2022 (7) TMI 635 - AT - Income Tax

Exemption u/s 11 - claim 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 - assessee is registered as a charitable organisation with DIT (Exemption), Mumbai under section 12A of the Act and also with Charity Commissioner, Mumbai - HELD THAT - 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 - As 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. 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 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. 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. 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, 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 raised in assessee s appeal is allowed.

Summary

Issues:
Challenge to order denying exemption under section 11 of the Income Tax Act for the assessment year 2010-11.

Analysis:
The appeal was filed challenging the order passed by the Commissioner of Income Tax (Appeals) denying exemption under section 11 of the Act. The Tribunal rectified an earlier order to consider the appeal. The main issue raised in ground No. 3 was the denial of exemption under section 11 due to the property being rented to an excluded person at a lower rate. The assessee, a charitable organization, claimed exemption under section 11 for engaging in educational charitable activities. The property was rented to a company in which trustees were interested, leading to the denial of exemption by the Assessing Officer.

In the appeal before the CIT(A), the assessee reiterated its submissions, but the appeal was dismissed based on the lower rent paid by the company related to the trustee. During the hearing, it was argued that the premium paid by the company was not considered, and the rent charged was higher than other tenants. The Departmental Representative argued that the premium and rent were lower than market value, citing examples of rent paid by other entities.

The Tribunal analyzed the facts and background of the case. It noted that the property was under use by statutory tenants, and any comparison should be made with rents charged to other statutory tenants in the building. The rent charged to the company related to the trustee was justified based on the area rented and the premium paid. The Tribunal found that the lower authorities did not consider the premium paid, and factors like access and amenities were not taken into account. It also highlighted that the rent dispute was separate from sale considerations. The Tribunal also noted that in subsequent years, the assessee's returns were accepted, and exemption under section 11 was granted.

Ultimately, the Tribunal allowed the appeal, stating that the assessing officer and CIT(A) were not justified in denying relief under section 11 for the rent received from the company related to the trustee. Ground No. 3 in the assessee's appeal was allowed, and relief was granted under section 11.

The judgment was pronounced on 13/07/2022 by the Tribunal comprising Shri Pramod Kumar, Vice President, and Shri Sandeep Singh Karhail, Judicial Member.