Addl. CIT v. N.L. Education Society

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The Tax Publishers2012 TaxPub(DT) 2460 (Agra-Trib) : (2012) 052 SOT 0603 INCOME TAX ACT, 1961 --Charitable trust--Bar tio exemption under section 13(3)Benefit to relative of secretary of society--During the relevant assessment year, the assessee society was running two educational institutions under the names and style of Viveka Nand College of Education which is imparting the education for B. Ed. and V Nand College of Law at Aligarh for providing education from Nursery education to higher education. The trust was running on the land in the ownership of Smt. S W/o Shri A. The assessing officer, therefore, found that the land on which school is running did not belong to the assessee. It was stated that the land has been leased out by the owner, Smt. S W/o Shri A (Secretary of the assessee) to the Society. Copy of the lease deed was filed, which is appended with the assessment order and executed on 24-12-2004. the assessing officer noted that as per valuation report in respect of the construction of school building on the leased land, the total expenditure upto 31-3-2006 on the building construction was Rs. 95,68,578 only and since the land did not belong to the assessee-society, therefore, according to the assessing officer, benefit was passed on to the relative of the Secretary of Society under section 13(3). Therefore, show cause notice was issued as to why exemption be not denied to the assessee. Reply of the assessee is incorporated in the assessment order, in which the assessee briefly explained that the land is taken on lease from Smt. S and no benefit has been provided to her. The land was taken on lease for 30 years with a renewal option to the assessee-society after expiry of the 30 years as per clause -5 of the lease deed. Any construction on land done by the Society will be used by the Society for its own subject only and as such, there is no probability that any benefit from construction will accrue to Smt. S during the period of lease. The assessing officer, however, did not accept the contention of the assessee and noted that as per clause 5 of the lease deed, it is seen that after 30 years, if lease is not extended then whatever investment is made in the construction of building on leased land will become the property of the lessor, i.e., Smt. Sudha Saraswat without any right of compensation available to the lessee, i.e., the assessee. In that situation, the assessee would be in its disadvantage position. Therefore, according to the assessing officer, there is violation of section 13 of the Income Tax Act and as such, exemption under section 11 and 12 of the Income Tax Act was denied to the assessee and addition was, accordingly, made. The order of the assessing officer was set aside and the appeal was allowed by Commissioner (Appeals) and it was directed that the income of the assessee be assessed on returned income. Held: The was no benefit passed on to relative of secretary of society was the assessing officer's view is guided by the Hypothecated situation about the future which is 30 years from now and nothing is brought on record how the benefit is accrued to the director at present. even after 30 years lease is not extended, the building and construction will be removed and no benefit accrue. Further, the lease deed is amended to avoid controversy. There is no justification to interfere with the order of the learned Commissioner (Appeals) in allowing the appeal of the assessee. The whole case revolves upon the lease deed dated 24-12-2004 executed between the lessor, Smt. S and the assessee-society through which the land measuring 5150.48 sq. meter was let out to assessee society for 30 years. Copy of the lease deed is appended with the assessment order. The assessee paid Rs. 10,000 as premium and agreed to pay Rs. 150 per month as rent of the demised property, i.e., 1800 per annum. The assessee was entitled to raise any construction from own funds and to use the land and building over the leased property. All expenses were to borne by the assessee and as per clause 5 of the deed, in case the lessee/assessee wanted the extension of lease after 30 years on expiry of lease deed, the extension of the lease shall be at the option of the lessee and the lessor/owner shall be bound by such requisition and the lessor shall have to extend the period of tenancy with option to enhance rent by 10%. Further, in case, such option is not exercised by the lessee/assessee-society after completion of the term of the lease, all construction, structure, superstructure, fixtures etc. over the leased land shall be removed by the assessee/lessee immediately or otherwise the same would revert to the lessor who will not liable for any compensation. The whole dispute is on this clause and according to the assessing officer, due to the above clause, the benefit has been conferred upon the land lady, who is relative / wife of the Secretary of the Society in terms of section 13(3) of the Income Tax Act. Such an assumption of the assessing officer is wholly unwarranted under the law. Clause 5 of the lease deed is not, in absolute terms, to put the assessee to disadvantageous situation. Right is given to the assessee society to get the extension of the lease deed and in that event, lessor /owner is bound to extend the period of tenancy by enhancing the rent at 10%. Further option is given to the assessee that in case assessee society does not want extension of the lease, the assessee would be at liberty to remove all construction or structure, superstructure and in case the same is not removed by the assessee society, it will go back to the owner of the property. It is well settled law that in case of termination of tenancy, the owner is entitled to get back the possession of the demised property and in case the tenant has not removed the articles from the property, the land lord / owner with all rights vested in him, can remove all articles and things from the tenanted property in order to get back the possession of the tenanted property as was let out. Even if it is provided in the lease deed that the superstructure would revert to the lessor is of no consequence because the property in question belongs to the assessee society only and in no event, the lessor/owner can take forcible possession of the building or superstructure. At the most in the event of termination of tenancy, the landlord/owner could remove the superstructure from the demised land in order to get back the possession of the tenanted land in question. Further, if the assessee would have exercised option for renewal of the tenancy period, the assessing officer has to answer as to what would happen to his assessment order denying exemption to the assessee under sections 11 & 12 of the Income Tax Act. Whether in such event, the order of the assessing officer would stand as on today because the option can be exercised in the year 2034, which nobody knows as to what would happen in future. No event has happened in the assessment year under appeal. It is only a hypothetical and bald assertion of the AC) in denying the benefit of section 11 to the assessee. According to section 13 of the Income Tax Act, such income or property shall be used or applied for the benefit of such person as referred in sub-section (3) of section 13 during the previous year relevant to the assessment year under appeal for denying benefit of sections 11 & 12 of the Act. However, in the previous year relevant to the assessment year under appeal, nothing has happened to provide any benefit to any such prohibited person out of the income or property of the assessee society. At present, the assessee is in advantageous position through lease deed of meagre rent of Rs. 150 per month for 30 years. The assessee as per lease deed is entitled for raising any construction, using the constructed building for its own purposes and as per other clauses, the assessee could have get the renewal of the lease deed. Therefore, even as per original clause 5 of the lease deed, no benefit is provided to the relative of the Secretary of the Society. Therefore, even if clause 5 of the lease deed is re-drafted to avoid the above mischief, no case is made out by the assessing officer to make addition. The witnesses to the deed would append their signature for explaining the contents of the documents between the parties if there is any dispute, but no such dispute arise between the parties on the lease deed or supplementary deed. Therefore, there is no question of examination or reexamination of any witness to the supplementary deed. The right to remove the superstructure is with the assessee and that event did not take place in the assessment year under appeal. Therefore, the assumption of the assessing officer is illegal. At present, the meagre rent of the tenanted property does benefit to the assessee-society and as such, no benefit is extended to any relative of the Secretary of the Society under section 13(3). The assessee also rightly contended before the Commissioner (Appeals) that the assessing officer has allowed depreciation at the rate of 10% on the building and superstructure while computing the income of the assessee, would prove that the depreciation has been granted to the assessee being the owner of the superstructure and as such, the assessing officer admitted ownership of the assessee over the building in question and as such, the assessing officer passed contradictory order in this case. Further, the re-drafting of clause 5 of the lease deed has merely explained that in the event of expiry of the lease term, the superstructure will be removed by the assessee immediately, which is already provided in the original clause No. 5. It was explained in the supplementary deed that in case it is not possible to remove the existing structure then the lessor shall pay to the society the value of superstructure as would be valued by the registered valuer. Therefore, explaining clause No. 5 through supplementary deed would not be inadmissible in nature and as such, would not violate rule 46A of the IT Rules. The assessee further contended that the assessing officer in this case is Dr. B Addl. CIT, who denied exemption, but the same assessing officer accepted similar claim of the assessee in subsequent assessment year 2008-09 in the order passed under section 143(3) dated 27-12-10 (PB-51). It is well settled law that though the principle of res judicata does not apply to the Income-tax Proceedings, but the Income Tax Authorities are bound to follow the rule of consistency while deciding similar matters. Since the assessing officer himself accepted the case of the assessee in the subsequent year, therefore, there is no justification to interfere with the order of the Commissioner (Appeals) in allowing exemption to the assessee under section 11. Considering the totality of facts and circumstances of the case, we do not find any justification to interfere with the order of the Commissioner (Appeals). The departmental appeal has no merit and is dismissed.[Para 8] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 2460 (Agra-Trib) : (2012) 052 SOT 0603

INCOME TAX ACT, 1961

--Charitable trust--Bar tio exemption under section 13(3)Benefit to relative of secretary of society--During the relevant assessment year, the assessee society was running two educational institutions under the names and style of Viveka Nand College of Education which is imparting the education for B. Ed. and V Nand College of Law at Aligarh for providing education from Nursery education to higher education. The trust was running on the land in the ownership of Smt. S W/o Shri A. The assessing officer, therefore, found that the land on which school is running did not belong to the assessee. It was stated that the land has been leased out by the owner, Smt. S W/o Shri A (Secretary of the assessee) to the Society. Copy of the lease deed was filed, which is appended with the assessment order and executed on 24-12-2004. the assessing officer noted that as per valuation report in respect of the construction of school building on the leased land, the total expenditure upto 31-3-2006 on the building construction was Rs. 95,68,578 only and since the land did not belong to the assessee-society, therefore, according to the assessing officer, benefit was passed on to the relative of the Secretary of Society under section 13(3). Therefore, show cause notice was issued as to why exemption be not denied to the assessee. Reply of the assessee is incorporated in the assessment order, in which the assessee briefly explained that the land is taken on lease from Smt. S and no benefit has been provided to her. The land was taken on lease for 30 years with a renewal option to the assessee-society after expiry of the 30 years as per clause -5 of the lease deed. Any construction on land done by the Society will be used by the Society for its own subject only and as such, there is no probability that any benefit from construction will accrue to Smt. S during the period of lease. The assessing officer, however, did not accept the contention of the assessee and noted that as per clause 5 of the lease deed, it is seen that after 30 years, if lease is not extended then whatever investment is made in the construction of building on leased land will become the property of the lessor, i.e., Smt. Sudha Saraswat without any right of compensation available to the lessee, i.e., the assessee. In that situation, the assessee would be in its disadvantage position. Therefore, according to the assessing officer, there is violation of section 13 of the Income Tax Act and as such, exemption under section 11 and 12 of the Income Tax Act was denied to the assessee and addition was, accordingly, made. The order of the assessing officer was set aside and the appeal was allowed by Commissioner (Appeals) and it was directed that the income of the assessee be assessed on returned income. Held: The was no benefit passed on to relative of secretary of society was the assessing officer's view is guided by the Hypothecated situation about the future which is 30 years from now and nothing is brought on record how the benefit is accrued to the director at present. even after 30 years lease is not extended, the building and construction will be removed and no benefit accrue. Further, the lease deed is amended to avoid controversy.

There is no justification to interfere with the order of the learned Commissioner (Appeals) in allowing the appeal of the assessee. The whole case revolves upon the lease deed dated 24-12-2004 executed between the lessor, Smt. S and the assessee-society through which the land measuring 5150.48 sq. meter was let out to assessee society for 30 years. Copy of the lease deed is appended with the assessment order. The assessee paid Rs. 10,000 as premium and agreed to pay Rs. 150 per month as rent of the demised property, i.e., 1800 per annum. The assessee was entitled to raise any construction from own funds and to use the land and building over the leased property. All expenses were to borne by the assessee and as per clause 5 of the deed, in case the lessee/assessee wanted the extension of lease after 30 years on expiry of lease deed, the extension of the lease shall be at the option of the lessee and the lessor/owner shall be bound by such requisition and the lessor shall have to extend the period of tenancy with option to enhance rent by 10%. Further, in case, such option is not exercised by the lessee/assessee-society after completion of the term of the lease, all construction, structure, superstructure, fixtures etc. over the leased land shall be removed by the assessee/lessee immediately or otherwise the same would revert to the lessor who will not liable for any compensation. The whole dispute is on this clause and according to the assessing officer, due to the above clause, the benefit has been conferred upon the land lady, who is relative / wife of the Secretary of the Society in terms of section 13(3) of the Income Tax Act. Such an assumption of the assessing officer is wholly unwarranted under the law. Clause 5 of the lease deed is not, in absolute terms, to put the assessee to disadvantageous situation. Right is given to the assessee society to get the extension of the lease deed and in that event, lessor /owner is bound to extend the period of tenancy by enhancing the rent at 10%. Further option is given to the assessee that in case assessee society does not want extension of the lease, the assessee would be at liberty to remove all construction or structure, superstructure and in case the same is not removed by the assessee society, it will go back to the owner of the property. It is well settled law that in case of termination of tenancy, the owner is entitled to get back the possession of the demised property and in case the tenant has not removed the articles from the property, the land lord / owner with all rights vested in him, can remove all articles and things from the tenanted property in order to get back the possession of the tenanted property as was let out. Even if it is provided in the lease deed that the superstructure would revert to the lessor is of no consequence because the property in question belongs to the assessee society only and in no event, the lessor/owner can take forcible possession of the building or superstructure. At the most in the event of termination of tenancy, the landlord/owner could remove the superstructure from the demised land in order to get back the possession of the tenanted land in question. Further, if the assessee would have exercised option for renewal of the tenancy period, the assessing officer has to answer as to what would happen to his assessment order denying exemption to the assessee under sections 11 & 12 of the Income Tax Act. Whether in such event, the order of the assessing officer would stand as on today because the option can be exercised in the year 2034, which nobody knows as to what would happen in future. No event has happened in the assessment year under appeal. It is only a hypothetical and bald assertion of the AC) in denying the benefit of section 11 to the assessee. According to section 13 of the Income Tax Act, such income or property shall be used or applied for the benefit of such person as referred in sub-section (3) of section 13 during the previous year relevant to the assessment year under appeal for denying benefit of sections 11 & 12 of the Act. However, in the previous year relevant to the assessment year under appeal, nothing has happened to provide any benefit to any such prohibited person out of the income or property of the assessee society. At present, the assessee is in advantageous position through lease deed of meagre rent of Rs. 150 per month for 30 years. The assessee as per lease deed is entitled for raising any construction, using the constructed building for its own purposes and as per other clauses, the assessee could have get the renewal of the lease deed. Therefore, even as per original clause 5 of the lease deed, no benefit is provided to the relative of the Secretary of the Society. Therefore, even if clause 5 of the lease deed is re-drafted to avoid the above mischief, no case is made out by the assessing officer to make addition. The witnesses to the deed would append their signature for explaining the contents of the documents between the parties if there is any dispute, but no such dispute arise between the parties on the lease deed or supplementary deed. Therefore, there is no question of examination or reexamination of any witness to the supplementary deed. The right to remove the superstructure is with the assessee and that event did not take place in the assessment year under appeal. Therefore, the assumption of the assessing officer is illegal. At present, the meagre rent of the tenanted property does benefit to the assessee-society and as such, no benefit is extended to any relative of the Secretary of the Society under section 13(3). The assessee also rightly contended before the Commissioner (Appeals) that the assessing officer has allowed depreciation at the rate of 10% on the building and superstructure while computing the income of the assessee, would prove that the depreciation has been granted to the assessee being the owner of the superstructure and as such, the assessing officer admitted ownership of the assessee over the building in question and as such, the assessing officer passed contradictory order in this case. Further, the re-drafting of clause 5 of the lease deed has merely explained that in the event of expiry of the lease term, the superstructure will be removed by the assessee immediately, which is already provided in the original clause No. 5. It was explained in the supplementary deed that in case it is not possible to remove the existing structure then the lessor shall pay to the society the value of superstructure as would be valued by the registered valuer. Therefore, explaining clause No. 5 through supplementary deed would not be inadmissible in nature and as such, would not violate rule 46A of the IT Rules. The assessee further contended that the assessing officer in this case is Dr. B Addl. CIT, who denied exemption, but the same assessing officer accepted similar claim of the assessee in subsequent assessment year 2008-09 in the order passed under section 143(3) dated 27-12-10 (PB-51). It is well settled law that though the principle of res judicata does not apply to the Income-tax Proceedings, but the Income Tax Authorities are bound to follow the rule of consistency while deciding similar matters. Since the assessing officer himself accepted the case of the assessee in the subsequent year, therefore, there is no justification to interfere with the order of the Commissioner (Appeals) in allowing exemption to the assessee under section 11. Considering the totality of facts and circumstances of the case, we do not find any justification to interfere with the order of the Commissioner (Appeals). The departmental appeal has no merit and is dismissed.[Para 8]