Hostel surplus linked to student accommodation was not business income, as it formed part of the assessee's educational activity.

Hostel facilities provided only to students as part of an educational institution's setup were treated as ancillary and intrinsic to the assessee society's charitable educational activity. The Tribunal applied the settled principle that where a hostel is maintained in furtherance of the main educational object, the resulting surplus is subservient to that object and cannot be characterised as a separate business activity. On that basis, the surplus from the hostel was not assessable as business income, section 11(4A) was not attracted, and the addition was deleted.

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Issues: Whether surplus from hostel facilities provided to students of the educational institutions run by the assessee society could be treated as business income and whether section 11(4A) of the Income-tax Act, 1961 was attracted.

Analysis: The assessee was a registered charitable society engaged in running educational institutions, medical colleges and charitable hospitals. The hostel facility was found to be provided only to students in connection with the educational objects of the society and to be an ancillary and intrinsic part of the educational activity. The Tribunal followed the settled view that where hostel facilities are maintained for students as part of the educational setup, the activity is subservient to the main charitable object and the resulting surplus cannot be characterised as a separate business activity. On that basis, the treatment of the hostel surplus as business income and the consequent addition were held to be unsustainable.

Conclusion: The hostel surplus was held to be part of the assessee's charitable educational activity and not assessable as business income. The addition was deleted and the appeal was allowed in favour of the assessee.

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