SAHODAYA EDUCATIONAL SOCIETY, BADOLI HOUJ, DEPALPUR,INDORE vs. COMMISSIONER OF INCOME-TAX A (II), INDORE

The Assessee has raised following grounds of appeal:

Briefly stated facts as culled out from the records are that the assessee is an Education Society enjoying exemption u/s 10(23C)(vi) of the Act vide order of Office of the Chief Commissioner of Income Tax, Indore, dated 28.08.2012. The return of income for A.Y. 2010-11 filed on 08.10.2010 declaring ‘NIL’ income. Case selected for scrutiny assessment as per CASS, followed by serving of notices u/s 143(2) & 142(1) of the Act. While examining the financial statement and audit report, Learned Assessing Officer (in short Ld. AO) observed that unreasonable rent has been paid to the Sahodaya Education Society, ITANo.700/Ind/2017 lease providers who are on the board of the society. It was submitted by the assessee that the land on annual lease of Rs.5000/- was taken for 30 years which was to be used for constructing the building. Thereafter, the building was also constructed by Director’s from their own funds and reasonable amount of rent has been paid for the building. But Ld. AO was not convinced as he was of the view that the assessee has violated the provisions of section 13(1)(c)(ii) of the Act as it has paid unreasonable amount of lease. Exemption u/s 10(23)(c)(vi) of the Act was denied, excess lease rent of Rs.2,26,000/- was disallowed and income determined at Rs.7,50,274/-.

Against the finding of Ld. AO assessee preferred an appeal before the ld. CIT(A) but failed to succeed.

Now the assessee is in appeal before the Tribunal.

Ld. Counsel for the assessee submitted that no excessive rent has been paid. The rent is approximately at Rs.800/- per room for the 24 rooms used for running educational activities. He also referred to various lease deeds in support of the rent paid. He also submitted that no objection has been raised by the revenue authorities on educational activities carried out by the assessee.

Per contra Ld. Departmental Representative (DR) vehemently argued supporting the order of the both lower authorities.

We have heard rival contentions and perused the record placed before us. Though the assessee has raised 7 grounds of appeal, ground no.1 to 4 are against the finding of Ld. CIT(A) confirming the action of the Ld. AO denying the benefit of exemption u/s 10(23)c)(vi) of the Act and adding the surplus of income during the year to tax. Ground No.5 challenges the addition for disallowance of rent paid of Rs.2,26,000/-.

Apropos to ground No.5 relating to disallowance of rent paid at Rs.2,26000/-, we observe that the assessee entered into a lease agreement on 10.01.2007 for taking land on lease for 30 years @ 5000/- per year. Thereafter, on 01.05.2009 another lease deed was entered for taking land and building. Copies of map of school building, duly sanctioned by Gram Panchayat, Badolihouj Depalpur and No Objection Certificate (NOC) from Gram Panchayat Badolihouj, Depalpur allowing permission for building of school on 10000 sq. feet area, is also placed in the paper book. The series of documents fairly makes the case of the assessee that firstly, land was taken on lease, thereafter due to non-availability of funds building was constructed with the funds given by the Directors and after getting necessary permission. The amount of rent if apportioned on 24 rooms in the building the same will be approx Rs.800 per room which primarily does not seem to be excessive or unreasonable.

However, since some of the details relating to NOC and the additional lease deeds were not placed for perusal before the Ld. AO and also since the Ld. AO has not brought on record any other comparative instances to prove that the assessee society had paid excessive rent to its directors we being fair to both the parties deem it proper to set aside this issue to the file of Ld. AO for afresh adjudication, in the light of our observation made hereinabove and 5

In the result, the appeal of the assessee is partly allowed.