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Ideal Institute Of Technology vs. Joint Commissioner of Income Tax - (Income Tax Appellate Tribunal) (03 Nov 2021)

Hostel facility is incidental to achieve the object of providing education and comes under charitable purpose which is exempt under Section 11 of IT Act


Direct Taxation

The assessee society is duly registered with the Registrar of Society, Uttar Pradesh and the renewal was granted vide letter dated 6th February, 2012 for the period from 4th January, 2012 to five years. The Society has been grated registration under Section 12AA of the Income Tax Act, 1961 (IT Act) on 23rd June, 1998. The Society was granted exemption under Section 10(23C) (vi) of Income Tax Act, 1961 on 20th July, 2005. The Society is running an Engineering College under the name and style of Ideal Institute of Technology, situated at Ghaziabad for which courses of B. tech and MCA are being provided.

The return of income was filed declaring NIL income. The Assessing Officer made addition of Rs. 93,00,088 towards net surplus from hostel activity and also disallowed Rs. 3,26,11,455 as regards claim of depreciation made by the assessee. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.

In the 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 assessee and they cannot be considered different than activities of the society of 'education'. Thus, the addition amounting to Rs. 93,00,088 made by the Assessing Officer and sustained by the CIT(A) is not correct. The CIT(A) 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 society and hence comes under the charitable purpose which is exempt under Section 11 of the Income Tax Act, 1961.

As regards depreciation in respect of hostel facilities, the same was granted to the assessee and was never disputed by the Revenue since 2009-10 till 2014-15 except for 2011-12. The Hon'ble Supreme Court in case of CIT vs. Rajasthani & Gujarati Charitable Foundation Poona held that, in case of charitable institution registered under Section 12A, even though expenditure incurred for acquisition of capital assets was treated as application of income for charitable purposes under Section 11(1 )(a), yet depreciation would be allowed on assets so purchased. the depreciation in respect of cost of the assets allowed to the assessee as expenditure is allowable. Thus, the issue is squarely covered in favour of the assessee in light of the Supreme Court decision in case of Rajasthani & Gujarati Charitable Foundation Poona. The appeal of the assessee is allowed.


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