Transportation/Mess Fee was integral part of education, the main objective of trust

Transportation/Mess Fee held integral part of education, the main objective of the trust – ITAT deleted additions made u/s 11(4A)

ABCAUS Neutral Case Law Citation:
ABCAUS 3686 (2023) (03) ITAT

Important Case Laws relied upon by parties:
Daya Nanda Pushpa Devi Charitable Trust Vs. ACIT

In the instant case, the assessee had challenged the order passed by the CIT(A) in upholding an addition towards amount received from students for transportation/Mess etc. facilities as a separate business activity in terms of section 11(4A) of the Income Tax Act, 1961 (the Act).

The assessee was a charitable trust. It filed return showing NIL income. Thereafter the case of the assessee was selected for income tax scrutiny under CASS. 

During the assessment proceedings the Assessing Officer (AO) was of the opinion that the excess fees collected over the fee fixed by the authorities as business income u/s 164(2) of the Act. 

The CIT(A) only partly allowed the appeal of the assessee.

Before the Tribunal, the assessee contended that the Revenue had accepted the case of the assessee on earlier and subsequent years with identical facts and in all the said assessment years no additions were made in respect of the amount received from the students over academic fee, being towards transportation/mess etc. facilities as separate business activity in terms of Section 11(4A) of the Act. 

The case of the Revenue was that the assessee had charged  fees beyond the guidelines given by the Government, therefore, the same deserved to be treated as separate business income and liable for taxation.

The Tribunal observed that it was not disputed that the Revenue had accepted the case in the earlier as well as subsequent years with identical facts wherein no additions were made in respect of the amount received from the students over academic fees.

Further, the Tribunal observed that the Hon’ble High Court had held  that activity of running hostel is an integral part of education so as  to out of clutches of Section 11(4A) of the Act, though the assessee  had maintain sufficient separate account in as much as separate ledger account for the same maintained. 

The Hon’ble High Court had opined that the test applied is whether the activity which is pursued is integral or subservient to the dominant object or is independent/ancillary/incidental to the main object or forms a separate activity in itself.

With the above observations, the Hon’ble High Court had held that 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, it was held that the exemption under Section 11(1) of the Act cannot be disallowed to the assessee.

In view of the above settled position of law and considering the fact that the Revenue had accepted the case of the assessee on earlier  as well as subsequent years with identical facts, the Tribunal allowed the appeal of the assessee and additions were deleted.

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