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2022 (2) TMI 931 - HC - Income TaxExemption u/s 1 1 - Inadequate rent received by the respondent/assessee - assessee offered substantial concession in rent to Hamdard Dawakhana in lieu of voluntary and corpus donations in return which is a clear violation of Section 13(2)(b) r.w.s. 13(3) (b) of the Act and hence assessee is not eligible for exemption u/s 11/12 - HELD THAT - Under Section 13(2)(b), the burden of showing that the rent charged by the respondent/assessee was not adequate is on the revenue. Unless the price/rent was such as to shock the conscience of the Court and to hold that it cannot be the reasonable consideration at all, it would not be possible to hold that the transaction is otherwise bereft of adequate consideration. It is necessary for the Assessing Officer to show that the property has been made available for the use of any person referred to in Sub-section (3) of Section 13 otherwise than for adequate consideration. In order to determine the same, the context of the facts of the particular case needs to be appreciated. For determining Adequate consideration/rent, however, market rent or rate is not the sole yardstick; other circumstances of the case also need to be considered. Commissioner stressed that the adequacy of the price has to be judged only in the light of the market value of the property transferred and according to him, there is no other yardstick which could be applied to a situation like this. We are unable to agree. We may explain why we disagree with him by taking an example. Supposing an old lady who owns a neighbouring property, wants to part with it to a medical practitioner, so that the medical practitioner would be of immediate assistance to her as and when she needs it and she parts with the property at what the parties conceive to be a reasonable price, could it be said that there was a gift of the property to the extent of the difference between what is later taken to be the market value and what was conceived to be the reasonable price for the property. It has also to be remembered that the computation of market value is in most cases a matter of estimate, which may also vary. Such a variable concept would not have been made the yardstick. The investigation to be made in the case of such a transaction could only be to see whether there is any attempt at evasion of tax or whether it is a bona fide transaction. If there is any attempt at evasion of tax, then s. 4(1)(a) of the G.T. Act can be applied on the ground that the consideration stipulated in the document is inadequate. If, however, the consideration that passed between the parties can be considered to be reasonable or fair, it cannot be considered to be inadequate. In the present case, the learned ITAT has observed that the revenue had failed to bring on record any cogent evidence to show that the rent received by the respondent/assessee, in the facts of the case, was inadequate. It has held that the material collected from the internet as well as the estate agents cannot be termed as a corroborative piece of evidence in this regard. It has further held that the rent received by the respondent/assessee exceeds the valuation adopted by the Municipal Corporation of Delhi for the purpose of levying house tax. The submission of the learned counsel for theappellant that the respondent had not taken any security deposit from Hamdard Dawakhana (Wakf) and thereby violated Section 13(2)(b) of the Act, has also been stated only to be rejected. Security Deposit may be one of the factors to be taken into consideration by the Assessing Officer for coming to a conclusion if the rent was adequate , however, it cannot be a sole determinative factor. In the present case, the Assessing Officer, apart from relying upon some opinion of rent from property broker firms and websites, does not appear to have made any independent inquiry on the adequacy of the rent being charged by the respondent/assessee from Hamdard Dawakhana (Wakf). It is not shown that the Assessing Officer made any independent inquiry on the age and condition of the building of the assessee situated at Asaf Ali Road, New Delhi. In fact, as contended by the learned senior counsel for the respondent/assessee and taken note of by the learned ITAT and not denied by the appellant/revenue, the property at Rajdoot Marg was not even ready during Assessment Year 2008-09 and was lying vacant. In the absence of any such inquiry by the Assessing Officer, the invocation of Section 13(2)(b) of the Act was clearly flawed and rightly rejected by the learned ITAT. - Decided in favour of assessee.
Issues Involved:
1. Applicability of Section 13(2)(b) read with Section 13(3) of the Income Tax Act, 1961. 2. Eligibility of the respondent/assessee for exemption under Sections 11 and 12 of the Act. 3. Alleged perversity of the Income Tax Appellate Tribunal's (ITAT) order on law and facts. Detailed Analysis: 1. Applicability of Section 13(2)(b) read with Section 13(3) of the Income Tax Act, 1961: The core issue was whether the respondent/assessee violated Section 13(2)(b) read with Section 13(3) by offering substantial rent concessions to Hamdard Dawakhana in lieu of voluntary and corpus donations. The Assessing Officer (AO) noted that the respondent/assessee received significant donations and rental income from Hamdard Dawakhana, and alleged that the properties were let out at rates much lower than market rates, invoking Section 13(2)(b). The ITAT, however, found that the AO did not provide cogent evidence to show that the rent was inadequate. The ITAT held that the material collected from websites and estate agents was not corroborative evidence. It was also noted that the rent received exceeded the valuation adopted by the Municipal Corporation of Delhi for house tax purposes. The ITAT concluded that the AO's invocation of Section 13(2)(b) was unjustified and directed deletion of the additions. 2. Eligibility of the respondent/assessee for exemption under Sections 11 and 12 of the Act: The ITAT allowed the respondent/assessee's exemption under Sections 11 and 12, which was contested by the appellant/revenue. The revenue argued that the ITAT erred in relying on the CIT(A)'s order for AY 2008-09 while deciding for AY 2007-08, emphasizing that each assessment year is separate. However, the ITAT noted that the revenue had accepted the lease agreement since 1981 and had not invoked Section 13(2)(b) until AY 2007-08. The ITAT held that in the absence of any material change, the revenue should not reopen settled positions without compelling reasons, citing the principle of consistency from the Supreme Court's judgment in Excel Industries Limited. 3. Alleged perversity of the ITAT's order on law and facts: The appellant/revenue contended that the ITAT's order was perverse and ignored key facts. They argued that the market rent found by the AO was not contested by the respondent/assessee during assessment proceedings. However, the ITAT found that the AO's reliance on unverified information from property dealers and websites was insufficient. The ITAT emphasized that the AO did not conduct an independent inquiry to verify the market rates, and the rent received was more than the standard rent under the Delhi Rent Control Act. The ITAT's findings were based on the principle that the burden of proving inadequate rent lies with the revenue, and mere inadequacy of rent without shocking the conscience of the court does not justify invoking Section 13(2)(b). Conclusion: The High Court upheld the ITAT's findings, stating that the ITAT is the final fact-finding authority and its conclusions were not perverse. The High Court reiterated that the principle of consistency should be maintained in tax proceedings unless there are compelling reasons for a departure. The appeals were dismissed, with no substantial question of law arising, and no costs were awarded.
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