2019 (6) TMI 701 - AT - Income Tax

Tribunal: Hostel & Transport Facilities Integral to Education Mission, No Separate Accounts Needed

Ideal Education Society SD-522 Versus Addl. CIT Range- 1 Ghaziabad

The Tribunal allowed the appeal, ruling that the hostel and transport facilities were incidental to the educational objectives and not separate business ... Exemption u/s 11(4A) - charitable activity u/s 2(15) or not? - as per AO held that hostel and transport facility provided to the students by assessee's Institute are separate businesses and are not covered in the definition of charitable purpose u/s 2(15) - since no separate books of accounts are maintained for this business, the assessee is not entitled for exemption u/s 11(4A) - HELD THAT:- The Hon’ble High Court in case of Mallikarjun School Society [2018 (2) TMI 1347 - UTTARAKHAND HIGH COURT] held that an educational institute will not cease to be one existing solely for educational purposes since the object is not to make profit. In present case also the assessee society will not ceased to exist as educational institute because it is providing hostel facility or transportation facility or mess facility, as it is an incidental to the education purpose of the assessee society. Therefore, in view of the Hon’ble Uttarakhand High Court decision in case of Mallikarjun School Society (supra) and orders of the co-ordinate bench in case of Delhi Public School Gaziabad [2018 (5) TMI 1482 - ITAT DELHI] the hostel facility provided by the assessee society is not in the nature of business and is incidental to the attainment of the main object of the providing education to students. Therefore, provisions of Section 11(4A) will not be applicable to the assessee - decided in favour of assessee Depreciation claim of assessee trust - The assessee has provided the depreciation in the income and expenditure in conformity with the Income Tax Rules applicable to the allowance of depreciation of fixed assets. Various decision of the Hon’ble Apex Court and Hon’ble High Courts relied upon by the Ld. AR highlights the proposition that depreciation should be allowed, even if, the purchase of assets have been claimed by the trust towards application of income - Decided in favour of assessee Issues Involved:1. Legality and factual correctness of the CIT(A) order.2. Classification of hostel/transport facilities as incidental to the main objective of the society.3. Requirement of maintaining separate books of accounts for hostel/transport facilities under Section 11(4A) of the Income Tax Act, 1961.4. Disallowance of depreciation claimed by the appellant society.Issue-wise Detailed Analysis:1. Legality and Factual Correctness of the CIT(A) Order:The appellant contested that the CIT(A)'s order dated 23.02.2015 was erroneous in law and on facts. The Tribunal dismissed Ground No. 1 as general in nature without further analysis.2. Classification of Hostel/Transport Facilities as Incidental to the Main Objective of the Society:The appellant society argued that the hostel and transport facilities provided to students were incidental to its main educational objective and not profit-driven. The Tribunal referenced the Delhi Public School, Ghaziabad vs. ACIT case, affirming that such facilities are integral to the educational activities and not separate business undertakings. The Tribunal emphasized that the facilities were meant to support the educational mission, not for commercial gain, and any surplus generated was reinvested in the educational activities, supporting the charitable purpose.3. Requirement of Maintaining Separate Books of Accounts for Hostel/Transport Facilities:The Assessing Officer had treated the hostel and transport facilities as separate businesses, requiring separate books of accounts under Section 11(4A). The Tribunal, however, concluded that these facilities were not independent business activities but were subservient to the educational objectives. It was noted that the society maintained a separate ledger for hostel receipts and expenses, and there was no evidence of profit motive. The Tribunal ruled that Section 11(4A) did not apply, as the facilities were not commercial undertakings.4. Disallowance of Depreciation Claimed by the Appellant Society:The Assessing Officer disallowed the depreciation claim of Rs. 2,52,75,253, arguing it would result in double deduction since the capital expenditure had already been fully applied. The Tribunal, referencing decisions from the Supreme Court and various High Courts, held that depreciation should be allowed as a separate deduction. The depreciation reflects the wear and tear of capital assets used in charitable activities and should be considered apart from the application of income. The Tribunal allowed the depreciation claim, affirming it as a necessary charge for determining the usage of assets in the course of charitable activities.Conclusion:The Tribunal allowed the appeal, ruling that the hostel and transport facilities were incidental to the educational objectives and not separate business activities, thus not requiring separate books of accounts under Section 11(4A). It also upheld the claim for depreciation, recognizing it as a legitimate deduction. The decision emphasized the integral nature of these facilities to the educational mission and the reinvestment of any surplus into furthering the society's charitable purposes.