Facts of the Case

The respondent, Hamdard National Foundation (India), a charitable institution, had leased its properties to Hamdard Dawakhana (Wakf), a related entity contributing substantial donations. The Assessing Officer alleged that the properties were let out at significantly lower rent compared to market rates, thereby violating Section 13(2)(b) read with Section 13(3), resulting in denial of exemption under Sections 11 and 12.

The additions were made based on data collected from property dealers and online real estate portals. However, the ITAT deleted the additions, holding that there was no sufficient evidence to prove inadequacy of rent. The Revenue appealed before the Delhi High Court.

Issues Involved

  1. Whether letting out property at allegedly concessional rent to a specified person violates Section 13(2)(b)?
  2. Whether exemption under Sections 11 and 12 can be denied in absence of conclusive evidence of inadequate consideration?
  3. Whether reliance on market estimates without independent verification is sufficient to invoke Section 13?

Petitioner’s Arguments (Revenue)

  • The assessee charged substantially lower rent compared to prevailing market rates.
  • The rent concession was linked to donations received, indicating indirect benefit to a specified person under Section 13(3).
  • The Assessing Officer rightly relied on data from real estate websites and brokers to determine market rent.
  • Each assessment year is independent; hence, past acceptance does not bar reassessment.
  • The ITAT erred in granting exemption without proper verification of adequacy of rent.

Respondent’s Arguments (Assessee)

  • The lease arrangement existed since 1981 and had been consistently accepted by the Revenue.
  • The Assessing Officer relied on unverified and general data without conducting independent inquiry.
  • “Adequate rent” cannot be determined solely on market estimates; surrounding circumstances must be considered.
  • The burden to prove inadequacy of rent lies on the Revenue.
  • The principle of consistency applies in absence of change in facts.

Court Findings / Order

  • The Court upheld the ITAT’s findings and dismissed the Revenue’s appeal.
  • It held that:
    • The burden to prove inadequacy of rent lies on the Revenue.
    • Market rent is not the sole criterion; adequacy must be judged in context of facts.
    • Evidence from websites and brokers without independent verification is insufficient.
    • No material change in facts justified departure from earlier accepted position.
    • Findings of fact by ITAT cannot be interfered with unless perverse.

Accordingly, the Court held that invocation of Section 13(2)(b) was unjustified and exemption under Sections 11 and 12 could not be denied.

 Sections Involved

  • Section 11 – Income from property held for charitable purposes
  • Section 12 – Income of trusts or institutions
  • Section 13(1)(c), 13(2)(b), 13(3) – Denial of exemption where income/property used for benefit of specified persons

Important Clarifications

  • “Adequate consideration” is not synonymous with “market value.”
  • Unless the consideration is so low as to “shock the conscience,” it cannot be treated as inadequate.
  • The Revenue must bring cogent and reliable evidence, not speculative or generalized data.
  • Principle of consistency applies in tax matters when facts remain unchanged.
  • Independent inquiry by the Assessing Officer is essential before invoking Section 13.

 Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:606-DB/NAC16022022ITA1422021_120114.pdf

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