2025 (9) TMI 796 - HC - Income Tax

Exemptions under ss.10(23C)(iv), 11 and 12 upheld; Revenue additions under ss.13(2)(b)/13(3)(b) rejected, consistency rule affirmed

Commissioner Of Income Tax (Exemptions) Delhi Versus Hamdard Laboratories (India).

HC upheld the exemptions claimed by the assessee under ss.10(23C)(iv), 11 and 12 for AY 2016-17, rejecting Revenue's additions under ss.13(2)(b)/13(3)(b). ... Exemption u/s 11 and 12 - additional claim for exemption u/s 10(23C)(iv) - status of the respondent/assessee as a charitable institution - HELD THAT:- Assessee filed its return of income for the AY 2016-2017 declaring ‘Nil’ income and claimed exemption under Section 11 and 12 of the IT Act. Its plea was rejected by the AO and income for which exemption was being sought, had been added. The basis of this addition was the provision of two properties owned / leased by the respondent/assessee, given to the trustees and their families on a lease/rental basis. AO then applied conditions given u/s 13(2)(b) read with Section 13(3)(b) of the IT Act. The issue went up in appeal by the respondent/assessee before the CIT(A) who entertained the appeal on two counts: firstly, that the respondent/assessee had consistently been granted benefit of exemption u/s 10(23C)(iv) of the IT Act, including in three immediate preceding AYs 2013-2014 to 2015-2016 and there being no change in facts, principle of consistency was applied and the benefit was extended to the respondent/assessee. Secondly, even on issues of Section 13(2) and Section 13(3) of the IT Act, the CIT(A) held that no benefit to individual or trustee would arise in the case. This decision was appealed by appellant/Revenue before the ITAT against the CIT(A)’s order, however, the said appeal was dismissed by the ITAT, upholding the order of the CIT(A). As noted that the Trust was constituted under a Trust Deed dated 20th August 1948 and the partners of the business known as Hamdard Dawakhana, dedicated the business to charity. Hamdard created a Special Purpose Vehicle namely Hamdard National Foundation (HNF) with a registered society for philanthropic purposes. Exemption u/s 10(23C)(iv) - There is no dispute that the respondent/assessee has been enjoying exemption granted under Section 10(23C)(iv) since AY 2004-2005 and this Court in Hamdard Laboratories [2015 (9) TMI 915 - DELHI HIGH COURT] has assessed fully the objects of Hamdard Laboratories and affirmed its claim for exemption under Section 10(23C)(iv) of the IT Act. Rule of Consistency - In CIT v. Amit Jain [2015 (3) TMI 720 - DELHI HIGH COURT] and in CIT v. Denso India Ltd [2015 (1) TMI 824 - DELHI HIGH COURT] a Coordinate Bench of this Court held that where the AO has followed a view for the past several years, he cannot depart from them in the event where there has been no change in law or facts. In the opinion of this Court, the ‘rule of consistency’ would be squarely applicable in this case, as has been rightly taken into account by the CIT(A) in the impugned decision. There has been no change in facts or law. The appellant/Revenue did not plead any particular circumstance or fact before this Court to displace the exemption granted under Section 10 (23C) (iv) of the IT Act and no unique feature or distinctive material has been adverted before the CIT(A) or the ITAT that would draw out any differentiation. In this view of the matter, exemption granted under Section 10(23C)(iv) of the IT Act will squarely apply to the respondent/assessee even in the subject AY and the submissions on behalf of appellant/Revenue in order to erode and dilute the same cannot subsist. ISSUES PRESENTED AND CONSIDERED 1. Whether the institution is entitled to exemption under Section 10(23C)(iv) of the Income Tax Act for the assessment year in question when such exemption had been granted and consistently applied in earlier assessment years. 2. Whether the benefit of exemption under Sections 11 and 12 is lost by operation of Section 13(2)(b) read with Section 13(3) where trust-owned premises were made available to trustees/their family members at a consolidated lease/licence fee substantially below alleged market rent. 3. Whether an Appellate Authority (CIT(A)) may entertain for the first time an assessee's claim for exemption under Section 10(23C)(iv) even though that claim was not adjudicated by the Assessing Officer, and whether remand to the AO was required. 4. What is the burden of proof and standard of evidence required to invoke Section 13(2)(b) (i.e., adequacy of rent) and whether reliance on internet screenshots/estate-agent listings suffices. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement to exemption under Section 10(23C)(iv) Legal framework: Section 10(23C)(iv) excludes from total income any income received on behalf of a fund or institution established for charitable purposes which may be approved by the Commissioner having regard to objects and importance; Sections 11-12 govern exemption for income applied to charitable purposes. Precedent treatment: Prior judicial determinations recognising the institution's charitable objects and restoration of notification granting exemption (earlier Division Bench and Tribunal decisions) were relied on. Authorities on the rule of consistency (Radhasoami; Excel Industries; Berger Paints and others) establish that in the absence of any change in fact or law the Revenue cannot depart from an established position. Interpretation and reasoning: The Court accepted that the institution had long been recognized as charitable, had been granted exemption under Section 10(23C)(iv) in preceding years with no material change, and that the principle of consistency required continuation of that treatment unless the Revenue demonstrated compelling reasons for departure. The Court examined the trust deed and earlier appellate findings and concluded that the underlying facts and legal position remained unchanged. Ratio vs. Obiter: Ratio - where exemption under Section 10(23C)(iv) has been granted and applied consistently over several years, and there is no change in facts or law, the Assessing Officer cannot deny that exemption without persuasive material to justify a departure. Obiter - ancillary remarks on the interaction between Sections 10(23C) and 11/12 in particular fact patterns. Conclusion: The institution was entitled to continue to claim exemption under Section 10(23C)(iv) for the assessment year under consideration; the AO's denial on that ground was unsustainable in the absence of distinguishing material. Issue 2 - Applicability of Section 13(2)(b)/13(3) for concessional rent to trustees Legal framework: Section 13(1)(c) excludes trusts from Sections 11/12 where any income or property enures to persons specified in Section 13(3) (including trustees and relatives); Section 13(2)(b) deems income/property to have been applied for benefit where trust property is made available to such persons without adequate rent/compensation. Precedent treatment: Decisions cited establish that burden to prove inadequacy of consideration rests on the Revenue and that market rent is not the sole yardstick - adequacy must be judged contextually; internet listings or estate-agent screenshots are weak evidentiary material unless corroborated (noted in earlier Hamdard National Foundation decision and other authorities). Interpretation and reasoning: The Court observed that the AO relied on online portals (makaan.com etc.) to assert a substantial concession but produced no statutory/valuation report or cogent corroborative evidence. The facts showed long-standing provision of accommodation as part of employment/service conditions and prior acceptance of similar treatment in earlier years. Given the absence of compelling or corroborated evidence that the rent was so inadequate as to 'shock the conscience', invocation of Section 13(2)(b) was unwarranted. Ratio vs. Obiter: Ratio - Revenue bears the onus to prove that rent/consideration was inadequate and a mere disparity with online listings or uncorroborated market comparisons is insufficient to attract Section 13(2)(b). Obiter - comments on compassionate occupation and dual capacity (trustee as employee) as relevant contextual considerations. Conclusion: Section 13(2)(b)/13(3) was not attracted on the material before the AO; denial of exemption under Sections 11/12 on that basis could not be sustained. Issue 3 - Power of Appellate Authority to entertain new claim (Section 10(23C)(iv)) and remand Legal framework: Appellate authorities possess powers co-terminus with the original authority (statutory scheme permitting confirmation, enhancement, annulment, setting aside and remand); Goetze decision restricts raising new claims before AO without revised return, but post-Goetze jurisprudence permits appellate authorities to entertain fresh claims if bona fide and not belated without good reason. Precedent treatment: Jute Corporation and NTPC recognize appellate discretion to admit new grounds; subsequent decisions clarify exercise of discretion depends on bona fides and whether the ground could have been raised earlier. Interpretation and reasoning: The Court found that the CIT(A) sought remand report, received and considered material, and adjudicated the Section 10(23C)(iv) claim rather than merely deferring to the AO. The Appellate Authority's consideration of the fresh claim was within its powers and permissible in law where the claim is bona fide and supported by earlier consistent treatment; hence remand was not mandatory in all circumstances. Ratio vs. Obiter: Ratio - an appellate authority may entertain a fresh claim for exemption not raised before the AO, provided the claim is bona fide and consideration is given to remand/verification as appropriate; it is not obliged to remand in every case. Obiter - observations on the scope of remand powers in different factual matrices. Conclusion: CIT(A) validly entertained the Section 10(23C)(iv) claim and was not required as a matter of law to remand the matter back to the AO in the circumstances of this case. Issue 4 - Burden and standard of evidence to establish 'inadequate' rent; admissibility of internet/estate-agent material Legal framework: Section 13(2)(b) requires that property be made available without adequate rent; statutory burden lies on Revenue to prove inadequacy; assessment of 'adequacy' considers context and need not be limited to market comparisons. Precedent treatment: Authorities hold that market rent is not the sole test, that the Revenue must lead cogent corroborative evidence, and that internet/portal screenshots or unsubstantiated estate-agent quotes do not by themselves suffice. Interpretation and reasoning: The Court held that the AO's reliance on internet screenshots without valuation reports or other reliable corroboration did not discharge the Revenue's burden; where earlier assessments accepted similar arrangements and no material change was shown, the contention that rent was inadequate failed. Ratio vs. Obiter: Ratio - to attract Section 13(2)(b), Revenue must adduce cogent, corroborative evidence of inadequacy; uncorroborated online listings are insufficient. Obiter - guidance on assessing contextual factors such as employment terms and historical practice. Conclusion: The Revenue failed to discharge the burden to show inadequacy of consideration; internet-based comparisons were insufficient and the Section 13(2)(b) invocation could not stand. OVERALL CONCLUSION The Court upheld the appellate findings that the institution remained entitled to exemption under Section 10(23C)(iv) (and consequence exemptions under Sections 11/12), and that Section 13(2)(b)/13(3) was not attracted on the material before the AO. The Appellate Authority acted within its powers in entertaining the fresh claim and was not required to remand the matter under the facts of the case. No substantial question of law arose to favour interference with the ITAT order.