Daya Nand Pushpa Devi Charitable Trust, Ghaziabad V. Addl. CIT, Ghaziabad

ITA 4238/DEL/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7044 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC 2
• Next Hearing Date: 15-09-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 01-07-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: AKHILESH KUMAR SHRI S K
• Keywords: Business income; Depreciation; Charitable institution; Rule of consistency; Question of law; Benefit of exemption
• Section: 12A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NEW DELHI BENCH : SMC-II, NEW DELHI BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER ITA NO.4238/DEL/2015 ASSESSMENT YEAR : 2010-11 DAYA NAND PUSHPA DEVI CHARITABLE TRUST, NH-24, DELHI HAPUR BYE PASS, QAZIPURA MORE, GHAZIABAD. PAN: AAATD 2572Q VS. THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 1, GHAZIABAD. APPELLANT RESPONDENT APPELLANT BY : SHRI AKHILESH KUMAR, ADVOCATE RESPONDENT BY : SHRI S.K. JAIN, SR. DR DATE OF HEARING : 15.09.2016 DATE OF PRONOUNCEMENT : 21.09.2016 O R D E R THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER DATED 02.03.2015 OF THE CIT(APPEALS), MUZAFFARNAGAR INTER ALIA ON THE FOLLOWING GROUNDS:- 1. BECAUSE, THE ORDER OF LEARNED LOWER AUTHORITY I S BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE AND HENCE IS UNSUSTAINABLE. 2. BECAUSE, THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) GROSSLY ERRED IN UPHOLDING, THAT THE 'HOS TEL FACILITY' OF THE SCHOOL PROVIDED EXCLUSIVELY TO STUDENTS OF THE DENTAL COLLEGE IS NOT AN INTEGRAL PART OF 'EDUCATION' U/S 2(15) BU T IS A SEPARATE BUSINESS ACTIVITY IN TERMS OF SECTION 11(4A), BY WR ONGLY ITA NO.4238/DEL/2015 PAGE 2 OF 19 PLACING RELIANCE ON IRRELEVANT MATERIAL FINDINGS ON THE ISSUE ARE PERVERSE AND AGAINST THE SETTLED LAW. 3. BECAUSE, ABOVE FINDING OF THE LEARNED LOWER AU THORITY IS AGAINST THE PRINCIPLE OF CONSISTENCY IN AS MUCH AS THAT SINCE THE INCEPTION THE SAID ACTIVITY IS CONSIDERED AS PART O F 'EDUCATION' AND BENEFIT U/S 11/12 IS ALLOWED WITH 100% SIMILAR FACT S AND WITHOUT ANY CHANGE IN LAW ABOUT THE FIRST THREE LIMBS OF SE CTION 2(15) EVEN AFTER 01.04.09. 4. BECAUSE, WITHOUT PREJUDICE TO ABOVE BUT ONLY AS AN ALTERNATIVE, THE LEARNED LOWER AUTHORITY FAILED TO APPRECIATE THAT ASSESSEE HAD MAINTAINED SUFFICIENT SEPARATE ACCOUNT S AND ID. AO HIMSELF CALCULATED SEPARATE SURPLUS IN SAID ACTIVIT Y ON THE BASIS OF SAID ACCOUNTS HENCE ORDER UPHOLDING REJECTION OF EX EMPTION U/S 11-12 EVEN AFTER INVOKING 11 (4A) FOR SAID ACTIVITI ES IS ILLEGAL AS ADMITTEDLY MORE THAN 85% OF INCOME IS UTILIZED FOR CHARITABLE PURPOSES. 5. BECAUSE, THE LEARNED LOWER AUTHORITY HAS FURTHE R ERRED IN UPHOLDING THE DISALLOWANCE OF RS. 3488089/- OUT OF TOTAL EXP. INCURRED RS. 6688198/- AGAINST THE HOSTEL ACTIVITY AND THE FINDING THAT ASSESSEE COULD NOT SUBSTANTIATE HIS CLAIM IS W RONG . 6. BECAUSE, IN ADDITION TO ABOVE, THE LEARNED LO WER AUTHORITY FAILED TO APPRECIATE THE BASIC FACTS LIKE ACCOUNTS ARE ACCEPTED, THERE IS NO MATERIAL AGAINST THE ASSESSEE , PAST HISTORY AND AO'S COMPUTATION IS GIVING ABSURD RESULTS BESID E EXAMPLE OF THIRD PARTY IS NEITHER RELIABLE NOR CONFRONTED TO A SSESSEE ETC. HENCE DISALLOWANCES ARE SUSTAINED WITHOUT ANY APPLICATION OF MIND. THEREFORE, IT IS PRAYED THAT FINDING OF LOWER AUT HORITIES HOLDING HOSTEL FACILITY AS SEPARATE BUSINESS ACTIVI TY ETC. MAY KINDLY BE QUASHED AND DISALLOWANCES AND COMPUTATION OF TAXABLE SURPLUS OF RS. 34,88,089/- MAY KINDLY BE HELD ILLEG AL AND PRAYED TO BE QUASHED. HOWEVER, WITHOUT PREJUDICE TO ABOVE AND ONLY AS AN ALTERNATIVE AND WITHOUT DILUTION TO ABOVE PRAYER, IT IS ALSO PR AYED THAT COMPUTATION OF SURPLUS IS WRONG AND DECLARED SURPLU S MAY KINDLY BE ACCEPTED AND EXEMPTION ON SUCH MAY KINDLY BE ALL OWED. ITA NO.4238/DEL/2015 PAGE 3 OF 19 2. THOUGH VARIOUS GROUNDS ARE RAISED, BUT THEY ALL RELATE TO DISALLOWANCE OF EXEMPTION U/S. 11 OF THE INCOME-TAX ACT, 1961 [THE ACT] WITH RESPECT OF THE ACTIVITIES FOR RUNNING HOSTEL I N THE CAMPUS. WHILE DENYING THE BENEFIT OF EXEMPTION U/S. 11 OF THE ACT , THE AO HAS OBSERVED THAT THE ASSESSEE TRUST IS RUNNING A DENTAL COLLEGE IN THE NAME & STYLE OF HARSHARAN DASS DENTAL COLLEGE AT GHAZIABAD. A CE RTIFICATE OF REGISTRATION U/S. 12A WAS ALSO GRANTED TO IT. THE AO HAS ALSO O BSERVED THAT THE ASSESSEE IS PROVIDING HOSTEL FACILITIES TO STUDENTS AGAINST THE HOSTEL FEES WHICH WAS INCLUDED IN THE FEE RECEIPT AND THE CORRE SPONDING EXPENSES WAS ALSO EXCLUSIVELY SHOWN IN INCOME & EXPENDITURE ACCO UNT FOR PROVIDING HOSTEL FACILITIES TO STUDENTS. BESIDES TREATING TH E HOSTEL FEES CHARGED PER STUDENT AT HIGHER SIDE IN COMPARISON WITH MARKET PR ICE, THE AO HAS ALSO OBSERVED THAT THE ASSESSEE HAS NOT MAINTAINED SEPAR ATE ACCOUNTS FOR THE HOSTEL ACTIVITIES. HE ACCORDINGLY INVOKED THE PROV ISIONS OF SECTION 11(4A) AND DISALLOWED THE EXEMPTION CLAIMED WITH RESPECT T O THE PROFIT EARNED FROM HOSTEL ACTIVITIES. BESIDES, HE ALSO DISALLOWE D THE DEPRECIATION CLAIMED WITH RESPECT TO HOSTELS. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(APPEALS) WITH THE SUBMISSION THAT THE ACTIVITIE S FOR RUNNING HOSTEL IS ALSO ONE OF THE OBJECT AND IT HAS MAINTAINED SEPARA TE ACCOUNTS OF INCOME & EXPENDITURE OF SUCH ACTIVITIES AND SHOWED A DEFICIT OF RS.68,198 FROM SUCH ACTIVITY, AS THE ASSESSEE HAS SHOWN GROSS INCOME O F RS.66,20,000 AND EXPENDITURE OF RS.66,88,198 RESULTING INTO A LOSS O F RS.68,198. ITA NO.4238/DEL/2015 PAGE 4 OF 19 4. THE CIT(A) RE-EXAMINED THE CLAIM OF ASSESSEE IN LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS AND HELD THAT THE ACTIVITY OF HOSTEL IS AN INDEPENDENT ACTIVITY AND CANNOT BE TERMED AS INCIDE NTAL TO RUNNING OF EDUCATIONAL INSTITUTION. HE FURTHER HELD THAT INCI DENTAL ACTIVITIES CANNOT BE RUN AS FULL-FLEDGED COMMERCIAL ACTIVITIES. THE CIT( A) FURTHER HELD THAT EVEN IF IT IS ASSUMED THAT THE ACTIVITY OF RUNNING OF HO STEL IS INCIDENTAL TO THE MAIN ACTIVITY OF SOCIETY/TRUST, THEN ALSO THE APPELLANT IS NOT ENTITLED TO EXEMPTION US/. 11(4A) OF THE ACT BECAUSE IT HAS NOT MAINTAINE D SEPARATE BOOKS OF ACCOUNTS AS PROVIDED U/S. 11(4A) OF THE ACT. THE C IT(APPEALS) FINALLY CONFIRMED THE DISALLOWANCE ON TWO COUNTS:- (I) RUNNING OF HOSTEL ACTIVITIES IS NOT INCIDENTAL TO THE ACTIVITIES OF IMPARTING EDUCATION. (II) EVEN IF IT IS ASSUMED THAT IT IS INCIDENTAL TO THE MAIN ACTIVITIES, THE BENEFIT CANNOT BE GIVEN AS NO SEPARATE BOOKS OF ACC OUNTS ARE MAINTAINED BY THE ASSESSEE. 5. THE RELEVANT OBSERVATIONS OF THE CIT(APPEALS) IN THIS REGARD ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- THE WORD EDUCATION HAS NOT BEEN DEFINED IN THE' AC T. HOWEVER, THE APPELLANT HAS ARGUED THAT HIS CASE IS COVERED BY THE DEFINITION OF CHARITABLE PURPOSE IN SECTION 2(15) O F THE I. T. ACT. FOR CLARITY IT IS IMPORTANT TO REPRODUCE SECTION 2( 15) OF THE I.T. ACT. 'CHARITABLE PURPOSE INCLUDES RELIEF OF THE POOR, ED UCATION, MEDICAL RELIEF [PRESERVATION OF ENVIRONMENT (INCLUD ING WATERSHEDS, FORESTS AND WILDLIFE) AND PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR ITA NO.4238/DEL/2015 PAGE 5 OF 19 HISTORIC INTEREST,] AND THE ADVANCEMENT OF ANY OTHE R OBJECT OF GENERAL PUBLIC UTILITY: PROVIDED THAT THE ADVANCEMENT OF ANY OTHER OBJECT O F GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PU RPOSE, IF IT INVOLVES THE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR ANY ACTIVITY OF REN DERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERAT ION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, O R RETENTION, OF THE INCOME FROM SUCH ACTIVITY: THE AO HAS WRITTEN IN DETAIL AS TO HOW THE INCOME OF THE APPELLANT FROM TRANSPORT BUSINESS IS NOT COVERED UN DER THE HEAD EDUCATION. EDUCATION AS MENTIONED IN SECTION 2(15) HAS BEEN DEFINED AND ELABORATED BY THE HON'BLE SUPREME COURT IN THEIR DECISION IN THE CASE OF TRUSTEES LOKSHIKSHAN TRUST VS. CIT. THE RELEVANT PARAS OF THE ORDER ARE REPRODUCED AS UNDER :- 'THE SENSE IN WHICH THE WORD EDUCATION HAS BEEN USE D IN SECTION 2(15) IN THE SYSTEMATIC INSTRUCTION SCHOOLI NG OR TRAINING GIVEN TO THE YOUNG IS PREPARATION FOR THE WORK OF LIFE. IT ALSO CONNOTES THE WHOLE COURSE OF SCHOLARI STIC INSTRUCTION WHICH A PERSON HAS RECEIVED. THE WORD EDUCATION HAS NOT BEEN USED IN THAT WIDE AND EXTEND ED SENSE ACCORDING TO WHICH EVERY ACQUISITION OF FURTH ER KNOWLEDGE CONSTITUTES EDUCATION. ACCORDING TO THIS W IDE AND EXTENDED SENSE, TRAVELLING IS EDUCATION BECAUSE AS A RESULT OF TRAVELLING YOU ACQUIRE FRESH KNOWLEDGE. L IKEWISE, IF YOU USE NEWSPAPER AND MAGAZINES, SEE PICTURES, V ISIT ART GALLERIES, MUSEUMS AND ZOOS, YOU THEREBY ADD TO YOU R KNOWLEDGE. AGAIN WHEN YOU GROW UP AND HAVE DEALINGS WITH OTHER PEOPLE SOME OF WHOM ARE NOT STRAIGHT, YO U LEARN BY EXPERIENCE AND THUS ADD TO THE KNOWLEDGE O F WAYS OF THE WORLD. IF YOU ARE NOT CAREFUL YOUR WALL ET IS LIABLE TO BE STOLEN OR YOU ARE LIABLE TO BE CHEATED BY SOME UNSCRUPULOUS PERSON. THE THIEF WHO REMOVES YOUR WAL LET AND THE SWINDLER WHO CHEATS YOU TEACH YOU A LESSON AND IN THE PROCESS MAKE YOU WISER THOUGH POORER. IF YOU VI SIT A NIGHT CLUB, YOU GET ACQUAINTED WITH AND ADD TO YOUR KNOWLEDGE ABOUT SOME OF THE NOT MUCH REVEALED REALI TIES AND MYSTERIES OF LIFE. ALL THIS IN A WAY IS EDUCATIO N IN THE GREAT SCHOOL OF LIFE. BUT THAT IS NOT THE SENSE IN WHICH THE WORD EDUCATION IS USED IN CLAUSE (15) OF SECTION 2. WHAT EDUCATION CONNOTES IN THAT CLAUSE IS THE PROCESS OF TRAINING ITA NO.4238/DEL/2015 PAGE 6 OF 19 AND DEVELOPING THE KNOWLEDGE, SKILL, MIND AND CHARA CTER OF STUDENTS BY NORMAL SCHOOLING. THE HON'BLE COURT HAS FURTHER HELD THAT THE DIFFICU LT QUESTION HOWEVER STILL REMAINS. WHAT IS THE MEANING OF CHARI TABLE PURPOSE WHICH IS ONLY INDICATED BUT NOT DEFINED BY SECTION 2(15) OF THE ACT? IT SEEMS TO ME THAT A COMMON CONCEPT OF ELEMEN T OF CHARITY IS SHARED BY EACH OF THE FOUR DIFFERENT CATEGORIES OF CHARITY. IT IS TRUE THAT CHARITY DOES NOT NECESSARILY EXCLUDE CARR YING ON AN ACTIVITY WHICH LEADS PROFIT PROVIDED THAT PROFIT HA S TO BE USED UP FOR WHAT IS RECOGNIZED AS CHARITY. THE VERY CONCEPT OF CHARITY DENOTES ALTRUISTIC THOUGHT AND ACTION. ITS OBJECT M UST NECESSARILY BE TO BENEFIT OTHERS RATHER THAN ONESELF. ITS ESSEN CE IS SELFLESSNESS. IN A TRULY CHARITABLE ACTIVITY, ANY POSSIBLE BENEFI T TO THE PERSON WHO DOES THE CHARITABLE ACT IS MERELY INCIDENTAL OR EVEN ACCIDENTAL AND IMMATERIAL. FROM THE ABOVE JUDGMENT OF THE HON'BLE SUPREME CO URT IT IS CLEAR THAT RUNNING OF HOSTEL CAN'T BE TERMED AS EDUCATION. THE ORDER OF THE HON'BLE SUPREME COURT IS THE LAW OF TH E LAND AND BINDING ON ALL THE AUTHORITIES. RESPECTFULLY FOLLOW ING THE JUDGMENT OF THE HON'BLE SUPREME COURT IT IS HELD TH AT THE ACTIVITY OF THE APPELLANT IS NOT COVERED UNDER THE TERM EDUC ATION. HOWEVER, THE APPELLANT COULD NOT ELABORATE AS TO HO W IT IS COVERED UNDER EDUCATION WHEN THE HOSTEL BUSINESS CA N BE RUN WITHOUT ANY EDUCATIONAL INSTITUTE AND AN EDUCATIONA L INSTITUTE CAN RUN WITHOUT PROVIDING HOSTEL FACILITY. FURTHER, SIN CE THE FEE CHARGED FROM THE STUDENTS IS ON COMMERCIAL BASIS AN D NOT ON CHARITABLE BASIS THE APPELLANT IS ENGAGED IN A COMM ERCIAL ACTIVITY WHICH CAN NOT BE TERMED AS EDUCATION. THERE IS NO C ASE WHERE HOSTELS WERE PROVIDED FREE OF COST TO POOR CHILDREN . THE APPELLANT HAS ALSO NOT SUBMITTED ANY ARGUMENT A GAINST THE FINDINGS OF THE AO THAT THE SURPLUS FEES WERE NOT R EIMBURSED TO THE STUDENTS. IF THE PURPOSE WAS CHARITY THE APPELL ANT SHOULD HAVE REFUNDED THE MONEY TO THE STUDENTS WHICH HAVE NOT B EEN DONE. IN FACT, THE AO HAS DEMONSTRATED VERY SUCCESSFULLY THE PROFIT ELEMENT INVOLVED IN RUNNING HOSTEL ACTIVITY. THE PR OFIT MOTIVE IS CLEAR FROM THE FEES CHARGED WHICH IS AS PER MARKET RATE. ITA NO.4238/DEL/2015 PAGE 7 OF 19 2. IF THE ABOVE ACTIVITY IS NOT COVERED UNDER THE H EAD EDUCATION WHETHER IT IS A CHARITABLE ACTIVITY, MADE ANY OTHER HINTS OF SECTION 2(15). A CLOSE PERUSAL OF LANGUAGE OF SECTION 2(15) CLEA RLY ESTABLISHES THAT HOSTEL BUSINESS IS NOT CHARITY AS PROVIDED IN SECTION 2(15) OF THE IT ACT. AS PER SECTION 2(15) C HARITY INCLUDES:- (I) RELIEF OF THE POOR. RUNNING OF HOSTEL FOR THE STUDENTS OF THE SCHOOL IS NOT RELIEF TO POOR. . (II) EDUCATION- IT HAS ALREADY BEEN DISCUSSED IN E ARLIER PARAS THAT IT IS NOT EDUCATION. (III) MEDICAL RELIEF- DEFINITELY NOT. (IV)PRESERVATION OF ENVIRONMENT (INCLUDING WATERSHE D FORESTS AND WILDLIFE). HOSTEL RUNNING IS DEFINITELY NOT COVERED IN THIS AS WELL. (V) PRESERVATION OF MOMENTS OR PLACES OR OBJECTS O F ARTISTIC OR HISTORIC INTEREST NOT COVERED IN THIS CATEGORY. (VI) ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBL IC UTILITY. HOSTEL RUNNING FOR THE CHILDREN OF SCHOOL ARE NOT ADVANCEMENT OF GENERAL PUBLIC UTILITY. THE APPELLAN T HAS ALSO NOT ARGUED THAT IT IS COVERED IN THE ABOVE CATEGORIES. 3. IF THE ACTIVITY IS COMMERCIAL WHETHER THE SAME IS INCIDENTAL TO-RUNNING THE EDUCATIONAL INSTITUTE. 1. THE DICTIONARY MEANING OF THE WORD 'INCIDENTAL' IS HAPPENING AS A MINOR ACCOMPANIMENT TO SOMETHING ELS E. IF WE SEE THE MEANING OF INCIDENTAL, IT IS CLEAR TH AT IN ORDER TO FALL UNDER AN INCIDENTAL BUSINESS THE SAME HAS TO BE MINOR AND NOT FULL FLEDGED BUSINESS. THE BUSINESS OF RUNNING HOSTEL FOR STUDENTS IS NO T AN INCIDENTAL ACTIVITY OF THE APPELLANT. AS HAS BEEN D ISCUSSED IN EARLIER PARAS HOSTEL CAN RUN WITHOUT AN EDUCATIONAL INSTITUTE. THERE ARE HUNDREDS OF BUSINESS MEN WHO ARE PROVIDIN G THIS SERVICE TO THE STUDENTS AND EARNING INCOME WHICH IS CLEARLY ITA NO.4238/DEL/2015 PAGE 8 OF 19 CHARGEABLE TO TAX. IT IS STRANGE TO ASSUME THAT THE SAME ACTIVITY WILL BE EXEMPTED IN THE HANDS OF THE APPELLANT ONLY BECAUSE IT IS RUNNING AN EDUCATIONAL INSTITUTE AND NO OUTSIDER IS BEING ADMITTED INTO HOSTEL. THE FEES CHARGED ARE THE SAME AND THE FACILITIES PROVIDED ARE ALSO COMPARABLE. THERE IS NO PROVISION IN THE INCOME TAX ACT WHICH EXEMPTS THIS INCOME. BOTH THE ACTIVITIES I.E. EDUCATION AND HOSTEL ARE INDEPENDENT OF EACH O THER. . IN FACT, THE APPELLANT IS NOT CHARGING AS PER MAR KET RATE BUT HAS CHARGED MORE FROM THE STUDENTS WHICH SHOWS THE COMMERCIAL MOTIVE OF THE APPELLANT AND NOT THE CHARITABLE ONE AS CLAIMED BY THE APPELLANT. THIS ACTIVITY OF HOSTEL IS AN INDEPE NDENT ACTIVITY AND CAN'T BE TERMED AS INCIDENTAL TO RUNNING OF EDU CATIONAL INSTITUTION. THE INCIDENTAL ACTIVITY CAN NOT BE RUN AS A FULL FLEDGED COMMERCIAL ACTIVITY. THIS ACTIVITY IS A SEPARATE SO URCE OF REVENUE FOR THE APPELLANT. 4. IF IT IS INCIDENTAL WHETHER SEPARATE BOOKS OF ACCOUNTS ARE MAINTAINED AS PROVIDED IN SECTION 11(4A) OF THE I.T. ACT. EVEN IF FOR ARGUMENT SAKE IT IS ASSUMED THAT THE A CTIVITY OF RUNNING OF HOSTEL IS INCIDENTAL TO THE MAIN ACTI VITY OF THE SOCIETY/ TRUST, THEN ALSO THE APPELLANT IS NOT ENTI TLED FOR EXEMPTION U/S11(4A) OF THE I.T. ACT BECAUSE IT HAS NOT MAINT AINED SEPARATE BOOKS OF ACCOUNTS AS PROVIDED IN SECTION 11 (4A). THE AO HAS INVOKED THE PROVISIONS OF SECTION 11(4A) O F THE I.T. ACT. BEFORE PROCEEDING FURTHER IT IS IMPORTANT TO TRACE THE HISTORY OF SECTION OF 11 (4 A) OF THE I.T. ACT. THIS PROVISIO N WAS BROUGHT FOR THE FIRST TIME BY FINANCE ACT, 1983 W.E.F. 1984 . SECTION 11(4A) WAS INSERTED BY FINANCE ACT, 1983 WAS AS FOL LOWS:- ( 4A ) SUB-SECTION ( 1 ) OR SUB-SECTION 2 OR SUB-SECTION ( 3 ) OR SUB-SECTION ( 3A ) SHALL NOT APPLY IN RELATION TO ANY INCOME, BEING PROFITS AND GAINS OF BUSINESS, UNLESS (A) THE BUSINESS IS CARRIED ON BY A TRUST WHOLLY FOR PU BLIC RELIGIOUS PURPOSES AND THE BUSINESS CONSISTS OF PRINTING AND PUBLICATION OF BOOKS OR PUBLICATION OF BOOKS OR IS OF A KIND NOTIFIED BY THE CENTRAL GOVERNMENT IN THIS BEHALF IN THE OFFICIAL GAZETTE ; OR (B) THE BUSINESS IS CARRIED ON BY AN INSTITUTION WHOLL Y FOR CHARITABLE PURPOSES AND THE WORK IN CONNECTION WITH THE BUSINESS IS MAINLY CARRIED ON BY THE BENEFICIAR IES ITA NO.4238/DEL/2015 PAGE 9 OF 19 OF THE INSTITUTION, AND SEPARATE BOOKS OF ACCOUNT A RE MAINTAINED BY THE TRUST OR INSTITUTION IN RESPECT O F SUCH BUSINESS. THE EXPLANATORY NOTE TO THE FINANCE BILL EXPLAINS THE INTENT OF THE LEGISLATURE IN THE FOLLOWING FORM:- 73. UNDER ANOTHER AMENDMENT IT IS PROPOSED TO PROVIDE THAT EXEMPTION FROM INCOME TAX WILL NOT BE AVAILABLE TO ANY RELIGIOUS OR CHARITABLE TRUST OR I NSTITUTION IN RESPECT OF ANY PROFIT & GAINS OF BUSINESS. IN OT HER WORDS, IRRESPECTIVE OF WHETHER ANY BUSINESS IS CARR IED ON BY SUCH A TRUST OR INSTITUTION OR THE BUSINESS UNDE RTAKING ITSELF IS HELD IN TRUST IN EITHER CASE THE TRUST OR INSTITUTION WILL BE CHARGED TO TAX ON SUCH PROFITS & GAINS AT TH E RATES OF TAX APPLICABLE IN THE CASE OF INDIVIDUALS, ASSOC IATION OF PERSONS, BODY OF INDIVIDUALS ETC. 74. AT PRESENT, ALL CATEGORIES OF INCOME DERIVED B Y CHARITABLE OR RELIGIOUS TRUSTS, INSTITUTIONS AND FU NDS, WHICH ARE NOTIFIED BY THE CENTRAL GOVERNMENT 'UNDER SECTION 10(23C)(IV) AND (V) OF THE INCOME-TAX ACT AR E EXEMPT FROM INCOME-TAX. IN CONFORMITY WITH THE PROPOSAL TO TAX PROFITS AND GINS OF BUSINESS IN THE CASE OF ALL CHARITABLE OR RELIGIOUS TRUSTS AND INSTITUTI ONS, IT IS PROPOSED TO PROVIDE THAT THE EXEMPTION UNDER SECTIO N 10(23C) (IV) AND (V) OF THE INCOME-TAX ACT WILL NOT APPLY EVEN IN RETENTION TO PROFITS AND GAINS OF BUSINESS IN THE CASE OF SUCH NOTIFIED TRUSTS AND INSTITUTIONS. 75. THE AFORESAID AMENDMENTS REGARDING TAXATION OF BUSINESS PROFITS OR RELIGIOUS OR CHARITABLE TRU STS AND INSTITUTIONS WILL TAKE EFFECT FROM 1 ST APRIL, 1984, AND WILL ACCORDINGLY, APPLY IN RELATION TO THE-ASSESSMENT YE AR 1984-85 AND SUBSEQUENT YEARS. ' THE ABOVE EXPLANATORY NOTE CLEARLY EXPLAINS THE I NTENTION OF THE LEGISLATURE TO TAX BUSINESS PROFITS OF RELIG IOUS OR CHARITABLE TRUSTS. PRIOR TO 01.04.1992 EVEN FOR A VERY SMALL ACTIVIT Y OF BUSINESS OR PROFESSION THE TRUSTS BECAME EXIGIBLE T O TAX WHOLLY I.E. THEY LOST EXEMPTION IN RESPECT OF ALL ACTIVITI ES INCLUDING CHARITABLE. NOW WITH EFFECT FROM 01-04-92 ONLY BUSI NESS AND PROFESSIONAL RECEIPTS HAVE LOST EXEMPTION AND CHARI TABLE RECEIPTS ITA NO.4238/DEL/2015 PAGE 10 OF 19 ARE STILL OUTSIDE THE TAX NET. THE AMENDED SECTION 11(4A) WHICH WAS BROUGHT BY FINANCE ACT, 1991 W.E.F. 1.04.1992 I S AS UNDER: - SECTION 11(4A) OF THE ACT SAYS - (4A) SUB-SECTION (1) OR SUB-SECTION (2) OR SUB-SECTI ON (3) OR SUB-SECTION (3A) SHALL NOT APPLY IN RELATION TO A NY INCOME OF A TRUST OR AN INSTITUTION, BEING PROFITS AND GAINS OF BUSINESS, UNLESS THE BUSINESS IS INCIDENTAL TO T HE ATTAINMENT OF THE OBJECTIVES OF THE TRUST OR, AS TH E CASE MAY BE, INSTITUTION, AND SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED BY SUCH TRUST OR INSTITUTION IN RESP ECT OF SUCH BUSINESS.] THIS PROVISION WAS BROUGHT BY AMENDING THE EXISTING PROVISION OF SECTION 11(4A) BY FINANCE ACT 1991 WIT H EFFECT FROM 01-04-1992. THE EXPLANATORY NOTES ON THE PROVI SIONS RELATING TO DIRECT TAXES HAVE BEEN EXPLAINED BY CIR CULAR NO.629 DATED 19-12-1999. THE RELEVANT PARA OF THE EXPLANAT ORY NOTE IS REPRODUCED AS UNDER.- '15.8 IN ORDER TO BRING EXEMPTION OF CHARITABLE OR RELIGIOUS TRUST IN LINE WITH THE CORRESPONDING PROVISIONS IN SECTION 10(23C) (IV) OR (V) SUB-SECTION (4A) OF SECTION 11 H AS BEEN AMENDED TO PERMIT TRUST AND INSTITUTIONS TO CARRY O UT BUSINESS ACTIVITIES IF THE BUSINESS ACTIVITIES ARE INCIDENTAL TO THE ATTAINMENT OF ITS OBJECTIVE. THE CHARITABLE OR RELIGIOUS TRUST WILL NO LONGER LOSE COMPLETE EXEMPT ION FROM INCOME TAX. HOWEVER, THE PROFIT & GAINS FROM SUCH BUSINESS ACTIVITY WILL BE SUBJECTED TO TAX.' A CLOSE PERUSAL OF THE ABOVE AMENDMENT LEAVES NO DOUBT THAT PROFIT FROM BUSINESS ACTIVITY WHICH IS NOT INC IDENTAL TO THE ATTAINMENT OF THE OBJECTIVE OF THE TRUST WILL BE TA XABLE. FURTHER IF THE BUSINESS ACTIVITY IS INCIDENTAL THEN THE APPELL ANT IS REQUIRED TO MAINTAIN SEPARATE 'BOOKS OF ACCOUNTS. THEREFORE, TH ERE ARE TWO CONDITION TO BE SIMULTANEOUSLY FULFILLED IF THE BUS INESS PROFIT OF A TRUST HAS TO GET THE BENEFIT OF SECTION 11 (4A). FI RST THE BUSINESS HAS TO BE INCIDENTAL TO THE MAIN OBJECT AND SECOND SEPARATE BOOKS ARE MAINTAINED. IN THE PRESENT CASE, THE APPELLANT HAS NOT DISPUTED THE FACT THAT IT HAS NOT MAINTAINED SEPARATE BOOKS OF ACCOUNT. THEREFORE, IT HAS NOT COMPLIED WITH THE CONDITION L AID DOWN IN SUB-SECTION (4A) OF SECTION 11 OF THE ACT. ITA NO.4238/DEL/2015 PAGE 11 OF 19 THE APPELLANT'S OTHER ARGUMENT IS THAT IT IS AN E DUCATIONAL INSTITUTION AND SINCE THE RUNNING OF HOSTEL IS AN I NTEGRAL PART OF EDUCATION ACTIVITY, IT WAS NOT REQUIRED TO MAINTAIN SEPARATE BOOKS OF ACCOUNT HAS NO FORCE. IN FACT THE AO HAS BROUGHT ON RECORD THAT THE HOSTEL FEES CHARGED FROM THE STUDENTS WAS AS PE R THE MARKET RATE. THE APPELLANT IN THE ENTIRE SUBMISSION HAS NO T CONTROVERTED TO THIS FINDING OF THE ASSESSING OFFICER. THE HON'BLE CHENNAI HIGH COURT IN THE CASE OF DIRECTOR OF INCOME-TAX(EXEMPTION), MADRAS VS. WILLINGTON CHARIT ABLE TRUST [2010] 330 ITR 24(MAD) HAVE REPLIED IN FAVOUR OF RE VENUE THE FOLLOWING QUESTION OF LAW. '(1) WHEN SECTION 11 (1) READ WITH SECTION 11 (4) O F THE INCOME-TAX ACT EXEMPTS INCOME FROM THE BUSINESS UNDERTAKING OF THE TRUST TO THE EXTENT IT IS APPLIE D FOR CHARITABLE OR RELIGIOUS PURPOSE, CAN SECTION 11 (4A) OF THE INCOME-TAX ACT CAN BE CONSTRUED TO HAVE BEEN INCORPORATED FOR THE VERY SAME PURPOSE OR TO BE CON STRUED RESTRICTING THE SCOPE OF SECTION 11 (4) OF THE INCOME-TAX ACT ............ ' IN THE ABOVE CASE THE HON'BLE HIGH COURT AT PARA 12.1 HAS HELD AS FOLLOWS:- '12.1 INSOFAR AS THE COMPLIANCE OF THE MAINTENANCE OF SEPARATE BOOKS OF ACCOUNT AS REQUIRED UNDER SECTION 11 (4A) OF THE ACT IS CONCERNED, A READING OF THE ABOVE SAID PROVISIONS WOULD MAKE IT CLEAR THAT IT IS MANDATORY AND A CONDITION PRECEDENT FOR THE ASSESSEE TO MAINTAIN TH E SAME WHILE SEEKING EXEMPTION. .............. FROM THE ABOVE IT IS CLEAR THAT THE APPELLANT WAS REQUIRED TO MAINTAIN SEPARATE BOOKS OF ACCOUNT FOR HIS TRANS PORT BUSINESS WHICH HE HAS NOT DONE AND THEREFORE, THE AO WAS FUL LY JUSTIFIED IN DENYING THE EXEMPTION U/S 11 (4A) OF THE ACT TO THE APPELLANT. IT IS NOT THE CASE OF THE AO THAT THE APPELLANT I S NOT ENGAGED IN IMPARTING EDUCATION THROUGH ITS VARIOUS COURSES. THE AO HAS RESTRICTED HIS DISCUSSIONS TO THE RUNNING OF HOSTEL BUSINESS. THE AO HAS ESTABLISHED IN NO UNCERTAIN TE RMS THAT THE APPELLANT WAS RUNNING HOSTEL WITH A COMMER CIAL MOTIVE. ITA NO.4238/DEL/2015 PAGE 12 OF 19 IN FACT THE RELEVANT PARAS OF THE JUDGEMENT IN TH E CASE OF ACIT VS. THANTHI TRUST (2001) 247 ITR 785 IS, REPRO DUCED AS UNDER.- 'THE SUBSTITUTED SUB-SECTION (4A) STATES THAT THE IN COME DERIVED FROM A BUSINESS HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES SHALL NOT BE INCLU DED IN THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE TRUST OR INSTITUTION IF 'THE BUSINESS IS INCIDENTAL TO TH E ATTAINMENT OF THE OBJECTIVE OF THE TRUST OR, AS THE CASE MAY BE, INSTITUTION' AND SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED IN RESPECT OF SUCH BUSINESS. ' THEREFORE THERE IS NO DOUBT THAT THE LAW AS LAID DOWN BY THE HON'BLE SUPREME COURT SQUARELY COVERS THE FACTS OF THE APPELLANT'S CASE AND SINCE HE HAS NOT MAINTAINED SE PARATE BOOKS OF ACCOUNT EXEMPTION. U/S 11(4A) HAS BEEN RIGHTLY DENIED. IN THE CASE OF PHD CHAMBER OF COMMERCE AND INDUSTRY THE HON'BLE SUPREME COURT HAS GRANTED LEAVE ON SLP FILE D BY THE DEPARTMENT DIT V/S PHD CHAMBER OF COMMERCE AND INDUSTRY (2014) 51 TAXMANN.COM 380(SC). THE APPELLANT HAS AL SO ADMITTED THAT IN PHD CHAMBER OF COMMERCE THERE HAVE BEEN BUSINESS WITHOUT A MOTIVATION AS TO PROFITS. THIS I S NOT THE CASE OF THE APPELLANT. THE A.O. HAS CATEGORICALLY BROUGHT O N RECORD THE PROFIT MOTIVE, BY COMPARING THE ACTIVITY OF RUNNING A HOSTEL OF THE APPELLANT WITH OTHER PERSONS IN THE MARKET. THE HON'BLE HIGH COURT HAS ALSO OBSERVED THAT EXE MPTION UNDER SECTION 11(4A) WILL ONLY BE AVAILABLE IF THE BUSINESS IS INCIDENTAL TO THE OBJECT OF THE TRUST/SOCIETY AND S EPARATE BOOKS ARE MAINTAINED. IN THE PRESENT CASE NO SEPARATE BOOKS H AVE BEEN MAINTAINED. THE INSTITUTE OF CHARTERED ACCOUNTANT IS RESPONSI BLE FOR LAYING GUIDELINES FOR AUDIT AND ACCOUNTING. THEY HA VE GIVEN AN INDEPENDENT OPINION. THE ACT ITSELF IS VERY, CLEAR ON MAINTAINING SEPARATE BOOK OF ACCOUNT WHICH THE INSTITUTE HAS ON LY CONFIRMED. IN THE CASE OF DIT(EXEMPTION) MADRAS WELLINGTON CHARITABLE TRUST. THE HON'BLE HIGH COURT HAS HELD A S UNDER- INSOFAR AS COMPLIANCE OF THE MAINTENANCE OF SEPARAT E BOOKS OF ACCOUNT AS REQUIRE UNDER SECTION 11 (4A) OF THE ACT IS CONCERNED, A READING OF THE ABOVE SAID PROVIS IONS ITA NO.4238/DEL/2015 PAGE 13 OF 19 WOULD MAKE IT CLEAR THAT IT IS MANDATORY AND A COND ITION PRECEDENT FOR THE ASSESSEE TO MAINTAIN THE SAME WHI LE SEEKING EXEMPTION. THE HON'BLE JUDGES HAVE ALSO OBSERVED - SECTION 11 (4) OF THE ACT SPECIFICALLY SPEAKS ABOUT THE POWER OF THE ASSESSING OFFICER TO DEAL WITH A PROPER TY HELD IN TRUST. THE CONDITION STIPULATED UNDER SECTION'11 (4A) OF THE ACT THAT THE ASSESSEE SHOULD MAINTAIN SEPARATE BOOKS OF ACCOUNT FOR THE BUSINESS INCOME HAS BEEN INTRODUCED WITH A SPECIFIC PURPOSE AND OBJECT BEHIN D IT. THE REASON FOR INTRODUCING SUCH A CONDITION IS TO MAKE SURE THAT THE ASSESSEE SHALL NOT CLAIM AND GET EXEMPTION FOR THE BUSINESS INCOME WHICH IS NOT USED FOR CHARITABLE PURPOSES. THEREFORE, SUCH A CONDITION IS MANDATORY. IN OTHER WORDS, A FAILURE TO COMPLY WITH THE CONDITION WOULD MAKE THE ASSESSEE CONCERNED FROM CLAIMING EXEMPTION. SUCH A COMPLIANCE ON BEHALF OF THE ASSESSEE WHILE SEEKING EXEMPTION ALSO CONSEQUENTLY MANDATES, THE ASSESSING OFFICER TO VERIFY THE ACCOUN TS UNDER DIFFERENT HEADS WITH ITS BREAK-UPS OF FIGURES BY APPLYING HIS MIND WHILE DOING A THOROUGH VERIFICATI ON. IN THE CASE ON HAND, WE FIND THAT ALL THE AUTHORITIES HAVE MAINLY DEALT WITH ELIGIBILITY OF THE ASSESSEE TO SE EK EXEMPTION UNDER SECTION 11 OF THE ACT. THE APPELLANT HAS RELIED ON VARIOUS JUDGMENTS WHICH ARE DISCUSSED AS FOLLOWS: - 1. CIT LUCKNOW VS. LUCKNOW DEVELOPMENT AUTHORITY (2013)(38 TAXMANN.COM 246)(ALD) - IN THIS CASE THE AO ASSESSED THE ENTIRE INCOME OF THE AUTHORITY AS BUSINESS INCOME WHICH IS NOT THE CASE OF THE APPELLANT. THE CASE OF LDA WAS COVERED UNDER THE HEAD ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. THE HON'BLE COURT HAS HELD IN PARA 18 OF THEIR ORDER THAT 'THE OBJECT OF THE AUTHORITY IS TO PROVIDE SHELTER TO THE HOMELESS PEO PLE,' THEREFORE, THERE IS NO OBJECTIONABLE MATERIAL TO TR EAT THESE INSTITUTIONS AS NON-CHARITABLE '. THE APPELLANT IS NOT APPRECIATING THE FACT THAT THE EXEMPTION ON ACCOUNT OF RUNNING OF EDUCATION HAS NOT BEEN DENIED BY THE AO. THE AO HAS ONLY DENIED EXEMPTION U/S 11 TO THE ACTIVITY OF TRANSPORTATION AND SPORTS FOR WHICH SEPARATE FEE HAS BEEN CHARGED. THE HON'BLE HIGH COU RT WAS NOT ANALYZING THIS ASPECT IN THE MATTER OF CIT ITA NO.4238/DEL/2015 PAGE 14 OF 19 VS. LDA. SINCE, THE FACTS ARE DIFFERENT THIS CASE AL SO DOESN'T HELP THE APPELLANT. 2. PHD CHAMBER OF COMMERCE AND INDUSTRY VS. DIT DELHI (2013) - THIS CASE HAS ALSO BEEN DISCUSSED IN DETAIL IN EARLIER PARAS OF THIS ORDER AND DOES NOT HELP THE APPELLANT. SIMILARLY, THE OTHER CASE LAWS ON WHICH THE APPELLA NT HAS RELIED ARE NOT APPLICABLE TO THE INSTANT CASE. THE APPELLA NT'S MAIN ARGUMENT IS THAT EVEN IF AN INSTITUTE WHICH IS CARR YING OUT EDUCATIONAL ACTIVITY IS INDULGING INTO COMMERCIAL V ENTURE WILL NOT BE HIT BY SEC.11(4A) OF THE IT ACT. THE ARGUMENT IS 11( 4A) IS TO BE READ WITH OTHER OBJECTS OF PUBLIC UTILITY. UNFORTUNATELY, I AM NOT IN ARGUMENT WITH THE ABOVE PROPOSITION. THE LANGUAGE OF SEC.11(4A) IS VERY CLE ARLY IT STATS WITH THE WORD THAT SUB SECTION 1 OR 2 OR 3(A) OF SE CTION 11 WILL NOT APPLY IN RELATION TO ANY INCOME OF A TRUST OR A N INSTITUTE BEING PROFITS AND GAINS OF BUSINESS. IT D OESN'T PUT A RESTRICTION THAT IT IS APPLICABLE TO THE FOURTH LIM BS I.E. OBJECT OF ANY PUBLIC UTILITY. THE CONCESSION GRANTED IN 11 (4A) IS RESTRICTED TO THE BUSINESS WHICH IS INCIDENTAL TO THE ATTAINMENT OF T HE OBJECTIVE OF THE TRUST AND SEPARATE BOOKS ARE MAINTAINED. IN VIEW OF THE ABOVE, THE ARGUMENT OF THE APPELLANT FAILS. 6. AGGRIEVED, THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND REITERATED ITS CONTENTIONS. IT WAS EM PHATICALLY ARGUED THAT THE ACTIVITY OF RUNNING THE HOSTEL IS ONE OF THE OBJECT S OF THE ASSESSEE TRUST. IN SUPPORT THEREOF, HE INVITED OUR ATTENTION TO THE O BJECTIVE OF THE TRUST WHICH IS AVAILABLE AT PAGE NOS. 18 TO 20 OF THE COMPILATI ON. IT WAS FURTHER CONTENDED THAT DURING THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE DID NOT EARN ANY PROFIT FROM THE HOSTEL ACTIVITIES, RAT HER IN THE INCOME & ITA NO.4238/DEL/2015 PAGE 15 OF 19 EXPENDITURE ACCOUNT, THERE WAS A DEFICIT OF RS.68,1 98. IT WAS FURTHER CONTENDED THAT IF IT NOT CHARITABLE ACTIVITIES, IT WOULD BE INCIDENTAL TO THE MAIN ACTIVITIES OF IMPARTING EDUCATION, FOR WHICH T HE ASSESSEE TRUST IS REGISTERED U/S. 12A OF THE ACT. IT WAS ALSO STATED THAT THE ASSESSEE HAS TAKEN THE PROFIT IN THE ACCOUNTS IN RESPECT OF HOST EL ACTIVITIES, THEREFORE IT CANNOT BE SAID THAT SEPARATE BOOKS OF ACCOUNTS ARE NOT MAINTAINED. HE ALSO PLACED RELIANCE UPON THE JUDGMENT OF THE HONB LE ORISSA HIGH COURT IN THE CASE OF CIT V. SILICON INSTITUTE OF TECHNOLOGY (2015) 370 I TR 567 (ORISSA) WHEREIN IT WAS HELD THAT SPENDING THE AMOUNT RECEIV ED BY ASSESSEE BY WAY OF COLLECTION OF TUITION FEES OR CO LLECTION OF HOSTEL FEES FOR BUILDING NECESSARY INFRASTRUCTURE FOR IMPARTING THE EDUCATION IN VARIOUS FIELDS WHICH IS THE CHARITABLE PURPOSE FOR WHICH TH E TRUST WAS ESTABLISHED WAS ENTITLED FOR EXEMPTION U/S. 11 OF THE ACT. FUR THER, HE ALSO PLACED RELIANCE UPON THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. KARNATAKA LINGAYAT SOCIETY (KAR) IN ITA NO.5 004/2012 , IN WHICH PROVIDING HOSTEL TO STUDENTS/STAFF WORKING FO R THE SOCIETY WAS HELD TO BE INCIDENTAL TO THE ACHIEVE THE OBJECT OF PROVIDIN G EDUCATION, NAMELY, THE OBJECT OF THE SOCIETY. FURTHER, RELIANCE WAS ALSO PLACED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF ACIT V. THANTHI TRUST, 247 ITR 785 (SC) IN WHICH IT WAS HELD THAT A BUSINESS WHOSE INCOME I S UTILISED BY THE TRUST OR THE INSTITUTION FOR THE PURPOSE OF ACH IEVING THE OBJECTIVES OF THE TRUST OR THE INSTITUTION IS, SURELY, A BUSINESS WHI CH IS INCIDENTAL TO THE ATTAINMENT OF THE OBJECTIVES OF THE TRUST. IN SUP PORT OF HIS CONTENTION THAT IF ITA NO.4238/DEL/2015 PAGE 16 OF 19 THE ASSESSEE DID NOT CARRY ANY BUSINESS ACTIVITY FO R EARNING PROFIT, IT WAS ENTITLED FOR EXEMPTION U/S. 11 OF THE ACT, FURTHER RELIANCE WAS ALSO PLACED UPON THE FOLLOWING JUDGMENTS:- (I) DIT V. LALA LAJPATRAI MEMORIAL TRUST [2016] 3 83 ITR 345 (BOM) (II) PHD CHAMBER OF COMMERCE & IND. V. DIT, [2013] 357 ITR 296 (DEL) (III) DIT V. APPAREL EXPORT PROMOTION COUNCIL [200 0] 244 ITR 736 (DEL) (IV) CIT V. BRIDARANYAK MANDAL (TRUST) [2009] 319 I TR 363 (ALL) 7. THE LD. DR, ON THE OTHER HAND, HAS CONTENDED THA T THE ASSESSEE WAS RUNNING A SEPARATE ACTIVITY FOR RUNNING HOSTEL BY CHARGING A HANDSOME HOSTEL FEES FROM THE STUDENTS, IN COMPARISON TO RAT ES PREVAILING IN THE MARKET. IT WAS FURTHER CONTENDED THAT THE ASSESSEE HAS NOT MAINTAINED SEPARATE BOOKS OF ACCOUNTS, THEREFORE EVEN IF THE H OSTEL ACTIVITY IS CONSIDERED TO BE INCIDENTAL TO THE MAIN ACTIVITY OF IMPARTING EDUCATION, BENEFIT OF EXEMPTION CANNOT BE ALLOWED RELATING TO HOSTEL ACTIVITIES. THEREFORE, THE CIT(APPEALS) HAS RIGHTLY DENIED THE BENEFIT OF EXEMPTION IN RESPECT OF HOSTEL ACTIVITY. IT WAS FURTHER CONTEND ED THAT ONCE THE BENEFIT OF EXEMPTION IS DENIED RELATING TO HOSTEL ACTIVITY, TH E CORRESPONDING DEPRECIATION ON HOSTEL BUILDING CANNOT BE ALLOWED T O THE ASSESSEE. THE HOSTEL ACTIVITY CAN ONLY BE CONSIDERED TO BE SEPARA TE BUSINESS ACTIVITY IN ACCORDANCE WITH LAW. ITA NO.4238/DEL/2015 PAGE 17 OF 19 8. HAVING CAREFULLY EXAMINED THE ORDERS OF AUTHORIT IES BELOW AND DOCUMENTS PLACED ON RECORD, I FIND THAT RUNNING OF HOSTEL ACTIVITIES IS ONE OF THE OBJECTS OF THE ASSESSEE TRUST AND IT IS ALSO SE EN THAT WHERE THE EDUCATIONAL INSTITUTIONS ARE SET UP, THE ASSESSEE S OCIETY OR TRUST PROVIDES HOSTELS FOR THE STUDENTS AGAINST THE PARTICULAR HOS TEL FEES. IN THE INSTANT CASE, THE HOSTEL FEES WERE CHARGED @ RS.4,500 TO RS .5,000 PER MONTH PER STUDENT. DURING THE COURSE OF HEARING, IT WAS EXPL AINED THAT AGAINST THIS HOSTEL FEES, THE ASSESSEE TRUST IS PROVIDING ALL FA CILITIES INCLUDING BOARDING & LODGING TO ALL THE STUDENTS. THEREFORE, THIS AMOUNT CHARGED AS HOSTEL FEES CANNOT BE CALLED TO BE EXORBITANT IN COMPARISON TO THE PREVAILING MARKET RATES. I HAVE ALSO EXAMINED THE JUDGMENTS REFERRED TO BY THE ASSESSEE AND I FIND THAT HOSTEL ACTIVITY IS CERTAINLY ACTIVITY I NCIDENTAL TO THE MAIN ACTIVITY OF IMPARTING EDUCATION. IN THE CASE OF CIT V. KARNATAKA LINGAYAT SOCIETY (KAR) IN ITA NO.5004/2012 , THE HONBLE HIGH COURT HAS HELD THAT PROVIDING HOSTEL TO THE STUDENTS/STAFF IS INCIDENTAL TO THE A CHIEVE THE OBJECT NAMELY THE OBJECT OF THE SOCIETY. IN THE CASE OF ACIT V. THANTHI TRUST, 247 ITR 785 (SC) THE HONBLE APEX COURT HAS HELD THAT A BUSINESS WHO SE INCOME IS UTILISED BY THE TRUST OR THE INSTITUTION FOR THE PU RPOSE OF ACHIEVING THE OBJECTIVES OF THE TRUST OR THE INSTITUTION IS, SURE LY, A BUSINESS WHICH IS INCIDENTAL TO THE ATTAINMENT OF THE OBJECTIVES OF T HE TRUST. 9. IN THE INSTANT CASE, THE HOSTELS ARE BEING PROVI DED TO THE STUDENTS WHO GET ADMISSION IN THE EDUCATIONAL INSTITUTION, T HEREFORE THE HOSTEL ACTIVITES CAN ONLY BE TERMED TO BE INCIDENTAL TO TH E MAIN ACTIVITY OF ITA NO.4238/DEL/2015 PAGE 18 OF 19 IMPARTING EDUCATION. THEN THE QUESTION ARISES, WHE THER THE ASSESSEE IS REQUIRED TO MAINTAIN SEPARATE BOOKS OF ACCOUNTS OF HOSTEL ACTIVITIES. IN THIS REGARD, A SPECIFIC QUERY WAS RAISED BY THE LOWER AU THORITIES WITH REGARD TO MAINTENANCE OF SEPARATE BOOKS OF ACCOUNTS WITH RESP ECT TO HOSTEL ACTIVITIES AND THE ASSESSEE COULD NOT PRODUCE SEPARATE BOOKS O F ACCOUNTS. EVEN DURING THE COURSE OF HEARING, A SPECIFIC QUESTION W AS RAISED WHETHER THE ASSESSEE HAS MAINTAINED SEPARATE BOOKS OF ACCOUNTS WITH RESPECT TO HOSTEL ACTIVITIES, THE ANSWER WAS IN THE NEGATIVE. 10. NOW AS PER THE PROVISIONS OF SECTION 11(4A) OF THE ACT, THE ASSESSEE IS REQUIRED TO MAINTAIN SEPARATE BOOKS OF ACCOUNTS IN RESPECT OF SUCH BUSINESS FOR CLAIMING EXEMPTION WITH RESPECT TO PRO FITS/INCOME OVER EXPENDITURE EARNED FROM SUCH ACTIVITIES. THE RELEVA NT PROVISION IS EXTRACTED BELOW FOR THE SAKE OF REFERENCE:- (4A) SUB-SECTION (1) OR SUB-SECTION (2) OR SUB-SE CTION (3) OR SUB-SECTION (3A) SHALL NOT APPLY IN RELATION TO ANY INCOME OF A TRUST OR AN INSTITUTION, BEING PROFITS AND GAINS OF BUSINESS, UNLESS THE BUSINESS IS INCIDENTAL TO THE ATTAINMENT OF THE OBJECTIVES OF THE TRUST OR, AS THE CASE MAY BE, INSTITUTION, AND SEPA RATE BOOKS OF ACCOUNT ARE MAINTAINED BY SUCH TRUST OR INSTITUTION IN RESPECT OF SUCH BUSINESS. 11. I HAVE EXAMINED THE ORDER OF CIT(APPEALS) AND I FIND THAT THE CIT(APPEALS) HAS GIVEN A CATEGORICAL FINDING THAT N O SEPARATE BOOKS OF ACCOUNTS FOR HOSTEL ACTIVITIES WERE UNDERTAKEN. HA VING RELIED UPON THE JUDGMENT OF DIT(E) V. WILLINGTON CHARITABLE TRUST [ 2010] 330 ITR 24 (MAD), ITA NO.4238/DEL/2015 PAGE 19 OF 19 HE DENIED THE BENEFIT OF EXEMPTION U/S. 11 OF THE A CT WITH RESPECT TO HOSTEL ACTIVITIES. EVEN DURING THE COURSE OF HEARING, THE SE FINDINGS OF CIT(APPEALS) WAS NOT CONTROVERTED AND I AM, THEREFO RE, OF THE VIEW THAT IN THE ABSENCE OF SEPARATE BOOKS OF ACCOUNTS, THE ASSE SSEE IS NOT ENTITLED FOR BENEFIT OF EXEMPTION U/S. 11 OF THE ACT WITH RESPEC T TO HOSTEL ACTIVITIES AND IN LIGHT OF THESE FACTS, IF ANY DEPRECIATION WITH R ESPECT TO HOSTEL ACTIVITIES ARE ALREADY ALLOWED WHILE CALCULATING THE INCOME/OTHER EXPENDITURE FROM THE MAIN ACTIVITIES OF THE ASSESSEE, THE SAME MAY BE DI SALLOWED IN ACCORDANCE WITH LAW. THEREFORE, I DO NOT FIND ANY INFIRMITY I N THE ORDER OF CIT(APPEALS) AND ACCORDINGLY I CONFIRM THE SAME. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF SEPTEMBER 2016. SD/- (SUNIL KUMAR YADAV ) JUDICIAL MEMBER NEW DELHI, DATED, THE 21 ST SEPTEMBER, 2016. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR, ITAT, NEW DELHI.