TaxTMI 
TaxTMI 
2021 (7) TMI 124
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....ublic charity within India; few of the objects stated in the trust deed are as under:- (ii)"To promote education in commerce, Science, Art, Engineering, Technical subjects, Management Studies, Vocational or Professional subjects and to Establish and Maintain or give aid to Institution or Institutions:- (a) For giving training in commerce, Trade and Industry and vocational lines and other professions of General Importance. (b) For imparting education to children boys, Girls and to Men and Women." (ix) To form, assist, support, establish and maintain libraries and reading Room and to establish and maintain Boarding Houses and Hostels and assist such institutions." The trust is running a Dental College in the name & style of Harsharan Dass Dental College at Ghaziabad. The hostel for residence of the students admitted in the said college is also being run and managed by the trust. The trust claimed that all its activities are covered under Section 2 (15) of the Income Tax Act' 1961(In short referred to as the "Act"); and had applied for the registration under Section 12-A of the Income Tax Act, which had been duly granted by the Commissioner, ....
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.... not accept the figures shown in the ledger observing that the work of a Hostel Warden is only a part time job. While concluding that only special allowance is to be given to a warden, the amount shown as expenditure for salary of four wardens of the hostel was disallowed. Similarly, the expenditures shown towards the payment of salary to the caretaker, driver were also disallowed. Income from the hostel activity in view of the section 11(4A) of the Income Tax Act was, thus, computed as under:- "Total Hostel Fees received during the year Rs. 66,20,000/- Expenditure claimed Rs. 66,88,198/- Less: Expenditure disallowed as discussed above Rs. 34,88,089/- Allowable Expenditure Rs. 32,00,109/- Rs. 32,00,109/- Net surplus as calculated u/s 11 (4A) Rs. 34,19,891" The net surplus income arrived at by the Assessing Officer after deduction of allowable expenditure was subjected to tax at the appropriate rate under Section 11 (4A) of the Act. With regard to the other income of the trust, it was observed that it will continue to enjoy exemption under Section 11 of the Act. The assessment order had been affirmed in the appeals both by the CIT(A....
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.... in order to meet the statutory requirement and as such it cannot be said to be an activity having limbs of business such as carrying on in an organised manner with the motive of earning profit so as to fall within the meaning of "business" under the Act. It is vehemently argued that in the facts and circumstances of the case, sub-section (4A) of Section 11 of the Act has no application and, therefore, the requirement of the said provision to maintain separate books of accounts would be wholly inapplicable. The incidental activity of the trust in providing hostel facility to its students could not be construed as a business unless intention to do independent business or any element of business such as continuous activity with profit motive are present in the same. Since the hostel facility cannot be constituted as an activity independent to the main object of imparting dental education treating the same as business within the meaning of Section 11 (4A) was erroneous. Reliance is placed on the decision of this Court in Indian Institute of Technology Vs. State of U.P. 1976 (38) STC 428 to submit that the division bench of this Court taking note of the principal activity of the ....
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....tivity would also not be the business so as to include the person carrying on such activity in the definition of dealer. In the facts and circumstances of the said case, it was held that the main activity of the petitioner therein was education and the activity of printing admission form and realising price for the same will not bring it into the ambit of the term 'dealer' as defined under the Act. The decision of the Apex Court in Commissioner of Sales Tax 2002 (4) SCC 57 was placed before the Court to assert that the test is that when the transactions which are related to the main activity are only a infinitesimal or small part of the main activity and if the main activity is not business, then the connected, incidental or ancillary activity of sale would not normally amount to business unless an independent intention to conduct "business" in these connected incidental or ancillary activity is established by the revenue. It was clarified therein that in case where the connected incidental transactions are so high so as to render the main activity infinitesimal or very small, then of-course the case would fall under the category of 'business' within the meaning ....
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.... produce it before the Assessing Authority for the purpose of computation of benefits under Section 11 of the Act. Reliance is placed on the decisions of Commissioner of Income Tax Vs. Tamil Nadu Dairy Development Corporation Ltd. 1995 (213) ITR 535 and Additional Commissioner of Income Tax Vs. Ram Kirpal Tripathi 1980 (125) ITR 408 to submit that the profit motive of the assessee is not a pre-condition for treating its as activity as business. The opinion of the revenue that the income of the trust derived from the hostel run by is from a commercial activity is supported by the material on record. It is, thus, argued that even if the hostel activity is incidental to the objects of the trust, compliance of the second condition of maintaining separate books of accounts for claiming exemption under Section 11 of the Act was mandatory. Having heard learned counsels for the parties and perused the record. The undisputed facts of the case are that the assessee which is a trust has been registered as charitable trust by the Sub-Registrar, Ghaziabad. The trust has also been recognised and registered under the Income Tax Act as an institution whose objects are charitable in nature. The ....
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....erson in receipt of the income (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent. of the income from such property; (b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of 4 fifteen per cent. of the income from such property; (c) Income derived from property held under trust (i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (ii) f....
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....ciety or any particular type or level of Education. Meaning thereby any activity which includes or relates to education would be for charitable purposes within the meaning of Section 2(15) of the Act. Section 11(1)(a) provides that the income derived from property held the trust, wholly for charitable or religious purposes shall be exempted from the total income to the extent to which such income is applied for such purposes and where any such income is accumulated or set apart for application to such purposes, to the extent to which the income so accumulated or set apart is not in excess of 15% of the income from such property. The assessee herein is seeking benefit of Section 11(1)(a) of the Act with the assertion that the income derived from the hostel facility, a property held under the trust, had been wholly utilised for charitable purposes for imparting education and hence the same has to be excluded from the total income and the Assessing Officer cannot treat the surplus, if any, on account of the hostel receipt as taxable income by applying the conditions of Section 11(4A) of the Act. It is argued that the hostel income being subservient to the main object of the educati....
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....objects. In this way, the trust is allowed to create a corpus by indulging in business activity to feed the charity. As the provision stands, all that is required for the business income of the trust or institutions to be exempted from the tax is that the business should be incidental to the attainment of the objectives of the trust or institution. A business whose income is utilised by the trust or the institution for the purpose of achieving the objectives of the trust or the institutions, is, surely, a business which is incidental to the attainment of the objectives of the trust. It was, thus, held that the substituted sub-section (4A) is more beneficial to a trust or institution than the original provision. It can, thus, be seen that sub-section (4A) of Section 11 presupposes a business venture of the trust or institution which is though independent to its main activity but incidental to the attainment of the objectives of the trust. The "business" as mentioned in the said sub-section can be an adventure or concern in the nature of trade, commerce or manufacture. Having held that the applicability of the sub-section (4A) of Section 11 presupposes income from a business, b....
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....the Income Tax Act is that the income from the hostel fee is excessive and disproportionate to the income derived by other educational institutions which indulge in similar activity i.e. maintaining hostel for the students admitted in the institution, whether government or private. According to us, such a comparison was not open, in as much as, whether a venture or activity of the assessee is a business venture separable from its main activity and whether such activity constitutes an integral and inseparable part of the main activity, are matters to be decided on the facts and circumstances of the individual case,i.e. looking to the nature of establishment and its activities. The issues as to whether the fee charged is excessive or what should be the reasonable amount of hostel fee are wholly extraneous to the dominant purpose test. The hostel fee charged would obviously depend upon the facility provided to the students. Having regard to the object and purpose for which the institution in question has been established by the trust and the mandate of the Dental Council of India in the gazette notification of the year 2007, we find that it is one of the primary duties and objects ....
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....d down in the aforesaid decisions between a case, on the one hand, where the principal activity of an institution is doing business in a commercial way, and, on the other hand, a case where its principal activity is predominantly academic or charitable and an activity which may appear to have some incidents of business is only minor, subsidiary and incidental to the principal activity and is an integral part of it, is apposite and affords valuable guidance." In the said case, the sale of foods stuff to the residents of the visitor's hostel maintained by the Institution (IIT) was subjected to tax under the U.P. Sales Tax. It was observed that it could not be said that the principal activity of the assesse was doing business in a commercial way of buying and selling food stuff. It was, thus, held that the principal activity of the assessee being predominantly academic and the supply of food stuff in its hostel was minor, subsidiary and incidental to the principal activity, it was an integral part of its academic activity. The Apex Court in Commissioner and Sales Tax 2002 (4) SCC 57 has held that the question of profit motive or non- profit motive would be relevant only wher....
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....ng "business" in terms of sub-section (4A) of Section 11 and its activity of maintaining hostel and charging fees does not fall within the meaning of "business" under Section 2(13) of the Act. The hostel fee cannot be said to be income derived from the "business" of the trust. The said integral activity being directly linked to the attainment of the main objectives of the trust, the requirement of maintaining separate books of accounts with regard to such activity for seeking benefit of exemption under Section 11 (1) of the Act , therefore, not attracted. The element of trade and commerce in the hostel activity cannot be found so as to bring the same within the meaning of "business". The grounds taken by the revenue that the assessee was carrying on the commercial activity which is not incidental to the objects of the trust and that the assessee has not complied with the provisions under Section 11 (4A) of the Act by not maintaining separate books of accounts of the income of the said business even if said business is said to be incidental to the objectives of the trust, are found faulty. The revenue has committed wrong in holding that the business carried on by the assessee hav....
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....para 11). The rule of construction of a taxing statute as discussed in Commissioner of Income Tax, Patiala Vs. M/s Shahzada Nand & sons & others AIR 1966 SC 1342 is relevant:- "In a Taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." We may also note the statement of Hon'ble S.P. Bharucha, J. ( as the Hon'ble Judge then was) speaking for the bench in V.V.S. Sugars Vs. Govt. Of A.P. & others 1999 (4) SCC 192 as a guiding principle. Relevant paragraph No.4 is quoted as under:- "4. The said Act is a taxing statute and a taxing statute must be interpreted as it reads, with no additions and no subtractions, on the ground of legislative intendment or otherwise." In view of the above noted legal position, any interpretation or meaning given to the word "business" in the literal parlance cannot be read into the Income Tax Act as the word "business" has been defined in the Act itself. The Court has to read the statute namely the Income Tax Act to find o....