976) 38 STC 428 (All) wherein question arose in Indian Instifute of Technology vs. State of UP (1976) 38 STC 428 (All) with respect to the visitors' hostel mantained by the Indian Institute of Technology where lodging and boarding facilities were provided to persons who would come to the Institute in connection with education and the academic activities of the Institute. It was observed that the statutory obligation of maintenance of the hostel, which involved supply, and sale of food was an integral part of the objects of the Institute nor could the running of the hostel be treated as the principal activity of the Institute. The institute could not be held to be doing business. Further means being supplied in a hostel to the scholars, Visitors, guest faculty etc. cannot be eligible to sales tax where main activity is academic as held in scholars home Senior Secondary School 42 VST 530. Further, the reliance placed by the lower authorities on the decision of the Hor'ble Madras High Court in case of DCIT vs. Wellington Charitable Trust is also misplaced because in that case, the only activity of that particular trust was renting out of the property and not education. We are also not averse to considering the latest legal developments too where in the recently introduced new legislation of Goods and service tax it is provided that no GST would be chargeable on the hostel fees etc. recovered from the students, faculties and other staff for lodging and boarding as they are engaged in education activities. Therefore, we reverse the finding of the lower authorities and held that transport and hostel facilities surplus cannot be considered as business income of the assessee society which is manly engaged in business activities and these activities are subservient to the main object of education of the trust\". In the absence of any evidence to show that the hostel facilities were provided to anybody other than students and staff of the trust, the hostel facilities provided by the educational institution shall be construed to be the intrinsic part of the 'educational activities' of the assessee and they cannot be considered different than activities of the society of 'education'. Thus, the addition amounting to Rs. 3,92,25,432/- made by the Assessing Officer and sustained by the CIT (A) is not correct. The ClT (A) and the Assessing Officer failed to consider that the hostel facility is incidental to achieve the object of providing education as per object of the trust and hence comes under the charitable purpose which is exempt under Section 1l of the Income Tax Act,1961. Thus, the appeal of the assessce is allowed., The Income Tax Appellate Tribunal has recorded specific finding that in the absence of any evidence to show that the hostel facilities were provided to anybody other than students and staff of the trust, the hostel facilities provided by the educational institution shall be construed to be the intrinsic part of the 'educational activities' of the assessee and they cannot be considered different than activities of the society of 'education. It has been further observed that undisputedly the assessee is carrying out educational activity and running various colleges, especially Medical Colleges and Charitable Hostels and thus income from charitable activities was nil. The assessee is also running hostels for the students as per the UGC Guidelines which is an ancillary activity. The Tribunal has relied upon judgment in the case of Krishna Chatirtable Society Vs. Additional CIT in ITA No. 4639/Del/2015 for AY 2011-12 dated 15.09.2017, wherein it has been observed that providing of hostel facilities and transport facilities to the student and staff member of the educational Institute cannot be considered as business activity but as subservient to the object of educational activities performed by the society. We find that findings recorded by the Tribunal are finding of fact based on consideration of the relevant material on record. No substantial question of law is involved in the impugned order of the Tribunal. Therefore, the appeal is dismissed. Order Date :- 13.7.2022 T.S. Digitally signed by TRIBHUWAN SINGH Date: 2022.07.16 15:37:56 IST Reason: Location: High Court of Judicature at Allahabad "