Income Tax Appellate Tribunal - Chandigarh
M/S Chitkara Educational Trust, ... vs Department Of Income Tax on 9 October, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH,CHANDIGARH
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND Ms.ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER
ITA No. 960/CHD/2014
Assessment Year: 2011-12
The ACIT, Vs M/s Chitkara Educational Trust,
Sector 17-E, House No. 1097, Sector 18-C,
Chandigarh. Chandigarh.
PAN: AAATC6244M
(Appellant) (Respondent)
Appellant by : Smt. Rajinder Kaur, DR
Respondent by : Shri Vineet Krishan
Date of Hearing : 24.09.2015
Date of Pronouncement : 09.10.2015
O R D E R
PER BHAVNESH SAINI,JM This appeal by revenue is directed against the order of ld. CIT(Appeals) Chandigarh dated 22.08.2014 for assessment year 2011-12 on the following grounds :
"1. The Ld. CIT(A) has erred in allowing the appeal of the assessee without appreciating the facts of the case.
2. The Ld. CIT(A) has erred in allowing the exemption u/s 11 of the Act without considering the facts that the assessee has violated the condition u/s 13.
3. The Ld. ClT(A) has erred in deleting the addition of Rs. 48,01,183/- on account of interest on loan for assets not put to use u/s 36(1)(iii) of the Act without considering that the condition u/s 13 are clearly violated.
4. The Ld. CIT(A) has erred in deleting the addition of Rs. 18,72,000/- u/s 37 on account of interest on interest free advances without considering the facts that exemption u/s 11 could not be 2 allowed to the assessee in view of the conditions laid down in Section 13 of the Act.
5. The Ld. CIT(A) has erred in deleting the addition of Rs. 1,30,000/- on account of expenditure on donation without considering the facts that the exemption u/s 11 could not be allowed to the assessee in view of the conditions laid down in Section 13 of the Act."
2. We have heard ld. Representatives of both the parties, perused the findings of authorities below and considered the material available on record.
3. Ground No. 1 is general and need no adjudication.
4. On ground No. 2, revenue challenged the order of ld. CIT(Appeals) in allowing the exemption under section 11 of the Act without considering the fact that assessee has violated the conditions of Section 13 of the Income Tax Act.
5. Briefly the facts of the case are that the assessee is an educational trust and was granted registration u/s 12AA of the Income Tax Act, 1961 (hereinafter referred to as 'Act'). Return of income was filed by the assessee declaring 'nil' income after claiming exemption u/s 11(1) of the Act. The assessee had taken ground floor and basement of the building at SCO-160-161, Sector-9-C, Chandigarh on rent from Shri Mohit Chitkara with effect from 01.04.2008 on monthly rent of Rs. 6,00,000/-per month. The Assessing Officer noticed that the assessee trust had given rent security of Rs.1,74,00,000/- to Shri Mohit Chitkara, who happened to be one of the trustees also. The Assessing Officer made comparison of rent and 3 security paid in respect of other buildings with this building and observed as under:
(a) Monthly rent of Rs. 5,26,OOO/- had been paid for 10520 sq. ft. with 5% increase every year of the last rent paid in respect of Dainik Bhaskar Building, Sector-25, Chandigarh with interest free security of Rs. 11,00,000/-.
(b) Another property was taken on rent at Dainik Bhaskar Building, Sector-25, Chandigarh at monthly rent of Rs. 5,41,600/- with covered area of 13,540 sq. ft. and interest free security of Rs.
11,30,800/-.
(c) The ratio of security paid to rent was 2 to 3 times in respect of other buildings as compared to 29 times in the case of property taken from Shri Mohit Chitkara.
5.1 The above observations were brought to the notice of the assessee by the Assessing Officer and it was conveyed to the assessee that Shri Mohit Chitkara falls within the category of persons defined in section 13(3)(cc) of the Act. It was also conveyed to the assessee that the interest free rent security given to Shri Mohit Chitkara was much more than what was given to other landlords around the same time. According to the Assessing Officer, there was diversion of funds to this extent by the trust and as per section 13(l)(c) of the Act, such income was not to be excluded from the total income and provisions of section 11 were not applicable to the assessee. The assessee was asked to show cause as to why the exemption claimed u/s 11 of the Act be not denied as there was violation of provisions laid down in section 13 of the Act.
4
6. The assessee in response to Show Cause Notice submitted the reply before Assessing Officer which is summarized below :
(i) At the time of hiring the area from Shri Mohit Chitkara in the year 2008, only about 3000 sq. ft. was required and so only basement and ground floor were hired in the impugned building and it was agreed upon that the landlord will not-rent out first and second floor without the consent of the appellant, since the assessee may be in need of further accommodation in future.
Subsequently, the assessee had taken first and second floor also on rent with effect from 01.04.2010.
(ii) The market rent for basement and first floor was around Rs. 10,00,000/- and the assessee negotiated it for Rs. 6,00,000/- with payment of security. Even by considering the interest at bank rate on the security amount, the rent was less than the market rent and so provisions of section 13 were not applicable.
(iii) The premises were hired in the year 2008 and the issue was thoroughly examined by the then Assessing Officer in A.Y. 2009-10 and rent & security was held to be reasonable. Returned income was accepted in that year. The assessee had also made reference to the submission dated 21.11.2011 filed in the assessment proceedings of A.Y. 2009-10.
(iv) The Assessing Officer had accepted the security as adequate in A.Y. 2009-10 after considering the facilities provided including fully furnished and centrally air conditioned building, free furniture, vitrified tiles, cabins, false ceiling on roofs, back up generator set of 125KVA, 24 hours running water and electricity facilities etc.
(v) The payment was not made during the A.Y. 2011-12 and so no benefit was passed on to the trustee during the year under reference.
(vi) Other buildings were hired at market rate whereas the rent paid to Shri Mohit Chitkara was less than market rate. 5
(vii) Dainik Bhaskar Building is on the outskirts at a secluded place and the assessee had public dealings, for which central place was very important.
(viii) Other premises are' not in the heart of the city, whereas the premises of Shri Mohit Chitkara are in the prime commercial area and hence not comparable for rental value/ security.
(ix) Shri Mohit Chitkara was not to let out the first and second floor without the consent of the assessee, whose market rent was more than Rs. 6,00,000/-. Subsequently, these floors were hired with effect from 01.04.2010 i.e. after two years of the initial hiring at a monthly rent of Rs. 1,50,000/- per month, which is much less than the market rent.
(x) The fact that rent charged was less than market rent is established from the fact that Shri Mohit Chitkara had let out 50 sq. ft. area of second floor with the consent of the assessee for Rs. 8,500/- per month as against rent of Rs. 1,50,000/- per month for 5,882 sq. ft, taken by the appellant
(xi) The exemption could not be denied in the year under assessment when no additional security was given in respect of the first and second floor, which were also centrally air conditioned, on paltry rent of Rs. 1,50,000/- per month for covered area of 6942 sq. ft i.e. Rs. 21/- per sq. ft. Rent of the entire building was fixed at Rs. 9Q,00,000/- per year with all the facilities for total commercial area of 12,110 sq. ft. and the same rent is to continue upto the year 2023 extendable for another ten years at the option of the lessee and so the security given in F.Y, 2009-10 is not only reasonable, but on a much lower side.
7. The Assessing Officer was, however not satisfied with the explanation of the assessee and held that provisions of Section 13 of the Act are attracted in the case of the assessee and accordingly denied exemption 6 under section 11(1) of the Income Tax Act with the following observations :
a) The amount of security given was alarmingly high and there is no clause in the agreement to prohibit the landlord not to rent out the other floors to any other person in the rent deed.
(b) The appellant trust had entered into an agreement with M/s Writer and Publishers Ltd, for plot No. 11-12, Sector-25, Chandigarh for providing benefit to M/s Chitkara Education (P) Ltd. Therefore, utilities were made available to another concern and so the case of the appellant trust was covered by the provisions of section 13(2)(d) read with section 13(3)(e) of the Act.
(c) The security was paid in the year 2008-09 and has not been adjusted against rent nor has been received back and so undue benefit s continued to be given to the trust.
(d) A sum equivalent to three months rent i.e. Rs.
18,00,000/- was reasonable to be accepted as the amount of security and the remaining amount of Rs. 1,56,00,000/- was treated as advance given for non business purposes. The Assessing Officer computed interest @ 12% on this amount and added the same to the total income of the appellant.
e) The Assessing Officer disallowed interest @ 12% on the amount given as advance to the suppliers; advance against projects and on capital work in progress. The disallo wance was worked out at Rs. 48,01,183/-.
(f ) The Assessing Officer also disallowed the amount of donation of Rs. 1,30,100/-, claimed as expenditure
8. The ld. CIT(Appeals), considering the submissions of the assessee and material on record, decided the issue in favour of the assessee and held that provisions of Section 13 are not attracted in the case, therefore, assessee is eligible for exemption under section 11(1) of the Act and accordingly allowed this ground of appeal of the assessee. 7 The findings of ld. CIT(Appeals) in paras 4.1 to 4.8 of the appellate order are reproduced as under :
"4.1 I have considered facts of the issue and have also gone through the copy of agreements entered into by the trust with Shri Mohit Chitkara and other relevant documents. The basement and ground floor of the impugned property was taken on rent from Shri Mohit Chitkara with effect from 01.04.2008. For the sake of ready reference; clauses (1), (3), (4) and (17) are reproduced as under:
"1. That the lease shall be for a lock in period of three years commencing w.e.f. 01.04.2008.
3. That the Lessee has taken the demised premises subject to the condition that the Lessor shall not let out the 1st and Second Floor without the written consent of the Lessee. In case the Lessee wants to take the 1st 85 Second Floor also on rent, the rent of the entire premises comprising of Basement, Ground Floor, 1st Floor and Second Floor shall be at Rs. 7,50,OOO/- p.m. subject to the fact that Lessor shall keep area of not more than 100 sq, ft. in his possession on 1st or 2nd floor as desired by him. This option is to be exercised by the Lessee within 3 years from the date of the agreement. In case of failure, Lessor shall be free to let out First and 2nd Floor at his own and Lessee shall not have any right/claim for that.
4. That the lease shall be for a period of 15 years i-e. upto 31.3.2023. Extendable with the mutual consent of both the parties.
17. That at the request of the Lessee, the Lessor has given the demised premises SCO 160-61, Sector 9C, Chandigarh as a collateral security as 2nd charge to Punjab and Sind Bank & Punjab National Bank for securing credit facilities to the Lessee Trust. Hence, the Lessor during the currency of lease cannot transfer, mortgage to any other person, sell, assign or otherwise create any charge or interest in the demised premises without the prior consent of the Lessee."
4.1. Thus, the lease was for fifteen years i.e. upto 31.03.2023 with a lock in period of three years commencing from 01.04.2008. As per clause (3), the lessor was not to let out the first and second floor without written consent of the lessee and total rent of all these four floors was to be 7,50,000/- per month subject to the fact that lessor could not keep area 8 of more than 100 sq. ft in his possession of first or second floor. The option of taking first and second floor on rent was to be exercised by the appellant within three years from the date of agreement. Subsequently, the first and second floor were taken on rent by the appellant after two years. As per clause (17), the premises had been given as a collateral security as second charge to Banks for securing credit facilities to the appellant Trust.
4.2 The security given to Shri Mohit Chitkara by the appellant trust was of Rs. 1,74,00,000/-, against which the appellant trust derived following advantages:
(i) The lessor i.e. Shri Mohit Chitkara could not let out first and second floor of the impugned property, since the appellant trust had asked for these floors to be taken on rent. This means that Shri Mohit Chitkara suffered notional loss to the extent of the market rent of first and second floor for two years.
(ii) The property is available to the appellant trust for a period of fifteen years.
(iii) The appellant got a prime property in a commercial sector.
(iv) The lessor could not have sold the property, since the property had been given as collateral security as second charge to the banks for credit facilities to the appellant Trust.
(v) The appellant trust got credit facilities from the banks because lessor had agreed for the property to be given as collateral security.
(vi) The lessor cannot sell the premises during the currency of lease and if he wants to sell, he has to first offer the same to the appellant at, the lowest market price.
(vii) During the currency of lease, the lessor was prevented from transferring, mortgaging or otherwise creating interest in the property to anyone else without prior consent of the appellant trust.
(viii) The appellant had got the building fully furnished with central air conditioning, generator set, pantry room, furniture, EPBX installed, 24 hours water supply etc. 9
(ix) The monthly rent works out to approximately Rs. 62 per sq. ft. only for the entire property of more than 12,000 sq. ft.
(x) The interest on the security amount even @ 12% works out to Rs.
20,88,000/- per annum, against which the appellant got fully furnished premises with central air conditioning, generator set and furniture etc @ Rs. 62 per sq. ft.
(xi) The amount of security was a fair price for a furnished accommodation. Even if it is taken to be notional additional price and interest on the amount of security is taken into account, it is not a high amount for furnished premises of more than 12,000 sq. ft
(xii) No additional security was paid for taking approximately 7.000 sq. ft. on rent on the first and second floor at a meager rent of Rs. 1,50.000/- per month only.
(xiii) This property is on lease upto the year 2023 with no increase in rent while in the case of other properties, the lease was only for three years with increase in rent.
4.3 One of the objections of the Assessing Officer for concluding that provisions of section 13(l)(c) were attracted, was that the security given was at an alarmingly high proportion of the monthly rent. The Assessing Officer did not take into account that fact that the property in the commercial area of Sector-9, Chandigarh cannot be compared with the properties in Sector-25, Chandigarh, since only comparables can be compared.
4.4 The Assessing Officer has not considered the real assessable value with respect to the attending circumstances. The Assessing Officer completely ignored peculiar features of this property viz. commercial location, centrally air conditioning and fully furnished with generator set. The rent was far less than the market rent and the property was mortgaged with bank as a guarantee to help the appellant lessee to get credit facility for which no guarantee fee was charged by the lessor. Also, if the seller wanted to sell the property, the first choice was to be given to the appellant and with so many adverse factors against the lessor, nobody would have dared to buy this property. Probably these factors weighed in favour of the appellant in the scrutiny assessment of A.Y. 2008-09, when the Assessing Officer had allowed exemption to the appellant. 10
4.5 The observation of the Assessing Officer that there is no clause in the rent deed to prohibit the landlord not to rent out the other floors is not correct, since such a clause (Clause 3) duly exists in the lease agreement. 4.6 The observation of the Assessing Officer that as per the lease agreement between the appellant trust and M/s Writer and Publishers Ltd. for plot No. 11-12, Sector-25, Chandigarh, the benefit is to be provided to M/s Chitkara Education (P) Ltd. The observation made by the Assessing Officer is completely vague. The Ld. Counsel has informed that no transaction has been made by the appellant with this concern and so question of any benefit does not arise. In any case, the Assessing Officer has not brought any material on record to prove that any benefit was passed to the said concern.
4.7 The Assessing Officer has also observed that though the payment was made in the year 2008-09, the same has not been adjusted or returned till date and so undue benefit continues to be given to the trustee. I have already discussed in the preceding paragraphs as to how the payment of security was not an undue benefit given to the trustee. Moreover, the cases of the appellant were finalized under section 143(3) in the year, in which security was given i.e. A.Y. 2008-09 and in the subsequent year i.e. A.Y. 2010-11 and 'nil' declared income was accepted in both of these years.
4.8 In view of the above, it is held that the finding of the Assessing Officer that the provisions of section 13 are attracted is not correct. The appellant is duly eligible for exemption u/s 11(1) of the Act. Of course, the Assessing Officer will consider whether the condition specified in section 11(2) is satisfied to enable the appellant to claim exemption u/s 11(1) of the Act. Grounds of appeal Nos. 2 & 3 are allowed."
9. The ld. DR relied upon order of the Assessing Officer and submitted that the interest free security was higher by 29% of the rent per month. Shri Mohit Chitkara is one of the Trustee of the assessee trust and by following comparable cases of Sector 25, Chandigarh and of Parwanoo, Assessing Officer was justified in denying 11 exemption under section 11 of the Act. On the other hand, ld. counsel for the assessee reiterated the submissions made before Assessing Officer and referred to PB-1 which is Lease Deed in question in which the property was taken subject to condition that lessor shall not let out the first and second floor without written consent of the lessee. In the same agreement in clause 23, it is mentioned that rent of Rs. 6 lacs per month was on agreed basis of fully furnished basement and ground floor with all amenities as against the market rent of Rs. 10 lacs per month subject to condition that lessee shall give an interest free security which would be refunded on vacation of the property. He has submitted that in preceding assessment years 2009-10, Assessing Officer accepted the same issue in favour of the assessee in order under section 143(3) of the Act dated 20.12.2011 (PB-76) and in assessment year 2010-11 under section 143(3) dated 30.01.2013 (PB-80). He has, therefore, submitted that once a similar issue has been examined by Assessing Officer and claim of assessee has been accepted of exemption under section 11 of the Act, the same issue should not be contested by the department in subsequent year. He has referred to submissions made before Assessing Officer in earlier years on the same issue explaining the same facts as have been explained in this case, copy of which is filed at PB-38 which is reply before Assessing Officer in assessment year 2009-10. PB-43 is the explanation, in the same reply with regard to rent free security in question given to Shri Mohit Chitkara. PB-117 is the reply filed before Assessing Officer in assessment 12 year under appeal explaining how the comparable demised properties have no similar facts. PB-11 is Rent Agreement of Dainik Bhaskar and it is explained that the terms and conditions of the assessee and Dainik Bhaskar are different because in the case of the assessee, furnished accommodation was given with Collateral Securities of the demised property. Period of tenancy is for 15 years and there is no higher increase in the rent etc. No amount of any additional security is given in assessment year under appeal, therefore, department should follow rule of consistency and relied upon decision of the Hon'ble Supreme Court in the case of Radha Soami Satsang 193 ITR
321.
10. We have considered rival submissions and material on record. The assessee has entered into Lease Agreement with Shri Mohit Chitkara (PB-1) on 01.04.2008, through which property in question was given on rent to the assessee for 15 years. The property is situated in the premises of SCO 160-161 Sector 9-C, Chandigarh. It is a commercial property. The Assessing Officer has referred to the properties of Dainik Bhaskar Building which is admittedly situated in Sector 25 which is at different location and have different advantages as have been provided in the case of the assessee. Parwanoo property is in Himachal Pradesh and as such, both could not be considered to be comparable properties. Further, their terms and conditions are different because in the case of the assessee, property on rent was taken which was fully 13 furnished and subject to collateral securities. Period of lease was 15 years and there was no abnormal increase in the rent. The ld. CIT(Appeals), therefore, correctly held that the properties referred to by the Assessing Officer in the assessment order are not comparable cases to compare the reasonable rent. It was also mentioned in the Rent Agreement that the lessor shall not let out first and second floor property without the consent of the lessee i.e. assessee. Ultimately, the assessee has taken leased properties on rent subsequently. The rent of the assessee was comparatively low in assessment year 2009-10 when the property was taken on lease by assessee i.e. on 01.04.2008. Same issue was examined by the Assessing Officer under section 143(3). The replies of the assessee are available on record which shows that Assessing Officer has examined the identical issue and accepted the 'nil' returned income of the assessee holding that assessee is entitled for exemption under section 11 & 12 of the Income Tax Act being charitable trust and the same views taken by the Assessing Officer in subsequent assessment year 2010- 11 in the order under section 143(3) dated 30.01.2013. It is, therefore, clearly established on record that in the year when interest free security was given by the assessee to Shri Mohit Chitkara, owner of the demised property, the department did not take any adverse view against the assessee and allowed exemption under section 11 & 12 of the Act accepting the 'nil' returned income. Therefore, department should not take a different view in subsequent year on the same facts and circumstances and on the 14 identical issue. It is also not in dispute that the owner of the property provided various facilities to the assessee and no other additional security is given in assessment year under appeal. It is also not in dispute that the tenanted property was given in collateral security to Punjab & Sind Bank and Punjab National Bank for assessee's credit facilities. The property in question was furnished accommodation provided by the owner to the assessee but in alleged comparable cases, these were not furnished properties. Due to the above reasons, owner of the property could not sell or transfer the property in question to any other person so long the tenancy continued in favour of the assessee. The ld. CIT(Appeals) was, therefore, justified in holding that Assessing Officer has not considered the real assessable value with respect to attending circumstances as noted above,. If totality of the facts and circumstances are taken into consideration in the light of the regular assessment order passed by the Assessing Officer under section 143(3) of the Act in preceding assessment years 2009-10 and 2010-11, we do not find any justification for authorities below to take a different view in subsequent assessment year on the same set of facts. Hon'ble Supreme Court in the case of Radhasoami Satsang 193 ITR 321 held that "The Revenue authorities should maintain/f ollo w the rule of consistency". Hon'ble Delhi High Court in the case of A.R.J. Security Printers 264 ITR 276 following the judgement of the Hon'ble Supreme Court in the case of Radha Soami Satsang (supra) held that "For sake of consistency and f inality of 15 l i t i g a t i o n , e a r l i e r d e c i s i o n s o n t h e s a me q u e s t i o n s h o u l d n o t be reopened unless ne w f acts c o me to the k n o wl e d g e . "
Hon'ble Delhi High Court in the case of Escorts Ltd. 338 ITR 435 held that "Decision regarding nature of transaction continuing for several years, consistency should be maintained". Hon'ble Madhya Pradesh High Court in the case of Godawari Corporation Ltd. 156 ITR 835 held that " I n c o me T a x a u t h o r i t i e s s h o u l d f o l l o w r u l e o f c o n s i s t e n c y even if principle of res-judic ata does not apply". Hon'ble Punjab & Haryana High Court in the case of Vikas Chemi G u m ( I n d i a ) 2 7 6 I T R 3 2 h e l d t h a t " W h e n s o u r c e o f i n c o me in earlier year not challenged, need not open to challenge t h e s a me s o u r c e i n s u b s e q u e n t y e a r " .
11. Considering the facts and circumstances in the light of the above decisions, it is clear that the facts are identical as have been considered in the earlier years 2009-10 and 2010-11, therefore the Income Tax authorities should not take a different view because no new facts have been brought on record, particularly when no additional interest free security have been given in assessment year under appeal. In view of the above discussion, we do not find any justification to interfere with the order of the ld. CIT(Appeals). We confirm his order and dismiss this ground of appeal of the revenue.
12. In the result, ground No. 2 of the appeal of the revenue is dismissed.16
13. On ground Nos. 3, 4 and 5, the ld. CIT(Appeals) in view of his findings that assessee is eligible for exemption under section 11(1) of the Act subjects to fulfilling of the condition of Section 11(2) of the Act, held that no disallowance could be made on which revenue has raised ground Nos. 3, 4 & 5 and accordingly deleted this addition.
14. Ld. Representatives of both the parties submitted that these are consequential grounds of appeal as based on findings given on ground No. 2 above. Since on ground No. 2, we have maintained the findings of the ld. CIT(Appeals) and dismissed ground No. 2 of the departmental appeal, therefore, ground Nos. 3, 4 and 5 of the departmental appeal are dismissed.
15. In the result, the departmental appeal is dismissed.
Order pronounced in the Open Court.
Sd/- Sd/- (ANNAPURNA MEHROTRA) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 9th October, 2015. 'Poonam' Copy to:
The Appellant, The Respondent, The CIT(A), The CIT,DR Assistant Registrar, ITAT/CHD