TaxTMI 
TaxTMI 
2016 (9) TMI 18
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....uch assessment, the Assessing Officer issued a notice dated 24.2.2006 requiring various details from the assessee. The main thrust of the Assessing Officer in such notice, however, was in respect to the assessee's claim of exemption under section 11 of the Income Tax Act, 1961. He pointed out that substantial payments were made by the trust to the settler of the trust as well as the trustees and their near relatives, which according to him, were in violation of section 13(1)(c) of the Act. These payments were made in the nature of interest on deposits from the trustees and lease rent paid for the land taken on lease from them. The Assessing Officer also referred to the fee structure of the school and compared it with another school in the vicinity, namely, St. Marry School to contend that such fee was many times higher than that of the other school. He, therefore, tentatively came to the conclusion that the trust is not engaged in any charitable activity and had also committed breach of section 13(1)(c) of the Act. He, therefore, proposed to deny the exemption under section 11 of the Act as claimed by the assessee. 2.2 In reply to such notice, the assessee pointed out that the t....
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....er would do the same. The management and control over the trust fund was in the hand of the author and his family members. The school fees and development charges were exorbitant and beyond the reach of the poor and needy students. The trust did not have any voluntary contribution, but took loans from the trustees. The property was taken on lease from the trustees. According to him, these factors would show that the trust was imparting education with sole motive of profit making. He discarded the comparison of lease rent which the trustees had charged from the Max New York Life Insurance Co. Ltd on the ground that the assessee trust was occupying a larger area, whereas Max New York Life Insurance Co. Ltd. was occupying a very small piece of land and, therefore, comparison of rent was not possible. With respect to borrowing from the trustees, he discarded the assessee's contention that borrowing from the Bank would entail higher interest and lengthy procedure by suggesting that the investment of idle funds by the trustees in the Bank would fetch lower interest than what was offered by the trust. He concluded that such monetary transactions were nothing but planning of tax evasion in....
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....he assessee. First was that the trust was running the educational institution for profit making. The second was that the trust had diverted its income in favour of the trustees and their near relatives, thereby breaching section 13(1)(c) of the Act. So far as the first issue is concerned, the revenue authorities seem to be relying on the fact that the assessee was charging, what they considered, was high rate of fees compared to the other schools in the region. That, by itself, would not establish that the school was running for profit making. Through series of decisions, it is by now well settled that the trust, in the course of running an educational institution, is entitled to make a reasonable surplus and setting apart a surplus after expenditure from the receipts, by itself, would not mean that the purpose is profit making. This aspect was highlighted by the Supreme Court in detail in case of Queen's Educational Society vs. Commissioner of Income-tax (supra) in which reliance was placed on the decisions in the case of Aditanat Educational Institituion v. Addl. CIT, 224 ITR 310 and in the case of Americal Hotel & Lodging Association Educational Institution vs. CBDT, 301 ITR 86.....
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....sons. 10. We may deal with these issues one after another. Insofar as the lease rent is concerned, the revenue had not brought on record any evidence to suggest that such lease rent was either excessive or even higher than the normal market rate prevailing in the region at the relevant time. In fact, the assessee produced material to show that a part of the land belonging to the trustees was leased to one Max New York Life Insurance Co. Ltd. at the rate of Rs. 5/- per sq. ft. as against the rate of Rs. 1/- per sq. ft. being paid by the assessee. The CIT (Appeals) discarded such comparison on the ground that the area occupied by the Max New York Life Insurance Co. Ltd. was much smaller, as compared to the area leased to the assessee. The size of the land under occupation may have some bearing on the lease rent which the land may fetch, nevertheless, in the present case, the difference of rate between two cases was nearly five times. Without there being any further material on record, the Commissioner could not have come to the conclusion that the rent paid by the assessee to the trustees for the leased land, was excessive. 11. Similarly, the assessee pointed out to the authori....