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Facts
The assessee filed an application for registration under Section 12AA of the Income Tax Act. The CIT rejected the application, citing issues with rent payments to alleged related parties and the non-registration of the tenancy agreement. The assessee argued the landlords were not related and later produced a registered tenancy agreement.
Held
The Tribunal observed that the CIT's observation regarding related parties was based on mere surname similarity, and the assessee has now provided a registered tenancy agreement. The Tribunal set aside the CIT's order and remanded the matter for fresh adjudication.
Key Issues
Whether the CIT was justified in rejecting the registration application based on alleged related party transactions and an unregistered tenancy agreement when the assessee subsequently provided a registered agreement and clarified the relationship.
Sections Cited
12AA, 12(1)(ac), 13, 17, 55(1), 12AB, 12A(1)(ac)(vi)
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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI MANISH BORAD & SHRI VINAY BHAMORE
ORDER
PER VINAY BHAMORE, JM:
This appeal filed by the assessee is directed against the order dated 30.09.2024 passed by Ld. CIT, Exemption, Pune rejecting the application for registration u/s 12AA of the IT Act.
Facts of the case, in brief, are that the assessee filed application for registration in Form No.10AB under clause (iii) of section 12(1)(ac) of the IT Act on 30.03.2024. With a view to verify the genuineness of activities of the assessee and compliance to requirements of any other law for the time being in force by the trust/institution as are material for the purpose of achieving its objects, a notice was issued by Ld. CIT, Exemption, Pune through ITBA portal on 27.05.2024 requesting the assessee to upload certain information/clarification. The desired information was furnished by the assessee. On verification of said information, Ld. CIT, Exemption, Pune found certain discrepancies and issued another notice on 03.09.2024 requesting the assessee to furnish further details/information in this regard on or before 10.09.2024. After considering the submission of the assessee Ld. CIT, Exemption, Pune again asked for certain compliance & notice dated 18-09-2024 was issued to the assessee. Not being satisfied with the explanation in response to notice dated 18.09.2024, Ld. CIT, Exemption, Pune rejected the application for registration by observing as under :- “6. On verification of the details submitted by the assessee in response to the said notice certain discrepancies were noticed. Hence, another notice was then issued to the assessee on 18/09/2024 and the discrepancies were duly communicated to it as reproduced below: "(i) It is seen that Building valued at Rs. 492.55 lacs appearing in the Balance Sheet as on 31/03/2023. Prima facia it is seen from the Lease Deed dated 06/02/2020 that the said building is constructed on the land owned by Umesh Dipak Kanchan & Shailesh Dipak Kanchan who is a person covered u/s. 13(3) of the Income Tax Act, 1961. As per the lease deed the land rent is Rs.50,000/- per month for first ten years, Rs.75,000/- per month for next ten years & Rs.1,50,000/- per month for last ten years. It is also seen that there is no specific termination clause in the lease deed. Therefore, the lease deed can be terminated at any time by the land-lord i.e. the person covered u/s. 13(3) of the Act. In view of the above it is seen that the trust funds, in the form of building constructions may be indirectly transferred to the related parties. Further, you have not furnished any details as to how the specific land owned by the related parties is selected for the activity of construction of a building, whether other documents were sort listed etc. for this purpose. Please submit your explanation with supporting documents."
The assessee was requested to show cause as to why the application should not be rejected and why the registration granted under section 12AB of the Income Tax Act, 1961 should not be cancelled. The assessee was also given opportunity of being heard vide the said notice. The assessee was specifically informed that in the event of failure to comply by the due date, the application shall be liable to be rejected and the registration shall also be liable to be cancelled. The compliance to the said notice was due on 23/09/2024. The notice was duly served on the assessee through e-portal and email.
The assessee furnished its reply in response to the notice on 23/09/2024 and has submitted a supplementary lease deed on a notary of Rs 500/-. However, the same is not accepted as the so-called lease deed has not been duly registered with the registering authorities as required by the law. As per section 17 of the Registration Act, 1908, leases of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent are mandatorily required to be registered. Also, as per section 55(1) of the Maharashtra Rent Control Act, 1999, registration of a leave & license agreement shall be registered under the Registration Act, 1908. The relevant provision is reproduced hereunder for ready reference: "55. Tenancy agreement to be compulsorily registered. (1) Notwithstanding anything contained in this Act or any other law for the time being in force, any agreement for leave and license or letting of any premises, entered into between the landlord and the tenant or the licensee, as the case may be, after the commencement of this Act, shall be in writing and shall be registered under the Registration Act, 1908." The assessee, however, has failed to comply with the above statutory provisions..
In view of the above discussion, the undersigned is also not satisfied about the compliance to requirements of any other law for the time being in force by the trust/institution as are material for the purpose of achieving its objects. Therefore, the application filed by the assessee is hereby rejected and the provisional registration granted on 06/06/2023 under section 12AB read with section 12A(1)(ac) (vi) of the Income Tax Act, 1961 is hereby cancelled.”
3. It is the above order against which the assessee is in appeal before this Tribunal.
Ld. AR appearing from the side of the assessee submitted before us that Ld. CIT, Exemption, Pune has rejected the application mainly on two grounds. First, it was observed by Ld. CIT, Exemption, Pune that the payment of rent was made to the related parties which is contravention of section 13 of the IT Act. In this regard, Ld. AR contended that the persons to whom rent is being paid are not related parties. However, it was also submitted that the surname of the parties resembles with the surname of the office bearers of the institution. But, they are not related parties. Secondly, Ld. CIT, Exemption, Pune also observed that the tenancy agreement is not registered. In this regard, it was contended before the Bench that now the tenancy agreement has been registered and copy of the same is produced before the Bench. Accordingly, it was prayed before the Bench to allow the registration u/s 12A of the IT Act.
Ld. DR relied on the order passed by Ld. CIT, Exemption, Pune and requested to confirm the same.
We have heard Ld. Counsels from both the sides and perused the material available on record. We find that Ld. CIT, Exemption, Pune has rejected the application for registration on the basis of two grounds. First ground is the wrong observation of Ld. CIT, Exemption regarding similarity in the surnames of the landlords and the office bearers. In this regard, it was the contention of Ld. AR that the landlords to whom the rent is paid are not related parties although the surname resembles with that of the office bearers of the institution. Therefore, question of contravention of section 13(3) of the IT Act does not arise. Another reason for which Ld. CIT, Exemption, Pune rejected the application of the assessee institution was non-registration of tenancy agreement as per the Maharashtra Rent Control Act, 1999, wherein, leave and license agreement was required to be registered compulsorily. In this regard, we find that earlier the tenancy agreement was not registered but now Ld. AR has produced registered copy of tenancy agreement before the Bench and accordingly it was the prayer of Ld. AR that the application for registration u/s 12A may kindly be allowed. Considering the totality of the facts of the case and in the light of registration of tenancy agreement, we deem it appropriate to set-aside the order passed by Ld. CIT, Exemption, Pune and remand the matter back to him with a direction to decide the application for registration for assessee institution afresh as per fact and law after