TaxTMI 
TaxTMI 
TaxTMI 
2018 (6) TMI 1280
X X X X Extracts X X X X
X X X X Extracts X X X X
....tane, Lonvala from M/s. Cathedral Vidya School in which one of the Director is also trustee. During the course of assessment, it was observed that assesseecompany has received rental income of Rs. 1.80 crores, whereas, they have offered Rs. 1,63,19,130/- as rental income for the year. In reply to the specific query raised by the A.O, assessee has submitted that the balance amount of Rs. 16,80,870/- pertains to service tax which was included in rental income. However, as per the copy of Agreement filed by the assessee company, nothing was mentioned about the service tax and its liability. Moreover, assessee company is not registered with the Service Tax Department and without registration, question of charging of Service Tax and its liability does not arise. Accordingly, Net Rental Income is further increased by Rs. 11,76,609/- (being Rs. 16,80,870/- less 30%). The A.O. accordingly, made the addition of Rs. 11,76,609/-. 6. This addition was challenged before the Ld. CIT(A). The written submissions of the assessee is reproduced in the appellate order in which it was briefly explained that assesseecompany was incorporated on 26.10.2004. Main objects among others were - To start, esta....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Lonavala in 2005. Shri Vineet Nayyar owns 99% of the assessee-company and balance 1% is held by his daughter Ms. Namrata Nayyar. 26% of the above land was sold to Cathedral School Welfare Trust. The assessee and co-owner leased the land and building constructed by them to CVT. Shri Vineet Nayyar is Settler of CVT along with his wife. The assessee filed copy of the lease deed between the assessee company and CVT which shows that the lease deed is actually between assessee and CVT which is signed by Shri Vineet Nayyar on behalf of the assessee company and for the lessee, lease rent fixed is Rs. 15 lakhs per month to be paid to assessee-company.. 7.1. The assessee reiterated the same facts before the Ld. CIT(A). The Ld. CIT(A), noted that as per the balance sheet the value of the school land is Rs. 1.11 crores and building is valued at Rs. 42.36 crores as on 31.03.2010. The annual lease rent is shown at Rs. 1.8 crore only which is very low considering the value of the land and building leased-out to CVT. A show cause notice was issued to the assessee to substantiate the annual letting value shown. The assessee submitted that rent was mutually agreed between the assessee company and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rent. Therefore, the method applied by the Ld. CIT(A) by applying 8% of the investment is highly improper and not applicable to the Income Tax Act. Merely because the family member of Shri Vineet Nayyar controlled both the institutions by himself is no ground to reject the fair rental value shown by assessee. The Charitable Trust can pay to the Trustee rent which is reasonable for such services. The property was let out to educational institution which may not be used for commercial purpose or residential purpose. Therefore, the rent was reasonable, which was also lesser in earlier year and accepted. The Ld. CIT(A) has not given any comparable case while fixing the annual letting value of the property. The Learned Counsel for the Assessee relied upon decision of the Full Bench of the Delhi High Court in the case of CIT vs. Moni Kumar Subba (2011) 333 ITR 38 (Del.) in which, in para-20 the conclusion of the High Court is reproduced as under : "(i) Annual letting value would be the sum at which the property may be reasonable let out by a willing lessor to a willing lessee uninfluenced by any extraneous circumstances. (ii) An inflated or deflated rent based on extraneous consider....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l submissions of ld. AR of the parties and have gone through the orders of authorities below. We have also perused the material and the two decision mainly relied by ld AR for the assessee before us. The assessee-Trust was registered on 21.02.2008. The settler of Trust is Vineet Nayyar. The other trustee in the trust is Reva Nayyar. The address of both the trustee in the trust-deed are of 5A, Friends Colony (W), Mathura Road, Delhi-65. The initial corpus fund of Rs. 1100/- was contributed by settler. The name of the Trust was given as "The Cathedral Vidya Trust". The registered office of the Trust is mentioned as 6, Purushottamdas Thakurdas Marg, Fort Mumbai-400001. Further, the membership of the Trust was restricted to minimum one and not more than three. There is further provision in the trust-deed that the trustee shall be entitled to appoint the additional trustee as and when they deem fit as per Clause-6 of Trust-Deed. It is mentioned in the trust-deed that trustee shall immediately form a Private Limited Company under the provisions of Companies Act and will appoint the Trust-company as sole trustee of the Trust. The assessee Trust got registration under section 12A of the Ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the school was established and started from 03.08.2008 and imparting education from Std. IV to Std. XI and Diploma courses. The assessee is imparting world class education with strong Indian Tradition and values with advance school of modern technology. In order to get the Teachers and Faculties for imparting good education, the assessee is require to pay high amount of remuneration to Teachers of that calibre. There were 300 students and 65 teaching staff and administrative support staff. The school is not added by the Government support and entire expenditure is incurred from the fees that are charged from the students. The fee structure as compared to the other International School, the fee of the assessee is on lower side. The assessee specifically contended that no profit motive embedded in the charging of fees. For payment of lease rent at the rate of Rs. 25,00,000/- per month, the assessee contended that trust is paying lease rent to Vidya Education Investment Pvt. Ltd. for the plot of land measuring 16.93 acre. The lease deed was executed on 01.06.2008 for a period of nine years. Initially the rent was fixed at Rs. 5,00,000/- per month which was gradually increased from ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the income tax proceedings. 7. In our view, the only question for our consideration is whether the payment of rent/ lease rent paid to the related party is reasonable or excessive. The exemption under section 11 can only be denied when the income of the trust is diverted during the previous year in favour of any person referred in section13(3). Section 13(2) (g) specifically provides that when the income of the trust is diverted during the previous year in favour of any concern as provided under section 13(3)(e) the assessee would not be entitled for exemption if the rent paid is unreasonable one. 8. The perusal of the lease deed reveals that initially the rent was payable at the rate of Rs. 5,00,000/- p.m. The lease deed was executed on 01.06.2008. The assessee has debited the rent of Rs. 2,75,00,000/- in its P/L account. Thus, the assessee claimed the payment of rent at the rate of Rs. 25,00,000/- per month to the Company owned and managed by the Trustees. Though, the assessee within four years from the execution of lease deed increased the rent from Rs. 5.00 lacks to Rs. 25.00 lacks per month. There is no dispute about the status of trustee in assessee trust and the Di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cord. The operative words in Section 23(1)(a) are "the sum, for which, the property might reasonably be expected to let from year to year". These words provide a specific direction to the Revenue for determining the fair rent. The A.O. having regard to the aforesaid provisions is expected to make an enquiry as to what would be the reasonable rent that the property under reference might fetch. If the A.O. finds that actual rent received is less than the fair rent/market rent because of certain reasons, the A.O. can take necessary exercise in that behalf. Hon'ble Delhi High Court in the case of CIT vs. Moni Kumar Subba (supra), in para-20 has given its conclusion, reproduced above, in which, it was observed that willingness of the lessor and lessee shall have to be considered and extraneous considerations should be avoided. Such annual letting value, however, cannot exceed the standard rent as per Rent Control Legislation applicable to the property. If the standard rent has not been fixed by the Rent Controller, then, it is the duty of the A.O. to determine the standard rent as per provisions of Rent Control enactment. The standard rent is upper limit, if the fair rent is less than t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....year under appeal. So, facts are identical. The claim of assessee has been supported by opinion/report of M/s. Atharva Land Developers who have determined fair rent against which Ld. CIT(A) has not brought any report of expert. So, it could not be disputed. In the case of assessee and lessee, the rent paid in earlier year have not been disputed by the Revenue Authorities. Considering the totality of the facts and circumstances and in the light of decisions relied upon by the Learned Counsel for the Assessee, we are of the view that the lessee has paid fair reasonable rent to the assessee. Therefore, there were no basis to enhance the fair rent paid by lessee to the assessee-company. We, accordingly, set aside the orders of the Ld. CIT(A) and delete enhancement in rent made by him of Rs. 1,67,74,073/-. We may also note that Ld. CIT(A) while enhancing rental income, did not decide the issue of service tax paid by assessee. Ld. CIT(A) admitted the additional evidences which are service tax paid by the assessee through challan and service tax returns filed for assessment year under appeal. It would support the explanation of assessee that assessee paid service tax for assessment year u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct. The proportion of the value of the land and building as against the other assets is 93.15% and not 50% as computed by the A.O. All the borrowings were used for construction of assets of the school. The share capital, loans and reserve and surplus of the assessee ending 31.03.2010 are Rs. 17,31,22,801/-. The balance sheet of the assessee shows total investment on assets as on 31.03.2010 at Rs. 43,46,75,917/- whereas, the borrowings as on 31.03.2010 were Rs. 25.13 crores only. This clearly shows that assessee has substantially utilized its own funds amounting approximately to Rs. 18 crore and the funds of the co-owner amounts to Rs. 5.61 crore to finance the purchase/ acquisition of the school assets. All the assets created by the borrowed funds and own funds were in respect of school which was leased to CVT. The borrowed funds were not utilized for other assets. The Ld. CIT(A), however, did not accept the contention of the assessee and noted that assessee has shown secured loan of Rs. 25.13 crore and others. The total funds available to the assessee are Rs. 53.38 crore are about 47%, therefore, 50% disallowance was found justified. It was also noted that it was for the assessee ....