The Income Tax Appellate Tribunal (ITAT), Mumbai Bench ruled that the Onus to prove lease rent paid to trustees is excessive, beyond the fair market value lies on CIT(E).
The assessee, Sardar Pratap Singh Education Society is 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. The Assessee society was formed through Memorandum of Association of society dated 31/03/1978 and is duly registered under Societies Registration Act, 1860 under Registration dated May 25, 1978. The assessee is also registered as a Public Charitable Trust under Bombay Public Trust Act, 1950 since October 24, 1978. As per the predominant objects in the Memorandum of Association and Rules and Regulations of the society, the assessee society has been established solely for the purpose of education.
The 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 the assessee institution being a minority institution formed by Sikh minority, the provisions of Right to Education Scheme are not applicable to minority educational institutions, so free education is not provided to any student. The assessee trust preferred an application under section 10(23C)(vi) in the prescribed form seeking registration thereon before the competent authority i.e. the CIT(E). The educational activities of the assessee trust were started from the year 1979. One of the prerequisites of getting affiliation with Council for Indian School Certificate Examination (CISCE), New Delhi was that the school should have a minimum of 2000 sq.mtrs of land, suitable building constructed on part of the land and proper playground on the remaining land with adequate facilities as prescribed from time to time by the Council.
The main grievance of the CIT(E) is that assessee trust has paid lease rent of Rs.24 lakhs to two trustees of the trust for taking lease on rent admeasuring 2200 sq.mtrs on which building of the school is constructed and on which the school is functioning as on date.
The coram Vice President, Mahavir Singh found that the assessee trust had to ensure that it has a minimum of 2000 sq. meters on land, for functioning its school, and for getting affiliation with CISCE as per the rules and regulations by CISCE.
The ITAT ruled that the 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 is excessive or unreasonable and beyond the fair market value thereon.
On the contrary, the Tribunal found that the assessee placed on record that the market value of the land is 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 the assessee trust to the trustees is not excessive or unreasonable.
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