DCIT Vs Shree Vallabh Seva Kendra (ITAT Ahmedabad)
ITAT Ahmedabad held that exemption under section 10(23C)(vi) of the Income Tax Act is admissible to the trust has exist solely for educational purpose, thus since the hostel fees charged by the trust is significantly high the activity amounts to ‘trade, commerce and business’ hence exemption denied.
Facts- The Assessee is a Trust engaged in carrying out educational activities. The Assessee filed its Return of Income for the A.Y. 2018-19 on 30.10.2018, declaring total income at Nil, after claiming exemption u/s. 10(23C)(vi) for income of Rs. 17,86,23,269/- during the year. The assessment was completed u/s. 143(3) r.w.s. 143(3A) and 143(3B) of the Act on 25.03.2021, wherein the total income was determined at Rs. 6,21,81,062/- after denying the claim of exemption under section 10(23C) (vi) of the Act on the ground that the Trust was not existing solely for educational purposes, and it was engaged in carrying on activities other than the main object of providing education.
CIT(A) allowed the appeal of the assessee. Being aggrieved, revenue has preferred the present appeal.
Conclusion- Held that where charges for the said services merely covers costs or consists of nominal mark-up, such activities must not be considered to be in the nature of “trade, commerce or business” and may remain permissible. However, in case the entity charges a substantial amount, significantly higher than the costs incurred by it, such activities could get categorized as “trade, commerce or business”; and assuming the consideration is significantly higher than the costs, the income will attract the mischief of the proviso to section 2(15), and be considered to be commercial in nature if the threshold limit of 20% is crossed. This is squarely applicable to the facts of this case. The amount charged from the students per day and the surplus generated of Rs.6.12 crores clearly proves that the assessee is engaged in the activity of running hostels separately to earn profits. These hostels are clearly not meant for the students of the schools run by the assessee who are in the pre-primary stages of education. These hostels are not meant for the pre-primary students who are less than 6 years of age. Thus, this cannot be termed as incidental to the attainment of its objectives.
