1996 (3) TMI 166 - AT - Income Tax

Summary

Issues:
Violation of provisions of sec. 13(1)(c)/13(3) of the IT Act by not realizing outstanding rent and not taking adequate security. Denial of exemption under section 11 of the Act for the year under consideration.

Analysis:
The appeal was filed by the assessee-trust against the order of the CIT(A)-III, Calcutta for the assessment year 1989-90. The Assessing Officer found that a sum of Rs. 1,36,212 was due from a company renting a premises owned by the assessee-trust. The officer invoked sec. 13(1)(c)/13(3) of the Act, alleging non-realization of rent and lack of adequate security. The CIT(A) observed that the company's tenancy right ceased due to demolition of the building and that the advance given was a normal advance, not a special favor. The CIT(A) held that the trust violated sec. 13(1)(c)/13(3) by not attempting to collect the rent and failing to prove parity in rent charged to the company compared to other tenants.

The CIT(A) also addressed the claim that an amount deposited to a bank did not violate sec. 13. The ld. counsel for the assessee argued that no violation occurred as the trust did not advance/lend any sum to the company. The counsel cited precedents to support the argument that non-collection of outstanding rent does not constitute a violation of sec. 13. Regarding sec. 13(2)(a), the counsel contended that the advance given by the company does not equate to lending without adequate security. The counsel emphasized that the trust was charging normal rent and had not violated sec. 13(2)(b). The departmental representative argued that the trust had not made efforts to collect outstanding rent, violating sec. 13(1)(c)/13(2)(a).

The ITAT held that the trust did not violate sec. 13(1)(c)/13(3) as there was no positive act of using or applying income for the benefit of any person referred to in sub-clause (3). The ITAT found that the trust had not lent any sum and inaction in rent collection does not equate to lending. Therefore, the provisions of sec. 13(1)(c)(ii) and sec. 13(2)(a) were deemed inapplicable. The ITAT concluded that the trust was entitled to the benefit of exemption under section 11 of the Act if other conditions were met.

The appeal filed by the assessee was allowed for statistical purposes.

Note: The detailed analysis of the judgment covers the issues of violation of provisions of sec. 13(1)(c)/13(3) and the denial of exemption under section 11 of the Act for the year under consideration, providing a comprehensive understanding of the legal reasoning and arguments presented in the case.