2024 (10) TMI 1194 - AT - Income Tax

ITAT rules rent payments to specified persons were reasonable, not excessive under section 13(3)

Income Tax Officer (Exemptions) -2 (1), Mumbai Versus MMTIS Educations and Research Trust, Mumbai And (Vice-Versa)

The ITAT Mumbai held that denial of exemption under section 11 for alleged excessive payments to specified persons under section 13(3) was unjustified. ... Denial of exemption u/s 11 - excessive payments on account of salary and rent to the persons specified u/s 13(3) - disallow the payments made to specified persons - HELD THAT:- As seen from the first chart that the rent paid by an unrelated party in the same area is Rs.7.83/- per sq. ft. whereas the same was Rs. 7.02/- per sq. ft., till 31/03/2016 and Rs. 2.75/- per sq. ft. as on 31/03/2017 by the assessee. Similarly, rent paid to Tara Meera Education Trust by unrelated party come to Rs. 176.47/- per sq. ft. per month and the rent paid by the assessee for the same premises is Rs.147.06/- per sq. ft. per month. While completing the assessment for AY 2018-19, the AO has referred to an agreement but the same was for a different premise in the same locality and not the premise for which the assessee has paid rent. Therefore, the AO proceeded on appreciation of wrong facts. Thus, we do not find the impugned payments to be excessive or unreasonable - Decided in favour of assessee. Issues:1. Disallowance of payments on account of salary and rent to specified persons under section 13(3) of the Act for denying exemption under section 11.2. Reasonableness of expenses incurred by the assessee for rent and modular course fees.3. Comparison of rent paid by the assessee with unrelated parties in the same area.4. Assessment of rent paid to Tara Meera Education Trust for office premises.5. Assessment of modular course fees paid by the assessee.Analysis:1. The Tribunal heard two separate appeals by the revenue against orders of the NFAC, Delhi, related to disallowance of payments to specified persons under section 13(3) of the Act. The grievance was regarding salary and rent payments affecting exemption under section 11, which was denied by the Assessing Officer but allowed by the ld. CIT(A).2. The Assessing Officer disallowed rent and modular course fees paid to specified persons, alleging that the income was applied for the benefit of interested persons rather than charitable purposes. However, the ld. CIT(A) found the disallowance unjustified, emphasizing the need to assess the reasonableness of expenses and considering Section 40A(2)(b) of the Act for related party payments.3. The assessee presented comparables showing reasonable rent payments, which the AO ignored. The Tribunal, after reviewing the comparables, found the payments not excessive or unreasonable, supporting the ld. CIT(A)'s decision to allow exemption under section 11.4. The rent paid to Tara Meera Education Trust for office premises was analyzed, revealing a reasonable rate compared to unrelated parties in the same area. The AO's reference to an agreement for a different premise was deemed incorrect, leading to a dismissal of the revenue's appeals.5. The assessment of modular course fees paid by the assessee was scrutinized, with details provided for various courses conducted. The Tribunal found the fees paid to be justifiable, in line with the overall decision to dismiss the revenue's appeals and uphold the exemption under section 11.In conclusion, the Tribunal upheld the ld. CIT(A)'s decision, emphasizing the importance of assessing the reasonableness of expenses and considering comparables for related party payments, ultimately dismissing the revenue's appeals and rendering the cross-objections infructuous.