Hostel Facility vis-a-vis Charitable Purpose under Section 2(15)

1. What constitutes Charitable Purpose

As per section 2(15) of the Income Tax Act “charitable purpose” includes relief of the poor, education, yoga, medical 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.

2. Activities falling within purview of ‘education’

The following may be regarded as education for the purpose of section 2(15):-

(1) To carry on activities for the advancement of education in all fields and faculties and award scholarships to deserving students or who have excelled in various studies.

(2)Advancement of vocational and social education by research in contemporary literature, trades, contemporary social customs to achieve healthy social customs and traditions and vocational guidance to young generation.

(3) organising and establishing centers for adult education.

(4) Providing school uniform, books, scholarship and loans to needy and deserving students to pursue higher education etc.

(5) To establish and maintain an institute to assist and encourage or promote in India as and when deemed proper or expedient for the purpose of education and vocational guidance, in the form of institute, school or college.

(6) To provide, establish, endow, furnish and fit up with all necessary furniture, instruments and other equipments and maintain and manage school, college etc., in India for the aforementioned objects.

(7) To provide hostel facility alongwith education.

(8) To print, publish and exhibit or subsidize the publication of any books, pamphlets or posters for the promotion of the objects of the trust and aid the publication of books, magazines, newspapers and other literature of public important on education, economics, science, technology and social sciences.

(9) Purchasing and selling movable and immovable properties including shares and securities and such other investment so as to keep the funds of the trust invested and/or employed with the object of earning interest dividend or profit by way of appreciation for the benefit of the trust.

(10) To take over or amalgamate any other charitable society or trust with similar objects and to take over all the property, assets and funds of such society/societies or trusts held by or vested in such trust or society and the benefits of all contracts and agreements entered into by such trusts or societies and the liability of all debts, contracts and agreements properly incurred or entered into by such trustees in connection with such institutions and for such purposes to execute and bring into effect all such deeds and instruments as may be necessary or advisable.

(11) To do all such other things as are incidental and conducive to the attainment of any of the above purposes.

3. Activities anciliary to education when held to be charitable purpose

In Ecumenical Christian Centre v. CIT (1983) 139 ITR 226 (Karn) the main objects of the assessee were diffusion of useful knowledge, publication of journal and books and promotion of search for truth. After referring to the decision of the Supreme Court in the case of Loka Shikshana Trust, the court held that the objects of diffusion of useful knowledge, publication of journals and promotion of search for truth were directly related to education. There was no material on record to show that the company was engaged in any trade or business and hence the court held that education was being promoted by the assessee. It will be appreciated that High Court adopted a broader approach by accepting the principle that over and above normal schooling, other means of rendering scholastic instruction are also included in the definition of education under section 2(15).

Object of assessee trust being education, activities in letting out properties and receiving lease rental was only to fulfill the object of the trust and the same did not give rise to business income of assessee – Vide CIT v. Sri Rao Baghadur Adlk Dharamaraja Educational Charity Trust (2008) 23 (I) ITCl 386 (Mad-HC) : (2008) 300 ITR 365 (Mad).

Since the assessee was engaged in imparting education, in that case if the books, cassettes etc. had been distributed as integral part of that activity to attain the main object and without any profit motive, in that case it could not be said that this activity had been carried out in the nature of trade, commerce or business and accordingly, first provision to section 2(15) would not be applicable and the exemption granted to the assessee trust could not be withdrawn on that reason alone – Vide ADIT (Exemptions) v.Jeevan Vidya Mission (2015) 155 ITD 1150 (Mum ‘J’ – Trib)

Extension of financial assistance to students for their educational purposes squarely and fairly falls within the connotation of ‘education’ – Vide CIT v. Saraswath Poor Students Fund (1984) 150 ITR 142 (Karn).

The issue before the Delhi High Court in The ICAI v. D G Income-tax (Exemptions) (2013) 358 ITR 91 (Del) was whether the ICAI is an institution established for charitable purpose having regard to the objectives of the institutions. After going through the provisions of the ICAI Act and the Regulations framed therein as well  as various activities carried on by the Institute, it was held that the petitioner-Institute does not carry on any business, trade or commerce. The activity of imparting education in the field of accountancy and conducting courses both at pre-qualification as well as post-qualification level are activities in furtherance of the objects for which the petitioner has been constituted. Activities of providing coaching classes or undertaking campus placement interviews for a fee are in relation to the main object of the petitioner which as stated earlier cannot be held to be trade, business or commerce. Accordingly, even though fee are charged by the petitioner-institute for providing coaching classes and for holding interviews with respect to campus placement, the said activities cannot be stated to be rendering service in relation to any trade, commerce or business as such activities are undertaken by a petitioner-Institute in furtherance of its main object which as held earlier are not trade, commerce or business.

4. Providing hostel facility whether covered within ambit of term education.

In Shree Ahmedabad Lohana Vidyarthi Bhavan v.ITO 2018 TaxPub (DT) 5354(Ahm.) the issue for consideration before Tribunal was 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 assessing officer 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 assessing officer has not assigned any reason, rather simply observed that hostel facility cannot be construed as imparting education. 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 other 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 place where students stay for pursuing formal education away from their homes. The concept of hostel is not only limited to place or residence, rather it is 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, IIMs, Medical Colleges provide compulsory stay in the hostel. Thus, the assessing officer cannot segregate this component from the concept of education provided in the main provision of section 2(15) The learned assessing officer further 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 assessing officer also made an analysis of alleged profit earned by the assessee. The assessee has to maintain building. It has to incur expenditure in capital field. If a small percentage of surplus is being generated then all of a sudden the “charitable activity” cannot become “trade, commerce or business” If the main activity of 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. It 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, the assessee officer 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 by-laws for admitting students, according to their merits in education. Thus, taking into account overall facts and circumstances, the assessee is entitled for benefit of sections 11 and 12 of the Income Tax Act.

In Society for Educational Excellence v. Dy.CIT (2018) 163 TR (A) 264 (Del-Trib) : 2018 TaxPub(DT) 1894 (Del-Trib) it was observed that hostel , mess and transport facility etc., carried out by assessee were incidental to its main object of education and not a separate business altogether, therefore, section 11(4A) was not applicable to assessee’s case.

5. Conclusion

Where providing of hostel facility to students is an essential component of education institution and also an aid for attaining educational object, such activity would fall under purview of ‘education’ as provided under section 2(15)

Where the Consideration was not Money but Equity Shares and Debentures, the Transaction was Not a Sale But An Exchange, The Provisions of Section 50B Are Not Applicable

1. Introduction:

Section 50B of Income Tax Act, 1961 (for short ‘the Act’) deals with the capital gains in the case of Slump sale.

2. Bennett Coleman & Co.case in brief:

Recently, in Bennett Coleman & Co.Ltd v. ACIT & vice-versa [ITA No.3298/M/2012 and ITA No.3537/M/2012,A.Y.2008-09, decided on 08-01-2018], one of the issue raised by the assessee-company was against the upholding of order of assessing officer by Commissioner (Appeals) on the issue of transfer of Planet M.division of the company in consideration of equity shares and 6% redeemable unsecured debentures being slump sale and therefore liable for tax under section 50B of the Act.

3.Facts of the case

The facts in brief were that the company has w.e.f 1st November 2007 hived off its business of Planet M division consisting of leisure and retail products, on a going concern basis and transferred it to (‘PMRL’), then wholly owned subsidiary of the company on a slump exchange basis. The company has been allotted the following scripts amounting to Rs.12595 lacs for transfer of this business:

 

Nos.

Face Value

Amount (Rs.)

Equity Shares

9,50,000

Rs.10 each

95,00,000

6% Redeemable unsecured

 

 

 

Debentures

1,25,00,000

Rs.100 each

1,25,00,00,000

 

 

 

1,25,95,00,000

 

The difference between the value of shares/debentures allotted in exchange of the said division and the net value of that division amounting to Rs.82,87,31,848 was shown in the computation of income as income under section 50B of the Act which was stated to be out of abundant caution and without prejudice to the contentions of the assessee that the said surplus was not chargeable to tax under the provision of the Act. According to the assessee the transaction of hiving off a business of Planet M. division was not a sale but an exchange and consequently does not fall within the meaning of definition of slump sale under section 2(42C) of the Act. According to the assessee the said transfer of division on a going concern basis being a slump exchange, therefore no value could be arrived and ascribed to any assets that were transferred as going concern in a consolidated manner. Further, the contentions of the assessee were that the computation provision qua capital gain were incapable of being applied and therefore the charging of provision of capital gain cannot be applied.

4.Plea of the Appellant

In the opinion of the assessee, the transaction of hiving off the business of Planet M division was not a “Sale”  but is an “Exchange.” The same not being a sale therefore did not fall within the definition of “Slump Sale” under section 2(42C) of the Act. of the circumstances, the transfer of the division on a going concern basis being a “Slump Exchange”, no value could be ascribed to any asset that was transferred as part of the business. So also the cost of acquisition of the undertaking that was transferred on “Exchange” could not be arrived at since what had been exchanged is the entire undertaking comprising of the entire division of the Planet M retail. Consequently, since the computation provisions relating to capital gain were incapable of being applied, following the ratio of the decision of the Hon’ble Supreme Court in B C Srinivasa Shetty (1981) 128 ITR 294 (SC) the changing provisions of capital gains were not attracted. The said ratio was also followed by the Hon’ble Mumbai Tribunal in Avaya Global Connect ltd. ITA No.832/Mum/07.

5. Order of the ITAT Mumbai

After considering the facts and circumstances of the case, rulings placed, rival contentions, the learned Members of the ITAT, Mumbai held that the Planet M Division transferred by the assessee as on a going concern basis where no cost of acquisition is possible to be attributed individual assets in that undertaking and therefore the charging of provision of section 45 are not attracted. It was furthere held that the provisions of section 50B were not applicable to this case as it is a case of slump exchange and not a slump sale. The order of commissioner (Appeals) was set aside and the direction was given to the assessing officer not to tax the amount of capital gain of Rs,84,26,04,286.

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Concluding Remarks

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