IN THE ITAT AGRA BENCH
Additional Commissioner of Income-tax
N.L. Education Society
IT APPEAL NOs. 454 & 455 (AGRA) OF 2010
[ASSESSMENT YEARs 2006-07 & 2007-08]
JUNE 8, 2012
Bhavnesh Saini, Judicial Member – Both the appeals by the Revenue are directed against different orders of ld. CIT(A), Ghaziabad dated 10.09.2010 for the assessment years 2006-07 and 2007-08. Since common issues are involved in both the appeals, both were heard together and we dispose of the same through this consolidated order.
2. We have heard the ld. representatives of both the parties, perused the findings of the authorities below and considered the material on record.
3. The department preferred this appeal on the following grounds :
“1. the Ld. CIT (Appeal) erred in law in deleting the addition of Rs. 41,01,614/- made to the total income on the basis of amendment clause-5 of supplementary lease deed dated 04.01.2009 which was never filed by the assessee before the AO during the assessment proceedings, thus, admitting fresh evidence without recording in writing the reasons and without allowing the Assessing Officer a reasonable opportunity to examine the said evidence, in gross violation of rule 46-A of the IT Rules, 1962.
2. The Ld. CIT(Appeals) erred in law and on facts in accepting the supplementary lease deed dated 04.01.2009 as such without examining one of the witness namely Sh. Mohan Pal Singh whose signatures appended as “M.P. Singh” appear to be doubtful, as the said witness did not sign on the original lease deed dated 24.12.2004, which puts a question mark on the legality of the original lease deed and the supplementary lease deed.
3. The Ld. CIT(Appeal) erred in law and on facts in not appreciating the facts that the original lease deed/supplementary lease deed had no statutory force as far as violation of section 13(3) of the IT Act is concerned, since the said deeds were in reality a part of family arrangement between Sh. Anil Saraswat, Secretary and his wife Smt. Sudha Saraswat, the lessor.
4. The Ld. CIT (Appeals) erroneously deleted the addition guided by an hypothetical situation that if the lease is not extended after 30 years, the lessor will not drive any benefit after amendment in clause 5 of original lease deed.”
4. The facts of the case are that the assessee filed return of income declaring total income at Rs. NIL, claiming exemption u/s. 11(1) of the IT Act. The assessee is registered society under the Societies Act and is also registered u/s. 12AA of the IT Act. During the relevant assessment year, the assessee was running two educational institutions under the names and style of Viveka Nand College of Education which is imparting the education for B. Ed. and Viveka Nand College of Law at Aligarh for providing education from Nursery education to higher education. The trust was running on the land of 5150.48 Sq. meter at Mathura Bye Pass Road, Aligarh in the ownership of Smt. Sudha Saraswat W/o Shri Anil Saraswat. The AO, therefore, found that the land on which school is running did not belong to the assessee. It was stated that the land has been leased out by the owner, Smt. Sudha Saraswat W/o Shri Anil Sarswat (Secretary of the assessee) to the Society. Copy of the lease deed was filed, which is appended with the assessment order and executed on 24.12.2004. the AO noted that as per valuation report in respect of the construction of school building on the leased land, the total expenditure upto 31.03.2006 on the building construction was Rs. 95,68,578/- only and since the land did not belong to the assessee-society, therefore, according to the AO, benefit was passed on to the relative of the Secretary of Society u/s. 13(3) of the IT Act. Therefore, show cause notice was issued as to why exemption be not denied to the assessee. Reply of the assessee is incorporated in the assessment order, in which the assessee briefly explained that the land is taken on lease from Smt. Sudha Saraswat and no benefit has been provided to her. The land was taken on lease for 30 years with a renewal option to the assessee-society after expiry of the 30 years as per clause -5 of the lease deed. Any construction on land done by the Society will be used by the Society for its own subject only and as such, there is no probability that any benefit from construction will accrue to Smt. Sudha Saraswat during the period of lease. The AO, however, did not accept the contention of the assessee and noted that as per clause 5 of the lease deed, it is seen that after 30 years, if lease is not extended then whatever investment is made in the construction of building on leased land will become the property of the lessor, i.e., Smt. Sudha Saraswat without any right of compensation available to the lessee, i.e., the assessee. In that situation, the assessee would be in its disadvantage position. Therefore, according to the AO, there is violation of section 13 of the IT Act and as such, exemption u/s. 11 and 12 of the IT Act was denied to the assessee and addition was, accordingly, made.
5. The assessee reiterated the same submissions before the ld. CIT(A) and submitted that the order of the AO is purely based on future events, which or may not occur after a period of 30 years. No such event has occurred in the assessment year under consideration. It is just denial of ownership of capital expenditure in the hands of the assessee society, which is unjustified and illegal. It was also submitted that the AO allowed depreciation @ 10% on the investment in building, which could be lower if the assessee is owner of the building in question. Therefore, AO admitted the ownership of the assessee over the building in question. Therefore, the addition is unjustified. It was also submitted that income of the assessee has been wrongly computed by the AO. Further, in order to avoid further controversy, supplementary lease deed was executed between the parties revising clause No. 5 of the lease deed and it was provided in favour of the assessee-society that in case the lease deed is not extended after 30 years, then the lessor shall pay to the assessee society the value of such structure and superstructure, as the value may be determined by the Registered Valuer. Said lease deed was executed on 04.01.2009. It was, therefore, submitted that the investment in the building on leased land should be treated as capital expenditure and an application of income for the purpose of assessee society. Therefore, the addition is unjustified. It was further submitted that the assessee is duly affiliated with Agra University and NOC has been taken. The ld. CIT(A) considering the submissions of the assessee and material on record, found that the AO’s view is guided by the Hypothecated situation about the future which is 30 years from now and nothing is brought on record how the benefit is accrued to the director at present. It was also noted that even after 30 years lease is not extended, the building and construction will be removed and no benefit accrue. Further, the lease deed is amended to avoid controversy. Therefore, the order of the AO was set aside and the appeal was allowed and it was directed that the income of the assessee be assessed on returned income.
6. The Revenue has preferred the appeal on the grounds mentioned above. The ld. DR relied upon the order of the AO and the grounds of appeals and submitted that no opportunity was given to the AO under Rule 46A to examine the supplementary lease deed and further signature of the witness were not examined. It was an arrangement between the family members. Therefore, the AO rightly denied exemption u/s. 11 and 12 of the IT Act.
7. On the other hand, the ld. counsel for the assessee reiterated the submissions made before the authorities below and submitted that the assessment order has been passed by Dr. Balvan Chauhan, Addl. Commissioner Range-I, Aligarh who has subsequently passed the assessment order of the assessee for the assessment year 2008-09 U/s. 143(3) on dated 27.12.2010 and accepted the claim of the assessee for exemption under the above provisions. Since the same AO accepted the claim of assessee later on, therefore, the department should follow the consistency in approach and the departmental appeal may be dismissed.
8. We have considered the rival submissions and the material on record and did not find any justification to interfere with the order of the ld. CIT(A) in allowing the appeal of the assessee. The whole case revolves upon the lease deed dated 24.12.2004 executed between the lessor, Smt. Sudha Saraswat and the assessee-society through which the land measuring 5150.48 sq. meter was let out to assessee society for 30 years. Copy of the lease deed is appended with the assessment order. The assessee paid Rs. 10,000/- as premium and agreed to pay Rs. 150/- per month as rent of the demised property, i.e., 1800/- per annum. The assessee was entitled to raise any construction from own funds and to use the land and building over the leased property. All expenses were to borne by the assessee and as per clause 5 of the deed, in case the lessee/assessee wanted the extension of lease after 30 years on expiry of lease deed, the extension of the lease shall be at the option of the lessee and the lessor/owner shall be bound by such requisition and the lessor shall have to extend the period of tenancy with option to enhance rent by 10%. Further, in case, such option is not exercised by the lessee/assessee-society after completion of the term of the lease, all construction, structure, superstructure, fixtures etc. over the leased land shall be removed by the assessee/lessee immediately or otherwise the same would revert to the lessor who will not liable for any compensation. The whole dispute is on this clause and according to the AO, due to the above clause, the benefit has been conferred upon the land lady, who is relative / wife of the Secretary of the Society in terms of section 13(3) of the IT Act. Such an assumption of the AO is wholly unwarranted under the law. Clause 5 of the lease deed is not, in absolute terms, to put the assessee to disadvantageous situation. Right is given to the assessee society to get the extension of the lease deed and in that event, lessor /owner is bound to extend the period of tenancy by enhancing the rent at 10%. Further option is given to the assessee that in case assessee society does not want extension of the lease, the assessee would be at liberty to remove all construction or structure, superstructure and in case the same is not removed by the assessee society, it will go back to the owner of the property. It is well settled law that in case of termination of tenancy, the owner is entitled to get back the possession of the demised property and in case the tenant has not removed the articles from the property, the land lord / owner with all rights vested in him, can remove all articles and things from the tenanted property in order to get back the possession of the tenanted property as was let out. Even if it is provided in the lease deed that the superstructure would revert to the lessor is of no consequence because the property in question belongs to the assessee society only and in no event, the lessor/owner can take forcible possession of the building or superstructure. At the most in the event of termination of tenancy, the landlord/owner could remove the superstructure from the demised land in order to get back the possession of the tenanted land in question. Further, if the assessee would have exercised option for renewal of the tenancy period, the AO has to answer as to what would happen to his assessment order denying exemption to the assessee u/s. 11 & 12 of the IT Act. Whether in such event, the order of the AO would stand as on today because the option can be exercised in the year 2034, which nobody knows as to what would happen in future. No event has happened in the assessment year under appeal. It is only a hypothetical and bald assertion of the AO in denying the benefit of section 11 to the assessee. According to section 13 of the IT Act, such income or property shall be used or applied for the benefit of such person as referred in sub-section (3) of section 13 during the previous year relevant to the assessment year under appeal for denying benefit of section 11 & 12 of the Act. However, in the previous year relevant to the assessment year under appeal, nothing has happened to provide any benefit to any such prohibited person out of the income or property of the assessee society. At present, the assessee is in advantageous position through lease deed of meager rent of Rs. 150/- per month for 30 years. The assessee as per lease deed is entitled for raising any construction, using the constructed building for its own purposes and as per other clauses, the assessee could have get the renewal of the lease deed. Therefore, even as per original clause 5 of the lease deed, no benefit is provided to the relative of the Secretary of the Society. Therefore, even if clause 5 of the lease deed is re-drafted to avoid the above mischief, no case is made out by the AO to make addition. The witnesses to the deed would append their signature for explaining the contents of the documents between the parties if there is any dispute, but no such dispute arise between the parties on the lease deed or supplementary deed. Therefore, there is no question of examination or re-examination of any witness to the supplementary deed. The right to remove the superstructure is with the assessee and that event did not take place in the assessment year under appeal. Therefore, the assumption of the AO is illegal. At present, the meager rent of the tenanted property does benefit to the assessee-society and as such, no benefit is extended to any relative of the Secretary of the Society u/s. 13(3) of the IT Act. The assessee also rightly contended before the ld. CIT(A) that the AO has allowed depreciation at the rate of 10% on the building and superstructure while computing the income of the assessee, would prove that the depreciation has been granted to the assessee being the owner of the superstructure and as such, the AO admitted ownership of the assessee over the building in question and as such, the AO passed contradictory order in this case. Further, the re-drafting of clause 5 of the lease deed has merely explained that in the event of expiry of the lease term, the superstructure will be removed by the assessee immediately, which is already provided in the original clause No. 5. It was explained in the supplementary deed that in case it is not possible to remove the existing structure then the lessor shall pay to the society the value of superstructure as would be valued by the registered valuer. Therefore, explaining clause No. 5 through supplementary deed would not be inadmissible in nature and as such, would not violate Rule 46A of the IT Rules. The ld. counsel for the assessee further contended that the AO in this case is Dr. Balvan Chauhan, Addl. CIT Range-I, Aligarh, who denied exemption, but the same AO accepted similar claim of the assessee in subsequent assessment year 2008-09 in the order passed u/s. 143(3) of the IT Act dated 27.12.10 (PB-51). It is well settled law that though the principle of res judicata does not apply to the Income-tax Proceedings, but the Income-tax Authorities are bound to follow the rule of consistency while deciding similar matters. We are fortified in our view by the judgment of Hon’ble Supreme Court in the case of Radhaswamy Satsang v. CIT, 193 ITR321 and the decision of M.P. High Court in the case of CIT v. Godavari Corporation Ltd., 156 ITR 835, decision of Hon’ble Delhi High Court in the case of CIT v. Escorts Ltd., 338 ITR 435 and the decision of Hon’ble Punjab & Haryana High Court in the case of CIT v. Vikas Chemi Gum India, 276 ITR 32. Since the AO himself accepted the case of the assessee in the subsequent year, therefore, we do not find any justification to interfere with the order of the ld. CIT(A) in allowing exemption to the assessee u/s. 11 of the IT Act. Considering the totality of facts and circumstances of the case, we do not find any justification to interfere with the order of the ld. CIT(A). The departmental appeal has no merit and is dismissed.
9. In this appeal the department raised more or less similar grounds of appeal. The AO following the order of assessment year 2006-07, denied exemption to the assessee u/s. 11 & 12 of the IT Act. The ld. CIT(A) following his order for the assessment year 2006-07, deleted the addition and allowed the appeal of the assessee. By following the reasons for decision in ITA No. 455/Agra/2010, we dismiss this departmental appeal as well.
10. In the result, both the appeals of Revenue are dismissed.