AI Insights
The case involves the J.K. Educational Society appealing against the orders of the Deputy Commissioner of Income Tax (Exemptions) and the Commissioner of Income Tax (Appeals), which denied them exemption under section 11 of the Income Tax Act and taxed a surplus of Rs. 1,84,88,454/-. The primary contention was regarding the non-allowance of exemption under section 11 and the taxation of surplus income, which the society argued was unjustified as they were engaged in educational activities and had been granted exemption under section 12A. The Tribunal examined the payments made by the society, including rent and security deposits, and compared them with past transactions and market rates to determine the reasonableness of these payments.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 127678 (ITAT-CHANDIGARH)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
3 year(s) 4 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
23-01-2023
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
A
Next Hearing Date
08-01-2023
Assessment Year
2013-2014
Appeal Filed On
19-01-2020
Judgement Text
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ “ए” , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH ी आकाश द प जैन, उपा य एवं ी #व$म &संह यादव, लेखा सद+य BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM आयकर अपील सं./ ITA NO. 72/Chd/ 2020 नधा रण वष / Assessment Year : 2013-14 J.K. Educational Society C/o Shri P.N. Arora, Advocate 3 rd Floor SRK Mall, 14- Kennedy Avenue Mall Road, Amritsar- 143001- Punjab बनाम The DCIT (Exemptions)- Circle 1-C, R. Building, Chandigarh थायी लेखा सं./PAN NO: AABTJ9000A अपीलाथ /Appellant यथ /Respondent नधा रती क! ओर से/Assessee by : Shri P.N. Arora, Advocate राज व क! ओर से/ Revenue by : Smt. Amanpreet Kaur, Sr. D.R स ु नवाई क! तार&ख/Date of Hearing : 09/01/2023 उदघोषणा क! तार&ख/Date of Pronouncement : 24/01/2023 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the Assessee against the order of Learned Commissioner of Income Tax(Appeals)-1 , Ludhiana [in short the ‘Ld. CI T(A)’] passed u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) dated 06/11/2019 pertaining to assessment year 2013-14, wherein the Assessee has taken the following grounds of appeal: 1. That the order of the Ld. CIT(A) as well as the order of the Ld. DCIT, Circle-1 (Exemption), are both against the facts of the case and are untenable under the law. 2. That the worthy CIT(A) has grossly erred in not appreciating the facts of the case and he merely relied on order of the DCIT, Circle-1 (Exemption), Chandigarh and without any rhyme & reason, the Ld. CIT(A) has confirmed the order of the DCIT, Circle-1 (Exemption), Chandigarh. As such order of the CIT(A) is liable to be cancelled as the same is bad in the eyes of law. 2 3. That the Ld. DCIT (E) has grossly erred in not allowing the exemption as claimed u/s 11 and has further erred thereby taxing the surplus at Rs. 1,84,88,454/- by invoking the provisions of section 13(l)(c) r.w.s. 13(3) of the IT Act, 1961. Similarly the Ld. CIT(A) was not justified in confirming the same. 4. That the Ld. CIT(A) did not appreciate that the assessee society is a registered society engaged in educational activities and the society also enjoys the exemption u/s 11 of the IT Act, 1961 inasmuch as the appellant society was registered u/s 12A with the then CIT (Amritsar) vide No. CIT/ASR/HG/G-1/2017 dated 11/01/1995. As such the Ld CIT(A) was not at all justified in confirming the order of the DCIT, Circle-1 (Exemptions), Chandigarh. 5 . That the authorities below did not appreciate that the rent and security deposit was paid in accordance with the prevailing market rate and as such the DCIT(E) was not justified in invoking the provisions of section 13(l)(c) r.w.s. 13(3) as specified persons and according to the DCIT(E) the transaction of security deposit and rent was paid at the prevailing market rate. As such the provisions of section 13(l)(d) r.w.s. 11(5) of the IT Act. 1961 are not applicable to the present case. Similarly the Ld. CIT(A) has confirmed the order without appreciating the facts of the case and without applying his mind. 6. That the authorities below failed to appreciate that the appellant was not providing any undue benefit to Lala Daswandi Ram Family Trust by providing security deposit and rent. The appellant was solely providing rent & security for utilizing the premises for educational activities. It is. therefore prayed that the exemption u/s 11 may be allowed and the surplus of Rs. 1,84.88,454/- may not be taxed. 7. That it has been held by all the authorities including High Court and Supreme Court of India that even in case of rent paid b> the assessee-trust to a trustee for using land and building in case of excessive payment, the exemption u/s 11 cannot be denied by invoking the provisions of section I3(l)(c). It is prayed that the addition of Rs. 1.84.88.454/- may be excluded from the income as the rent paid was reasonable and consistent with the past history of the case. 8. That the authorities below did not appreciate that the society is enjoying exemption u/s 11 and as such the surplus should not have been taxed and the registration should not have been refused. Alternatively at the most, the excess rent, if any paid, should have been disallowed and the Ld CIT(A) was not justified in assessing the surplus of income over expenditure amounting to Rs. 1.84.88.454/-. In subsequent year the surplus has not been taxed under the same and similar circumstances though this point is under 3 appeal. As such the surplus taxed by the DCIT(E) and confirmed by the Ld CIT(A) may kindly be deleted. 9. That any other grounds of appeal which may be urged at the time of hearing of the appeal. 2. During the course of hearing, the Ld. AR submitted that the Assessing Officer in this case has not allowed the exemption u/s 11 and has taxed the surplus amount of Rs. 1,84,88,454/-. It was submitted that the AO has invoked the provisions of section 13(l)(d) r.w.s. 11(5) of the IT Act, 1961. In this connection, it is relevant to point out that the main base for invoking the provisions of section 13(l)(d) was that the interest free security deposit was given to the family trust along-with lease rent paid for land taken on lease for the family trust. On Page No.89 of the paper-book, the comparative chart of the rent and security deposit has been provided and from the perusal of the chart, it is clear that the rent and security deposit paid are reasonable and consistent with the past history of the case. The necessary chart is given hereunder:- Asstt. Year Rent Paid Security/Debtors Total Remarks 2006-07 7,60,320/- 13,27,472/- 20,87,792/- Accepted 2007-08 8,80,620/- 7,37,768/- 16,18,388/- Accepted 2008-09 8,80,320/- 21,49,733/- 30,30,053/- Pending before ITAT 2009-10 7,60,320/- 25,61,733/- 33,22,053/- Pending before ITAT 2010-11 9,50,400/- 38,26,733/- 47,77,133/- Accepted u/s 143(3) 2011-12 9,50,400/- 29,74,253/- 39,24,653/- Accepted u/s 143(3) 2012-13 12,67,200/- 25,00,000/- 37,67,200/- Accepted u/s 143(1) 2013-14 14,57,280/- 25,00,000/- 39,57,280/- Under Appeal and addition of Rs. 1,84,88,454/- on a/c of surplus was made 2014-15 16,47,360/- 25,00,000/- 41,47,360/- Accepted and tax was charged u/s 164(2) 2015-16 19,00,800/- 25,00,000/- 44,00,000/- 2.1 It was further submitted that the assessee has proved before the authorities below that the market value of 52.16 Kanal of land which was leased to the assessee society commanded its market value at Rs. 18,48,60,000/- and in this connection, a certificate from the registered valuer was duly provided 4 which is available on Page No.8 of the paper-book. It has been wrongly mentioned by the AO that the market value of the land is Rs. 15,36,480/-. The facts mentioned by the AO are inconsistent and incorrect with the facts of this case as this was never a market rate at Rs. 15,36,480/-. Rather this is the purchase value of the land shown by Lala Dasundi Ram Family Trust in their Balance Sheet [Refer Page No.14 of the paper-book]. In this connection, reference was drawn to page No.3 of the assessment order where the AO has wrongly mentioned the market value of the said land at Rs. 15,36,480/-. Thus there is no denial of truth that the property is situated in the prime place in Jammu which is approachable from all sides of Jammu. Thus, it is crystal clear that the payment of rent was made less than huge market rate and the department has not been able to place any material on record against the assessee and thus, there was a reasonable payment on account of rent for such a huge chunk of land in the capital city like Jammu. 2.2 It was further submitted that the provisions of section 13(l)(c) r.w.s. 13(l)(d) are not at all applicable to the present facts of this case. In this connection decision of Gujarat High Court in the case of CIT vs. Bholaram Educational Society reported in 100 taxmann.com 508 is fully applicable to the present facts and circumstances of the case. It was submitted that this case further went to Supreme Court of India and their Lordships of Supreme Court has confirmed the order of Gujarat High Court. A copy of the judgment is available on Page No.84 to 86 of the paper-book in which it was observed that the lease rent paid by the assessee trust to a trustee for using land & building was not excessive and thus exemption could not be denied to the assessee u/s 11 by invoking the provisions of section 13(l)(c). 2.3 It was further submitted that under the same and similar circumstances, the Ld. CIT(A) accepted the appeal of the assessee in the case of M/s Om 5 Parkash Bansal Charitable Trust in connection with AY 2015-16 & 2016-17 in which the lease rent was paid to the family member of the trust and the same treatment was given by the AO and the provisions of section 11 and 13(l)(c) were invoked. Against the said order, the Ld. CIT(A) allowed these payments and against which the department went in appeal before the Hon'ble ITAT, Chandigarh Bench, Chandigarh and the Ld. ITAT, Chandigarh Bench accepted the appeal in favour of the assessee and dismissed the appeal of the department in ITA No. 339 & 340/Chd/2020, order dated 30/09/2021 in connection with AY 2015-16 and 2016-17. The relevant Para 14 & 14.1 on Page No. 182 & 183 is reproduced hereunder:- "14. We have gone through the order of the Ld. CIT(A). The factual findings of the Ld. CIT(A) that the ownership of Smt. Suman Bansal of the land leased to the assessee was established by documentary evidences, has not been controverted before us. Therefore, the findings of the AO that there was no evidence of ownership of land by Smt. Suman Bansal, merits no consideration. The findings of the Ld. CIT(A) to the effect that the land had been leased by the assessee consistently for educational purpose and the rental payments were consistent with the past history of the assessee has also remained uncontroverted before us. He has also stated that the rental payment, in his view, was reasonable payment for such a huge chunk of land in a capital city like Jammu. The assessee had justified the same by stating the market value of the land as assessed by the Revenue Authorities was Rs.5,74,55,000/- and, therefore, the rent paid of Rs. 12,35,434/- was much less considering its huge market value. The Revenue has been unable to controvert this factual finding of the Ld. CIT(A). 14.1 In view of the above, we see no reason to disagree with the Ld. CIT(A) whose order we find is based on appreciate of facts, which the Revenue has been unable to controvert before us. " 2.4 In view of these circumstances, it was submitted that facts and circumstances of our case are similar to the facts in the case of Om Parkash Bansal Charitable Trust. Under the same and similar circumstances, it was held by the ITAT, Chandigarh Bench, that the rent paid is reasonable and does not fall within the mischief of section 13(l)(c) r.w.s. 13(3) of the IT Act, 1961 and the total addition made was deleted. As such it is prayed that the addition made and confirmed may be deleted in view of the facts and circumstances and the cases relied upon. 6 2.5 Alternatively, without prejudice to the above, it was submitted that in case any disallowance has to be made, the entire surplus cannot be charged to tax and only that part of income which is not exempt u/s 11 virtue of clause (c) or clause (d) of section 13(1) can be charged to tax at Maximum Marginal Rate as per provisions of section 164(2) of the IT Act, 1961on account of rent, in that case only the tax can be levied on that said disallowance, if any and the tax can be charged at the maximum marginal rate as provided in section 164 of the IT Act, 1961 and the registration cannot be refused on this ground and the excess income of the trust if any cannot be added back and assessed as the income during the year under consideration. In this connection, attention is invited to assessment order in connection with AY 2014-15 where the so-called excess payment of rent was disallowed. The relevant Para 8 is reproduced hereunder:- "8. Disallowance o f excess rent: On Perusal of the same it is also found that assessee is paying huge rent to M/s Lala Daswandi Ram Family Trust against the land which is not reasonable. On perusal of the payments compared to last years it is seen that assessee is paying rent of Rs. 16,47,360/- which is Rs. 1,90,080/- higher than last year and 13.04% higher to last year, which is not reasonable u/s 13(2) of I. T. Act. Actually market rate of increasing is 5% after one year and in this case it is 13.04% which is higher side. It is also seen that assessee has paid amount of Rs.14,57,280/- in A.Y. 2013-14 and assessee has paid amount of Rs.9,50,400/- in A.Y. 11-12. The increasing of rent from A.Y. 2011-12 to 2013-14 is very high which is not reasonable. As per market increase the reasonable rent calculation is as under:- A.Y. Rent Paid Increasing of 5% As per market Excess payments 2010-11 9,50,400/- — — — 2011-12 9,50,400/- 47,520/- 9,97,920/- — 2012-13 N.A. 49,896/- 10,47,816/- — 2013-14 14,57,280/- 52,390/- 11,00,206/- 3,57,074/- 2014-15 16,47,360/- 55,010/- 11,05,707/- 5,41,653/- In the above facts, reply of assessee that this transaction is covered u/s 13(l)(c) r.w.s. 13(3) of IT. Act, 1961, assessee has paid excess rent of Rs.5,41,653/- compared to market rate. Assessee has failed to justify the excess payment of 7 rent. So amount of Rs.5,41,653/- is not allowed and taxed the same u/s 13(l)(c) r.w.s. 13(3) of IT. Act, 1961. " Thus, only excess so-called excess payment of rent was disallowed. Again, attention is invited to Assessment Order relating to AY 2015-16 which is available on Page No. 199 to 213 of the paper-book and the relevant Para 8 on Page No.212 is reproduced hereunder:- "8. Disallowance o f excess rent: On Perusal of the same it is also found that assessee is paying huge rent to M/s Lata Daswandi Ram Family Trust against the land which is not reasonable. On perusal of the payments compared to last years it is seen that assessee is paying rent of Rs. 19,00,800/- which is Rs.2,53,440/- higher than last year and 15.38% higher to last year, which is not reasonable u/s 13(2) of I. T. Act. Actually market rate of increasing is 5% after one year and in this case it is 15.38% which is higher side. It is also seen that assessee has paid amount of Rs.16,47,360/- in A.Y. 2014-15 and assessee has paid amount of Rs.9,50,400/- in A.Y. 11-12. The increasing of rent from A.Y. 2011-12 to 2015-16 is very high which is not reasonable. As per market increase the reasonable rent calculation is as under:- A.Y. Rent Paid Increasing of 5% As per market Excess payments 2010-11 9,50,400/- — — — 2011-12 9,50,400/- 47,520/- 9,97,920/- — 2012-13 9,97,920/- 49,896/- 10,47,816/- — 2013-14 14,57,280/- 52,390/- 11,00,206/- 3,57,074/- 2014-15 16,47,360/- 55,010/- 11,05,707/- 5,41,653/- 2015-16 19,00,800/- 55,285/- 11,60,992/- 7,39,807/- In the above facts, reply of assessee that this transaction is covered u/s 13(l)(c) r.w.s. 13(3) of IT. Act, 1961, assessee has paid excess rent of Rs. 7,39,807/- compared to market rate. Assessee has failed to justify the excess payment of rent. So amount of Rs.7,39,807/- is not allowed and taxed the same u/s 13(l)(c) r.w.s. 13(3) of IT. Act, 1961. " Thus at the most tax can be charged only on that part of income which is not exempt to the extent of Rs 3,57,074/- and the entire surplus even otherwise cannot be added back to the returned income. As such it is prayed that the appeal of the assessee may kindly be accepted. 8 2.6 It was further submitted that regarding the second objection raised by the AO regarding the filing of the returned income, the amendment in Section 12A has been made with effect from 01/04/2018 and will apply in relation to A.Y. 2018-19 onwards and as such the assessee is entitled to exemption under section 11 and 12 as the return so filed by the assessee was not a belated return but the same was filed within time. 3. Per contra, the Ld. DR has relied on the order of the lower authorities. 4. We have heard the rival contentions and purused the material available on record. In A.Y 2014-15 and A.Y 2015-16, we find that under identical facts and circumstances of the case, the AO has determined the impugned transaction of payment of rent to M/s Lala Daswandi Ram Family Trust as covered under section 13(1)(c) r/w 13(3) of the Act and has worked out excess rent and the same has only been brought to tax. During the course of hearing, as we have noted above, the ld AR has also raised alternate contention that the aforesaid findings of the AO for A.Y 2014-15 and A.Y 2015-16, which are not under challenge by either of the parties, may be followed for the impugned assessment year and only excess rent may be brought to tax in the hands of the assessee and whole of the surplus cannot be brought to tax. It was submitted by the ld AR that the same is acceptable to the assessee and the assessee has no objection where the same is directed to be followed for the impugned assessment year. The ld DR has also not raised any objection where the said findings are followed in the instant case. Therefore, taking into consideration the said plea and submissions made by the ld AR, the AO is directed to tax the excess rent of Rs 3,57,074/- so computed and bring the same to tax as per provisions of section section 13(1)(c) r/w 13(3) of the Act and the remaining addition is hereby directed to be deleted. 9 5. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 24/01/2023 Sd/- Sd/- आकाश द प जैन #व$म &संह यादव (AAKASH DEEP JAIN) ( VIKRAM SINGH YADAV) उपा य / VICE PRESIDENT लेखा सद+य/ ACCOUNTANT MEMBER AG Date: 24/01/2023 आदेश क! त,ल-प अ.े-षत/ Copy of the order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent 3. आयकर आय ु /त/ CIT 4. आयकर आय ु /त (अपील)/ The CIT(A) 5. -वभागीय त न4ध, आयकर अपील&य आ4धकरण, च7डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड फाईल/ Guard File आदेशान ु सार/ By order, सहायक पंजीकार/ Assistant Registrar
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