# Daya Nand Pushpa Devi Charitable Trust v. Addl. Commissioner Income Tax

- **Citation:** (2021) 7 ILRA 652
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2021-06-23
- **Case number:** Income Tax Appeal No. 103 of 2017
- **Bench:** Mrs. Sunita Agarwal, Deepak Verma
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/daya-nand-pushpa-devi-charitable-trust-v-addl-commissioner-income-tax-47249
- **Pages:** 14

## Headnote

Income Tax Act, 1961: Section 2(13),
2(15),
11(4),11(4A),
12-A
-
The
principle activity of the petitioner is predominantly academic and charging of fees
for the accommodation provided to the
students admitted in the dental education
course, is minor, subsidiary and subservient
to the principal activity and is an integral
part of its academic activity. It cannot be
said that the assessee's principal activity is
doing "business" in terms of
sub-section (4A) of Section 11 and its
activity of maintaining hostel and charging
fees does not fall within the meaning of
"business" under Section 2(13) of the Act.
Therefore, there is no requirement of
maintaining
separate
books
of
accounts with regard to such activity
for seeking benefit of exemption under
Section 11(1) of the Act.(Paras 38,39)

On applying the theory of dominant purpose
is applicable in the facts of the present case
where it can be safely concluded that the
surplus, if any, generated out of the activity of
maintaining halls and residents for the
students being an integral part of the main
object of education, was liable to be treated
as income from the property held by the trust
wholly for charitable purposes and was,
therefore, deductible from the total income of
the trust by granting exemption under Section
11 of the Act. (Para 41)

Appeal Allowed. (E-8)

List of Cases cited:-

## Text

_Characters 0–39,889 of 48,053. This is a partial read: ask again with offset=39889 for what follows._

652 INDIAN LAW REPORTS ALLAHABAD SERIES
had admitted its liability to pay the bill
amount.

11. We are of the considered view that
the writ petition is not the proper remedy,
which is hereby dismissed on this ground
alone but, leaving it open to the petitioner
to approach the District Magistrate, Hardoi
or/ and the District Panchayat Raj Officer,
Hardoi, which had issued letter dated
30.11.2019 to the petitioner calling upon
him to submit documentary proof of
catering,
etc.,
for
redressal
of
his
grievances, upon which the competent
authority shall take final decision in the
matter, if the matter is still pending, or the
petitioner may take recourse to such other
remedy as may be open to him under law if
so advised.
----------
(2021)07ILR A652
APPELLATE JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 23.06.2021

BEFORE

THE HON'BLE MRS. SUNITA AGARWAL, J.
THE HON'BLE DEEPAK VERMA, J.

Income Tax Appeal No. 103 of 2017

Daya Nand Pushpa Devi Charitable Trust
 ...Appellant
Versus
Addl. Commissioner Income Tax.
 ...Respondent

Counsel for the Appellant:
Sri Abhinav Mehrotra, Sri Vivek Pratap
Singh, Sri Suresh Kumar Maurya

Counsel for the Respondents:
Sri Bhagat Ji Agarwal, Sri Praveen Kumar,
S.C.

(a) Income Tax - Charitable Purpose - The
Income Tax Act, 1961: Section 2(13),
2(15),
11(4),11(4A),
12-A
-
The
principle activity of the petitioner is predominantly academic and charging of fees
for the accommodation provided to the
students admitted in the dental education
course, is minor, subsidiary and subservient
to the principal activity and is an integral
part of its academic activity. It cannot be
said that the assessee's principal activity is
doing "business" in terms of
sub-section (4A) of Section 11 and its
activity of maintaining hostel and charging
fees does not fall within the meaning of
"business" under Section 2(13) of the Act.
Therefore, there is no requirement of
maintaining
separate
books
of
accounts with regard to such activity
for seeking benefit of exemption under
Section 11(1) of the Act.(Paras 38,39)

On applying the theory of dominant purpose
is applicable in the facts of the present case
where it can be safely concluded that the
surplus, if any, generated out of the activity of
maintaining halls and residents for the
students being an integral part of the main
object of education, was liable to be treated
as income from the property held by the trust
wholly for charitable purposes and was,
therefore, deductible from the total income of
the trust by granting exemption under Section
11 of the Act. (Para 41)

Appeal Allowed. (E-8)

List of Cases cited:-

1. Indian Institute of Technology Vs St. of U.P.
1976 (38) STC 428 (followed)

2. Swadeshi Cotton Mills Vs Sales Tax Officer
AIR 1965 All 86 (followed)

3. Mahatma Gandhi Kashi Vidyapeeth Vs
St. of U.P. & ors. 2013 (5) ADJ 85
(followed)

4. University of Delhi & anr. Vs Ram Nath &
ors. AIR 1963 SC 1873 (followed)

5.
Commissioner
of
Sales
Tax
Vs
Sai
Publication
Fund
2002
(4)
SCC
57
7 All. Daya Nand Pushpa Devi Charitable Trust Vs. Addl. Commissioner Income Tax
653
6. T.M.A. Pai Foundation & ors.Vs St. of Karn.
& ors.AIR 2003 SC 355

7. Commissioner of Income Tax Vs Tamil Nadu
Dairy Development Corporation Ltd. 1995
(213) ITR 535

8. Additional Commissioner of Income Tax Vs
Ram Kirpal Tripathi 1980 (125) ITR 408

9. Assistant Commissioner of Income Tax Vs
Thanthi Trust 2001 (247) ITR 785

10. Commissioner of Sales Tax. U.P. Vs Modi
Sugar Mills Ltd. AIR 1961 SC 1047

11. V.V.S. Sugars Vs Govt. of A.P. & ors.1999
(4) SCC 192

12. Commissioner of Income Tax, Patiala Vs
M/s Shahzada Nand & sons & ors.AIR 1966
SCC 1342

(Delivered by Hon'ble Mrs. Sunita Agarwal, J.
&
Hon'ble Deepak Verma, J.)

1. Heard Sri Abhinav Mehrotra learned
counsel for the appellant and Sri Praveen
Kumar learned Advocate for the revenue.

2. This is an Income Tax Appeal arising
out of the order dated 21.09.2016 passed by
the Income Tax Tribunal, Delhi Bench, Delhi
in I.T.A No.4238/DEL/2015 whereby the
appellate order of CIT(A) and the assessment
order dated 12.03.2013 passed by the
Additional Commissioner of Income Tax,
Range-1, Ghaziabad had been affirmed. The
appellant Daya Nand Pushpa Devi Charitable
Trust, Ghaziabad, U.P. (hereinafter referred as
"Assessee") is a registered trust created by the
trust deed dated 05.09.1988. As per the objects
of the trust, it was created for carrying out the
cause of public charity within India; few of the
objects stated in the trust deed are as under:-

(ii)"To promote education in
commerce,
Science,
Art,
Engineering,
Technical
subjects,
Management
Studies,
Vocational or Professional subjects and to
Establish and Maintain or give aid to Institution
or Institutions:-

(a) For giving training in commerce,
Trade and Industry and vocational lines and
other professions of General Importance.

(b) For imparting education to
children boys, Girls and to Men and Women."

(ix)
To
form,
assist,
support,
establish and maintain libraries and reading
Room and to establish and maintain Boarding
Houses
and
Hostels
and
assist
such
institutions."

3. The trust is running a Dental College
in the name & style of Harsharan Dass Dental
College at Ghaziabad. The hostel for
residence of the students admitted in the said
college is also being run and managed by the
trust. The trust claimed that all its activities
are covered under Section 2 (15) of the
Income Tax Act' 1961(In short referred to as
the "Act"); and had applied for the
registration under Section 12-A of the
Income Tax Act, which had been duly
granted by the Commissioner, Income Tax,
Meerut vide order C No. 40(40)/Registration
/GZB/9902000/CIB/1960 dated 02.05.2000.

4. It has been brought on the record that
under the directives of the Dental Council of
India by the Gazette notification dated
25.07.2007,
it
is
mandatory
for
the
institutions admitting students in the dental
education course (BDS) to provide hostel
accommodation, based on the number of
admissions, to all the boys and girls in the
dental college campus itself. A copy of the
said notification is appended with the memo
of appeal and the same had also been filed
654 INDIAN LAW REPORTS ALLAHABAD SERIES
before the Tribunal along with other papers.
The issue herein is with regard to the return
of income filed by the trust for the assessment
year 2010-11 wherein the assessee had
declared its net income as''NIL'. The case was
selected under compulsory scrutiny and
notices were issued to the assessee. The
assessment order records that the books of
account, bills and vouchers etc. maintained
by the assessee had been produced in reply to
the notice and the questionnaire issued by the
department/revenue. After providing due
opportunity to the assessee, the Assessing
Officer concluded that the hostel activities of
the trust is separable from its educational
activities and the way the hostel and mess
activities are being carried on they would fall
within the meaning of "business"under
section 2(13) and can not be treated as
''Charitable purposes' under Section 2(15) of
the Income Tax Act. The benefit of Section
11 of the Act cannot be given to the assessee,
in as much as, it has not maintained separate
books of accounts which is one of the preconditions mentioned in Section 11(4A) for
grant of such benefits. It was concluded in the
assessment order that the total hostel receipt
of the trust was excessively high and the
receipt and payment details furnished by the
assessee showing net deficit of 68,198/- was
nothing but a cooked up story. It was
concluded that the expenditures towards
generator, electricity and security were also
excessively high. As per the covered area of
the hostel building as compared to the whole
campus only 10% of total expenses could be
allowed. The assessing officer,thus, held that
all the figures in the ledger filed by the
assessee were presumptive, without any
justification and unsupported by evidence. As
regards the expenses towards salary, the
Assessing Officer did not accept the figures
shown in the ledger observing that the work
of a Hostel Warden is only a part time job.
While concluding that only special allowance
is to be given to a warden, the amount shown
as expenditure for salary of four wardens of
the hostel was disallowed.

5. Similarly, the expenditures shown
towards the payment of salary to the
caretaker, driver were also disallowed.
Income from the hostel activity in view of the
section 11(4A) of the Income Tax Act was,
thus, computed as under:-

"Total Hostel Fees received during
the year
Rs.66,20,000/-

Expenditure claimed

Rs.66,88,198/-

Less: Expenditure disallowed

as discussed above Rs.

34,88,089/-

Allowable Expenditure

Rs.32,00,109/-
Rs.32,00,109/-

Net surplus as calculated u/s 11
(4A)

 Rs. 34,19,891"

6. The net surplus income arrived at by the
Assessing Officer after deduction of allowable
expenditure was subjected to tax at the appropriate
rate under Section 11 (4A) of the Act. With regard
to the other income of the trust, it was observed
that it will continue to enjoy exemption under
Section 11 of the Act. The assessment order had
been affirmed in the appeals both by the CIT(A)
and the Tribunal.

7. The appeal had been admitted on the
substantial questions of law. During the course of
hearing, the substantial question of law has been
re-framed as under:-

"(A) Whether under the provisions of
Section 11(4A), the Hostel activity of a charitable
institution engaged in imparting education in a
residential institution such as the assessee will be
included in the expression "business" in the said
subsection; and the income generated from such
Hostel activity can be said to be business income
so as to attract the pre-conditions of the said sub-
7 All. Daya Nand Pushpa Devi Charitable Trust Vs. Addl. Commissioner Income Tax
655
section in a claim of exemption under Section 11
(1) of the Act?

8. Learned counsel for the appellant
/assessee argued that the assessee being under
statutory obligation to maintain a hostel for the
students admitted in the institution, its activity of
maintaining the hostel by charging hostel fees is
an integral part of the objects of the trust, which is
essentially charitable in nature being education.
Even if the collected hostel fees has created some
surplus as per the analysis of the Assessing Officer
but that surplus by itself cannot be said to be profit
and gains of a business within the meaning of
Section 11(4A) of the Act, as the hostel activity is
not independent to the main object of imparting
education (Dental education). The benefit of
Section 11 of the Act, therefore, has to be granted
to the assessee for exemption of the income from
liability of the Income Tax under the Act. The
Assessing Officer on irrelevant considerations had
rejected the details of receipt and payment account
furnished by the assessee in the form of a ledger.
The findings returned by the Assessing Officer of
the hostel fees charged by the assessee being
excessive is based on the comparison of the
expenditures claimed by some other society
namely Laksh Educational Society located in
Ghaziabad. The Assessing Officer had erred in
holding that the hostel fee charged by the assessee
is more than the market rate or the fee charged by
other institutions, private or government. The
submission is that such a comparison was not
permissible while dealing with the claim of
exemption under Section 11 of the Income Tax
Act. The contention is that the assessee is giving
hostel facility to only those students who are
admitted in the dental college. The provision of
hostel facility is for advancement of education and
also in order to meet the statutory requirement and
as such it cannot be said to be an activity having
limbs of business such as carrying on in an
organised manner with the motive of earning
profit so as to fall within the meaning of
"business" under the Act.

9. It is vehemently argued that in the facts
and circumstances of the case, sub-section (4A) of
Section 11 of the Act has no application and,
therefore, the requirement of the said provision to
maintain separate books of accounts would be
wholly inapplicable. The incidental activity of the
trust in providing hostel facility to its students
could not be construed as a business unless
intention to do independent business or any
element of business such as continuous activity
with profit motive are present in the same. Since
the hostel facility cannot be constituted as an
activity independent to the main object of
imparting dental education treating the same as
business within the meaning of Section 11 (4A)
was erroneous.

10. Reliance is placed on the decision of this
Court in Indian Institute of Technology Vs.
State of U.P.1 to submit that the division bench of
this Court taking note of the principal activity of
the petitioner therein had held that running of
visitor's
hostel
to
provide
temporary
accommodation to research scholars, research
fellows students and teachers cannot be said to be
the activity which can be said to be business in a
commercial way. Rather the principal activity of
the petitioner institute being academic or
charitable, the sale of food stuff in the visitors'
hostel run by it was minor, subsidiary and
incidental to the principal activity and being an
integral part of its academic activity, the
petitioner's institute cannot be dubbed as a dealer
within the meaning of Section 2(c) of the U.P.
Sales Tax Act. It was,thus, held that the Sales Tax
Officer had no jurisdiction to initiate proceeding
for levy of sales tax with regard to the said activity.

11. Learned counsel for the appellant
had further invited the attention of the Court
656 INDIAN LAW REPORTS ALLAHABAD SERIES
to a decision of this Court in Swadeshi
Cotton Mills Vs. Sales Tax Officer2 to urge
that in the similar situation, sale of food and
refreshments in the dining hall of the Aligarh
Muslim University which was subjected to
sales tax, was held to be a non-commercial
activity. It was held therein that the supply of
food to students in the dining hall was
incidental to the main academic activity of
the University as the dining hall service was
an integral part of the hostel facility while
imparting education to the students.

12. He further placed the Division
Bench
judgement
of
this
Court
in
Mahatma Gandhi Kashi Vidyapeeth Vs.
State of U.P. & others3 wherein question
was as to whether the petitioner therein was
a dealer within the meaning of U.P. Vat
Act' 2008 and was carrying on business.
The term business in the context of Section
2(h) of the U.P. Vat Act' 2008 was
examined by the Division Bench and taking
note of the decisions of the Apex Court in
the University of Delhi and another Vs.
Ram Nath and others4, Commissioner of
Sales Tax Vs. Sai Publication Fund5, it
was held that if the main activity of the
assessee concerned was not business, any
business activity incidental or ancillary
thereto which is infinitesimal or small part
of the main activity cannot bring it within
the scope of the term 'dealer'. It was, thus,
held that if the main activity is not
commercial then any other activity which
forms integral part of the non-commercial
activity would also not be the business so
as to include the person carrying on such
activity in the definition of dealer. In the
facts and circumstances of the said case, it
was held that the main activity of the
petitioner therein was education and the
activity of printing admission form and
realising price for the same will not bring it
into the ambit of the term 'dealer' as defined
under the Act.

13. The decision of the Apex Court in
Commissioner of Sales Tax5 was placed
before the Court to assert that the test is that
when the transactions which are related to the
main activity are only a infinitesimal or small
part of the main activity and if the main
activity is not business, then the connected,
incidental or ancillary activity of sale would
not normally amount to business unless an
independent intention to conduct "business"
in these connected incidental or ancillary
activity is established by the revenue. It was
clarified therein that in case where the
connected incidental transactions are so high
so as to render the main activity infinitesimal
or very small, then of-course the case would
fall under the category of 'business' within the
meaning of the Act.The decision of this Court
in Swadeshi Cotton Mills2, Indian Institute
of Technology1 and of Apex Court in the
University of Delhi4 were taken note of by
the Apex Court while taking the aforesaid
view.

14. With the help of these decisions, it
was vehemently argued by the learned
counsel for the appellant that in the instant
case looking to the objects of the trust and
the statutory mandate for establishment of
boarding houses for the residence of the
student admitted in the institute, the hostel
activity of the trust cannot be said to be
business activity so as to bring the case of
the assessee within the scope of Section 11
(4A) of the Act. As the said provision is not
applicable, the computation made by the
Assessing Officer in arriving net surplus
taxable income from the hostel fee receipt
is erroneous. The exemption under Section
11 of the Act was available to the assessee
in view of the Section 2(15) of the Act
7 All. Daya Nand Pushpa Devi Charitable Trust Vs. Addl. Commissioner Income Tax
657
which
include
"education"within
the
meaning of "charitable purposes".

15. Sri Praveen Kumar learned counsel
for the revenue, on the other hand, argued
that the word "business" in Section 11 (4A)
of the Act has been used in the context of any
activity which is undertaken by a trust or an
institution, such activity is covered under the
definition of the word "business"in Section 2
(13) of the Act as the definition being
inclusive, the expression business has to be
interpreted it its widest amplitude. The
Webster
Encyclopedic
Unabridged
Dictionary of the English Language defines
"business" as an occupation, profession or
trade and, thus, any kind of occupation which
may or may not be profitable in nature is a
"business". The Apex Court in the case of
T.M.A. Pai Foundation & others Vs. State
of Karnataka & others6 has held that
education
falls
within
the
expression
"occupation" employed under Article19(1)
(g).The private educational institutions' right
to establish and administer its institutions has
thus been recognised as a fundamental right
guaranteed under Article 19 (1)(g) of the
Constitution of India. It is, thus, argued that
even running of an educational institution is
business though under the provision of the
Income Tax Act its income has been
exempted treating it to be part of charitable
purposes. It was, therefore, incumbent on the
assessee to maintain separate books of
accounts and produce it before the Assessing
Authority for the purpose of computation of
benefits under Section 11 of the Act.
Reliance is placed on the decisions of
Commissioner of Income Tax Vs. Tamil
Nadu Dairy Development Corporation
Ltd.7 and Additional Commissioner of
Income Tax Vs. Ram Kirpal Tripathi8 to
submit that the profit motive of the assessee
is not a pre-condition for treating its as
activity as business. The opinion of the
revenue that the income of the trust derived
from the hostel run by is from a commercial
activity is supported by the material on
record. It is, thus, argued that even if the
hostel activity is incidental to the objects of
the trust, compliance of the second condition
of maintaining separate books of accounts for
claiming exemption under Section 11 of the
Act was mandatory.

16. Having heard learned counsels for
the parties and perused the record. The
undisputed facts of the case are that the
assessee which is a trust has been registered as
charitable
trust
by
the
Sub-Registrar,
Ghaziabad. The trust has also been recognised
and registered under the Income Tax Act as an
institution whose objects are charitable in
nature. The registration certificate has been
issued by the competent Commissioner under
Section 12 (A) of the Act and the same is
operative till date. The trust runs the above
named dental college which is a residential
institution. As per the statutory scheme, all the
students of the institutions have to necessarily
reside in the halls of residence or hostel built
by the institute within its campus.

17. In pursuance of this statutory
obligation imposed by the Dental Council
of India, the assessee is running hostel for
residence of the students (both boys and
girls) admitted in the institute. The hostel
fees is charged from the students which
includes mess fee. Section 2(15) of the Act
defines "Charitable Purposes" as :-

"2(15)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
658 INDIAN LAW REPORTS ALLAHABAD SERIES
or objects of artistic or historic interest,
and the advancement of any other object of
general public utility:

Provided that the advancement of
any other object of general public utility
shall not be a charitable purpose, if it
involves the carrying on of any activity in
the nature of trade, commerce or business,
or any activity of rendering any service in
relation to any trade, commerce or
business, for a cess or fee or any other
consideration, irrespective of the nature of
use or application, or retention, of the
income from such activity, unless

(i) such activity is undertaken in
the course of actual carrying out of such
advancement of any other object of general
public utility; and

(ii) the aggregate receipts from
such activity or activities during the
previous year, do not exceed twenty per
cent. of the total receipts, of the trust or
institution undertaking such activity or
activities, of that previous year;"

Section
2(13)
defines
that
"business" includes any trade, commerce
or manufacture or any adventure or
concern in the nature of trade, commerce
or manufacture;

18. Section 11 of the Act relates to the
income from property held for charitable or
religious purposes which provides that :-

'11. Income from property held
for charitable or religious purposes. (1)
Subject to the provisions of sections 60 to
63, the following income shall not be
included in the total income of the previous
year of the person in receipt of the income

(a) income derived from property
held under trust wholly for charitable or
religious purposes, to the extent to which
such income is applied to such purposes in
India; and, where any such income is
accumulated or set apart for application to
such purposes in India, to the extent to
which the income so accumulated or set
apart is not in excess of fifteen per cent. of
the income from such property;

(b) income derived from property
held under trust in part only for such
purposes, the trust having been created
before the commencement of this Act, to the
extent to which such income is applied to
such purposes in India; and, where any
such income is finally set apart for
application to such purposes in India, to
the extent to which the income so set apart
is not in excess of 4 fifteen per cent. of the
income from such property;

(c) Income derived from property
held under trust

(i) created on or after the 1st day
of April, 1952, for a charitable purpose
which tends to promote international
welfare in which India is interested, to the
extent to which such income is applied to
such purposes outside India, and

(ii) for charitable or religious
purposes, created before the 1st day of
April, 1952, to the extent to which such
income is applied to such purposes outside
India:

Provided that the Board, by general or
special order, has directed in either case
that it shall not be included in the total
income of the person in receipt of such
income;

(d) income in the form of
voluntary contributions made with a
specific direction that they shall form part
of the corpus of the trust or institution.

Explanation1. For the purposes
of clauses (a) and (b), (1) in computing the
fifteen per cent. of the income which may
be accumulated or set apart, any such
voluntary contributions as are referred to
in section 12 shall be deemed to be part of
the income;.
7 All. Daya Nand Pushpa Devi Charitable Trust Vs. Addl. Commissioner Income Tax
659

19. Sub-section (4) of Section 11 says
that:-

"For the purposes of this section
property held under trust includes a
business undertaking so held, and where a
claim is made that the income of any such
undertaking shall not be included in the
total income of the persons in receipt
thereof, the Assessing Officer shall have
power to determine the income of such
undertaking
in
accordance
with
the
provisions
of
this
Act
relating
to
assessment; and where any income so
determined is in excess of the income as
shown in the accounts of the undertaking,
such excess shall be deemed to be applied
to purposes other than charitable or
religious purposes."

20. Sub-section (4-A) provides as
under:-

"(4-A) Sub-section (1) or subsection (2) or sub-section (3) or sub-section
(3A) shall not apply in relation to any
income of a trust or an institution, being
profits and gains of business, unless the
business is incidental to the attainment of
the objectives of the trust or, as the case
may be, institution, and separate books of
account are maintained by such trust or
institution in respect of such business."

21. A careful reading of the above
provisions shows that under the Act the
"business" means to include any adventure
or concern in the nature of trade, commerce
or
manufacture
whereas
the
words
"charitable purposes" include "education".
The word "education" in Section 2(15) of
the Act is not qualified by any restrictions.
It has been used in its widest amplitude so
as to include education of all level to all
classes of the society or category. Clearly,
it can not been confined to any section or
class of the society or any particular type or
level of Education. Meaning thereby any
activity which includes or relates to
education would be for charitable purposes
within the meaning of Section 2(15) of the
Act. Section 11(1)(a) provides that the
income derived from property held the
trust, wholly for charitable or religious
purposes shall be exempted from the total
income to the extent to which such income
is applied for such purposes and where any
such income is accumulated or set apart for
application to such purposes, to the extent
to which the income so accumulated or set
apart is not in excess of 15% of the income
from such property. The assessee herein is
seeking benefit of Section 11(1)(a) of the
Act with the assertion that the income
derived from the hostel facility, a property
held under the trust, had been wholly
utilised
for
charitable
purposes
for
imparting education and hence the same
has to be excluded from the total income
and the Assessing Officer cannot treat the
surplus, if any, on account of the hostel
receipt as taxable income by applying the
conditions of Section 11(4A) of the Act.

22. It is argued that the hostel income
being subservient to the main object of the
education, the Assessing Officer has
gravely erred in treating the same as
business
income
for
disallowing
the
exemptions under Section 11(1) of the Act.

23. Sub-section (4A) of Section 11 is
the bone of contention between the parties.
A careful reading of the said provision
indicates that it talks of any income of the
trust or an institution which is in the nature
660 INDIAN LAW REPORTS ALLAHABAD SERIES
of "profit and gains of business" and states
that sub-section (1) of Section 11 would not
apply unless two conditions mentioned
therein are fulfilled, i.e (i) such business is
incidental
to
the
attainment
of
the
objectives of the trust;(ii) and separate
books of accounts are maintained by such
trust or institutions in respect of such
business.

24. Sub-section (4) of Section 11
states that for the purpose of Section 11
"property held under the trust" includes
"business undertaking so held".

25. The crucial word in sub-section
(4A) is "business" which has to be
understood as per the meaning provided
under Section 2(13) of the Act. The
"business" in sub-section (4A) can mean
any
activity
including
any
trade,
commerce,
or
manufacture
or
any
adventure or concern in the nature of
trade, commerce, or manufacture. A
business undertaking of the trust may also
be included as property held under the
trust in view of the sub-section (4) of
Section 11. But for getting the benefit of
sub-section (1) of Section 11, the income
derived from property held under the trust
whether wholly or in part, must be used
for charitable or religious purposes.
Under sub-section (4A) of Section 11,
income of any business of the trust in the
nature of profit and gains of such
business can be exempted under subsection (1) of Section 11 only if two preconditions mentioned in the said subsection are fulfilled. The first condition is
that the business must be incidental to the
attainment of objectives of the trust.

26. While considering the scope of
sub-section (4A) of Section 11 which
came into effect by the Finance (No.2)
Act 1991 w.e.f. 01.04.1992, in Assistant
Commissioner of Income Tax Vs.
Thanthi Trust9, the Apex Court had
noted that the substituted sub-section
(4A) gave trust and institution a wider
latitude than the earlier sub-section (4A).
In the wide language of sub-section
(4A),a trust is entitled to the benefit of
Section 11, if it utilises the income of its
business for the purpose of achieving its
charitable objects. In this way, the trust is
allowed to create a corpus by indulging in
business activity to feed the charity. As
the provision stands, all that is required
for the business income of the trust or
institutions to be exempted from the tax
is that the business should be incidental
to the attainment of the objectives of the
trust or institution. A business whose
income is utilised by the trust or the
institution for the purpose of achieving
the objectives of the trust or the
institutions, is, surely, a business which is
incidental to the attainment of the
objectives of the trust. It was, thus, held
that the substituted sub-section (4A) is
more beneficial to a trust or institution
than the original provision.

27. It can, thus, be seen that subsection (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.

28.

Having
held
that
the
applicability of the sub-section (4A) of
Section 11 presupposes income from a
business, being profit and gains of the
business, the test applied is whether the
activity which is pursued is integral or
7 All. Daya Nand Pushpa Devi Charitable Trust Vs. Addl. Commissioner Income Tax
661
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.

29. 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.

30. In the instant case, however,
there is no dispute about the nature of the
institution/trust
being
charitable
in
nature. The main activity of the trust
being education is covered within the
meaning of 'Charitable purposes' defined
under Section 2(15) and it has been
registered under Section 12-A of the
Income Tax Act. In our considered
opinion, running of hostel constitutes an
integral and inseparable part of the
academic activities carried on by the
assessee and it is not possible to isolate or
insulate it from the main activity and
treat as business within the meaning of
Section11(4A).

31. It has to be noticed that the hostel is
being run in discharge of a statutory
obligation as institution in question cannot
impart dental education without providing for
the hostel. There is no dispute about the fact
that the assessee has provided hostel and
mess facilities only to those students who are
attached with the educational institution. It is
not the case of the revenue that the income
generated out of the hostel fees is not used for
the educational purposes. Only reason given
by the Assessing Officer to deny exemption
under sub-section (11)(1) of the Income Tax
Act is that the income from the hostel fee is
excessive and disproportionate to the income
derived by other educational institutions
which indulge in similar activity i.e.
maintaining hostel for the students admitted
in the institution, whether government or
private. According to us, such a comparison
was not open, in as much as, whether a
venture or activity of the assessee is a
business venture separable from its main
activity and whether such activity constitutes
an integral and inseparable part of the main
activity, are matters to be decided on the facts
and circumstances of the individual case,i.e.
looking to the nature of establishment and its
activities. The issues as to whether the fee
charged is excessive or what should be the
reasonable amount of hostel fee are wholly
extraneous to the dominant purpose test. The
hostel fee charged would obviously depend
upon the facility provided to the students.

32. Having regard to the object and
purpose for which the institution in
question has been established by the trust
and the mandate of the Dental Council of
662 INDIAN LAW REPORTS ALLAHABAD SERIES
India in the gazette notification of the year
2007, we find that it is one of the primary
duties and objects of the trust to establish,
maintain and managed halls and hostel for
the residence of the students studying in the
institutions established by it. The institution
in question being a residential institution,
its activity in maintaining the hostel by
charging hostel fee (for its maintenance and
providing mess facility) is an integral part
of the main activity "education" of the
assessee. The hostel and mess facility
subserves the main object and purpose of
the trust and and are inseparable part of its
academic activity. It would be unrealistic to
segregate the said activity and treat the
same as business. A clear distinction is to
be made between the activity which is
though ancillary or incidental to the main
activity but a distinct activity and the one
which is an integral or incidental part of the
main activity as one single activity.

33. Such a distinction has been drawn
by the Division bench of this Court in
Swadeshi Cotton Mills2 wherein this Court
was dealing with the batch of cases where
different bodies were running canteens. One
of the cases was concerned with the Aligarh
Muslim University which was maintaining
dining halls where it was serving food and
refreshments
to
its
resident
students.
Referring to the observations of the Apex
Court in University of Delhi4 It was held
therein that it was incongruous to call
educational activities of the University same
as "carrying on business". The activity of
serving food in the dining hall was a minor
part of the overall activity of the University.
The dining hall service was held to be an
integral part of the university while imparting
education to the students. It was observed that
the dining hall service is indissolubly blended
with, and is an inseparable component of
educational activity of the university. On the
said reason, it was held that the activity of the
Aligarh Muslim University of providing food
to its residential students is such a minor,
subordinate and insignificant part that it
would be unreasonable to allow this work to
lend a business colour to the university so as
to make it an institution carrying on the
business of sale of food, for holding it liable
to be taxed.

34. Similarly in the Indian Institute of
Technology1, the Division Bench of this
Court considering the two above noted
decisions has held that:-

"19.The distinction laid down in
the aforesaid decisions between a case, on
the one hand, where the principal activity of
an institution is doing business in a
commercial way, and, on the other hand, a
case
where
its
principal
activity
is
predominantly academic or charitable and
an activity which may appear to have some
incidents
of
business
is
only
minor,
subsidiary and incidental to the principal
activity and is an integral part of it, is
apposite and affords valuable guidance."

35. In the said case, the sale of foods
stuff to the residents of the visitor's hostel
maintained by the Institution (IIT) was
subjected to tax under the U.P. Sales Tax. It
was observed that it could not be said that
the principal activity of the assesse was
doing business in a commercial way of
buying and selling food stuff. It was, thus,
held that the principal activity of the
assessee being predominantly academic
and the supply of food stuff in its hostel
was minor, subsidiary and incidental to the
principal activity, it was an integral part of
its academic activity.

36.

The
Apex
Court
in
Commissioner and Sales Tax5 has held
7 All. Daya Nand Pushpa Devi Charitable Trust Vs. Addl. Commissioner Income Tax
663
that the question of profit motive or non-
profit motive would be relevant only where
a person carries on trade, commerce,
manufacture or adventure in the nature of
trade, commerce etc. It was held that the
sole object of the assessee trust therein was
to spread the message of Saibaba of Shirdi.
The books and literature etc. containing the
message of Saibaba were distributed by the
trust to the devotees of Saibaba at the cost
price. There was no dispute that the
primary and dominant activity of the trust
was to spread the message of Saibaba. This
main
activity
does
not
amount
to
"business". The activity of publishing and
selling literature, books and other literature
obviously, could not be business as such
even without profit motive and it was in a
way a means to achieve the object of the
trust through which message of Saibaba
was spread.

37. In Mahatma Gandhi Kashi
Vidyapeeth3, the Division Bench of this
Court had considered the question as to
whether the activity of the assessee therein
amounted to business as defined under the
U.P. Vat Tax Act' 2003. While interpreting
the term "business" which includes any
trade, commerce, or manufacture etc.in the
definition under the said Act, the Court had
held therein that if the main activity was
not business then any transaction incidental
or ancillary would not normally amount to
business unless an independent intention to
carry on the business activity, incidental or
ancillary, was established.