Income Tax Appellate Tribunal - Ahmedabad
Shree Ahmedabad Lohana Vidyarthi ... vs The Income Tax Officer (Exemption), ... on 12 July, 2018
आयकर अपील य अ
धकरण, अहमदाबाद यायपीठ - अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD - BENCH 'D'
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No. 993/Ahd/2017
नधा रण वष /Assessment Year: 2013-14
Shree Ahmedabad Lohana ITO (Exemption)
Vidyarthi Bhavan Vs Ward-2, Nature View
Opp: Chhadavad Police Station Bldg.
Ambawadi, Ellisbridge Ahmedabad.
Ahmedabad 380015.
PAN : AABTS 1045 G
अपीलाथ / (Appellant) यथ / (Respondent)
Assessee by : Shri S.N. Soparkar, AR
Revenue by : Shri V.K. Singh, Sr.DR
सन
ु वाई क तार ख/Date of Hearing : 04/07/2018
घोषणा क तार ख /Date of Pronouncement : 12/07/2018
ORDER
PER RAJPAL YADAV, JUDICIAL MEMBER : Assessee is in appeal
before the Tribunal against order of the ld.CIT(A)-9 dated 17.2.2017 passed for the assessment year 2013-14.
2. The assessee has taken eight grounds of appeal, which are not in consonance with the Rule 8 of the Income Tax (Appellate Tribunal) Rules, 1963 - they are descriptive and argumentative in nature. In brief, grievance of the assessee is that the ld.CIT(A) has erred in upholding the action of the AO that activities of the assessee trust are in the nature of trade, commerce or business, hence covered under proviso to section ITA No.993/Ahd/2017 -2- 2(15) of the Income tax Act, 1961. The ld.CIT(A) has further erred in confirming the taxability of surplus over expenditure amounting to Rs.13,82,059/-. Similarly, the ld.CIT(A) has erred in denying deduction of Rs.14,18,305/- as application of income.
3. Brief facts of the case are that the assessee-trust was created in the year 1947. It has been enjoying registration under section 12AA of the Income tax Act. It is also enjoying benefit of section 80G(5) of the Act. It has filed its return of income for the assessment year 2012-13 on 21.11.2013 declaring total income of Rs.17,556/-. The assessee has filed audited reports under section 12A(b) of the Act in form No.10B. The assessee is having a "Bhavan" of the Lohana Community in which it is running a hostel and is providing lodging facility to the students. It is charging fees from the students. The AO harboured a belief that running a hostel does not fall within the ambit of "charitable purpose"
as contemplated in section 2(15) of the Act. According to the AO the case of the assessee is hit by proviso appended to section 2(15) and its activities would fall within the concept of "advancement of any other object of general public utility". Since threshold limit of gross receipt from an activity of "advancement of any other object of general public utility" involving carrying of any activity in the nature of trade, commerce or business has exceeded, and therefore income of the assessee is to be determined under sections 28 to 44 of the Income Tax Act. The ld.AO took into consideration gross receipts for four assessment years starting from the Asstt.Years 2010-11 to 2013-14. In this year, the assessee has disclosed gross receipts at Rs.45,41,660/-. It has spent Rs.31,59,601/- and shown surplus at Rs.13,82,059/-. Similarly, the AO found that assessee has spent a sum of Rs.19,71,648/- on ITA No.993/Ahd/2017 -3- construction of building. He denied exemption under sections 11 and 12 of this claim. Concluding paragraphs of the assessment order reads as under:
"8. In view of the above stated facts and considering the assessee's receipts as business receipts, after allowing the expenses as claimed in its income and expenditure a/c the surplus of income over expenditure amounting to Rs.13,82,059/- (profit) is treated as income in the hands of the assessee trust.
8.1 As discussed above the claim of exemption u/s.11 and 12 of the Act is disallowed/denied. During the year under consideration the assessee has incurred capital expenditure of Rs.19,71,648/- (construction of building) and has also claimed it an application of fund, as the activity of the trust is treated/considered as business in the nature of trade and commerce capital expenditure is not allowed.
8.1.1 In view of the above discussion, the capital expenditure of Rs.19,71,648/- is disallowed and is added back to the total income of the assessee trust. Penalty proceedings u/s.271(1)(c) are separately initiated for furnishing inaccurate particulars of income.
10. Subject to the above remark, the total income of the assessee trust is computed as under:
Net profit (as discussed above) Rs.13,82,059/-
Add: Exemption claimed u/s.11 and Rs.19,71,648/-
12, capital expenditure (as
discussed above)
Total Income Rs.33,53,707/-
Assessed Income Rs.33,53,710/-"
4. Appeal to the CIT(A) did not bring any relief to the assessee.
5. With the assistance of the ld.representatives, we have gone through the record carefully. Before we embark upon an inquiry on the facts of the present case, we deem it appropriate to take note of section 2(15) of the Income Tax Act, which reads as under:
Section 2(15) "charitable purpose" includes relief of the poor, education, [yoga,] medical ITA No.993/Ahd/2017 -4- relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility:
[Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless--
(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and
(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;]]
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 would fall within the clause "advancement of any other object of general public utility" provided in the proviso appended to section 2(15) of the Act. The AO was of the opinion that providing hostel facility is not an activity akin to education. Hence, the activity performed by the assessee would not fall within the meaning of clause 2(15) giving meaning of expression "charitable purpose". He construed "advancement of any other object of general public utility" falling within the ambit of proviso appended to section 2(15). For harbouring this plea, basically the ld.AO has not assigned any reason, rather simply observed that hostel facility cannot be construed as imparting education.
Before considering reasons assigned by the Revenue authorities below, ITA No.993/Ahd/2017 -5- we deem it appropriate to understand the meaning and objects of this facility. It is pertinent to note that human personality is shaped by the experiences of life. When a child is born, family provides a protective environment for the child. At the beginning, interactions are limited latter social interactions increase, and the process of socialization starts. Education is a part of child development. Though it started with the birth and lasted till the time of death, but formal education of language and others are being imparted in the school and colleges. Hostel is an essential institution for the students to stay in big cities and hostel plays an important role in education and training of these students. They provide residential opportunities for the students to continue the process of education. It is a place where students stay for pursuing formal education away from their homes. The concept of hostel is not only limited to place of residence, rather it is a human practical laboratory for development of students. It is a center of education. Students learn as much as from their teachers as well as fellows during hostel stay. It enriches understanding of the curriculum through analytical discussion amongst the students living in the hostels, and may contribute to character building as well. Students in hostel not only learn the theoretical material, they also learn how to enhance their personal abilities and learn to live independently. Hostel life has an impact upon the behavioral as well as personality development of students. It is one of the essential components of an educational institution. Some of the 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 ITA No.993/Ahd/2017 -6- 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".
7. Let us take note of reasons assigned by the AO. When the assessee has pointed out that it has been granted registration under section 12AA and 80G(5) of the Act, then the AO has observed that such registration was granted after looking into the objects of the trust. The AO observed that the assessee failed to submit any evidence showing that it is actually imparting education by conducting classes. The ld.AO failed to note that the stand of the assessee was always to the effect that, to run hostel particularly for the students is an activity according to the object of the trust, and it is an aid for attaining educational objects. The AO thereafter made an analysis of alleged profit earned by the assessee. He looked into gross receipts minus expenditure, and surplus generated during the year. It is pertinent to note that surplus in the assessment year 2013-14 is Rs.13.82 crores. Otherwise, in all other years, it is in between Rs.2 to 4 lakhs. The assessee has to maintain building. It has to incur expenditure in capital field. If a small percentage of surplus is being generated then how all of a sudden the "charitable activity"
would become "trade, commerce or business" ? If the main activity of ITA No.993/Ahd/2017 -7- the assessee i.e. providing hostel facilities to the students fall within the ambit of expression "education" employed in the main provision of section 2(15) then generation of surplus would be immaterial because ultimately is to be ascertained whether surplus is being used for the purpose of fulfilling all the objects of the trust or not. If the surplus is being applied on the objects of the trust or being accumulated as provided in the scheme, then nothing is to be taxable. On due analysis of record, we are of the view that the AO has unnecessarily created an artificial distinction. The assessee is not admitting other persons in the building. It is providing facility only to the students, and there are lots of rules and regulations, bye-laws for admitting students, according to their merits in education. Thus, taking into account overall facts and circumstances, we are of the view that the assessee is entitled for benefit of sections 11 and 12 of the Income Tax Act. If the assessee is entitled for benefit of sections 11 and 12, then the amount spent from the corpus fund for construction of building is also to be looked into with that angle. We set aside both the orders of the Revenue authorities and restore this issue to the file of the AO. The ld.AO shall re-determine taxable income of the assessee and after providing benefit under sections 11 and 12.
8. In the result, appeal of the assessee is allowed for statistical purpose.
Pronounced in the Open Court on 12th July, 2018.
Sd/- Sd/- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated, 12/07/2018