TaxTMI 
TaxTMI 
2019 (8) TMI 1199
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....d profit motive. The assessee filed an application for seeking registration u/s 12AA of the IT Act, 1961 in Form No.10A on 23.10.2017. The Ld. CIT(E) vide letter dt. 26.10.2017 and 08.01.2016 required the assessee to file certain details/information/clarification and in response to same, assessee filed reply vide letter dt. 26.12.2017 and 22.01.2018. 3. It was submitted that the Ld. CIT(E), however, rejected the application of assessee by holding that from the accounts for FY 2015-16 to 2017-18, it can be noted that whole of the income of the assessee is coming from hostel fees. This income is being spent for running of hostel only. Running of hostel by charging fees cannot be regarded as charitable activity. As the predominant object of the assessee is business, it cannot be treated as charitable institution. Merely stating that activities are not done with profit motive does not absolve the assessee from predominant activity test. The concept of charity is that primarily the activities should be charitable. If activities itself are commercial then no added words can help the assessee. Hence, the applicant cannot be held as charitable within the meaning of section 2(15) of the I....
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.... to hide the true purpose which is trade, commerce or business. Therefore, the genuine institutions who carries out the activity of general public utility for the general welfare of public at large without any profit motive would not be hit by the proviso to section 2(15) even when it charges fees or consideration for the services rendered by it. 7. It was further submitted that this very issue has come up for consideration before the ITAT Ahmedabad Bench in case of Shree Ahmedabad Lohana Vidyarthi Bhavan Vs. Income Tax Officer (Exemption) 172 ITD 11 where the AO held that running a hostel by charging fees from the students does not fall within the ambit of charitable purpose u/s 2(15) of the Act. The ITAT after examining the facts and also the law held that providing hostel facility is one of the essential components of an educational institution and is to be considered as imparting education. The relevant para 6 of the order is reproduced as under:- "6. Short question required to be adjudicated by the Tribunal is, whether providing hostel facility to the students by appellant-trust is to be considered as imparting education within the meaning of section 2(15) of the Act or it ....
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....he institutions like IITs, Medical Colleges provide compulsory stay in the hostel. Thus, how the AO can segregate this component from the concept of education provided in the main provision of section 2(15) ? If it is accepted that hostel is just an essential part of educational institution, then all that discussions made by the AO would be irrelevant. The simple reason is that assessee-trust came into existence in the year 1947. It has been providing hostel facilities for more than 60 years. It has always been treated as a charitable institution. In the assessment year 2010-11 a scrutiny assessment was made. Its status of "charitable institution" was accepted even after introduction of section 2(15) in the statute book. Not only it has been treated as "charitable institution" by giving registration under section 12AA of the Act, but under section 80G(5) it has again been recognized as "charitable institution". In view of above, it was submitted that the Ld. CIT(E) be directed to grant registration u/s 12AA of the IT Act to assessee trust. 8. The ld CIT DR was heard who has supported the order of the ld CIT(E) and our reference was drawn to the findings of the ld CIT(E) which r....
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....In the case of the applicant, there is only one activity i.e. running of hostel after charging fees. The samiti cannot be regarded as charitable institution. 13. Based on above discussion, it is clear that the activities of the applicant samiti are not charitable in nature as it is predominantly carrying out business on commercial basis. The applicant cannot be held as charitable within the meaning of Sec. 2(15) of the Income-tax Act, 1961. Based on above, I am satisfied that the applicant sansthan is not fit for registration and, therefore, registration u/s 12AA is rejected." 9. We have heard the rival contentions and perused the material available on record. The assessee society is not a newly registered society, it is an existing running society and therefore, at the time of examination of its application for seeking registration under section 12AA of the Act, the ld CIT(E) is well within his jurisdiction to examine the genuineness and the intent behind the actual activities being undertaken by the assessee society and whether the same are in consonance with its stated objects for which the society has been formed and whether the same are carried out as charitable activity or....