TMI Blog2018 (10) TMI 1501X X X X Extracts X X X X X X X X Extracts X X X X ..... us, in view of the order of the Tribunal dated 28/09/2018 in the appeal filed by the assessee against the order passed U/s 12AA(1)(b) of the Act, the impugned order passed by the ld. CIT(E) U/s 263 of the Act would not survive. Even otherwise once the registration U/s 12AA of the Act was directed to be granted then the Assessing Officer has to consider the issue of exemption U/s 11 and 12 of the Act while passing the giving effect order and therefore, the impugned order passed by the ld. CIT(E) becomes infructuous. - decided in favour of assessee. - ITA No. 638/JP/2018 - - - Dated:- 26-10-2018 - SHRI VIJAY PAL RAO, JM AND SHRI VIKRAM SINGH YADAV, AM For The Assessee : Shri P.C. Parwal (CA) For The Revenue : Shri B.K. Gupta (CIT) ORDER PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the revision order dated 28/03/2018 of ld. CIT(E), Jaipur for the A.Y. 2014-15. The assessee has raised following grounds of appeal: 1. Under the facts and circumstances of the case, the order passed by Ld. CIT U/s 263 is illegal and bad in law be quashed. 2. The ld. CIT has erred on facts and in law in holding that payment of ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er whereby the assessment order was set aside for fresh assessment. 3. Before us, the ld AR of the assessee has submitted that the assessee filed an application seeking registration U/s 12AA of the Act before the ld. CIT(E) on 19/01/2010, however, this application was rejected by the ld. CIT(E) on the ground that the payments of rent violates Section 13(1)(c) of the Act and further the income of the medical shop from the hospital premises was also considered by the ld. CIT(E) as in violation of Section 13(1)(c) for refusing the registration U/s 12AA of the Act while passing the order dated 09/10/2015. Thus, the ld AR has submitted that since the registration was refused, therefore, the Assessing Officer denied the benefit of Sections 11 and 12 of the Act and further the rental income was already assessed by the Assessing Officer in the hands of Dr. B.L. Ranwa for the A.Y. 2010-11 vide order dated 26/12/2017 passed U/s 143(3) read with Section 147 of the Act. The Assessing Officer has also reopened the assessment for the A.Y. 2011-12 and 2012-13 in case of Dr. B.L. Ranwa for the assessment of rental income in his hand. As regards the income from medical shop run by Smt. Kamla Ran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the order of the ld. CIT(E). 5. We have considered the rival submissions as well as the relevant material on record. The Assessing Officer has passed the scrutiny assessment U/s 143(3) of the Act on 23rd December, 2016 whereby the Assessing Officer has denied the exemption U/s 11 and 12 of the Act for want of registration U/s 12AA of the Act. Subsequently the ld. CIT(E) has issued show cause notice U/s 263 of the Act to revise the assessment order on two issues as under: 1. Income of M/s Getwell Medical Agency: The assessee society is running a medical shop at the hospital premise in the name of Smt. Kamla Ranwa who is Secretary of the society. However, income of medical agency was not incorporated in the receipts of society during the year under consideration. Therefore, files explain as to why income of medical agency should not be considered in the society for the year under consideration. 2. Bogus claim of rent payment: The assessee society made payment of rent ₹ 5,50,000/- to B.L. Ranwa (HUF) in the income and expenditure account during the year. However, ownership of such rental property held in the name of Sh. B.L. Ranwa (Individual). Therefore, paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso about its objects. Subject to the satisfaction about the genuineness of the activities and charitable nature of objects, the ld. CIT (E) would either grant the certificate of registration or would reject the prayer. Thus in order to satisfy himself, the primary conditions are only to ascertain whether the objects of the Trust or Institution are charitable in nature and the activities are genuine and being carried out to achieve the objects. The enquiry by the ld. CIT (E) shall be restricted to the examination whether the applicant is actually carrying on the activities which are genuine and thus the genuineness of the activities has to be seen keeping in mind the objects thereof. In other words, the ld. CIT (E) shall satisfy himself about the fact that the activities are genuine and in consonance with the objects of the Trust or Institution. Section 12AA lays down the procedure for registration and, therefore, the enquiry to be conducted by the ld. CIT (E) while considering the application for registration is restricted only on the aspect of charitable nature of the objects and genuineness of the activities and it would not extend to ascertain whether the income derived by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e society and, therefore, they fall in the category of specified persons under section 13(3) of the Act. However, section 13(3) itself would not ipso facto lead to the conclusion that an income of the Society or Institution has been applied for the benefit of the persons without considering the provisions of sub-section (2) of section 13 of the Act which reads as under:- ( 2) Without prejudice to the generality of the provisions of clause (c) 45[and clause (d)] of sub-section (1), the income or the property46 of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),- ( a) if any part of the income or property47 of the trust or institution is, or continues to be, lent47 to any person referred to in sub-section (3) for any period during the previous year without either adequate security47 or adequate interest or both; ( b) if any land, building or other property47 of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-section (3), for any period during the prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t disputed this fact that the building in question comprising of five stories on a plot of 746 sq. yards and, therefore, if the rent paid by the assessee is unreasonable or excessive by comparing the fair market rent then to the extent of such excess rent paid by the assessee would constitute the income of the assessee society is applied or deemed to have been applied for the benefit of the persons referred under section 13(3) of the Act. However, the ld. CIT (E) without ascertaining or getting any report of the AO on this point has assumed that the rent paid by the assessee is the income deemed to have been used or applied for the benefit of the persons specified under section 13(3) of the Act. The ld. CIT (E) has not given the finding that the quantum of rent is excessive or unreasonable keeping in view the total constructed area under the tenancy of assessee society for running the hospital. Even otherwise, whether the rent paid by the assessee is excessive or unreasonable in comparison to the fair market rent, the same in our considered view, is a subject matter of assessment when the fact is not in dispute that the rent is paid against the hospital building taken on lease by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to the related parties. Though the AO was not required to examine the issue in the light of the provisions of sections 11 to 13 of the Act, however, even in the normal assessment proceedings if the rent is paid to the related parties then it is always subject matter of scrutiny of the AO to ascertain whether the payment made by the assessee was reasonable or excessive in comparison to the fair market price or rent. Hence when the AO while passing the scrutiny assessment in all the assessment years repeatedly has not doubted the reasonableness of the rent paid by the assessee society, then the finding of the ld. CIT (E) without conducting any enquiry is based purely on assumption and conjectures and not on the correct facts. 8. The second objection raised by the ld. CIT (E) is regarding income from medical shop. It is not in dispute that the assessee never invested any amount in the medical shop but the shop was owned and run by Smt. Kamla Ranwa. Further it is also not an allegation of the ld. CIT (E) that Smt. Kamla Ranwa has charged excessive or unreasonable price of the medicines either from the assessee society or from the patients treated in the hospital. Thus me ..... X X X X Extracts X X X X X X X X Extracts X X X X
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