2025 (6) TMI 164 - HC - Income Tax

TDS on rent payments made to the third respondent temple claimed as exemption under the Income Tax Act - petitioner submits that the temple is registered u/s 12(A) of the Income Tax Act; therefore the temple s contention that no TDS is deductible is untenable - retrospective fixation of fair rent by the rent fixation committee under the Tamil Nadu Hindu Religious Charitable Endowments Act 1959, HELD THAT - Retrospective fixation of fair rent is not permissible as held in the earlier decisions. But however it is common practice and also laid down in the Government Order that 15% increase can be made for every three years. It would be unfair and inequitable to contend that no increase at all should be made till even while pleading to entertain the writ petition with a pragmatic approach. Therefore in the facts and circumstances of the instant case in the best interest of resolving the dispute between the parties it is of the view that a reasonable 15% increase shall be taken and calculated and reject the submissions made to the contrary. It would be fair and equitable considering the overall facts and circumstances. In this case it can be seen that according to the tabular column provided in paragraph 17 of the counter affidavit there was no dispute between the parties until the year 2016. When the rent was last revised effective from 01.07.2013 to Rs. 1, 08, 059/- it was agreed upon by the petitioner through its communication dated 26.12.2013. Therefore the next revision was due on 01.07.2016. However the revision was only made on 25.02.2018. By calculating 15% increase from July 2016 upto February 2018 the monthly rent would be - 108059 15/100 Rs. 1, 24, 268/-. The order for enhancement to Rs. 2, 60, 000/- was communicated to the petitioner on 25.02.2018. Therefore the same is effective from the month of March 2018. However the petitioner paid the enhanced rent only from January 2019. Consequently the difference has to be calculated as arrears for March 2018 to December 2018. The next routine fair rent would therefore be due as of March 2021. By claiming a 15% increase on the sum of Rs. 2, 60, 000/- from March 2021 until 16.11.2023 the monthly rent would be Rs. 2, 99, 000/- per month and the difference of arrears have to be calculated till the date of quitting the property that is upto November 2023. As per the temple the balance arrears as of 01/07/2016 is Rs. 32, 74, 753/-. Though the bank claims only Rs. 10, 89, 689/- in the absence of any materials to substantiate the same as between the temple asserting by their own accounts and the petitioner bank being cautious to mention about the accounts being rendered by the previous entity (LVB) amalgamated to it the version of the temple is believed. However with reference to the amount paid since the petitioners are having accounts for the payments made being bankers their version as per the statement made in the tabulation submitted by them is believed. Unlike the petitioners who are bankers Arulmigu Siddhi Buddha Vinayagar and Arulmigu Sundareswarar Temple doesn t claim compound interest with monthly rests on arrears. If reasonable interest is calculated on the belated payments then no amount will be payable to the petitioner. Overall the third respondent temple shall treat the amounts so far received as full quit towards all arrears. Over and above it shall move the Income Tax Deparment in the manner known to law for refund of arrears and the same shall be considered favourably by the Department in the manner known to law. Neither any sum will be further payable to the petitioner bank not it is entitled for any refund.

Summary

The core legal questions considered by the Court in this matter include:

1. Whether the retrospective fixation of fair rent by the rent fixation committee under the Tamil Nadu Hindu Religious & Charitable Endowments Act, 1959, is permissible, especially when such fixation was not communicated or served on the tenant at the relevant time.

2. Whether the petitioner bank was justified in deducting Tax Deducted at Source (TDS) on rent payments made to the third respondent temple, which claimed exemption under the Income Tax Act.

3. Whether the petitioner's Writ Petition is maintainable despite the existence of an alternative remedy of filing an appeal against the rent fixation orders.

4. The correct calculation and determination of arrears payable by the petitioner to the temple, considering the periodic rent increases, payments made, and TDS deductions.

5. The applicability and effect of Government Orders prescribing periodic rent increases, including a fixed 15% increase every three years, vis-`a-vis the statutory provisions under Section 34(A) of the Tamil Nadu Hindu Religious & Charitable Endowments Act.

Issue 1: Retrospective fixation of fair rent and procedural fairness

The legal framework governing rent fixation for properties under the control of religious institutions is Section 34(A) of the Tamil Nadu Hindu Religious & Charitable Endowments Act, 1959, supplemented by rules framed thereunder and relevant Government Orders. The Court referenced a prior Division Bench decision which read the principles of natural justice into Section 34(A), requiring that any fixation or revision of rent must be communicated to the tenant and the tenant must be given an opportunity to be heard.

The petitioner contended that the orders fixing fair rent for the years 2019 and 2022 were neither passed nor served on it at the relevant time, and that retrospective fixation of rent is impermissible. The temple, however, argued that the fixation was based on routine fair rent calculations and that Government Orders entitle it to periodic increases, including a 15% increase every three years.

The Court examined the timing of the fixation orders, noting that the orders for 2019 and 2022 were passed only on 24.01.2024, after the petitioner had vacated the premises in November 2023. The Court held that retrospective fixation of fair rent is not permissible, relying on settled precedents. Moreover, the fixation was not communicated in a timely manner nor was the petitioner afforded an opportunity to contest it, violating principles of natural justice.

However, the Court acknowledged the temple's entitlement to a reasonable increase in rent and recognized the Government Order permitting a 15% increase every three years. The Court thus balanced the procedural infirmities with the substantive right to a fair increase, concluding that while retrospective fixation is impermissible, a prospective and reasonable increase should be applied.

Issue 2: Deduction of TDS on rent payments to the temple

The third respondent temple claimed exemption from TDS deduction under Section 12(A) of the Income Tax Act, relying on a letter from the Income Tax Department dated 25.11.1994. The petitioner bank, however, deducted TDS at 20% as per law, since no valid certificate under Section 197 or 197(A) exempting deduction was produced by the temple.

The Court examined the evidence, including the temple's own income tax filings and 26AS statements, which showed that the temple was registered and had claimed refunds of TDS for certain years. The Court held that the petitioner was justified in deducting TDS and that the temple could seek refunds through appropriate legal channels from the Income Tax Department. The Court rejected the temple's claim that TDS amounts could be treated as arrears of rent payable by the petitioner.

Issue 3: Maintainability of the Writ Petition despite alternative remedy

The respondents argued that the petitioner's Writ Petition was not maintainable because the petitioner had an alternative remedy of filing an appeal against the rent fixation orders. The petitioner's appeal was returned as barred by limitation because it was not filed within 30 days of the order.

The Court noted that the petitioner had already vacated the premises before the fixation orders for 2019 and 2022 were passed and communicated. Given that the lease had ended and the dispute related only to arrears, the Court held that it was appropriate to entertain the Writ Petition to resolve the impasse rather than relegating the parties to an alternative remedy which was no longer efficacious. The Court relied on prior decisions holding that retrospective fixation of fair rent is impermissible and that a Writ Petition is maintainable in such circumstances.

Issue 4: Calculation and determination of arrears payable

The Court examined the parties' respective calculations of arrears, including amounts claimed by the temple, amounts admitted by the petitioner, and payments made with TDS deducted. The petitioner submitted a detailed tabulation showing the monthly rents claimed by the temple, the rents paid by the petitioner, TDS deducted, total rent paid, arrears demanded, and admitted arrears.

The temple's version of arrears as on 01.07.2016 was Rs. 32,74,753/-, while the petitioner claimed only Rs. 10,89,689/-. The Court accepted the temple's figure as more credible given the petitioner's cautious approach and the fact that the petitioner had inherited records from the amalgamated bank.

The Court then applied the Government Order permitting a 15% increase every three years to calculate rent from 01.07.2016 onwards, as follows:

• Rent from 01.07.2016 to 28.02.2018 at Rs. 1,24,268/- per month (20 months)
• Rent from 01.03.2018 to 28.02.2021 at Rs. 2,60,000/- per month (36 months)
• Rent from 01.03.2021 to 30.11.2023 at Rs. 2,99,000/- per month (33 months)

The total sum payable was calculated at Rs. 2,49,87,113/-. After deducting the amounts paid by the petitioner from 01.07.2016 to 30.11.2023 totaling Rs. 1,96,53,740/-, the balance sum payable by the petitioner was Rs. 52,33,373/-. The petitioner had also deposited Rs. 72,73,402/- under protest during the appeal process.

The Court directed that the amounts paid so far shall be treated as full and final settlement towards all arrears. It further held that reasonable interest on belated payments would negate any amount payable to the petitioner as refund. The Court emphasized that the temple should pursue refund of TDS arrears from the Income Tax Department in the manner known to law.

Issue 5: Applicability of Government Orders prescribing rent increases vis-`a-vis statutory provisions

The petitioner contended that the statutory scheme under Section 34(A) of the Act could not be supplanted by Government Orders prescribing fixed increases. The temple argued that the Government Orders allowing a 15% increase every three years were applicable and binding.

The Court held that while the statutory provisions govern the fixation of fair rent, it would be unfair and inequitable to deny the temple any increase in rent during the disputed period. The Court accepted the Government Order permitting a 15% increase every three years as a reasonable and pragmatic basis for rent calculation, especially given the absence of timely fixation orders and the tenant's vacating of the premises.

The Court thus harmonized the statutory scheme and Government Orders by disallowing retrospective fixation but permitting prospective application of the 15% increase rule.

Significant holdings and core principles established:

"Retrospective fixation of fair rent is not permissible under the Tamil Nadu Hindu Religious & Charitable Endowments Act, 1959, especially where such fixation orders are passed and communicated after the tenancy has ended and without affording the tenant an opportunity of hearing."

"The principles of natural justice are read into Section 34(A) of the Act, mandating that any fixation or revision of rent must be communicated and the tenant must be given an opportunity to contest."

"A tenant is justified in deducting TDS on rent payments in the absence of a valid exemption certificate under Sections 197 or 197(A) of the Income Tax Act, and the landlord may seek refund of such TDS from the Income Tax Department by appropriate proceedings."

"Where the fixation orders are not served timely and the tenant has vacated the premises, a Writ Petition challenging retrospective fixation of rent is maintainable notwithstanding the existence of an alternative remedy of appeal."

"In the absence of valid retrospective fixation, a reasonable and equitable increase in rent, such as the 15% increase every three years prescribed in Government Orders, shall be applied prospectively to determine arrears."

"Amounts paid by the tenant under protest and accepted by the landlord shall be treated as full and final settlement of arrears, subject to adjustment of interest on belated payments."

The Court finally determined that the petitioner bank was liable to pay arrears of Rs. 52,33,373/- calculated on the basis of the 15% periodic increase, after adjusting payments made. The sum deposited under protest by the petitioner would be considered in final settlement, and no further refund was due. The temple was directed to seek TDS refunds from the Income Tax Department separately. The Writ Petition was disposed of accordingly with no costs.