TaxTMI 
TaxTMI 
TaxTMI 
2022 (9) TMI 401
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt proceedings, it was noticed that the assessee has made rent payment of Rs.41,50,000/- and computer rent of Rs.16,55,500/-. The assessee was asked to explain the details. The assessee explained that there are three school complexes of G.K. Dholakia School which are run by the assesseetrust. For School Complex-1 wherein rent of Rs.2,00,000/- was paid by the assessee; for School Complex-2 Rs.1,25,000/- and School Complex-3, rent of Rs.50,000/- were paid. All these payments were made by the assessee-trust to its trustees or relatives of the trustees. The AO called for details of Municipal valuation of these premises which were Rs.43,562/- for School Complex-1, Rs.9,942/- for School Complex-2 and Rs.19,202/- for School Complex-3. As the assessee has made excessive payment for the above school complexes to its Trustees or relatives of the Trust, which was against the provisions of section 13(3) and section 13(1)(c)(ii) of the Act. Therefore, the benefits of claim under section 11 were being withdrawn by the AO. Similarly, computer rent of Rs.16,55,500/- was paid by the assessee-Trust to Gyanganga Computers, Rajkot wherein the Partners of the Firm are also Trustees in the assessee Trus....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Address of the property Rate of rent (per Sq. Ft.) Remarks 1 Income Tax Department 2nd & 3rd Floor, Amrita Estate, Near Girnar Cinema, Rajkot. Rs. 12.98 This is an old buildpg constructed in 1964. 2 Joint director of industry, safety and health Annexy building, near Girnar Cinema, Rajkot. Rs. 10.03 This is an old building constructed in 1983. 3 Bank of Baroda Near Panchayat Nagar, Rajkot. Rs. 75/- This is situated in nearby area. The monthly rent of Rs.158250/- for 2110 Sq. feet. 4 Muthoot Finance Near Panchayat Nagar, Rajkot. Rs. 116/- This is situated in nearby area. The monthly rent of Rs. 87000/- for 750 Sq. feet. 5. Saurashtra Gramin Bank Subsidiary of State Bank of India Panchayat Nagar Chowk, Rajkot. Rs. 40/- This is situated in nearby area. The monthly rent of Rs. 40000/- for 1000 Sq. feet. "8.7.1 As can be seen from the above table, the first two instances are of one of the prime areas of the city where an old building is let out and rest three instances are of the nearby properties. When the appellant cited these instances before the A.O. with a request to cross verify the rents shown in the above table, there is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... adopt improper benchmark of municipal valuation. Under both these yardsticks, the appellant has reasonably justified that the building rent paid to specified persons was not only reasonable but also concessional and in that event, it is the appellant trust which has derived benefits and not the specified persons. I therefore hold that the building rent paid by the appellant cannot be said to be unreasonable or excessive." 3.1 As against computer rent paid to Gyanganga Computer, the ld.CIT(A)'s observations are as follows: "9.3 On careful consideration of the above, ! am inclined to accept that the computer rent paid by the appellant is not excessive. As seen from the annual accounts of M/s. Gyanganga Computers, the major part of its income is by way of computer rent from the appellant trust and other trusts under same management and still its net profit ratio is 2.93% only. This indicates that a reasonable margin is earned on cost which cannot be termed as excessive. Further, it is observed that M/s. Gyanganga Computers charged Rs.60/- per month to outsiders inc case of one-time payment and Rs.70/- per month in case of installment payment. As against this, the appellant has be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....efore, I hold that the denial of exemption u/s 11 is not sustainable. I therefore restore the exemption u/s. 11 of the IT Act, 1961 claimed by the appellant. This ground of appeal is allowed." 4. Thus, the appeals filed by the assessee has been partly allowed by the ld.CIT(A). Aggrieved against the same, the Revenue is in appeal before the Tribunal. 5. The ld.CIT-DR, Mr.Aarsi Prasad appearing for the Revenue contended that the ld.CIT(A) has not considered the fact that calculation of rent per sq.feet is based on entire campus area of construction as well as open area whereas the rent of commercial properties is based on carpet area. Therefore, they cannot be considered as comparable. The ld.CIT(A) also failed to go through the clauses of rent agreement of commercial property such as period of lease, nature and quality of furnishing, lease carpet area etc. The ld.CIT(A) failed to make comparison of similar school buildings or campus and also rate of return is calculated on fair market value of the school building instead of investment. The CIT(A) also failed to explain nature of expenses claimed by the Gyanganga Computers before stating that the low net profit ratio of the Gyanga....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in sub-section (3) of the Act. What is relevant is the use or application of any part of the income of the trust directly or indirectly for the benefits of any such person referred to in subsection (3). Mere payment of lease rent or interest on borrowed funds, without there being any element of such payments being excessive or unreasonable compared to the normal rates prevailing, would not fall within the mischief of section 13(1)(c). 14. The Tribunal has, more or less, adopted the reasoning elaborated by the Commissioner. For the reasons recorded above, we do not find that the Tribunal correctly analyzed the situation." 6.2 Regarding computer rent, the ld.AR submitted that the assessee-trust has given computer training to all the students of entire school. It is not only senior students got computer training. The details of students given computer training are available at page no.42 of the paper book. However, no separate fees for computer training are collected from the students. It is included in the total education fee of the students. The assessee-trust pays computer fees for computer along with service of the tutors. Therefore, it is exactly comparable with fees taken b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ue and this position is accepted under the Income Tax and as in the calculation of Income from house property, higher of municipal valuation or fair rent is taken into account. Furthermore the rental agreements clearly mention that besides building other amenities like furniture, electrical fittings, parking and open ground was also used by the trust. Thus the assessing officer is not correct in making comparison with the municipal valuation and the assessee has made excessive payment to the trustees. 10. The assessee Trust also shown factual data as comparable to justify reasonable rates of building rent in the form of few comparable instances by obtaining the details from CPWD and PWD wherein Income Tax department itself is paying a rent of Rs.12.98 per sqft for an old building constructed in 1964, Office of Joint Director of Industry, Safety and Health is paying a rent of Rs. 10.03 per sqft for an old building constructed in 1983, whereas Bank of Baroda is paying a rent of Rs. 75 per sqft, Saurashtra Brahmin bank paying rent of Rs. 40 per sqft and a Muthoot Finance is paying a rent of Rs.116 sqft. Whereas the assessee trust has paid monthly rent of Rs. 5.22 to Rs. 7.61 for the ....