Case Number: ITA 1640/DEL/2019
Appellant: Hamdard National Foundation (India), New Delhi
Respondent: ACIT (Exemption), New Delhi
Assessment Year: 2007-08
Result: 2007-08
Case Filed On: 2019-02-27
Order Type: Final Tribunal Order
Date of Order: 2019-11-01
Pronounced On: 2019-11-01
This case involves an appeal by Hamdard National Foundation (India) against the Assistant Commissioner of Income Tax (Exemption), New Delhi. The appeal concerns the rejection of tax exemption under sections 11 and 12 of the Income Tax Act, 1961, for the assessment year 2007-08. The final judgment was delivered by the Income Tax Appellate Tribunal, Delhi Bench ‘C’, comprising Shri Prashant Maharishi, Accountant Member, and Shri K. Narasimha Chary, Judicial Member.
The Hamdard National Foundation (India) (HNF), established as a charitable trust in 1964, was set up to promote educational and medical institutions and provide medical relief. Hamdard Laboratories (India) (HLI), a partner in this endeavor, enjoyed benefits under sections 11 and 12 of the Income Tax Act. However, for the assessment year 2007-08, the Assessing Officer rejected HNF’s exemption claims, citing violations of section 13(2)(b) and section 13(3)(b) of the Act regarding the letting of properties at below-market rates to another trust, Hamdard Dawakhana (Wakf).
The appeal involved multiple years and orders from the Commissioner of Income Tax (Appeals). For the assessment year 2007-08, the primary issue was whether the letting of properties at allegedly below-market rates constituted a violation of section 13(2)(b). The Tribunal found that the Assessing Officer’s addition based on market rent discrepancies was not supported by substantial evidence. The properties had been let out for charitable activities, and the rent received exceeded the Municipal Corporation of Delhi’s valuation.
Regarding the royalty income received by HNF from HLI for the use of brand names and patent rights, the Assessing Officer deemed this as commercial receipt. However, the Tribunal held that the income was used to support charitable activities, and the agreement between HNF and HLI had been accepted by the Department for many years.
1. Rental Income and Market Rates: The Assessing Officer’s reliance on internet information and letters from estate agents was deemed insufficient without confronting HNF with the evidence. The Tribunal noted the historical acceptance of rental agreements and the rent received being higher than municipal valuations.
2. Royalty Income: The Tribunal ruled that the royalty income, used for charitable purposes, did not convert HNF’s activities into trade, commerce, or business. This income was vital for supporting its educational and medical institutions.
3. Scholarships to Students: The Assessing Officer’s claim that scholarships were confined to a particular religious community was rejected. The Tribunal found that scholarships were awarded without discrimination, benefitting students from various communities.
The Tribunal’s decision in favor of HNF restored its tax exemption status for the assessment year 2007-08. The ruling emphasized the importance of consistent treatment by the tax authorities and the necessity of substantial evidence when invoking provisions that deny exemptions. The decision underscores the Tribunal’s role in ensuring fair application of tax laws, particularly for charitable organizations.
The final judgment was pronounced on November 1, 2019, by the Income Tax Appellate Tribunal, Delhi Bench ‘C’, comprising Shri Prashant Maharishi, Accountant Member, and Shri K. Narasimha Chary, Judicial Member. The Tribunal ruled in favor of the appellant, Hamdard National Foundation (India), directing the deletion of the additions made by the Assessing Officer under sections 13(2)(b) and 13(3) of the Income Tax Act. The appeal was partly allowed, providing significant relief to the charitable institution.
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