M/s. Nightingale Education Society, Noida V. JCIT, Noida

ITA 3323/DEL/2015

• Counselvise Citation: 332320114 RSA 2015
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 2
• Next Hearing Date: 20-10-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 25-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K JAIN
• Assessee Lawyers: SIDHARTH JAIN
• Keywords: Business income; Charitable institution
• Section: 142(1); 12AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC - 2 , NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO. 3323 /DEL/201 5 AY: 20 10 - 11 NIGHTINGALE EDUCATION SOCIETY VS. JCIT C 23, SECTOR 62 RANGE 2 INSTITUTIONAL AREA, NOIDA NOIDA PAN: AAATN 4829 L (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S IDHARTH JAIN, FCA RESPONDENT BY : SH. MK JAIN , SR.D.R. ORDER THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER DATED 12.2.2015 OF THE LD.COMMISSIONER OF INCOME TAX (APPEALS) - I, NOIDA PERTAINING TO THE ASSESSMENT YEAR (A.Y.) 2010 - 11. 2. FACTS IN BRIEF : - THE ASSESSING OFFICER HAS BROUGHT OUT T HE FACTS OF THE CASE FROM PAGE 1 TO 3 OF HIS ORDER WHICH IS EXTRACTED FOR READY REFERENCE. THIS IS A CASE OF SOCIETY WHICH WAS REGISTRAR OF SOCIETY, U.P. VIDE REGISTRATION NO.377/2003 - 04 ON 14.7.2003. THE SOCIETY HAS BEEN GRANTING REGISTRATION U/S 12AA O F THE INCOME TAX ACT, 1961 (THE ACT) BY THE THEN LD.CIT, GHAZIABAD VIDE ORDER NO. C.NO.57(32)/REGISTRATION/GZB/2003 - 04/3471 DT. 20.11.2003. IN THIS CASE RETURN OF INCOME WAS FILED ON 30.09.2010 DECLARING NI L INCOME. THE CASE WAS SELECTED UNDER SCRUTINY T HROUGH CASS AND STATUTORY NOTICE U/S 143(2) DATED 13.09.2011 WAS. ISSUED AND PROPERLY SERVED UPON THE ASSESSEE WITHIN STIPULATED TIME AS PE R LAW . ON CHANGE OF INCUMBENT ANOTHER NOTICES U/S I43 (2) AND 142(1) ALONG W I TH DETAILED QUESTIONNAIRE DATED 0L.06. 20L2 DATED 01.06.2012 WERE ISSUED FIXING THE DATE FOR COMPLIANCE ON 08.06.2012. AGA IN ON CHANGE OF INCUMBENT ANOTHER NOTICES U/S 143(2) DATED 07.11.2012 WAS ISSUED TO THE ASSESSEE FIXING THE DATE FOR COMPLIANCE O N 20.11.2012. IN COMPLIANCE THESE NOTI CES SHR I MUKESH JAIN, F CA/AUTHORIZED REPRESENTATION OF THE ASSESSEE ATTENDED THE PROCEEDINGS FROM TIME TO TIME AND FURNISHED ~ 2 ~ NECESSAR Y DETAILS/EXPLANATION AS CALLED. THE BOOKS OF ACCOUNTS PRODUCED, HAVE BEEN TEST CHEC KED. THE CASE WAS DISCUSSED WITH HIM. 3.) ASSESSMENT OF SURPLUS OF MESS/HOSTE L AS BUSINESS INCOME U/S 114(A) OF THE ACT AND DISALLOWANCE OF HOSTEL EXPENSES AS APPLICATION. PERUSA L OF RECORD SHOWS THAT THE ASSESSEE IS RUNNING HOSTEL AND RECE IVED RS. 71,87,825/ - ON ACCOUNT OF HOSTEL MESS . NO SEPARATE B OOKS OF ACCOUNTS HAVE BEEN MAINTAINED. THE ASSESSEE HAS CLAIMED THAT ACTIVITY OF RUNNING HOSTE L NOT A . BUSINESS BECAUSE IT IS UTILIZED FOR CHARITABLE PURPOSE AND IT IS AS PER REQUIREMENT OF ACITE NORMS AND HOSTEL IS NOT AN ISOLATED U NIT, IT IS INCLUSIVE OF THE MAIN OBJECT OF THE SOCIETY I.E EDUCATION. IN THIS REGARD IT IS TO SUBMIT THAT UNFORTUNATELY CERTAIN CONDITION HAS BEEN FIXED FOR MAINTAINING HOSTEL TO CERTAIN EXTENT BY AICTE BUT NOWHERE CONDITION OF GENERATING SURPLUS HAS BEEN MENTIONED. HAD IT NOT BEEN BUSINESS THE ASSESSEE C OULD HAVE REIMBURSED ITS SURPLUS TO THE BENEFICIARIES OR THE MEMBERS OF THE HOSTEL, ELSE COULD H AVE REDUCED THE COST OF SUBSEQUENT YEAR TO THE FEES CHARGED FROM PER STUDENT, IT IS FURTHER T O POINT OUT T HAT THE CHARGE OF FEES P ER STUDENT IS ALSO COMPARABLE WITH MARKET PRICE WHICH RANGES BETWEEN RS. 3,000/ - TO 4,000/ - PER STUDENT. DURING THE COURSE OF ASSESSMENT ASSESSEE H AS SUBMITTED US REPLY WHICH IS PERUSED AND FOUN D THAT ASSESSEE HAS RE L IED UPON THE CLAIM OF EXEMPTION ON THE HOSTEL RECEIPT ON FOLLOWING TWO SCORES. I ) HOSTEL, TRANSPORTATION IS A COMPOSITE ACTIVITY OF THE MAIN OBJECT OF THE S OCIETY IT IS NON - SEPARABLE AND CANNOT BE TREATED AS BUSINESS ; II ) THE MAINTENANCE OF SEPARATE BOOKS OF ACC OUNTS IS NOT MANDATORY AND IT IS NOT REQUIRED AS THE WHOLE SURPLUS OF ORGANIZATION IS USED OR ATTAINMENT OF OBJECT OF THE SOCIETY I.E. EDUCATIO N ; III ) THE SOCIETY IS RUNNING A NURSING COLLEGE AND STUDENTS ARE MAINLY GIRLS TO PROVE THEM SAFE AND SECURE ENVIRO NMENT HOSTEL IS MUST FOR THE INSTITUTE; IV ) HOSTEL IS NOT MEANT FOR OUTSIDERS. 3. FOR THE VARIOUS REASONS GIVEN IN HIS ORDER THE A.O. HELD THAT, THE ACTIVITY OF RUNNING OF HOSTEL AND TRANSPORTATION ARE BUSINESS ACTIVITIES. HE REJECTED THE CLAIM OF THE ASSE SSEE THAT THESE ACTIVITIES ARE INCIDENTAL TO ITS MAIN OBJECTIVE OF EDUCATION AND THAT, RUNNING OF A HOSTEL AND MESS IS MANDATORY AS PER THE REGULATIONS. ~ 3 ~ 3.1. HE WAS OF THE VIEW THAT THE ASSESSEE VIOLATED S. 13 (1)(BB) OF THE ACT. HE FURTHER HELD THAT THE A SSESSEE HAS NOT MAINTAINED SEPARATE BOOKS OF ACCOUNTS AS REQUIRED UNDER THE STATUTE AND HENCE EXEMPTION U/S 11 OF THE ACT IS TO BE DENIED. 4. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY EXTRACTED THE ORDER OF THE A .O. FROM PAGE 2 TO PAGE 17 OF HIS APPELLATE ORDER. THERE AFTER HE REPRODUCED THE GROUNDS AS WELL AS THE WRITTEN SUBMISSIONS OF THE ASSESSEE FROM PAGE 17 TO PAGE 25 OF THE ORDER. THEREAFTER AT PAGE 26 HE CONCLUDED THAT THE INCOME FROM THE HOSTEL/MESS ACTI VITY, IS BUSINESS INCOME AND AS THE ASSESSEE SOCIETY HAS FAILED TO MAINTAIN SEPARATE BOOKS OF ACCOUNTS FOR THIS ACTIVITY, THERE IS VIOLATION OF PROVISIONS OF S.11 (4A) OF THE ACT. THUS HE HELD THAT THE INCOME FROM HOSTEL AND MESS ACTIVITIES ARE LIABLE TO BE TAXED FOR VIOLATIONS OF S.11(4A) OF THE ACT. 5. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE ME. 6. AFTER HEARING RIVAL CONTENTIONS I FIND THAT THE ASSESSEE IS RUNNING A NURSING COLLEGE, AND THE STUDENTS ARE MAINLY GIRLS. IT WAS ALSO SUBMITTED THAT THE ALL INDIA COUNSEL FOR TECHNICAL EDUCATION HAS LAID DOWN RULES THAT SUCH NURSING COLLEGES SHOULD MAINTA IN HOSTEL FOR PROVIDING THE STUDENTS A SAFE AND SECURED ENVIRONMENT. THESE FACTS ARE NOT CONTROVERTED BY THE REVENUE AUTHORITIES. THE ONLY GROUND ON WHICH THE AO HAS COME TO A CONCLUSION THAT THE RUNNING OF THE HOSTEL IS BUSINESS, WAS THE FACT THAT CERT AIN SURPLUS WAS GENERATED IN THIS ACTIVITY. 7. IN MY CONSIDERED VIEW, RUNNING OF A HOSTEL , WHICH INCLUDED A MESS FOR THE INHOUSE STUDENTS, IS AN INCIDENTAL ACTIVITY, ESSENTIAL FOR RUNNING A NURSING COLLEGE. THUS IT IS NOT A SEPARATE BUSINESS ACTIVITY AS HELD BY THE REVENUE AUTHORITIES. IT IS NOT ONLY INCIDENTAL, BUT IT IS ALSO INTEGRAL AND INTERCONNECTED TO RUNNING A NURSING COLLEGE. HENCE THE QUESTION OF MAINTAINING SEPARATE BOOKS OF ACCOUNTS DOES NOT ARISE . T HUS THE ORDER OF THE AO TO THE EXTENT CONFIRMED BY THE FIRST APPELLATE AUTHORITY IS HEREBY VACATED. ~ 4 ~ 7.1. EVEN OTHERWISE THE AO WAS ABLE TO ARRIVE AT THE REVENUES AND EXPENSES CONNECTED AND RELATABLE TO THE ACTIVITY OF RUNNING HOSTELS AND MESS BY THE ASSESSEE. HE HAD BROUGHT THE SURPLUS TO TAX BY SEPARATELY COMPUTED THE INCOME FROM THESE ACTIVITIES . THIS DEMONSTRATES THAT THE CLAIM OF THE REVENUE THAT NO SEPARATE BOOKS OF ACCOUNTS ARE MAINTAINED IS TO BE DISMISSED FOR THE REASON THAT , THE OBJECT OF MAINTENANCE OF SEPARATE BOOKS OF ACCOUNTS IS ONLY FOR THE PURPOSE OF ASCERTAINING THE FINANCIAL RESULTS O F THAT PARTICULAR ACTIVITY. AND THIS OBJECT IS ACHIEVED, THE QUESTION OF HOLDING THAT THERE IS VIOLATION OF S.11(4A) OF THE ACT DOES NOT ARISE. 8. IN THE RESULT ASSESSEE S APPEAL IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH NOVEMBER ,2015. S D / - (J.SUDHAKAR REDDY) ACCOUNTANT MEMBER DATED: THE 10 TH NOVEMBER , 2015 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDE NT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR