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TMI Blog2016 (9) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Commissioner could not have come to the conclusion that the rent paid by the assessee to the trustees for the leased land, was excessive. Similarly, the assessee pointed out to the authorities that it needed to raise a fund of ₹ 2 crores by taking loan from the financial institutions for which permission was also granted by the Charity Commissioner. The Bank had offered loan at the interest rate of ₹ 12.50% per annum which would also require giving securities and executing documents. As against this the trustees offered unsecured loan at the interest rate of ₹ 9% per annum. Here again, the CIT (Appeals) discarded such comparison by contending that the trustees themselves would have fetched lower fixed deposit rate from the Bank. For multiple reasons, this was not a correct approach. First, we are trying to ascertain whether the trust was paying the interest at the rate higher than the market rate. What the trustees could have got from the Bank was not correct comparison. Secondly, the trustees were offering unsecured loan, which with inherent risks, invites higher interest than the bank loans. Last but not the least, if the trustees had parked their mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Assessing Officer also referred to the fee structure of the school and compared it with another school in the vicinity, namely, St. Marry School to contend that such fee was many times higher than that of the other school. He, therefore, tentatively came to the conclusion that the trust is not engaged in any charitable activity and had also committed breach of section 13(1)(c) of the Act. He, therefore, proposed to deny the exemption under section 11 of the Act as claimed by the assessee. 2.2 In reply to such notice, the assessee pointed out that the trustees and their relatives have substantial landed properties. The trust had taken such property on lease under a deed dated 1.11.2000 under which lease rent was fixed at ₹ 1/- per sq.ft. The assessee contended that the prevailing market rate in the area was ₹ 5/- per sq.ft. In support of such contention, the assessee produced a lease deed executed between the trustees/relatives of the trustees and one M/s. Max New York Life Insurance Co. Ltd. The lease rent fixed was ₹ 5/- per sq.ft. It was pointed out that on the leased premises, the trust had made substantial investment for construction of the school bui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und that the assessee trust was occupying a larger area, whereas Max New York Life Insurance Co. Ltd. was occupying a very small piece of land and, therefore, comparison of rent was not possible. With respect to borrowing from the trustees, he discarded the assessee s contention that borrowing from the Bank would entail higher interest and lengthy procedure by suggesting that the investment of idle funds by the trustees in the Bank would fetch lower interest than what was offered by the trust. He concluded that such monetary transactions were nothing but planning of tax evasion in camouflage. 2.6 The assessee carried the matter further in appeal before the Tribunal. The Tribunal, by the impugned judgment, rejected such appeal. The Tribunal held that the assessee was carrying on the activities for profit motive which was being diverted to the trustees and their relatives. 2.7 The assessee, thereupon, filed the present tax appeal. 3. Learned counsel for the assessee submitted that the Tribunal and the Revenue Authorities committed a serious error in denying the exemption to the income of the trust. Mere creation of surplus in the process of running an educational institution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led that the trust, in the course of running an educational institution, is entitled to make a reasonable surplus and setting apart a surplus after expenditure from the receipts, by itself, would not mean that the purpose is profit making. This aspect was highlighted by the Supreme Court in detail in case of Queen s Educational Society vs. Commissioner of Income-tax (supra) in which reliance was placed on the decisions in the case of Aditanat Educational Institituion v. Addl. CIT , 224 ITR 310 and in the case of Americal Hotel Lodging Association Educational Institution vs. CBDT , 301 ITR 86 . 7. In the present case, in fact, as reproduced by the Tribunal in its impugned order, if we consider the last seven years accounts of the assessee trust, there was not even a surplus after the assessee adjusted its expenditure for the respective years. The assesee had shown a total deficit of ₹ 11.78 lakhs for the said period. The first ground of objection of the revenue, therefore, must fail. 8. This brings to the element of diverting the income of the trust to the trustees and near relatives. Section 11 of the Act grants exemption to income from property held for ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) discarded such comparison on the ground that the area occupied by the Max New York Life Insurance Co. Ltd. was much smaller, as compared to the area leased to the assessee. The size of the land under occupation may have some bearing on the lease rent which the land may fetch, nevertheless, in the present case, the difference of rate between two cases was nearly five times. Without there being any further material on record, the Commissioner could not have come to the conclusion that the rent paid by the assessee to the trustees for the leased land, was excessive. 11. Similarly, the assessee pointed out to the authorities that it needed to raise a fund of ₹ 2 crores by taking loan from the financial institutions for which permission was also granted by the Charity Commissioner. The Bank had offered loan at the interest rate of ₹ 12.50% per annum which would also require giving securities and executing documents. As against this the trustees offered unsecured loan at the interest rate of ₹ 9% per annum. Here again, the CIT (Appeals) discarded such comparison by contending that the trustees themselves would have fetched lower fixed deposit rate from the Bank. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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