2012 (6) TMI 714 - AT - Income Tax

Registered Trust u/s 12AA - exemption u/s 11 & 12 - denial by invoking provisions of Section 13 - assessee-society was running educational institutions on the land in the ownership of wife of Secretary of the Society given on lease to the assessee society in accordance with a renewable lease deed for a period of 30 years - AO under assumption that as per lease deed it is seen that after 30 years if lease is not extended then whatever investment is made in the construction of building on leased land will become the property of the lessor thereon passing benefit to relative of trustee which is in violation of Section 13 - Held that - Assumption of AO that benefit has been conferred upon the relative of the Secretary of the Society in terms of section 13(3) is wholly unwarranted under the law and hypothetical. Said Clause is not in absolute terms to put the assessee to disadvantageous situation. Further no event has happened in the AY under appeal. Whether in such event the order of the AO would stand as on today because the option can be exercised in the year 2034 which nobody knows as to what would happen in future. Moreover aassessee was in an advantageous position to get a land at such a lower rate of Rs. 150/- per month and was authorized to carry out the construction on the leased land at its own cost. In addition the need for the examination of the signatures of witnesses was denied in the absence of any dispute and the fact of passing contradictory order by the AO by allowing depreciation to the assessee @ 10% i.e. admitting the ownership of the building with the assessee was acknowledged. Order of the CIT (A) was upheld in deleting the addition - Decided in favor of assessee.

Issues Involved:
1. Deletion of addition based on supplementary lease deed.
2. Acceptance of supplementary lease deed without examining witness signatures.
3. Legality of lease deeds in context of section 13(3) of the IT Act.
4. Deletion of addition based on hypothetical future events.

Issue-wise Detailed Analysis:

1. Deletion of Addition Based on Supplementary Lease Deed:
The Revenue challenged the deletion of an addition of Rs. 41,01,614/- made to the total income based on an amendment clause-5 of a supplementary lease deed dated 04.01.2009, which was not filed during the assessment proceedings. The tribunal noted that the supplementary lease deed was executed to avoid controversy, revising clause No. 5 to ensure that if the lease is not extended after 30 years, the lessor shall pay the value of the structure to the assessee society as determined by a Registered Valuer. The tribunal found that the AO's view was based on hypothetical future events and that no actual benefit had accrued to the lessor during the assessment year in question.

2. Acceptance of Supplementary Lease Deed Without Examining Witness Signatures:
The Revenue contended that the CIT(A) accepted the supplementary lease deed without examining the witness signatures, particularly those of Sh. Mohan Pal Singh, whose signatures appeared doubtful. The tribunal dismissed this contention, stating that the witnesses' signatures are meant to explain the contents of the document in case of a dispute, which was not present in this case. Therefore, there was no need for examination or re-examination of any witness to the supplementary deed.

3. Legality of Lease Deeds in Context of Section 13(3) of the IT Act:
The AO argued that the original and supplementary lease deeds were part of a family arrangement and lacked statutory force concerning section 13(3) of the IT Act, which deals with benefits to related parties. The tribunal found that the lease deed provided the assessee society with the right to extend the lease and to remove any construction upon lease termination. The tribunal concluded that no benefit was conferred upon the landlady (relative of the Secretary of the Society) under section 13(3) of the IT Act during the relevant assessment year. The tribunal also noted that the AO had allowed depreciation on the building, indicating acceptance of the assessee's ownership over the building.

4. Deletion of Addition Based on Hypothetical Future Events:
The AO's addition was based on a hypothetical situation where, after 30 years, the lease might not be extended, and the construction would revert to the lessor. The tribunal found this reasoning speculative and not grounded in the current assessment year. The tribunal emphasized that the law requires actual benefits to related parties during the relevant assessment year to deny exemptions under sections 11 and 12 of the IT Act. Since no such event occurred during the assessment year, the tribunal upheld the CIT(A)'s decision to delete the addition.

Conclusion:
The tribunal dismissed both appeals by the Revenue, affirming the CIT(A)'s orders. The tribunal emphasized the importance of actual events over hypothetical scenarios and upheld the rule of consistency in tax assessments, referencing the AO's acceptance of similar claims in subsequent years. The tribunal found no violation of Rule 46A regarding the supplementary lease deed and concluded that no benefit had been conferred upon related parties under section 13(3) of the IT Act during the relevant assessment years.

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