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2023 (7) TMI 504 - AT - Income TaxRegistration granted u/s. 10(23C)(vi) - Cancellation of registration as sub-leased leasehold Nazul land which is referred to as the demised premises for premium and annual rent - whether Assessee society had no right to sub-lease the Nazul land which was provided to it on lease by the Government of Madhya Pradesh? - HELD THAT - CIT(Exemption), Bhopal had wrongly observed that the assessee society had in violation of law sub-leased the property i.e. Nazul land to M/s. Avinash Builders. In our considered view, as can safely be gathered on a perusal of the aforesaid documents, as the assessee society remaining well within its rights, had sub-leased the property, therefore, the aforesaid observation of the CIT(Exemption) cannot be sustained and is liable to be struck down. As the State Government as per the lease agreement (renewal) had leased the land to the assessee society for Kewal Shikshan Sanstha Hetu ( for educational purpose only), therefore, sub-leasing of the said land by the latter without seeking approval from the State Government to M/s. Avinash Builders, Raipur was clear case of violation of law - The land in question granted on lease to the assessee society by the State Government of Madhya Pradesh only for educational purposes, had thereafter been exploited by the latter as per terms of the lease deed after obtaining the requisite approvals from the government authorities and, the said activities being clearly in conformity with its object clause of running a educational institution i.e. Rajkumar College, a public school at Raipur, thus, could not have been held to have been used for a purpose other than that for which, it was granted on lease to it nor in violation of any law as observed by the CIT(Exemption), Bhopal. We, thus, not being able to concur with the view taken by the CIT(Exemption) that the assessee society had violated any law by using the land in question for a purpose other than education purpose, vacate the same. Assessee society had not accounted for the rental income from sub-lessee in its return of income - Considering the fact that the assessee society had terminated the sub-lease with M/s Avinash Builders vide its legal notice for multi-facet reasons as culled out by us hereinabove; and had filed a suit for getting the demised property vacated, therefore, no rent for the ensuing period could have been received by it. As litigation is going on between the assessee society and the aforesaid sub-lessee therefore, as stated by the ld. AR and, rightly so, no rent would have been received and accounted for by the assessee as its income for the period subsequent thereto. Thus, we are unable to concur with the observation of the CIT(Exemption) that there is failure on the part of the assessee society to account for the lease rent with respect to the property sub-leased by it to M/s. Avinash Builders. Suppression of interest income by the assessee society - As stated by the assessee society and, rightly so, its bonafides can safely be gathered from the fact that the said interest income would have no bearing on its tax liability for the year under consideration. We are of a strong conviction that the bonafide omission of the assessee to account for balance interest income which is clearly in the nature of an inadvertent omission on its part, could not have formed a justifiable basis for drawing of adverse inferences in its case i.e much the less as a reason for withdrawing its registration under Sec. 10(23C)(vi) of the Act. Obtaining of approval by the assessee society by fraud or misrepresentation of facts - On a perusal of the subsequent details filed by the assessee a/w. requisite annexures does neither reveal any such details which were wrongly filed or misrepresented by the assessee before the appropriate authority nor any such fact was brought to our notice in the course of hearing of the appeal by the Ld. DR. On the basis of the aforesaid facts, we are unable to persuade ourselves to subscribe to the allegation of the CIT(Exemption) that the assessee society had obtained the approval u/s. 10(23C)(vi) of the Act vide order passed by the Chief Commissioner of Income-tax on the basis of any fraud or misrepresentation of facts before him. We are unable to persuade ourselves to subscribe to the multi-facet reasons accorded by the CIT(Exemption), Bhopal for withdrawing the registration that was granted to the assessee society u/s. 10(23C)(vi). There has neither been any shift in the facts or bye-laws/regulations or object clause of the assessee society at the stage of granting of registration u/s. 10(23C)(vi) vide order of the CIT(Exemption), Bhopal, therefore, on the said count also, we find substance in the claim of the Ld. AR that there was no justifiable reason for his predecessor to have withdrawn the registration that was earlier granted to the assessee society vide order u/s. 10(23C)(vi) of the Act dated 29.02.2008 on the basis of the impugned order of withdrawal dated 02.12.2019. We are unable to concur with the observations of the CIT(E), Bhopal, on the basis of which, he had vide order passed u/s. 10(23C)(vi) of the Act dated 02.12.2019 withdrawn the registration that was earlier granted to the assessee society - Decided in favour of assessee.
Issues Involved:
1. Legality of sub-leasing Nazul land by the assessee society. 2. Violation of the lease agreement's educational purpose clause. 3. Non-accounting of rental income from sub-lessee. 4. Suppression of interest income. 5. Alleged fraud or misrepresentation in obtaining approval under Section 10(23C)(vi). Summary: A) Legality of Sub-Leasing Nazul Land: The CIT(Exemption) observed that the sub-leasing of Nazul land by the assessee society to M/s Avinash Builders was illegal. However, the Tribunal found that the lease deed dated 16.07.1996 allowed the assessee society to assign the premises or any part thereof. The managing committee was authorized to apply for permission to lease the land. The Registrar, Firms & Society, Madhya Pradesh, had granted permission for the lease. Thus, the Tribunal concluded that the sub-leasing was within the rights of the assessee society and did not violate any law. B) Violation of Lease Agreement's Educational Purpose Clause: The CIT(Exemption) contended that the land was leased for educational purposes only and sub-leasing it for commercial use violated the lease terms. The Tribunal noted that the lease deed permitted the lessee to carry on trade, business, or activity with prior permission from the Collector. The sub-leasing was intended to raise funds for the society's educational activities, which aligned with its objectives. The Tribunal found that the sub-leasing was in conformity with the lease terms and the society's objectives. C) Non-Accounting of Rental Income: The CIT(Exemption) alleged that the assessee society did not account for rental income from M/s Avinash Builders. The Tribunal observed that the society had received Rs. 61 lakhs up to April 2008 and reflected Rs. 5.90 lakhs as receivable. The sub-lease was terminated in 2008, and litigation was ongoing. The Tribunal concluded that no rent was received or could be accounted for after the termination, and there was no failure to account for rental income. D) Suppression of Interest Income: The CIT(Exemption) claimed that the society suppressed Rs. 27,12,186/- in interest income. The assessee society argued that the omission was due to the bank not providing details at the time of filing the return. The Tribunal found the omission to be bona fide and noted that the interest income would not affect the society's tax liability. The Tribunal held that the omission did not justify withdrawing the registration. E) Alleged Fraud or Misrepresentation: The CIT(Exemption) alleged that the society obtained approval under Section 10(23C)(vi) by fraud or misrepresentation. The Tribunal found no evidence of fraud or misrepresentation. The society had disclosed the sub-lease details in its financial statements. The Tribunal noted that the CIT(Exemption) granted registration for subsequent years based on the same facts and bylaws. The Tribunal concluded that there was no justifiable reason for withdrawing the registration. Conclusion: The Tribunal set aside the order of the CIT(Exemption) withdrawing the registration under Section 10(23C)(vi) of the Act and allowed the appeal of the assessee society.
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