Charitable Society providing hostel facilities to staff and students is integral part of Educational Activities, exemption allowed

Last updated: 26 July 2021

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The Income Tax Appellate Tribunal (ITAT) ruled in favour of Durga Charitable Society, allowing tax exemption for income generated from hostel facilities. The ITAT determined that providing hostel accommodation to students and staff is an integral part of the society's educational activities. Therefore, the surplus from these facilities should be considered exempt under Section 11 of the Income Tax Act, rather than being taxed as business income.

Court :
ITAT New Delhi

Brief :
In Durga Charitable Society v. JCIT [I.T.A. No. 4440/DEL/2015 decided on July 22, 2021] Durga Charitable Society ('the Appellant') is a Society duly registered under Society Registration Act, 1860 and is engaged in running various educational institutions, medical colleges and charitable hospitals.

Citation :
I.T.A. No. 4440/DEL/2015 decided on July 22, 2021

In Durga Charitable Society v. JCIT [I.T.A. No. 4440/DEL/2015 decided on July 22, 2021] Durga Charitable Society ('the Appellant') is a Society duly registered under Society Registration Act, 1860 and is engaged in running various educational institutions, medical colleges and charitable hospitals.

Assessing Officer- The return of income for Assessment Year 2010-11 declared NIL income. Assessed surplus of Hostel as business income under Section 114(A) of the Income Tax Act, 1961 ('IT Act') and disallowed hostel expenses amounting to Rs. 3,92,25,432/- and made addition under the head income from business and profession. Being aggrieved, the Appellant appealed.

Commissioner (Appeals)- Dismissed the appeal.

Hon’ble ITAT, New Delhi- Held that in absence of any evidence to show that the hostel facilities were provided to anybody other than students and staff of the trust, the hostel facilities provided by the educational institution shall be construed to be the intrinsic part of the ‘educational activities’ of the Appellant and they cannot be considered different than activities of the society of ‘education’. The Commissioner (Appeals) and the Assessing Officer failed to consider that the hostel facility is incidental to achieve the object of providing education as per object of the trust and hence comes under the charitable purpose which is exempt under Section 11 of the IT Act. Thus, allowed the appeal.

FAQ :

The main issue was whether the surplus generated from hostel facilities provided to staff and students by an educational society was taxable as business income or exempt as part of charitable educational activities.

The Hon'ble ITAT (Income Tax Appellate Tribunal), New Delhi, ruled in favour of the Durga Charitable Society.

The ITAT held that in the absence of evidence to the contrary, hostel facilities provided to students and staff are an intrinsic part of the educational activities of the society and incidental to achieving its educational objectives.

Section 11 of the Income Tax Act, 1961, which relates to income from property held for charitable or religious purposes, is relevant to this exemption.

The Assessing Officer had assessed the surplus from the hostel as business income and disallowed the hostel expenses, making an addition to the society's income.

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Judgement posted by

Bimal Jain

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FCA, FCS LLB with21 Yrs of Experience inTaxation Indirect and Direct: Education Qualification: B.Com (Hons) Chartered Accountants Company Secretary LLB Qualified SAP FI/CO Consultants Professional Membership: Chairmanof Indirect Tax Committee of PHD Chamber of Commerce Member of Indirec ... Read more

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