2020 (9) TMI 904 - AT - Income Tax

Exemption u/s 11 - Lease transactions - rentals received in respect of the property of the assessee - assessee gave property on rent to another charitable trust - alternative ground taken by the assessee before the Ld. CIT(A) stating that in the event that exemption is not allowed, a sum to be excluded from the taxable income - assessee undertaking any activities in the nature of trade, commerce or business, donations received by the assessee forms part of the corpus of trust - HELD THAT - We are in agreement with the Ld. CIT(A) that not only on the basis of the rule of consistency but also on the basis of the facts relating to the rent received by the assessee from HLI vis- -vis the rent under the Delhi Rent Control Act. Without vouchsafing the correctness of the information received from the website and without correlating the information furnished by the property dealers without realities on ground with a specific reference to the property in dispute, it is not open for the Assessing Officer to proceed to make addition, that disturbing the accepted position for about more than two decades. No change of facts and circumstances are brought on record and no independent evidence with a specific relation to the property in dispute is available on record. Merely because the other charitable trust guilty property for accommodation of the person covered under section 13(3) of the Act, such a fact ipso facto does not lead to the addition in the hands of the assessee without first clinching the issue with corroborative piece of evidence. We therefore, hold that there is no justification for addition made by the learned Assessing Officer by invoking the provisions under section 13(2 )( b) Order - a) Provisions of Section 13(2 )(B) are not applicable to the case of the assessee b) No individual benefit has been derived with regard to the lease transactions c) Alternate ground becomes infructuous d) Corpus donations are in the nature of capital receipts in the instant case and hence doesn t constitute a part of income and expenditure statement.

Summary

Issues Involved:

1. Denial of exemption under Section 11 of the Income Tax Act, 1961.
2. Application of provisions of Section 13(2)(b) read with Section 13(3) of the Income Tax Act.
3. Lease transactions between charitable institutions.
4. Taxation of corpus donations.
5. Principle of consistency in tax assessments.
6. Deduction on account of depreciation, donations, and other outgoings.

Detailed Analysis:

1. Denial of Exemption Under Section 11:

The assessee contested the denial of exemption under Section 11 by the AO, which was upheld by the CIT(A). The AO's rejection was based on alleged violations of Section 13(2)(b) read with Section 13(3) concerning lease transactions at below-market rates. The Tribunal found that the AO's reliance on internet data and estate agents' letters without confronting the assessee was insufficient. The Tribunal emphasized the need for uniform treatment and consistency, noting that the rent received by the assessee exceeded the Municipal Corporation of Delhi's valuation. Thus, the Tribunal directed deletion of the addition made by the AO, reinstating the exemption under Section 11.

2. Application of Provisions of Section 13(2)(b) and Section 13(3):

The AO applied these provisions, alleging that the assessee let properties to another charitable trust at below-market rates. The Tribunal observed that the AO did not substantiate the market rent claims with credible evidence. The Tribunal highlighted that the properties were leased since 1981 with periodic rent increases, and the rent received was higher than the municipal valuation. The Tribunal concluded that the AO's addition was based on surmises and conjectures, lacking corroborative evidence, and directed deletion of the addition.

3. Lease Transactions Between Charitable Institutions:

The Tribunal noted that the lease transactions were between two charitable institutions, with no individual deriving benefit. The Tribunal reiterated that the rent received was periodically increased and was higher than the municipal valuation. The Tribunal found no justification for the AO's addition and directed its deletion.

4. Taxation of Corpus Donations:

The AO taxed corpus donations received by the assessee, treating it as an Association of Persons (AOP). The Tribunal referred to the decision in Patanjali Yogpeeth (Nyas) vs. ADIT, holding that corpus donations are capital receipts and not liable to tax, irrespective of the exemption under Section 11. The Tribunal directed the AO to delete the addition of corpus donations.

5. Principle of Consistency in Tax Assessments:

The Tribunal emphasized the importance of consistency in tax assessments, noting that the AO had previously accepted the lease agreements without objection. The Tribunal found no change in facts or circumstances to justify a different view and directed adherence to the principle of consistency.

6. Deduction on Account of Depreciation, Donations, and Other Outgoings:

The assessee contested the denial of deductions for depreciation, donations, and other outgoings. The Tribunal, having reinstated the exemption under Section 11, found the alternate ground infructuous and did not delve into detailed discussions on this issue.

Conclusion:

a) Provisions of Section 13(2)(B) are not applicable to the case of the assessee.
b) No individual benefit has been derived with regard to the lease transactions.
c) The alternate ground becomes infructuous.
d) Corpus donations are in the nature of capital receipts and do not constitute part of the income and expenditure statement.

Result:

The appeal of the assessee is allowed.