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2019 (11) TMI 648 - AT - Income TaxExemption u/s 11 - violation of section 13(1)(b) - royalty income earned by the assessee pursuant to an agreement entered into between the assessee and HLI for the use of the brand names/patent rights (owned by HNF) for its medical preparations - AO recorded that the assessee paid a major portion of the scholarship amount to the students of a particular religious community and therefore there is violation of section 13(1)(b) - HELD THAT - Material collected by the learned Assessing Officer from the Internet as well as the estate agents cannot be termed as the collaborative piece of evidence to any facts which is established substantively first; that the actual rent received by the assessee from HLI far exceeds the valuation adopted by the MCD for the purpose of levying house tax as could be seen from the information furnished by the assessee and also that unless and until the AO brings on record some credible information, the burden to rebut does not shift to the assessee. As convinced with the reasoning given by the Ld. CIT(A) in his order for the Assessment Year 2008-09 wherein while dealing with this issue in detail, the Ld. CIT(A) reached a conclusion that on the date of the observations of the learned Assessing Officer that there is no mechanism with the Department to determine valuation of rents imperative the adjudicatory authorities to look further corroborative evidence in the absence of which it is not desirable to disturb the consistent view taken over a period of more than two decades. We are in agreement with the CIT(A) that not only on the basis of the rule of consistency but also on the basis of the facts relating to the rent received by the assessee from HLI vis- -vis the rent under the Delhi Rent Control Act. Without vouchsafing the correctness of the information received from the website and without correlating the information furnished by the property dealers without realities on ground with a specific reference to the property in dispute, it is not open for the AO to proceed to make addition, that disturbing the accepted position for about more than two decades. No change of facts and circumstances are brought on record and no independent evidence with a specific relation to the property in dispute is available on record. Merely because the other charitable trust guilty property for accommodation of the person covered under section 13(3) of the Act, such a fact ipso facto does not lead to the addition in the hands of the assessee without first clinching the issue with corroborative piece of evidence. We therefore, hold that there is no justification for addition made by the learned Assessing Officer by invoking the provisions under section 13(2)(b) of the Act read with section 13(3) of the Act and we direct him to delete the same. Denial of exemption to the assessee based on the withdrawal of notification of exemption under section 10(23C)(iv) of the Act for Hamdard Dawakhana (Wakf) - HELD THAT - CIT(A) dealt with this aspect stating that the withdrawal was on 22/02/2012 whereas the assessment order was passed on 26/11/2010 and the order of withdrawal of notification under section 10(23C))iv) of the Act in the case of Hamdard (Wakf) does not impact the case of the assessee inasmuch as one has to examine on facts of the case as to whether there is a violation of the provisions of section 13(2)(b) of the Act read with the provisions of section 13(3) of the Act. As brought to our notice on behalf of the assessee that the Hon ble Delhi High Court 2015 (9) TMI 915 - DELHI HIGH COURT had restored the notification granting the benefit of section 10(23C))iv) of the Act to HLI and a copy of the order is produced before us. We have perused the same. Since we reached a conclusion on ground No. 1 that the exemption under section 11 cannot be denied to the assessee by invoking the provisions of section 13(2)(b) of the Act read with section 13(3) of the Act and also in the light of the order of the Hon ble High Court, would not find any merits and the contentions of the Revenue Denial of the exemption under section 11 of the Act to the assessee by invoking the provisions under section 13(2)(b) - Addition being the corpus donations received by the assessee from HLI - HELD THAT - In the absence of any allegation or proof as to the assessee undertaking any activities in the nature of trade, commerce or business, donations received by the assessee forms part of the corpus of trust and thus capital receipt are not liable to tax. The objects of the assessee as discussed above clearly established that they are in the nature of providing education, medical relief and relief to the poor and no evidence is available on record to say that the assessee has been providing services in the nature of business. We, therefore, are of the considered opinion that the corpus donation is a capital receipt irrespective of whether the institution enjoys the benefit of Section 11 or not, but particularly in this case, it is consistently held in the preceding paragraphs that the assessee is entitled to exemption under section 11 of the Act and, therefore, the question of subjecting the corpus donations to tax does not arise. Section 2(15) of the Act has no application to the facts of the case, so also in view of our factual finding that the scholarship benefit is extended to all the eligible persons irrespective of a particular community, section 13(1)(b) of the Act also cannot be invoked.
Issues Involved:
1. Rejection of exemption under section 11 of the Income Tax Act due to alleged violation of section 13(2)(b) read with section 13(3). 2. Denial of exemption based on the withdrawal of notification under section 10(23C)(iv). 3. Classification of royalty income as commercial receipt under proviso to section 2(15). 4. Alleged violation of section 13(1)(b) due to scholarships granted to a particular religious community. 5. Taxation of corpus donations. Detailed Analysis: 1. Rejection of Exemption under Section 11: The primary issue was whether the assessee violated section 13(2)(b) read with section 13(3) by letting properties at lower than market rates to Hamdard Dawakhana (Wakf). The Assessing Officer (AO) based his findings on internet information and letters from estate agents. The CIT(A) reversed the AO's decision, noting the lack of evidence and consistency in the department's previous acceptance of the lease agreements. The Tribunal upheld CIT(A)'s view, emphasizing the need for uniformity and credible evidence, and directed the deletion of the addition. 2. Denial of Exemption Based on Withdrawal of Notification: The AO denied exemption citing the withdrawal of notification under section 10(23C)(iv) for Hamdard Dawakhana (Wakf). The CIT(A) observed that the withdrawal occurred after the assessment order and did not impact the assessee's case. The Tribunal, noting the Delhi High Court's restoration of the notification, dismissed the Revenue's appeal on this ground. 3. Classification of Royalty Income: The AO classified the royalty income from Hamdard Dawakhana (Wakf) as a commercial receipt under the proviso to section 2(15). The CIT(A) found that the assessee's activities were charitable and not commercial. The Tribunal agreed, referencing a High Court judgment that the assessee's objects fell within "education," "medical relief," and "relief of the poor," and thus, the proviso to section 2(15) was inapplicable. 4. Alleged Violation of Section 13(1)(b): The AO alleged that scholarships were granted predominantly to a particular religious community, violating section 13(1)(b). The CIT(A) found that scholarships were granted without discrimination. The Tribunal noted the Revenue's acceptance of this finding for other years and dismissed the AO's selective application of this issue. 5. Taxation of Corpus Donations: The AO taxed corpus donations, arguing they should be included in taxable income. The CIT(A) and the Tribunal, referencing the Patanjali Yogpeeth (Nyas) case, held that corpus donations are capital receipts and not taxable, especially since the assessee enjoyed exemption under section 11. Conclusion: The Tribunal ruled in favor of the assessee on all counts, emphasizing the need for credible evidence, consistency in tax treatment, and the charitable nature of the assessee's activities. The appeals of the assessee were allowed, and those of the Revenue were dismissed.
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