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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI PRAMOD KUMAR, & SHRI SANDEEP SINGH KARHAIL
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI
BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT, AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER
ITA No. 3009/Mum./2016 (Assessment Year : 2010–11) Mehta Charity Trust Top Floor, Mehta Mahal …. Applicant 15th Mathew Road, Opera House Mumbai 400 004 PAN – AAATM5060A v/s Dy. Director of Income Tax (Exemp.) …. Respondent Circle–1(1), Mumbai Assessee by : Dr. K. Shivaram, Sr. Adv & Ms. Nilam Jadhav Revenue by : Shri T. Shankar, Sr. AR, CIT
Date of Hearing – 05.05.2022 Date of Order – 13/07/2022
O R D E R PER SANDEEP SINGH KARHAIL, J.M.
The present appeal has been filed by the assessee challenging the impugned order dated 08/02/2016, passed under section 250 of the Income Tax Act, 1961 („the Act‟) by the learned Commissioner of Income Tax (Appeals)–1, Mumbai [„learned CIT(A)‟], for the assessment year 2010– 11.
The present appeal has been listed for hearing before us pursuant to order dated 22/04/2019, passed by the coordinate bench of the
Mehta Charity Trust ITA. No.3009/Mum./2016
Tribunal under section 254(2) of the Act, in MA No. 574/Mum/2018 in ITA No. 3009/Mum/2016, whereby earlier order dated 09/05/2018, passed under section 254(1) of the Act was rectified to the extent that observation of the Tribunal in respect of ground No. 3, raised in assessee’s appeal, was recalled and appeal was directed to be listed for hearing in that regard.
Ground No. 3, raised in assessee’s appeal, is as under:
“3. The learned Commissioner of Income Tax (Appeals) erred in holding that the exemption u/s 11 was not admissible for the reason that the property of the appellant trust was used by an excluded person at a rent much lesser than the market rent.”
The brief facts of the case pertaining to the issue arising in ground No. 3, as emanating from the record, are: The assessee is registered as a charitable organisation with DIT (Exemption), Mumbai under section 12A of the Act and also with Charity Commissioner, Mumbai. For the year under consideration, assessee filed its return of income on 16/03/2011, along with income and expenditure account, balance sheet and audit report in Form No. 10B, declaring total income at Rs. Nil. The assessee claims to be engaged in charitable activities in the field of education and accordingly, claimed exemption under section 11 of the Act. During the assessment proceedings, it was, inter-alia, observed that property of the assessee trust is under possession and use by the company M/s. Drishti Advertising Pvt. Ltd, in which trustees are interested and is excluded person under section 13(3) of the Act. Accordingly, assessee was asked to
Mehta Charity Trust ITA. No.3009/Mum./2016 show cause as to why the trust is not covered within the provisions of section 13(1)(c)(ii) read with section 13(2)(g) and therefore the exemption under section 11 of the Act be not denied. In reply, assessee submitted that Drishti Advertising Pvt. Ltd. was already a tenant of the trust from 1994 in respect of an area of about 2000 sq ft and the balance area on the 13th floor, access to which was through the premises of Drishti Advertising Pvt. Ltd, was given on rent by registered tenancy agreement dated 02/01/2010, on payment of premium of Rs. 41 lakh and a monthly rental of Rs. 3485 per month. The assessee further submitted that the entire building is under use and occupation of statutory tenants whose tenancies are protected under the Rent Control Act, therefore, the trust is only eligible to the standard rent from the protected tenants. The Assessing Officer vide order dated 28/03/2013, passed under section 143(3) of the Act, inter-alia, held that property of the trust is under possession and use by the company Drishti Advertising Pvt. Ltd. in which trustees, who are covered under section 13(3), are interested and same is being used by the said company at the rent rate much lesser than the market rate. Accordingly, inter-alia, exemption under section 11 was denied to the assessee.
In appeal before the learned CIT(A), assessee reiterated its submissions made before the Assessing Officer. The learned CIT(A), vide impugned order dated 08/02/2016, dismissed the appeal on this aspect by holding that Drishti Advertising Pvt. Ltd paid rent of Rs. 3485 per
Mehta Charity Trust ITA. No.3009/Mum./2016 month as against the rent of Rs. 11,351 paid by another tenant M/s. Bullworker Pvt. Ltd. and therefore due rent has not being received by the assessee from Drishti Advertising Pvt. Ltd, since the company is related to the trustee. Being aggrieved, assessee is in appeal before us.
During the course of hearing, Dr. K. Shivaram, learned Senior Counsel, appearing for the assessee, submitted that the one-time non- refundable premium of Rs. 41 lakh from Drishti Advertising Pvt. Ltd was not taken into account by the lower authorities. The learned Senior Counsel further submitted that the rent charged to Drishti Advertising Pvt. Ltd. is higher than the rent charged for grant of tenancy of areas in possession of the trust. The learned Senior Counsel also submitted that in subsequent assessment years Revenue has accepted assessee’s claim in scrutiny proceedings.
On the other hand, Shri T. Shankar, learned Departmental Representative („learned DR‟) submitted that the claim now made before the Tribunal was not made before the Assessing Officer as well as the learned CIT(A) and the assessee merely stated that amount of Rs. 41 lakh is an adequate compensation for grant of tenancy rights, which was negotiated and agreed upon. Learned DR further submitted that the one- time premium and rent paid per month by the assessee is significantly lower than the market value as determined by stamp duty authorities. Further, learned DR submitted that New India Assurance paid rent at Rs. 4 per sq.ft. to the assessee trust. Page | 4
Mehta Charity Trust ITA. No.3009/Mum./2016
We have considered the rival submissions and perused the material available on record. The only grievance of the assessee, in ground No. 3, is against denial of exemption under section 11 of the Act, inter-alia, on the basis that property of the trust was given on rent at comparatively lower rate to a company in which trustee, persons covered under section 13(3) of the Act, are interested. At the outset, it is necessary to note certain background facts. Drishti Advertising Pvt. Ltd promoted by Mr. Rajiv Somani was a tenant of the trust from the year 1994 in respect of an area of about 2,000 sq. ft. Mr Rajiv Somani became trustee, subsequently, only in the year 1998. The trust had about 1000 sq. ft. of office space on the balance of the 13th floor, access to which was through the premises of Drishti Advertising Pvt. Ltd. Mr Rajiv Somani requested the trust for grant of tenancy of the balance area. Accordingly, it was agreed that the trust office and records would be continued to be maintained from office of Drishti Advertising Pvt. Ltd. at no cost to the trust. Considering that no other tenant could be granted tenancy of the said 1000 square feet, as it was accessible only to the existing office of Drishti Advertising Pvt. Ltd, the request was considered by the trustees and an amount of Rs. 41 lakh being an adequate compensation for grant of tenancy rights was negotiated and agreed upon. As a result, the trust granted tenancy for the balance of about 1000 sq.ft. of office space to Drishti Advertising Pvt. Ltd. by registered tenancy agreement dated 02/01/2010 (forming part of the paper book) on the payment of premium
Mehta Charity Trust ITA. No.3009/Mum./2016 Rs. 41 lakh and a monthly rent of Rs. 3485. The Assessing Officer denied the exemption under section 11 of the Act, inter-alia, only on the basis that the property of the trust is under possession and use by a company Drishti Advertising Pvt. Ltd, in which trustees are interested, who are covered under section 13(3) of the Act and the rent charged is much lesser than the market rate. In appeal, learned CIT(A), by comparing the rent received from another tenant i.e. M/s. Bullworker Pvt. Ltd., dismissed the appeal filed by the assessee on this issue.
In the present case, it has not been denied that the entire building is under use and occupation of statutory tenants whose tenancies are protected under the Rent Control Act and the trust is only eligible to the standard rent from the statutory tenants. Thus, any comparison in respect of the rent received by the assessee can only be made with the rent charged to other tenants, who are also statutory tenants, of that building. Further, it is pertinent to note that rent charged to Drishti Advertising Pvt. Ltd. was at the rate of Rs. 2.40 per square feet for an area of about 1000 sq. ft. On the other hand, M/s Bullworker Pvt. Ltd. was paying rent at the rate of Rs. 2.06 per square feet for an area of about 4440 sq. ft. Thus, the area given on rent to M/s Bullworker Pvt. Ltd. was much more than the area given on rent to Drishti Advertising Pvt. Ltd, vide agreement dated 20/01/2010, and, therefore, the same justifies the difference in the amount of rent received from the aforesaid 2 entities. In addition to above, it is evident from the record that lower
Mehta Charity Trust ITA. No.3009/Mum./2016 authorities did not take into consideration the amount of premium of Rs. 41 lakh paid by Drishti Advertising Pvt. Ltd. in respect of the aforesaid tenancy, over and above the agreed rent, and only considered the rent paid by Drishti Advertising Pvt. Ltd. Further, while determining the rent of any property / premises, area / location / access / amenities, inter-alia, are taken into consideration. In the present case, it has not been denied that the about 1000 square feet office space on the balance of 13th floor, which was given on rent to Drishti Advertising Pvt. Ltd. had access only through the premises of Drishti Advertising Pvt. Ltd. Further, Revenue has also not denied the claim of assessee that the trust office and records were continued to be maintained from the office of Drishti Advertising Pvt. Ltd. As regards the submission of learned DR that market rate determined by the stamp duty authority are higher, it is pertinent to note that dispute in the present case is in relation to rent paid to the assessee trust and not in respect of any sale consideration. Further, we find that in subsequent assessment years (i.e. 2011-12, 2012-13, 2013-14 and 2014-15), wherein also the rent was received from Drishti Advertising Pvt Ltd, return filed by the assessee trust was accepted vide order passed under section 143(3) and exemption under section 11 of the Act was granted. Thus, in view of aforesaid findings, we are of the considered opinion that assessing officer as well as learned CIT(A) were not justified in denying relief to the assessee under section 11, inter-alia, in respect of rent received from Drishti Advertising Pvt. Ltd. Accordingly, ground No. 3 raised in assessee’s appeal is allowed. Page | 7
Mehta Charity Trust ITA. No.3009/Mum./2016
In the result, ground No. 3, raised in assessee’s appeal is allowed. Order pronounced in the open court on 13/07/2022 Sd/- Sd/- PRAMOD KUMAR SANDEEP SINGH KARHAIL JUDICIAL MEMBER VICE PRESIDENT MUMBAI, DATED: 13/07/2022
Copy of the order forwarded to:
(1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Pvt. Secretary
Assistant Registrar ITAT, Mumbai