2020 (11) TMI 559 - AT - Income Tax

Tribunal allows appeal, deletes exemption denial under Income Tax Act Section 11. Rent deemed reasonable.

M/s Pinegrove International Charitable Trust Versus The D.C.I.T., Circle-I (Exemptions), Chandigarh.

M/s Pinegrove International Charitable Trust Versus The D.C.I.T., Circle-I (Exemptions), Chandigarh. - TMI Issues Involved:1. Denial of exemption under Section 11 of the Income Tax Act, 1961.2. Reasonableness of the rent paid to the trustee.3. Consistency in judicial decisions regarding the rent paid.4. Taxation at the maximum marginal rate.Issue-wise Detailed Analysis:1. Denial of Exemption under Section 11:The primary issue in the appeal was the denial of exemption under Section 11 of the Income Tax Act, 1961, due to the rent paid by the assessee to one of its trustees. The Assessing Officer (AO) held that the rent of Rs. 69 lacs paid to the trustee was on the higher side compared to the market rate, invoking the provisions of Section 13(1)(c) read with Section 13(3) of the Act. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's findings, leading to the present appeal.2. Reasonableness of the Rent Paid to the Trustee:The assessee argued that the rent paid was reasonable compared to the market rate. The property in question was utilized for various purposes related to the trust's educational activities. The rent paid amounted to Rs. 10.53 per sq. ft. per month, which was significantly lower than the market rates for similar properties in the vicinity, ranging from Rs. 28.84 to Rs. 62 per sq. ft. per month. The Tribunal found no infirmity in the facts presented by the assessee and noted that the AO and CIT(A) did not provide any substantial evidence to contradict the reasonableness of the rent.3. Consistency in Judicial Decisions:The assessee highlighted that in previous assessment years (2003-04 and 2004-05), similar additions made by the AO were decided in favor of the assessee by the CIT(A) and upheld by the ITAT. Additionally, for the assessment years 2010-11 to 2014-15, no such additions were made during scrutiny assessments under Section 143(3). The Tribunal noted the consistency in judicial decisions and found no distinguishing facts for the impugned year.4. Taxation at the Maximum Marginal Rate:The assessee contended that the AO taxed the income at the maximum marginal rate, whereas the income of societies should be taxed as Individuals and Association of Persons (AOP). However, this issue was not elaborately discussed in the judgment, as the primary focus was on the reasonableness of the rent and the denial of exemption under Section 11.Conclusion:The Tribunal concluded that the denial of exemption under Section 11 was not justified. The rent paid was reasonable and comparable to market rates, and the AO's findings were based on mere conjectures without substantial evidence. The CIT(A)'s reasoning that the trust should have purchased the leased land instead of paying rent was also found to be without merit, as the entire land was utilized for the trust's educational purposes. Consequently, the denial of exemption under Section 11 was directed to be deleted, and the appeal of the assessee was allowed.Order:The appeal of the assessee was allowed, and the denial of exemption under Section 11 was directed to be deleted. The order was pronounced in the Open Court.