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2022 (9) TMI 401 - AT - Income TaxExemption u/s 11 - violation of sections 13[1][C] and 13[3] - assessee trust passed on the benefits to the trustees or the relatives of the trustees in the form of excessive payment rent to school buildings and also computer hirings rents, which is violation of sections 13[1][C] and 13[3] - HELD THAT:- AO failed to note any payment to the persons specified under section 13[3] of the Act does not ipso facto attracts the provisions of section 13[1][C], but whereas such payment is unreasonable or excessive, it can be said that any benefit is derived by such specified person. The specified persons can be said to have derived the benefits mainly when something is passed on to them, over and above the reasonable and adequate consideration which is at arm’s length. Thus there is no bar in transactions with the entity claiming exemption under section 11 on one side and persons specified u/s 13[3] on the other side and only when the consideration is found to be unreasonable or excessive, then the question of withdrawal of exemption under section 11 will arises. Whether the consideration is reasonable or excessive is to be judged from the fair market value of such consideration between two unrelated parties in arm’s-length situation. Whether the consideration paid by the assessee Trust to the specified persons is reasonable or not? - AO had compared the rent with municipal valuation to content that the rent paid by the assessee trust was excessive. This findings of the ld AO is not legal, proper and has no logic for the reason that municipal valuation does not reflect the fair market value and this position is accepted under the Income Tax and as in the calculation of Income from house property, higher of municipal valuation or fair rent is taken into account - The rental agreements clearly mention that besides building other amenities like furniture, electrical fittings, parking and open ground was also used by the trust. AO is not correct in making comparison with the municipal valuation and the assessee has made excessive payment to the trustees. The assessee Trust also shown factual data as comparable to justify reasonable rates of building rent in the form of few comparable instances by obtaining the details from CPWD and PWD - Rents paid by the assessee trust to its trustees are very reasonable and not excessive rent. Respectfully following case of Shree Kamdar Education Trust [2016 (9) TMI 18 - GUJARAT HIGH COURT] mere payment of lease rent, without there being any element of such payments being excessive or unreasonable compared to normal rates prevailing, would not fall within the mischief of section 13[1][c] of the Act. Thus the assessing officer is not correct in denying the benefit of section 11 to the assessee trust. Computer rent paid by the assessee trust to Gyanganga Computers - CIT[A] has held perusal of the annual accounts of M/s. Gyanganga Computers, the major part of its income is by way of computer rent from the appellant Trust and other Trust under same management and still its net profit ratio is 2.93 % only, this indicates that a reasonable margin is here and on cost which cannot be termed as excessive. Further it is observed M/s. Gyanganga Computers charged Rs.60 per month to outsiders in case of one-time payment and Rs.70 per month in case of instalment payment, whereas the assessee trust was being charged at Rs. 37.3 per month per student which is reasonable and also concessional. Therefore it is not a case of undue benefits having been passed to the specified person in the form of computer rent. Therefore the denial of exemption under section 11 is not sustainable in law. Thus we uphold the order passed by the ld CIT [Appeals] and reject the grounds of appeals filed by the revenue.
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