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2019 (8) TMI 608 - AT - Income TaxIncome derived from property held under trust u/s 11 - deemed rental income - AO made addition of difference of deemed rental and actual rent received by the appellant - HELD THAT - Provisions u/s 11(1)(a) of the Act speaks about the actual receipt of the income and actual expenses incurred for that and deemed income is not to be assessed. In the present case, the factual situation is not different such as land has been allotted by the Collector vide letter dated 24.07.1979 and the valuation has been done in view of the valuation report dated 27.01.1986 in which the valuation assessed of the carpet area which was accepted by Charity Commissioner as per the clause-8 of the order lies at page no 33 to 50 of the paper book. The consent terms has been executed before the Hon ble High Court of Bombay - The notification dated 11.06.1988 is on the file which lies at page no. 25 of the paper book speaks about this fact that the provisions of Part-II of the Act Bombay Rents, Hotel and Lodging House Rates Control, Act, 1947 is not applicable to the case of the assessee trust, therefore, in the said circumstances and in view of above discussed law, no deemed rent is liable to be assessed in the case of the assessee, hence, the finding of the CIT(A) is not justifiable, hence, is hereby ordered to be set aside. Accordingly, all the issues are decided in favour of the assessee against the revenue.
Issues Involved:
1. Confirmation of the addition of the difference between actual rent received and deemed rental income. 2. Applicability of provisions under Section 11 of the Income Tax Act, 1961 for a charitable trust. Issue-wise Detailed Analysis: Issue No. 1: Confirmation of the addition of the difference between actual rent received and deemed rental income The primary issue in this case was whether the Assessing Officer (AO) was justified in assessing the difference between the actual rent received by the assessee and the rent which, according to the AO, should have been received as 'deemed rental income.' The AO assessed the rent at ?134 per sq. ft. per month, which amounted to ?40,00,838, whereas the assessee had received rent at ?7 per sq. ft. per month, totaling ?2,08,999. The differential rent of ?4,55,02,068 was added to the income of the assessee. The assessee argued that the rent of ?7 per sq. ft. per month was fixed and approved by the Hon’ble High Court, the Charity Commissioner, and the Collector in 2003. The assessee could not unilaterally increase the rent as the land was provided by the Collector at ?1 per year along with an annual license fee of ?3,25,000. Therefore, the deemed rental income assessed by the AO was not justifiable. The Tribunal found support in the decision of the Hon’ble ITAT in the case of ACIT, Central Circle Vs. Nandlal Tolani Charitable Trust (2014) and the Hon’ble Gujarat High Court in CIT Vs. Ganga Charity Trust Fund (1986). Both cases emphasized that for a charitable trust, the actual rent and actual expenses should be considered for the allowance of the claim under Section 11(1)(a) of the Act, and not any notional or deemed income. Issue No. 2: Applicability of provisions under Section 11 of the Income Tax Act, 1961 for a charitable trust The Tribunal referred to various judgments to interpret the provisions under Section 11(1)(a) of the Act. It was highlighted that the income derived from property held under trust must be applied to charitable purposes in India, and only the actual income received and actual expenses incurred should be considered. The Hon’ble Gujarat High Court in CIT Vs. Ganga Charity Trust Fund (1986) clarified that notional income is incapable of actual application or accumulation under Section 11(1)(a), and if the trust is taxed on such notional income, it would render the benevolent provisions of the section nugatory. Similarly, the Hon’ble High Court of Calcutta in CIT Vs. Jayashree Charity Trust (1986) held that the exemption under Section 11 should be confined to the real income of the trust, and notional income should not be taxed as it is not available for charitable purposes. Based on these interpretations, the Tribunal concluded that no deemed rent should be assessed in the case of the assessee. The actual rent received and actual expenses incurred should be considered for the allowance of the claim under Section 11(1)(a) of the Act. Conclusion: The Tribunal allowed the appeals filed by the assessee, concluding that the deemed rental income assessed by the AO was not justifiable. The actual rent received and actual expenses incurred should be considered for the allowance of the claim under Section 11(1)(a) of the Act. The findings of the CIT(A) were set aside, and the appeals were decided in favor of the assessee.
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