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Dy. Commissioner of Income-tax Versus Bholaram Education Society, C/o. Delhi Public School

2017 (9) TMI 965 - ITAT AHMEDABAD

Exemption u/s 11 - disallowing /adding rent (s) paid to trustees - excessive payments to specified persons u/s 13(3) - Held that:- The CIT(A) has taken into account an approved valuer’s report as well as all corresponding documents indicating all relevant particulars indicating the assessee to be utilizing vacant space alongwith land and building whilst concluding that the payments in question cannot be held as excessive ones. It has further come on record that the assessee had been paying simil .....

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Vallabhbhai Education Society (2012 (10) TMI 283 - ITAT AHMEDABAD ). The Revenue is unable to point out any distinction on facts or law therein. We therefore decline the instant substantive ground as well. - Treating development fund as assessee’s taxable income - Held that:- It is no more in dispute that this assessee is a registered trust(supra). Learned counsel for the assessee takes us to pages 16 to 18 of the paper book indicating it to have utilized the impugned development fund in rel .....

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There is again no discussion in assessment order. We however find that hon’ble jurisdictional high court’s decision in Sarla Devi Sarabhai Trust’s case (1988 (3) TMI 53 - GUJARAT High Court) already decides the very issue in assessee’s favour. We therefore affirm the CIT(A)’s conclusion under challenge. The Revenue fails in its sixth substantive ground as well. - Considering assessee’s investment in fixed assets as application of income as well as its deduction - Held that:- Satya Vijay Pat .....

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Trust [1992 (2) TMI 51 - GUJARAT High Court] - Revenue appeal dismissed. - ITA No. 92/Ahd/2014 - Dated:- 14-9-2017 - Shri N. K. Billaiya, Accountant Member And Shri S. S. Godara, Judicial Member By Assessee : Shri G. C. Pipara, A.R. By Revenue : Shri V. K. Singh, Sr. D.R. ORDER Per S. S. Godara, Judicial Member This Revenue s appeal for assessment year 2010-11 arises against the CIT(A), Gandhinagar, Ahmedabad s order dated 10.10.2013, in case no. CIT(A)/GNR/183/2012-13, in proceedings u/s. .....

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ng the addition on rent paid of ₹ 19448100/-. 4. The learned CIT(Appeals) has erred in law and on facts in not treating the addition to the corpus fund of the assessee amounting to ₹ 94,60,000/- as income of the Trust. 5. The learned CIT(Appeals) has erred in law and on facts in not treating the addition to Development Fund amounting to ₹ 32,69,000/- as income of the Trust. 6. The learned CIT(Appeals) has erred in law and on facts in considering the expenditure on donation of & .....

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in the very first year by way of application of income. 3. Learned Departmental Representative refers to Revenue s first substantive ground that this assessee / trust is not registered u/s.12AA of the Act. We find no merit in the instant plea as page 31 of the paper book sufficiently indicates that the DIT(E), Ahmedabad had passed assessee s registration order u/s.12AA of the Act wayback on 27.02.2003. There is no change in facts thereafter suggesting any modification in assessee s status as a r .....

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The above payments constitute 17.61 % of total receipt of ₹ 11,04,15,05/- as per assessment order. The Assessing Officer sought the relevant rent agreements copies. He thereafter took into account the two payees total investments in their balancesheets as on 31.03.2010 to conclude that they had been paid @almost 60% of their investments. He then checked relevant rent payments in assessment year 2007-08 to conclude the impugned sums to be excessive. All this resulted in the impugned disall .....

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UF has been reproduced by the A.O. In para No. 7, A.O. has discussed the provisions of section 13(1)(c)(ii) and held that rent paid of ₹ 1,94,48,100/- is used directly for the benefit of persons referred to in section 13(3) and therefore no deduction/exemption under section 11 & 12 are allowed to the appellant. In para No. 8, the A.O. has reproduced the show-cause notice as per order sheet dated 05/12/2012 and finally A.O. has held that rent paid to the Trustees is excessive and theref .....

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he value of the land is ₹ 14,00,000/-. As per Lease Agreement the area of the land is 36,355 sq.mts. of N.A. land plus 1,00,000 sq. mts. of another land in the case of Ramesh Prasad Goenka HUF. During the course of appellate proceedings, the appellant has submitted that the total area of the land itself, the investment made by the land owners is not relevant for the purpose of determining the reasonableness of the rent by the appellant Trust because what has been leased as the entire land, .....

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uction for school building is ₹ 3r56,34,129/- totaling Rs,4,67,01,941/-, the entire building has been constructed by these co-owners and being leased to the appellant Trust for the purpose of school building for the period of 30 years in the year 2004. It is also seen that during the course of assessment proceedings, the appellant has submitted the copy of Valuation Report obtained from Government approved Valuer, Dr. Alpesh C. Patel with respect to the impugned land and building which has .....

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n report clearly suggests the present value of the property and therefore, it can be concluded on the basis of above facts that the rent paid by the Trust appears to be reasonable and not excessive. The appellant has further submitted in the submission dated 7/10/2013 that considering 10% return on the value of the property the normal rent would have been about ₹ 3.60 cr. as against which total rent paid by the appellant is ₹ 1.98 crore only and therefore, there is force in the submi .....

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duration i.e. 30 years and therefore, considering the future appreciation of the land, the rent is always calculated keeping in view the period, use, area, etc. Thus, it is seen that the AO has not considered the above facts prior to deciding and applying the provisions of section 13 of the Act and the AO has merely looked at the amount of rent without even comparing the same with the market rate of the land, amount spent on the construction of the school building, lock-in-period of 30 years of .....

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such as lease period, type of use, period of lease, etc. It is also seen that in the earlier years the rent paid as per agreement has been allowed to the appellant as deduction to the appellant on the basis of same agreement and book value. The AO has not discussed about the lease agreement in his order. The appellant has also submitted that both the persons are assessed to tax on maximum marginal rate and regularly filing return of income. Therefore, I am of the view that there is no diversion .....

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n claimed to be reasonable. The AO has mentioned the submission made by the appellant dated 13/12/2012 but there is no discussion in the order of the facts of the submission made by the appellant wherein the appellant has submitted the facts about the area of the building, area of the land and the TDS deducted on the payment, number of students, legal position etc. As I have mentioned herein above, the AO has not made any efforts of comparative study of the alleged excessive rent payment and als .....

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it in the case of the appellant and the exemption under section 11 & 12 cannot be denied. The Hon'ble High Court of Gujarat in the case of Surat City Gymkhana (supra), relied upon by the appellant has held as under: "The provisions of section 13 of the Income-tax Act, 1961, start with a non obstante clause and hence by virtue of the said provisions exceptions to the exemption provided by section 11 is carved out and an assessee is denied the exemption under section 11 of the Act in .....

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nce, the exception has to be stated and established by the person who seeks to invoke and apply the exception". Further, reliance is also placed on the judgment of Delhi High Court in the case of Pariwar Sewa Sansthan (supra) wherein the issue relating to the payment of house rent was discussed. From the point of view of reasonableness and considering the location of the house and the fact that no material has been brought on record indicating that the same is excessive, rent paid to the pe .....

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ng rent and bus rent belonging to Adharshila Associates we are of the view that reasonableness of payments in respect of such assets cannot be decided on the basis of rate of interest. Rate of interest in respect of liquid cash is different whereas rental income in respect of building is different. It cannot be equated with interest. The AO should have given example to show that market rate of property situated similarly is lesser. There should be proper comparable cases. It was pointed out in t .....

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Hon'ble Tribunal has clearly stated that one has to consider the reasonableness of the payment with respect to services rendered in case of salary and others and therefore, in case of rent one has to view the reasonableness with respect to area, use of building, market value, period of lease, etc. and therefore, though elaborate submission has been made before the A.O. during the course of assessment proceedings all these facts have not been disputed by the A.O. and simply rent paid cannot .....

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the appellant. 6. We have heard both the parties strongly reiterating their respective stands. Case file indicates that the Assessing Officer admittedly did not draw any comparative chart or verification between the impugned payments vis-à- vis their market rate of rent in question. The CIT(A) on the other hand has taken into account an approved valuer s report as well as all corresponding documents indicating all relevant particulars indicating the assessee to be utilizing vacant space a .....

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enue s second and third substantive grounds are accordingly rejected. 7. Next comes Revenue s fourth substantive ground that the CIT(A) has erred in law and on facts in deleting corpus fund addition of ₹ 94,60,000/- made in assessee s income. Learned Authorized Representative points out that there is no specific discussion in assessment order dated 22.01.2013. He then states that the corresponding computation in page 8 of the above assessment order added the impugned corpus fund amount as .....

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ficer s action treating development fund amount of ₹ 32,69,000/- as assessee s taxable income. We notice herein as well that the Assessing Officer made the impugned addition in page 8 without discussing anything on merits. The CIT(A) on the other hand decides the issue in assessee s favour as under: 10. I have considered the facts of the case, assessment order and the submission made by the Appellant. The A.O. has nowhere in his order discussed the reasons as to why the said addition of &# .....

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llant has received the said Development Fund and also used for the purpose for which it was received. The said fund was received earmarked as "Development Fund" and it was used for the development activities, as is apparent from Audited Balance sheet submitted during the appellate proceedings. It is also seen that as per balance sheet, the entire fund has been utilized. The balance sheet indicates the head of "Development Fund (Utilised) Account" of ₹ 1,66,15,000/-, whi .....

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ch in ITO vs. J. D. Tytler School Society (2014) 49 taxmann.com 294 (Delhi) holds that such a development fund forming part of student fee as utilized in their amenities and welfare is in the nature of capital receipt not assesseable as income. We therefore find no reason to upset CIT(A) s above extracted conclusion. This fifth substantive ground is accordingly rejected. 10. The Revenue s six substantive ground pleads that the CIT(A) has erred in law and on facts in considering expenditure on do .....

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essment Order the reason why he has disallowed the same but it appears that he has disallowed the same treating the Appellant as AOP. As per provisions of sec. ll(l)(a) of the Act, the Trust has to apply its income for the purpose of charitable purposes and there is no bar on a Trust not to donate to another Trust. Donation given to another Trust is tantamount to application of income. The appellant has relied upon the decision of Hon'ble Gujarat High Court in the case of CIT v. Sarladevi Sa .....

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artmental Representative vehemently contends that assessee s impugned donation given to another charitable trust does not amount to its application of income. We however find that hon ble jurisdictional high court s decision in Sarla Devi Sarabhai Trust s case(supra) already decides the very issue in assessee s favour. We therefore affirm the CIT(A) s conclusion under challenge. The Revenue fails in its sixth substantive ground as well. 12. The Revenue s seventh substantive ground pleads that th .....

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e, assessment order as well as the submission of the Appellant. On page No. 8, para 1 of the assessment order, the A.O. has concluded that when the principal amount was applied for acquiring assets, it was treated as applied for charitable purpose and entire amount was claimed u/s. 11. The A.O. has not considered that there are two separate issues i.e. one is application of income, and second is computation of income. So far as application of income is concerned, amount applied for acquiring fix .....

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atel Hindu Dharmashala Trust v. CIT 86 ITR 683 wherein it has been "Held that the amount spent by the trustee in the construction of the new dharamshala was an application of income towards the charitable purposes of the trust". In all the judgments it has been held by the higher authorities that the amount utilized for Requiring Fixed assets is allowable as application of income as per sec. 11(1)(a) of the Act. There are two separate issues one is pertaining to application of income a .....

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