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Income Tax Appellate Tribunal, CHANDIGARH BENCH ‘B”, CHANDIGARH
Before: SHRI SANJAY GARG & SMT.ANNAPURNA GUPTA
आदेश/ORDER
Per Annapurna Gupta, Accountant Member:
The above appeal has been preferred by the assessee against the order of the Commissioner of Income Tax(Appeals)-2, Chandigarh [(in short referred to as ‘CIT(A)’] dated 28.02.2019 relating to assessment year 2015-16, passed u/s 250(6)) of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’.
The solitary issue in the present appeal relates to the addition made to the income of the assessee by denying exemption u/s 11 of the Act to the extent of rent paid by the assessee to one of its trustees amounting to Rs.69 lacs, holding the same to be on higher side as compared to market rate by invoking the provisions of section 13(1)(c) of the Act.
Brief facts of the case are that the assessee trust is a charitable society registered u/s 12A and 10(23C)(vi) of the Act. During the impugned year the AO noted that the assessee had made payment of rent to the secretary of the assessee society amounting to Rs.69 lacs. On making enquiries he found that the said rent was on the higher side as compared to the market rate. Accordingly, he held that the assessee had provided benefit to the secretary/trustee and, therefore, invoking the provisions of section 13(1)(c) read with section 13(3) of the Act ,he denied exemption u/s 11 of the Act to the extent of rent so paid.
4. The matter was carried in appeal before the CIT(A) who upheld the findings of the AO.
Aggrieved by the same, the assessee has come up in appeal before us, raising the following grounds:
1. The orders of The Ld CIT (Appeals)-II confirming the orders of the learned Deputy Commissioner of Income Tax (Exemptions) are against the law and facts of the case as the orders have been passed in mechanical manner with general remarks of huge payments to trustee on account of payment of rent of Rs. 69,00,000/- for renting out 54600 Sq Ft of area to the society without commenting on quantum of excessive payment in the absence of any cogent material on record whereas despite the fact that the society is running a fully residential school and the reasonability of rent, necessity and utilization of the land and building owned by the society and land and building taken on rent by the society was amply demonstrated before the AO" and CIT (A)-II and the rent is paid to Sh A.J. Singh for use of the premises at Rs 10.53 per sq ft per month which is much less than the market rent of such type of premises in that area.
2. The orders of The Ld CIT (Appeals)-II confirming the orders of the learned Deputy Commissioner of Income Tax (Exemptions) are against the law and facts of the case on account of Judicial inconsistency as the cases of the assessee for the last so many years are being regularly assessed u/s 143(3) by different assessing officers without any adverse inference on the above issue of payment of rent.
3. The orders of The Ld CIT (Appeals)-II confirming the orders of the learned Deputy Commissioner of Income Tax (Exemptions) are against the law and facts of the case as on the same set of facts additions were made by the "AO" for A/Y 2003-04 and 2004-05 also which was decided by the Ld. CIT(A) in favour of the assessee vide its orders dated 07.12.2006 and on further appeal by the department in ITAT, the appeals of the department were dismissed by the Hon'ble ITAT vide its orders dated 24.04.2008 in ITAs No 212,655/CHANDI/2007, wherein the department had not gone in any further appeal.
That The Ld "AO" has taxed the income at maximum marginal rate whereas the income of the societies are taxed as Individuals and AOP.
5. For these and other reasons that may be urged at the time of hearing the appellant prays for relief.”
We have heard the arguments made by both the parties. The first argument raised by the Ld.Counsel for the assessee challenging the denial of exemption u/s 11 to the extent of rent paid to the secretary was that it had been duly demonstrated to the authorities below that the rent paid was reasonable as compared to the market rent and that no undue benefit had been given to the secretary by virtue of the said payment so as to invoke the provisions of section 13(1)(c) read with section 13(3) of the Act for denial of exemption u/s 11 of the Act. Drawing our attention to the facts relating to the payment of the rent as outlined in his submissions made before the Ld.CIT(A) and reproduced at page 7 of the order, the Ld.Counsel for the assessee contended that the lessor Capt.Amarjyot Singh Gyani was the absolute owner of the land and buildings in the property comprised in Village Mangoti, Tehsil Kasauli Distt Solan HP, measuring about 18 Bighas on the main road, which was on rent with the assessee "Lessee" i.e Pinegrove International Charitable Trust (Regd) since 1991. These rented buildings were situated on the main Kasauli Road, PO Dharampur-173209, in Distt. Solan HP, in which the trust was running a fully residential Senior Secondary School (Affiliated with CBSE). The trust was utilizing these buildings for Academic Classes, Laboratories, Dining Hall, Kitchen, Stores, Parking spaces, Hospital, Doctor's and Nurses's residences, Staff rooms, blocks of Staff Quarters, Play-fields, Two Basketball Courts, Guest Houses and the main Academic and A d m i n i s t r a t i v e O f f i c e B l o c k s e t c . To t a l c o v e r e d a r e a o f t h e s e buildings was approximately 54600 sq.ft for which a rent of Rs 69,00,000/- had been paid which came to Rs. 10.53 per Sq Ft per month. In addition to rent for almost 1/3 rd covered area out of 2 Acres of land, balance land was being used by the school for play grounds, roads etc without any additional charges. That the rent paid to Sh A.J Singh was much less than the rental value of such properties in that vicinity. In this regard, for the purpose of establishing the reasonableness of the rent paid, the Ld.Counsel for the assessee drew our attention to various documents demonstrating the fact that the rent paid for the impugned property at Rs.10.53 per sq.ft. per month considering the fact that the rented land was approximately 54600 sq.ft. for which the rent of Rs.69 lacs was paid annually, was much less than the rent value of the same property in the vicinity placed at paper book pages 4 to 18 as under:
Rent deed leasing out property to Punjab National Bank at Rs.28.84 per sq ft per month Rent deed leasing out property to M/s Hot Millions at Rs.32 per sq ft per month Rent deed leasing out property to ING Vysya Bank at Rs.62 per sq ft per month
He further pointed out from the above that the rent in the case of comparative cases rent varied from Rs.28.84--- to Rs.62 per sq.ft., against which the assessee trust had paid the rent to its trustee Capt.Amarjyot Singh Gyani at Rs.10.53 per sq.ft. only. The Ld. Counsel for the assessee pointed out that the rent paid to the trustee, therefore, was at a rate much below of the market rate for similar type of property. He further drew our attention to the fact that the rent is being paid regularly for the last more than 12 years at rate below the market rate and most of the cases were taken up for scrutiny by the Revenue department and orders passed without any adverse inference. Our attention was drawn to orders passed u/s 143(3) for A.Y 2010-11 to 2014- 15 placed at P.B 82-87 of Paper Book –I. He further pointed out that identical additions made in assessment years 2003- 04 and 2004-05 were decided in favour of the assessee by the Ld.CIT(A) and on further appeal by the Department in ITAT, the appeals were dismissed. Our attention was drawn to the orders of the Ld.CIT(A) pertaining to the aforesaid assessment years, placed in Paper Book at pages 45 to 77 and that of the ITAT dismissing the appeals of the Revenue in those years, placed at Paper Book at pages 78 to 81. The Ld. Counsel for the assessee drew our attention to the decision of the Hon’ble Apex Court in the case of CIT(Exemptions) Vs. Bola Ram Education Society (2019) 101 Taxmann.com 193 pointing out therefrom that the issue regarding the payment of reasonable rent to an interested person having regard to the fair market value of the property was decided in favour of the assessee. The Ld. Counsel for the assessee further emphasized that the AO had treated the rent paid as unreasonable without any corroborative evidence and cogent material on record and without contradicting comparable cases and past history of the assessee provided by the assessee. The Ld. Counsel for the assessee drew our attention to the assessment order wherein the findings of the AO regarding the unreasonableness of the rent were recorded at page No.4 as under:
“Assessee has paid rent of Rs.69,00,000/- to Capt. Amarjot Singh Gyani, which is on higher side and the rent paid is not genuine and reasonable. The lease amount is higher side because assessee is paying Rs.69,00,000 for 54,600 sq.ft. (as per reply of assessee), which comes Rs.126.37 per sq.ft. per annum, which is higher side compared to market rate. In the above facts, it show that the payment to its sister concern are not genuine and reasonable, which is not allowable u/s 13(1(c) r.w.13(3) of I.T. Act, 1961.” 8. Referring to the same he contended that it is evident that the AO had no basis for holding the rent as unreasonable and that his findings were merely based on surmises and conjectures. He, therefore, contended that it had been established by the assessee beyond doubt that the rent paid to Capt. Amarjyot Singh Gyani one of the trustees of the assessee trust was reasonable and, therefore, there was no reason at all to deny exemption to the u/s 13(1)(c) read with section 13(3) of the Act
The Ld.DR, on the other hand, relied on the orders of the authorities below.
The next contention raised by the Ld. Counsel for the assessee was against the reasoning of the Ld.CIT(A) for arriving at the conclusion that undue benefit had been given to the trustee by way of rent paid. The Ld. Counsel for the assessee pointed out that the Ld.CIT(A) had arrived at the aforesaid finding on a totally different basis by stating that being a Public Charitable Trust the fact that the assessee had bought 10 acres of additional land contiguous to the rented premises when actually it should have utilized the money for acquiring the leased land first and thereafter going for the additional land, itself demonstrated that undue benefit had been given to the trustee. Our attention was drawn to the relevant findings of the Ld.CIT(A) at para 6.3.2 at page 10 as under:
A deeper scrutiny of affairs of the society, notwithstanding the rationale provided about reasonableness of the rent paid are: (i) The society/trust, once it starts with an altruistic intent and is registered as such, becomes a public body and its income is public money. (ii) The trust has, over several years claimed utilization and over and above it, depreciation on land and building constructed on the leased property. (iii) If the society's public money has been utilized for acquiring 10 acres of additional land, an optimal utilization of the money should have been acquiring 2.5 acres of the leased land first and thereafter going for additional land and to that extent saved on the rent being paid. It's also pertinent to mention that exemption is allowed only to the extent of income from property that vests in the trust for charitable purposes. Lease deeds by their very nature can be rescinded. (iv) Since, this is the case of a public body dealing in public money, the off quoted principle, that the AO can not step into the shoes of a businessman, would not be relevant in the case. Here, the beneficiaries, the society at large and equal stakeholders in the transparent functioning of bodies wear altruism as their motive on their collars. (v) It is relevant to mention that the CBSE for granting affiliation to an institution upto 1000 students (the school in contention has only 600 students) requires only 1 acre of land as a necessary conditionality to be met. (vi) Institutions/ entities claiming to be altruistic and getting exemptions can't be seen to be indulging in aggrandizement of assets even through not required for optimal facilities in the premises.
In light of all of the above it is held that the rent being paid to the trustee is entirely unnecessary and is aimed at indirectly benefitting the trustee who comes within the realm of person envisaged in section 13 of the Act. The entire payment is held to be unreasonable in terms of section 13(2) of the Act. In view of above discussion, ground of appeal no. 1 is partly allowed.”
11. Countering the same the Ld. Counsel for the assessee contended that the entire land in possession of the assessee society both owned by it (approximately 10 acres) (54.03 bighas) and that leased by it from the trustee i.e. 17.10 bighas was utilized for the purpose for which the society had been established i.e. for imparting education. Our attention was drawn to the page No. 3 of Paper Book-2 detailing the same. The Ld. Counsel for the assessee contended that the assessee society having utilized the entire land for the purpose of imparting education and the findings of the Ld.CIT(A) that the assessee society ought to have first purchased the leased land thus taking away with the requirements of paying the rent, makes no sense since the assessee required both the leased land and owned land for imparting the education as no part of it was kept idle. The Ld. Counsel for the assessee, therefore, contended that merely because the assessee society had not utilized its funds to purchase the leased land but had instead used it for buying the other piece of land, therefore, could not lead to the conclusion that by doing so undue advantage and benefit given to the trustee from whom the land had been leased.
12. Ld.DR on the other hand relied on the order of the Ld.CIT(A).
We have heard the rival contentions carefully and also gone through the orders of the authorities below as also the documents and case laws referred before us.
The issue for adjudication before us is whether the rent paid by the assessee society during the year to its secretary Mr Amarjyot Singh amounting to Rs 69 lacs, for the building leased out to it along with land, was unreasonable and hence liable to be denied exemption claimed by it u/s 11 of the Act , by invoking the provisions of section 13(1)© r.w.s 13(3) of the Act.
Section 13(1)(© denies exemption granted to charitable entities u/s 11/12 of the Act,when any part of the income is found to be used /applied directly or indirectly for the benefit of persons closely connected to it as specified u/s 13(3) of the Act. As per the Revenue in the present case the rent paid to the secretary of the society, for building taken on lease from it ,amounting to Rs 69 lacs for the year, resulted in benefit being given by the assessee society to the specified person.
Considering the entire facts of the case we are not in agreement with the Revenue on this account. The assesse, we find, had duly demonstrated the reasonableness of the rent paid comparing the per sq. ft. rent paid per month in the present case which came to Rs.10.53,with other comparable cases which varied from Rs.28.84 on premises leased to Punjab National Bank to Rs.62 on premises leased to ING Vysya Bank in the same vicinity. No infirmity in the aforesaid facts has been pointed out by the Revenue before us,nor has ,we find the AO done so during assessment proceedings when the same was brought to his notice, or the Ld.CIT(A) who did not consider it necessary to comment on the same. Moreover the rent paid to Sh. Amarjyot Singh ,we find was found reasonable by the ITAT in A.Y 2003-04 & 2004-05 ,when identically exemption was denied by the AO.
The Ld.DR has not brought to our notice any distinguishing facts vis a vis those years.Further in subsequent assessment years, i.e from A.Y 2010-11 TO A.Y 2014-15,the Revenue made no such addition to the income of the assessee society in scrutiny assessment u/s 143(3) of the Act.
In view of the aforesaid facts there is we find no reason for holding the rent paid by the assessee society to Sh Amar Jyot Singh in the impugned year as unreasonable. The AO we have noted has given no reason for holding the rent as unreasonable or on the higher side, except for merely stating so, without even addressing the comparable instances cited by the assessee before it to establish the reasonableness of the rent paid. The Ld.CIT(A),we find, has gone on a totally different tangent for holding so stating that the fact that the assessee society purchased further tracts of land when it should have purchased the land taken on lease so as to do away with the rent payment, shows that undue benefit was being given by the assessee society to the lessor Shri Amarjyot Singh . We do not find any merit in this reasoning of the Ld.CIT(A) particularly when the assessee had demonstrated that the land purchased was not lying surplus with it but had been put to use for furthering the objective of the assessee society of imparting education.
The assessee we have noted had filed a complete detail of usage of land both owned and leased by it. The facts detailed therein have not been controverted by the Revenue.
Therefore when the entire land was required by the assessee society for its objective of imparting education ,there cannot be said that any benefit had been given to the lessor by retaining its land on lease instead of buying it off ,as per the reasoning of the Ld.CIT(A) also.
Considering the entire facts of the case as above, we hold ,that the denial of exemption u/s 11 to the rent paid by the assessee society to its secretary Shri Amarjyot Singh amounting to Rs.69 lacs ,as per the provisions of section 13(1)© r.w.s 13(3) of the Act, was not as per law and is accordingly directed to be deleted.
In the result, the appeal of the assessee is accordingly allowed .
Order pronounced in the Open Court.