2016 (10) TMI 968 - AT - Income Tax

Hostel Activities Exemption Denied for Lack of Separate Accounts

Daya Nand Pushpa Devi Charitable Trust Versus The Additional Commissioner of Income Tax, Ghaziabad

Daya Nand Pushpa Devi Charitable Trust Versus The Additional Commissioner of Income Tax, Ghaziabad - TMI Issues Involved:1. Whether the hostel facility provided by the assessee is an integral part of 'education' under section 2(15) of the Income-tax Act.2. Whether the hostel activity is a separate business activity under section 11(4A) of the Income-tax Act.3. Whether the assessee maintained separate books of accounts for the hostel activities as required under section 11(4A).4. Whether the disallowance of Rs. 34,88,089/- out of total expenses incurred against the hostel activity was justified.Issue-wise Detailed Analysis:1. Integral Part of 'Education' under Section 2(15):The assessee contended that the hostel facility is an integral part of the educational activities, thus qualifying for exemption under section 11. The CIT(A) rejected this argument, stating that the hostel activity is an independent activity and cannot be termed as incidental to running an educational institution. The CIT(A) relied on the definition of 'charitable purpose' under section 2(15) and judicial pronouncements, including the Supreme Court's decision in Trustees Lokshikshan Trust vs. CIT, which clarified that 'education' refers to systematic instruction and schooling, not extending to activities like running a hostel.2. Separate Business Activity under Section 11(4A):The CIT(A) held that even if the hostel activity is considered incidental to the main educational activities, the assessee is not entitled to exemption under section 11(4A) because it did not maintain separate books of accounts for the hostel activities. The CIT(A) emphasized that the hostel fees charged were comparable to market rates, indicating a commercial motive. Therefore, the hostel activity was considered a separate business activity.3. Maintenance of Separate Books of Accounts:The assessee argued that it maintained separate accounts for hostel activities, showing a deficit. However, the CIT(A) found that the assessee did not maintain separate books of accounts as required under section 11(4A). The Tribunal also confirmed this finding, stating that the absence of separate books of accounts disqualified the assessee from claiming exemption under section 11 for the hostel activities.4. Disallowance of Rs. 34,88,089/-:The CIT(A) upheld the disallowance of Rs. 34,88,089/- out of total expenses incurred against the hostel activity, stating that the assessee could not substantiate its claim. The Tribunal agreed with this finding, noting that the assessee failed to produce separate books of accounts for the hostel activities, justifying the disallowance.Conclusion:The Tribunal confirmed the CIT(A)'s order, denying the benefit of exemption under section 11 for the hostel activities due to the failure to maintain separate books of accounts. The Tribunal also upheld the disallowance of Rs. 34,88,089/- related to hostel expenses. The appeal of the assessee was dismissed.Pronouncement:The judgment was pronounced in the open court on September 21, 2016.