Facts of the Case

The present batch of appeals arose from a common order passed by the Income Tax Appellate Tribunal (ITAT), wherein additions made by the Assessing Officer were deleted.

The Respondent, a charitable trust, had leased its properties located at Asaf Ali Road and Chanakyapuri, New Delhi, to Hamdard Dawakhana (Wakf), a specified person under Section 13(3).

The Assessing Officer observed that:

  • The rent charged was allegedly lower than market rent.
  • The assessee received substantial donations, including corpus donations, from the tenant entity.
  • Therefore, provisions of Section 13(2)(b) read with Section 13(3) were invoked, alleging undue benefit to a specified person.

Consequently, exemption under Sections 11 and 12 was denied.

Issues Involved

  1. Whether leasing property at allegedly concessional rent to a specified person violates Section 13(2)(b) read with Section 13(3) of the Income Tax Act, 1961.
  2. Whether the assessee is entitled to exemption under Sections 11 and 12 despite such transactions.
  3. Whether the ITAT erred in deleting additions made by the Assessing Officer.

Petitioner’s Arguments (Revenue)

  • The assessee charged substantially lower rent compared to prevailing market rates.
  • Rental concessions were allegedly given in lieu of donations received from Hamdard Dawakhana (Wakf).
  • This amounted to benefit to a specified person under Section 13(3), attracting Section 13(2)(b).
  • The ITAT wrongly relied on findings of another assessment year ignoring that each year is separate.
  • The Assessing Officer relied on data from property dealers and real estate websites to determine market rent.
  • Absence of security deposit and lack of effort to lease to third parties indicated non-arm’s length transaction.

Respondent’s Arguments (Assessee)

  • The lease agreement existed since 1981 and had been consistently accepted by the Revenue.
  • Rent was periodically increased and was not arbitrary.
  • The Assessing Officer relied on unverified third-party data without independent inquiry.
  • No proper opportunity was given to rebut such material.
  • Market rent is not the sole criterion; adequacy must be judged in context.
  • Principle of consistency applies since no material change in facts was shown.

Court’s Findings / Order

The Delhi High Court dismissed the Revenue’s appeals and upheld the ITAT order, holding:

  • Burden of Proof: The Revenue failed to establish that rent was inadequate.
  • Evidence Deficiency: Reliance on website data and broker opinions without independent verification is insufficient.
  • Adequate Consideration Principle: Adequacy of rent cannot be judged solely on market value; surrounding circumstances must be considered.
  • Consistency Doctrine: Long-standing accepted position (since 1981) cannot be disturbed without material change.
  • No Substantial Question of Law: Findings of ITAT were factual and not perverse, hence not interferable.

Important Clarifications

  • Market rent is not the sole benchmark for determining adequacy of consideration.
  • Adequacy must be assessed holistically, considering facts, nature of transaction, and surrounding circumstances.
  • Section 13(2)(b) applies only when clear inadequacy and benefit to specified person is established.
  • Consistency in tax treatment across years holds importance unless material change is proven.

 Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:607-DB/NAC16022022ITA1442021_120345.pdf

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