Burden of proof that lease rent paid to trustees was beyond FMV lies on Revenue

Sardar Partapsingh Education society Vs CIT (ITAT Mumbai)

Conclusion: CIT(E) i.e. Revenue ought to have brought evidence on record by bringing comparative quotations to prove the fact that the lease rent paid in the sum of Rs. 2 lakhs per month to the trustees was excessive or unreasonable and beyond the fair market value thereon. Since ssessee placed on record that the market value of the land was Rs.13,03,76,400/- as per the registered lease deed and the payment of lease rent of Rs.24 lakhs works out to hardly 1.86% thereon. Hence, it could be safely concluded that the rent paid by assessee-trust to the trustees was not excessive or unreasonable.

Held: Assessee was an education society running educational institution by the name Daffodils High Public School for standard I to X with affiliation to CISCE at Bhandup, Mumbai. It was duly registered under Societies Registration Act, 1860. During the F.Y.2018-19, CIT(E) noted that there were 415 students studying in the school and staff consisting of 25 teachers and 3 non-teaching staff. It was also submitted that assessee institution being a minority institution formed by Sikh minority, the provisions of Right to Education Scheme were not applicable to minority educational institutions, so free education was not provided to any student. Assessee trust preferred an application u/s.10(23C)(vi) in the prescribed form seeking registration thereon before the competent authority i.e. CIT(E). One of the pre-requisites of getting affiliation with Council for Indian School was that the school should have a minimum of 2000 sq.mtrs of land and yet another pre-requisite mentioned in the Rules and Regulations of seeking affiliation with CISCE was that of the land title document should be in the name of society / trust / company / school. CIT(E) rejected the application for exemption u/s.10(23C)(vi) of the Act preferred by the assessee on the following grounds:- i. that assessee did not solely exist for education purposes because there were several objects of non-education nature; ii. that assessee was making huge surplus; iii. that assessee had contravened the provisions of S.13(1)(c) of I.T. Act, 1961 in as much as it had paid lease rent of Rs.24,00,000 p.a. to two of trustees of assessee (Rs.12,00,000/- each). It was held that assessee-trust had not paid any lease rent to these two trustees up to 31/03/2018. The lease rent was paid only from 01/04/2018 onwards for taking the lease of land for running the school. CIT(E) had stated that this payment of lease rent was in violation of provisions of Section 13 (1)(c). It was pertinent to note that assessee trust had only sought claim of exemption u/s. 10(23C)(vi) for which the provisions of Section 13(1)(c) need not be looked into as it was only applicable if exemption was claimed u/s.11/12. Even assuming the provisions u/s.13(1)(c) were to be brought into operation in the instant case, then CIT(E) ought to have brought evidence on record by bringing comparative quotations to prove the fact that the lease rent paid in the sum of Rs. 2 lakhs per month to the trustees was excessive or unreasonable and beyond the fair market value thereon. On the contrary, assessee placed on record that market value of the land was Rs.13,03,76,400/- as per the registered lease deed and the payment of lease rent of Rs.24 lakhs worked out to hardly 1.86% thereon. Hence, it could be safely concluded that the rent paid by assessee-trust to the trustees was not excessive or unreasonable.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

PER MAHAVIR SINGH (V.P):

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