The Allahabad High Court on 23.06.2021 in the matter of Daya Nand Pushpa Devi Charitable Trust Ghaziabad v. Addl. Commr. of Income Tax, Ghaziabad has held that the activity of running hostel by a charitable institution engaged in the business of imparting education is not a separate business activity and as such the surplus income cannot be treated as profit or gains arising out of a separate business or commercial activity.

The judgment was passed in an Income Tax appeal filed by Daya Nand Pushpa Devi Charitable Trust. The trust ran a hostel for residence of students admitted in a dental college established by the Trust.

According to a gazette notification dated 25th July 2007, it was mandatory for the institutions admitting students in the dental education course to provide hostel accommodation, based on the number of admissions, to all the boys and girls in the dental college campus itself.

The dental institution as the Assessee had declared its net income as 'NIL' with regards to the return of income filed by the trust for the assessment year 2010-11.

The Assessing Officer had concluded that the hostel activities of the trust is separable from its educational activities and the way the hostel and mess activities are being carried on they would fall within the meaning of "business"under section 2(13) and cannot be treated as 'Charitable purposes' under Section 2(15) of the Income Tax Act.

It was also concluded that the benefit of Section 11 of the Income Tax Act cannot be given to the assessee, in as much as, it has not maintained separate books of accounts which is a pre-condition mentioned in Section 11(4A) for grant of such benefit. The question before the High Court for due consideration was thus:

"Whether under the provisions of Section 11(4A), the Hostel activity of a charitable institution engaged in imparting education in a residential institution such as the assessee will be included in the expression "business" in the said subsection; and the income generated from such Hostel activity can be said to be business income so as to attract the pre-conditions of the said sub- section in a claim of exemption under Section 11 (1) of the Act?"

Going through the statutory scheme of the Income Tax Act, the High Court opined that the word "education" used in Section 2(15) of the Act is not qualified by any restrictions and thus has been used in its widest amplitude so as to include "education of all level to all classes of the society or category."

Further observing that 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 Court held that the surplus generated out of the activity of maintaining halls and residents for the students being an integral part of the main object of education, was liable to be treated as income from the property held by the trust wholly for charitable purposes and was, therefore, deductible from the total income of the trust by granting exemption under Section 11 of the Income Tax Act.

The Court further held that, 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.

By - George Thomas