Income Tax Appellate Tribunal - Delhi
Raghubir Saran Charitable Trust vs Income-Tax Officer on 23 March, 1987
Equivalent citations: [1987]22ITD11(DELHI)
ORDER
M.C. Agarwal, Judicial Member
1. This is an assessee's appeal arising out of its assessment for assessment year 1981-82.
2. The assessee is a charitable trust and its income in the earlier years was treated as exempt under Section 11 of the Income-tax Act, 1961. One of the properties owned by the trust is property No. 19, Tughlak Road, New Delhi which was settled on trust by Smt. Leela Devi Aggarwal and her son Harsh Kumar Aggarwal, who were the joint owners thereof. At the time of the settlement M/s Ghaziabad Engineering Co. P. Ltd. was a tenant on behalf of the aforesaid assessee in the said property. The said company had taken the premises on lease for the purposes of the residence of Shri P.N. Aggarwal and his family. Shri P.N. Aggarwal is the managing director of the said company and is the husband of Smt. Leela Devi and the father of Shri Harsh Kumar, the settlors. A monthly rent of Rs. 4,000 was being paid by the said company to the trust on account of the aforesaid tenancy in the year under consideration. While framing the assessment for the year under consideration i.e. for assessment year 1981-82, the previous year for which ended on 31-3-1981, the ITO took the view that the rent paid by the company to the trust was not the fair market rent of the property. According to the ITO, the building which consisted of 9,000 sq. ft. of a built up area on a plot of 1.5 acres and furnished with 10 air-conditioners, 6 geysers, 5 chandeliers etc. etc. could fetch a rent of Rs. 18,000 p.m. The ITO, therefore, took the view that the assessee had allowed the trust property being used or applied directly or indirectly for the benefit of the authors of the trust and their relatives and therefore, in terms of Section 13(1)(c) read with Section 13(2)(5) of the Income-tax Act, the assessee had disentitled itself to the exemption. The ITO, therefore, denied the exemption under Section 11 to the assessee. In addition he made an addition of Rs. 1,68,000 to the income of the assessee being the difference between the fair market rent i.e. Rs. 18,000 and the actual rent Rs. 4,000. The assessee preferred an appeal before the CIT(A) against the aforesaid action, but the learned CIT(A) upheld the action of the ITO.
3. The trustees under the aforesaid settlement are the two settlors, namely, Leela Devi Aggarwal and Harsh Kumar Aggarwal and Shri P.N. Aggarwal. It was contended before the ITO that the property in question is subject to the Delhi Rent Control Act and, therefore, the rent cannot be increased and in view of the legal bar the rent of Rs. 4,000 p.m. was the reasonable rent. The learned ITO, however, took the view that since the aforesaid persons, who are members of one family are also the trustees and the shareholders of M/s Ghaziabad Engineering P. Ltd. and since the property is being used by this very family through the Ghaziabad Engineering Co., Delhi Rent Control Act is not applicable and the decisions of Hon'ble the Supreme Court in Dewan Daulat Rai Kapoor v. NDMC [1980] 122 ITR 700 and other similar decisions had no relevance. Similar arguments were raised before the CIT(A), who observed that although in law the standard rent payable for this property may be even less than Rs. 4,000 and although the trust cannot raise the rent still considering the market conditions prevailing during the previous year, the trust must face the corresponding hardship of being deprived of the benefit of Section 11 of the Income-tax Act also, because P.N. Aggarwal, his wife and son operating through the company have deprived the trust of the fair market rent.
4. At the hearing before us the learned counsel for the assessee contended that the trust became the owner of the property in question when it was already in the tenancy of Ghaziabad Engineering (P.) Ltd., and, therefore, the situation is not of the assessee's own making. According to him, the trust cannot evict the tenants nor can it increase the rent. According to him, looking to the cost of the acquisition of the property the rent paid by the tenant was already more than the standard rent payable under the Delhi Rent Control Act and, therefore, it cannot be said that the assessee had conferred any benefit on the authors of the trust or their relatives within the meaning of Section 13. The learned counsel for the assessee relied upon the judgments of Hon'ble the Supreme Court in the case of Detoan Daulat Rai Kapoor (supra), Mrs. Sheila Kaushish v. CIT [1981] 131 ITR 435 and Amolak Ram Khosla v. CIT [1981] 131 ITR, 589. The learned Departmental Representative, on the other hand, contended that the rent of Rs. 4,000 p.m. charged for a property of the size and facilities already narrated and. situate at Tughlak Road, New Delhi was wholly inadequate and, therefore, the settlors of the trust i.e. Smt. Leela Devi and Harsh Kumar Aggarwal along with their relative Shri P.N. Aggarwal were the ultimate beneficiaries of this arrangement as they were residing in the trust property. According to him, therefore, Section 13 came into play and the benefit of Section 11 had to be denied to the trust.
5. We have given our careful consideration to the respective arguments. It is no longer in dispute that the property in question is governed by the Delhi Rent Control Act and the standard rent of this property is below Rs. 4,000 p.m. which is the rent being paid by the tenant M/s Ghaziabad Engineering Co. (P.) Ltd. In Dewan Daulat Rai Kapoor's case (supra) the Hon'ble Supreme Court while dealing with the question of determination of annual letting value under the Delhi Municipal Corporation Act of 1957 held that when the rent control legislation provides for fixation of standard rent which alone and nothing more than which the tenants shall be liable to pay, it does so because it considers the measure of the standard rent prescribed by it to be reasonable. Any rent which exceeds this norm of reasonableness is regarded by the legislature as unreasonable or excessive. The court observed, "when the legislature has laid down this standard of reasonableness would it be right for the court to say that the landlord may reasonably expect to receive rent exceeding the measure provided by this standard ? Would it be reasonable on the part of the landlord to expect to receive any rent in excess of the standard or norms of reasonableness laid down by the legislature and would such expectation be countenanced by the court as reasonable ? The legislature obviously regards recovery of rent in excess of standard rent as exploitative of the tenant and would it be propers for the court to say that it would be reasonable on the part of the landlord to expect to recover such exploitative rent from the tenant ?" The Hon'ble Supreme Court went to observe that even where the standard rent has not been fixed by the Rent Controller, the landlord cannot reasonably expect to receive from a hypothetical tenant anything more than the standard rent admissible under the Act. When similar questions arose under the Income-tax Act, the Hon'ble Supreme Court held the same view in the cases of Mrs. Sheila Kaushish (supra) and Amolak Ram Khosla (supra).
6. Since in the case before us the rent payable by M/s Ghaziabad Engineering P. Ltd. to the assessee-trust is considered to be more than the standard rent assessable under the Delhi Rent Control Act, it is not permissible to say that the rent charged by the trust is inadequate and was intended to confer any benefit on the settlors or their relatives. The whole approach of the authorities below has, therefore, been unfair to the assessee and the denial of the benefit of Section 11 to the trust was unjustified. For the same reasons, the addition made by the ITO to the rental income is indirect violation of the law as explained by Hon'ble the Supreme Court in the cases of Mrs. Sheila Kaushish (supra) and Amolak Ram Khosla (supra). We, therefore, reverse the findings of the authorities below and hold that the assessee has not incurred any disability under Section 13 of the Income-tax Act so as to disentitle itself to the exemption under Section 11 of the Income-tax Act, 1961. We also hold that the addition of Rs. 1,68,000 made by the ITO to the assessee's income on account of supposed difference in rent is also unjustified and is ordered to be deleted.
7. The other grounds raised in this appeal regarding charge of interest under Section 139(8) and under Section 217 were conceded to be consequential and would not survive on our findings aforesaid.
8. In the result, the appeal is allowed. The addition of Rs. 1,68,000 is deleted and the order denying the assessee the benefit of Section 11 of the Income-tax Act is set aside and the ITO is directed to grant the benefit of Section 11 of the Income-tax Act, 1961 to the assessee.