Related-party rent at inadequate value triggers denial of charitable exemption under the Income-tax Act.

A trust lost exemption under sections 11 and 12 where part of its property was let to a firm connected with a trustee at a nominal rent. The authorities found that the first floor was rented for a meagre amount compared with its fair rent, and that the arrangement benefited a related person within section 13(3). On these facts, the exception in section 13(2)(b) applied, so the trust could not retain charitable exemption under section 11.

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Issues: Whether the assessee-trust was entitled to exemption under sections 11 and 12 of the Income-tax Act, 1961, when a portion of the trust property was let out at a meagre rent to a firm in which one of the trustees was a partner, attracting section 13(2)(b) read with section 13(3) of the Income-tax Act, 1961.

Analysis: The material findings of the Assessing Officer, the appellate authority and the Tribunal were consistent that the first floor of the trust property had been let out for Rs. 200 per month, whereas its fair rent was assessed at Rs. 16,000. The property was made available to a firm connected with a trustee, and the rent charged was held to be inadequate. On these facts, the statutory exception in section 13(2)(b), read with section 13(3), was attracted, so the trust could not retain the benefit of exemption under section 11.

Conclusion: The assessee was not entitled to exemption under section 11 of the Income-tax Act, 1961, and the reference was answered in favour of the Revenue.

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