Dayanand Pushpa Devi Charitable Trust Vs Addl Commissioner of Income-tax
Forum-Allahabad high court
Date-23rd June, 2021

Sub-Whether activity of maintaining hostel in a Dental college amounts to carryon business for the purpose of Section 11(4A) of Income-tax Act,1961 and thus taxable notwithstanding the exemption u/s 11 of the Income-tax Act,1961

The Court was hearing an appeal wherein the said college approved by the Dental Council of India in Ghaziabad was maintaining a hostel which had to be compulsorily maintained and had received around Rs 66lacs as fees for hostel. The court examined the provisions of Section 11(4A) in detail observing that sub-section (4A) of Section 11 presupposes a business venture of the trust or institution which is though independent to its main activity but incidental to the attainment of the objectives of the trust.

The “business” as mentioned in the said sub-section can be an adventure or concern in the nature of trade, commerce or manufacture. The test applied is whether the activity which is pursued is integral or subservient to the dominant object or is independent/ ancillary/ incidental to the main object or forms a separate activity in itself. The issue whether the institution is hit by sub-section (4A) of Section 11 of the Act will essentially depend upon the individual facts of the case of the institutions where considering the nature of the individual activity, it will have to be tested whether the same forms incidental, ancillary, connected activity (ies) and whether the same was carried out pre-dominantly with the profit motive in the nature of trade, commerce etc.

The question, therefore, would be whether the hostel activity of the trust which is imparting dental education in the institution established by it is a business activity incidental to the attainment of its objectives or it is an activity which is an integral and inseparable part of the main activity(education) carried on by the assessee. The determinative test shall be the theory of dominant purpose which has all through the years, been upheld to be the determining factor laying down whether the Institution is Charitable in nature or not.

Finally on these facts Having held that the activity of running the hostel is not a separate business activity and surplus income from the hostel fee cannot be treated as profit and gains of a separate business or commercial activity of the trust, it is held that the exemption under Section 11(1) of the Act cannot be disallowed to the assessee.

This judgement will be of help to similar activities being carried on NGOs and Trust

Ramesh Patodia
28-06-2021