Case Number: ITA 1642/DEL/2019
Appellant: Hamdard National Foundation (India), New Delhi
Respondent: ACIT (Exemption), New Delhi
Assessment Year: 2014-15
Result: 2014-15
Case Filed on: 2019-02-27
Order Type: Final Tribunal Order
Date of Order: 2019-11-01
Pronounced on: 2019-11-01
The present appeal was filed by Hamdard National Foundation (India) (the appellant) against the order of the CIT (A)-40, New Delhi dated 27.12.2018. The primary issue concerns the denial of exemption under Section 11 of the Income Tax Act, 1961, by the Assessing Officer (AO) and its subsequent upholding by the CIT(A).
The appellant raised several grounds, primarily challenging the denial of exemption under Section 11 of the Act, the application of provisions of Section 13(2)(b) read with Section 13(3), and the incorrect taxation of corpus donations as income.
The CIT(A) upheld the AO’s action in denying the benefit of exemption under Section 11, citing alleged violations of Section 13(2)(b) read with Section 13(3). The AO argued that the lease transactions between the appellant and another charitable institution, Hamdard Dawakhana (Wakf), were at rents lower than the market rates, thereby benefiting the latter.
The CIT(A) failed to appreciate that the AO did not provide concrete evidence to support the application of Section 13(2)(b). The AO’s reliance on information from the Internet and two estate agents without confronting the appellant with this evidence was contested.
The appellant argued that the CIT(A) disregarded the principle of consistency, as similar transactions in previous assessment years (2008-09, 2010-11, 2011-12, and 2012-13) were accepted without any issues.
The CIT(A) upheld the AO’s action in taxing corpus donations as income, despite these being capital receipts. The appellant contended that these donations should not be taxed, irrespective of the exemption under Section 11.
The Tribunal found that the AO’s application of Section 13(2)(b) was based on conjectures and without concrete evidence. The lease transactions were between two charitable institutions, and no individual derived any benefit. The rents received were higher than the municipal valuation, and the AO did not provide any corroborative evidence to support the market rate claims.
The Tribunal cited the decision in the case of Patanjali Yogpeeth (Nyas) vs. ADIT, stating that corpus donations are capital receipts and not liable to tax. The donations received by the appellant were for charitable purposes and should not be taxed as income.
The Tribunal concluded that:
The appeal of the appellant was allowed, and the AO was directed to delete the additions made on these grounds.
The final judgment was pronounced in the Income Tax Appellate Tribunal, Delhi Benches ‘C’, New Delhi, by Shri Prashant Maharishi, Accountant Member, and Shri K. Narasimha Chary, Judicial Member, on 01.11.2019.
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH ‘C’: NEW DELHI
BEFORE SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER
I.T.A. No. 1642/Del/2019
Assessment Year: 2014-15
Hamdard National Foundation (India), New Delhi
vs.
ACIT (Exemption), New Delhi
PAN: AAATH0843G
Date of Hearing: 13.08.2019
Date of Pronouncement: 01.11.2019
ORDER
PER K. NARASIMHA CHARY, JM:
This is a batch of eight appeals, three appeals by the assessee for Assessment Years 2007-08, 2009-10, & 2014-15, four by the revenue for Assessment Years 2008-09, 2010-11, 2011-12 & 2012-13 and Cross Objection by the assessee for the Assessment Year 2008-09 against the separate orders of the Commissioner of Income-tax (Appeals), New Delhi for the respective assessment years. For the sake of convenience, we deem it fit and proper to dispose of these appeals by a common order.
2. Brief facts of the case are that the Hamdard Laboratories (India) (“HLI”) came into existence being constituted on 28/08/1948. Partners of the business in HLI are also known as “Hamdard Dawakhana (Wakf)”. They dedicated the said business to charity. Hamdard National foundation (India) (“HNF”) (“the assessee”) was setup as a charitable trust in 1964 with the main objects of running educational and medical institutions/providing medical relief, namely, as a special purpose vehicle to effectuate the charitable activities of HLI in the areas of relief to the poor, education and medical relief. Hamdard Dawakhana (Wakf) as a charitable institution has been enjoying the benefits of section 11 and 12 of the Income-tax Act, 1961 (“the Act”) and also exemption under section 10(23C)(iv) of the Act. The assessee enjoyed the benefit of sections 11 and 12 of the Act all the while till the assessment year 2007-08, but in the year assessment year 2007-08 the learned Assessing Officer rejected the claim for exemption under section 11 and 12 of the Act to the assessee for the years 2007-08, 2008-09, 2009-10, 2010-11, 2011-12, 2012-13 and 2013-14 on the ground that there had been a violation of the provisions of section 13(2)(b) of the Income Tax Act, 1961 (for short “the Act”) read with the provisions of section 13(3)(b) of the Act vis-à-vis the letting of properties at the Asif Ali Road and Rajdoot Marg, New Delhi owned by the assessee to another trust, namely, Hamdard Dawakhanna (Wakf) at the rents alleged to be lower than the prevailing market rates. The properties were said to have been taken by Hamdard Dawakhana (Wakf) for charitable activities only.
3. In the appeals preferred by the assessee, Ld. CIT(A) reversed the assessment orders for the assessment years 2007-08, 2008-09 and 2010-11 whereas confirmed the same for the assessment year 2009-10. For assessment years 2010-11 and 2011-12, the Ld. CIT(A) had allowed exemption under section 11 of the Act.
4. Learned Assessing Officer also invoked the proviso to section 2 (15) of the Act in respect of the royalty income earned by the assessee pursuant to an agreement entered into between the assessee and HLI for the use of the brand names/patent rights (owned by HNF) for its medical preparations. According to the learned Assessing Officer, the said royalty represented a commercial receipt as it assisted HLI in furthering its business activity.
5. Besides this, learned Assessing Officer recorded that the assessee paid a major portion of the scholarship amount to the students of a particular religious community and therefore there is violation of section 13(1)(b) of the Act. We shall deal with these aspects hereunder.
ITA No. 1640/Del/2019 (AY 2007-08)
6. Coming to the issue covered by grounds No. 1 to 5, namely, rejection of exemption under section 11 of the Act on the ground of violation of provisions under section 13(2)(b) of the Act read with section 13(3) of the Act, it could be seen from the assessment order for the assessment year 2007-08, during the scrutiny learned Assessing Officer found that the assessee received a sum of Rs.46,41,028/- towards rentals received in respect of the property of the assessee. On enquiries, learned Assessing Officer came to know that the market rent of the properties at a Chanakya Puri and Asaf Ali road was much higher than the rent at which the assessee had entered into agreement with its substantial donor Hamdard Dawakhana among other organizations. Further, we find that the learned Assessing Officer based the addition on the website information and also two letters from two estate agents under section 133(6) of the Act from one HSN Reality Services and CB Richard Ellis South Asia private limited.
7. Ld. CIT(A), on consideration of the material available on record and in the light of the submissions made on either side, observed that the onus to prove the basis for the addition was on the learned Assessing Officer; that the examination of the facts reveal that such a onus was not discharged by the Revenue because the learned Assessing Officer was completely misdirected by placing the onus on the assessee; that the assessing officer had acted entirely on the basis of information on the Internet without confronting the assessee with any evidence and that also under legal notion that something which was in the public domain need not be confronted to the affected party; that the learned Assessing Officer having accepted that there was no mechanism with the Department to undertake “valuation of rent” should not have applied the provisions under section 13 of the Act entirely on surmises and conjectures without the existence of evidence including the so-called collaborative evidence; that the property at Asaf Ali road was tenanted to HLI as far back as in the year 1981 with a periodical increase in the rent and on numerous occasions in the numerous assessments framed under section 143(3) of the Act, learned Assessing Officer had accepted the agreement between the parties is not violative of section 13 of the Act; that the property Chanakya Puri was not occupied till December 2009, lying vacant prior thereto; and that there had to be uniformity in treatment and consistency of approach when the facts and circumstances were identical and the learned Assessing Officer cannot change his view by examining the same set of facts in a different light, more so when the question is one of an exemption enjoyed over a few decades and the case of the Department sans evidence. Ld. CIT(A), therefore, for the assessment year 2008-09 had taken a view that such an addition is not sustainable. However a different view was taken for few other years.
8. It is the submission on behalf of the assessee that right from 1981-82 for about a period of 26 years, on the same set of facts, the rents received by the assessee in respect of the property at Asaf Ali Road, New Delhi has been accepted by the Revenue, that the rent between the parties had been increased from time to time, beginning from Rs.20,000/- per month from 1981-82 and going up to Rs. 2 Lacs per month in the period under consideration, that the rent received is higher than the annual lease value fixed by the Municipal Corporation of Delhi for the purpose of house tax, that the HLI to whom the property has been let out is also a charitable institution and enjoying the exemption under section 10(23C)(iv) of the Act/11 of the Act and even if the benefit is assumed, the same is not derived by any individual but by another charitable institution, the department had accepted all these years the agreement between the HNF and HLI without drawing any adverse view in all the assessments under section 143(3) of the Act; and that the “market rent” had to be determined with reference to the period of tenancy, the terms of lease, the area etc and not by referring to websites which may reflect the current position, dehors the facts of the case and without any guarantee as to its accuracy.
9. Grievance of the assessee has been that the learned Assessing Officer never confronted the assessee with any evidence that was collected behind the back of the assessee, but the learned Assessing Officer maintained that the said information is available on Internet and can also be accessed from the Internet which is a public domain and the Department has no method to have valuation of rent done independently by any government agency.
10. As a matter of fact, in the order for the assessment year 2008-09, Ld. CIT(A) dealt with this aspect in detail and recorded a finding that the learned Assessing Officer cannot say that the information collected by him has already been in the public domain and not obtained behind the back of the assessee, inasmuch as the Assessing Officer is duty bound to confront the assessee with such information if it is to be used against the assessee in any proceedings. CIT(A) further found that it is an admitted fact that the property of the assessee at Asaf Ali Road was tenanted to Hamdard Wakf as far back as in the year 1981 with a periodical increase in the rent and in numerous assessments framed under section 143(3) of the Act, the Assessing Officer accepted the agreement between the parties finding no ground to invoke the provisions of section 13(2)(b) of the Act/13(3) of the Act; whereas the property at Chanakya Puri was not even prepared during the assessment year 2008-09 and was lying vacant.
11. It has rightly been observed by the Ld. CIT(A) that there has to be uniformity in treatment and consistency in approach when the facts and circumstances are identical and the learned Assessing Officer cannot change the views by looking at the same set of facts in a different manner more so when the question is of exemption enjoyed by an assessee for the last few decades and case of Revenue sans evidence and based entirely on surmises and conjectures.
12. It could be seen from the letters issued by HSA reality services and CB Richard Ellis South Asia private limited, they have given information available with them and to the best of their knowledge and belief whereas CB Richard Ellis South Asia Private limited is clear in their observation that there is no verified market referral rate and the information furnished by them and make no guarantee, warranty or representation about it, requested the learned Assessing Officer to independently verify and confirm its accuracy and completeness. They are also specific in their statement that the information furnished by them does not represent the current or future performance of the market. Even on the face of the caveat mentioned above, it does not seen from the record that the Assessing Officer did any independent exercise to verify the correctness or applicability of the information furnished by those two persons vis-à-vis the extent location and suitability of the property in dispute for its comparison to the market rates provided by those persons and also the information gathered from the website.
13. Further we have gone through the information furnished relating to the annual rent received in respect of these two properties in the light of the valuation as per the MCD and find that the rent received by the assessee is far above the valuation as per the MCD. According to section 6A of the Delhi Rent Control Act, 1958 the standard rent, or, where no standard rent is fixed under the provisions of such an Act in respect of any premises, the rent agreed upon between the landlord and the tenant, maybe increased by 10% every 3 years. The statement clearly show that for every three years there is an enhancement of rent received by the assessee in respect of both these properties and way back in 2006-07 the rent received by the assessee was Rs.24 Lacs whereas the valuation as per the MCD was Rs.18,11,619/- which was increased every three years, namely, by 2009-10, it was Rs.20.64 Lacs as against the valuation of MCD Rs.18,11,619, by 2011-12 it was Rs.63.13 lakhs and by 2014-15 it was Rs.90.96 Lacs as against Rs.21.47 lakhs and Rs.25.37 lakhs respectively in respect of the Asaf Ali road property. Likewise, the rent received by the assessee in respect of Chanakya Puri property was Rs.18 Lacs, Rs.19.8 lakhs, Rs.37.61 Lacs, and Rs.54.24 Lacs by 2006-07, 2010-11, 2011-12 and 2014-15 respectively as against the corresponding MCD value of Rs. 1.80 Lacs, Rs. 1.80 Lacs, Rs. 8.74 Lacs and 10.48 lakhs respectively for such years.
14. Moreover, the lease agreement in question was executed on 16/7/1982 in respect of Asaf Ali road property and also for this period this agreement was accepted in the same set of facts and circumstances without raising any objection. It is submitted on behalf of the assessee that, the assessee gave property on rent to another charitable trust which perhaps has given the same to its directors so should there be anything to be charged to tax that has to be charged to tax in the hands of such other charitable trust or the director, but in any case not in the hands of the assessee.
15. On consideration of the entire material before us and in the light of the submissions made on either side which are conclusive that the law requires the Revenue to bring on record cogent evidence to justify the invocation of section 13 of the Act and the material collected by the learned Assessing Officer from the Internet as well as the estate agents cannot be termed as the collaborative piece of evidence to any facts which is established substantively first; that the actual rent received by the assessee from HLI far exceeds the valuation adopted by the MCD for the purpose of levying house tax as could be seen from the information furnished by the assessee and also that unless and until the learned Assessing Officer brings on record some credible information, the burden to rebut does not shift to the assessee.
16. We are, therefore, convinced with the reasoning given by the Ld. CIT(A) in his order for the Assessment Year 2008-09 wherein while dealing with this issue in detail, the Ld. CIT(A) reached a conclusion that on the date of the observations of the learned Assessing Officer that there is no mechanism with the Department to determine “valuation of rents” imperative the adjudicatory authorities to look further corroborative evidence in the absence of which it is not desirable to disturb the consistent view taken over a period of more than two decades. We are in agreement with the Ld. CIT(A) that not only on the basis of the rule of consistency but also on the basis of the facts relating to the rent received by the assessee from HLI vis-à-vis the rent under the Delhi Rent Control Act. Without vouchsafing the correctness of the information received from the website and without correlating the information furnished by the property dealers without realities on ground with a specific reference to the property in dispute, it is not open for the Assessing Officer to proceed to make addition, that disturbing the accepted position for about more than two decades. No change of facts and circumstances are brought on record and no independent evidence with a specific relation to the property in dispute is available on record. Merely because the other charitable trust guilty property for accommodation of the person covered under section 13(3) of the Act, such a fact ipso facto does not lead to the addition in the hands of the assessee without first clinching the issue with corroborative piece of evidence. We therefore, hold that there is no justification for addition made by the learned Assessing Officer by invoking the provisions under section 13(2)(b) of the Act read with section 13(3) of the Act and we direct him to delete the same.
17. Ground No. 6 relates to the alternative ground taken by the assessee before the Ld. CIT(A) stating that in the event that exemption is not allowed, a sum of Rs.9,43,81,000/- has to be excluded from the taxable income.
18. Ld. CIT(A), on this aspect, observed that as per the definition of ‘income’ as contained in section 2(24)(iia) of the Act, income includes voluntary contributions received, and further the said voluntary contributions are not included in total income by virtue of the provisions of section 12(1) of the Act which deems such contributions to the income derived from property held under the trust. According to him, once the provisions of section 11 are not applicable, such contributions have to be charged to tax in terms of section 164(2) of the Act and on this premise, Ld. CIT(A) rejected the contention of the assessee for exclusion of Rs.9,43,81,000/-.
19. It is submitted by the Ld. AR that from a reading of section 12(1) of the Act and Section 2(24)(iia) of the Act, it clearly emerges that the position would change in case an institution is not treated as a charitable being denied the benefit of section 11, then the sums received as voluntary contributions would not be treated as “income”. He placed reliance on the decision of the Hon’ble Andhra Pradesh High Court in the case of CIT vs. SRMT staff Association (1996) 221 ITR 234 (AP).
20. On grounds No.1 to 5, it is held that the assessee cannot be denied exemption under section 11 and 12 of the Act by invoking the provisions under section 13(2)(b) of the Act read with section 13(3) of the Act. On the face of the findings returned on grounds No. 1 to 5, the question of alternative plea does not arise and any discussion on this issue is only an academic one. We therefore dismiss this ground.
21. I.T.A. No. 1640 of 2019 is, accordingly, allowed in part.
Corpus Donations/ Capital Receipt:
5. During the year, the assessee received corpus donations of Rs.55.85 crores. The AO denied the benefit u/s 11(1D) and brought this amount to tax treating the assessee as AOP. This issue has been covered by the order of ITAT as mentioned above:
“33. The third ground of this appeal relates to the addition of Rs. 24 crores being the “corpus donations” received by the assessee from HLI by subjecting the same to tax. Ld. CIT(A) deleted the same as consequent to the grant of exemption under section 11 of the Act. While placing reliance on the decision of a coordinate Bench of this Tribunal in the case of Patanjali Yogpeeth (Nyas) vs. ADIT (2017) 185 TTJ 1, it is argued by the Ld. AR that the donations received by the assessee towards corpus fund are not liable to tax.
34. We have gone through the record in the light of the submissions made on either side. Facts of this case are quite similar to the facts involved in the case of Patanjali Yogpeeth (Nyas) (supra) wherein it is held that in the absence of any allegation or proof as to the assessee undertaking any activities in the nature of trade, commerce or business, donations received by the assessee forms part of the corpus of trust and thus capital receipt are not liable to tax. The objects of the assessee as discussed above clearly established that they are in the nature of providing education, medical relief and relief to the poor and no evidence is available on record to say that the assessee has been providing services in the nature of business. We, therefore, are of the considered opinion that the corpus donation is a capital receipt irrespective of whether the institution enjoys the benefit of Section 11 or not, but particularly in this case, it is consistently held in the preceding paragraphs that the assessee is entitled to exemption under section 11 of the Act and, therefore, the question of subjecting the corpus donations to tax does not arise. We accordingly direct the assessing officer to delete the addition made on this account.”
6. To conclude, we hereby hold that,
7. In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 01/11/2019.
Sd/- Sd/-
(Prashant Maharishi) (K. Narasimha Chary)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 01/11/2019
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
Hamdard National Foundation vs. ACIT (Exemption): Exemption Dispute for AY 2014-15
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