Educational activities performed by a college fall within the definition of charitable activities as per Section 2(15) of the Income Tax Act. Consequently, the benefit of exemption under Section 11 is available. However, as per Section 11(4A), the benefit of exemption shall not be available 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 accounts are maintained by such trust or institution in respect of such business.
In the case of Daya Nand Pushpa Devi Charitable Trust, it was contended by the Department that a hostel run by a Dental college, under a statutory obligation, whose primary objective is to provide education will be said to be carrying on business in so far as the income from running of the hostel is concerned. Consequently, the view put forth by them was that exemption under Section 11 will be disallowed on the ground that separate books of accounts were not maintained in relation to the business income earned from the hostel. The same was affirmed by CIT(A) and ITAT. However, the HC dealt with it differently and cited the case of Mahatma Gandhi Kashi Vidyapeeth whereby it was held that if the main activity is 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. Considering the same, HC in the given case held that the principal activity of the college was pre-dominantly academic and charging of fees for the accommodation provided to those admitted to the dental course is minor, subsidiary, and subservient to the principal activity. Hence, it is an integral part of the academic activity as a result of which it cannot be considered as a business activity for the purpose of attracting Section 11(4A).
From the above, it is apparent that the HC applied the theory of dominant purpose. In view of the same, running of hostel by college cannot be considered to be separate business activity.
