Admissibility of exemption on Running of hostel by the educational institution: Allahabad HC
Daya Nand Pushpa Devi Charitable Trust (Allahabad High Court ITA 103 of 2017)
Short overview of the case:
The main activity of the trust is running of education institute, is covered within the meaning of ‘Charitable purposes’ defined under Section 2(15) and has been registered under Section 12-A of the Income Tax Act.
It is running a Dental College in the name & style of Harsharan Dass Dental College at Ghaziabad.
An hostel is also being run as a statutory obligation as the institution cannot impart dental education without providing for the hostel.
It was concluded in the assessment order that the total hostel receipt of the trust was excessively high and the expenditures towards generator, electricity and security were also excessively high.
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.
Sec 11(4A) provides that income of trust pertaining to any business carried out by the trust shall be taxable, unless it is incidental to the attainment of the objectives of the trust.
So the moot point is whether the hostel facilities could be regarded as business incidental to the attainment of objects of the trust.
Hon Allahabad HC held as under:
The hostel is being run in discharge of a statutory obligation as institution in question cannot impart dental education without providing for the hostel.
The activity of running the hostel is not a separate business activity and surplus income from the hostel fee cannot be treated as profit and gains of a separate business or commercial activity of the trust.
So it is held that the exemption under Section 11(1) of the Act cannot be disallowed to the assessee.
Above judgment would be helpful for various trust who are doing some activity in addition to their basic activity.