India Cancer Society gets income-tax tribunal relief in rent dispute case in Mumbai

The tribunal said in case of a charitable trust, the I-T department cannot consider deemed income against the actual income received.

The Income Tax (I-T) tribunal recently gave relief to the India Cancer Society from the assessment order passed by the I-T department against it for charging less rent that the prevailing market rate. The tribunal said in case of a charitable trust, the I-T department cannot consider deemed income against the actual income received.

The Income Tax tribunal recently gave relief to the India Cancer Society. (Represetational image)

The tribunal was hearing an appeal filed by the Society against the I-T commissioner’s order passed on January 25, where the I-T department had taken up the case to scrutinise the society’s disclosure of income and expenditure for 2011-12. The I-T department had questioned the rent rate of ₹7 per square foot (sqft) that the society had charged visiting doctors, against the current rate of ₹134 per sqft. The department assessed the income to be ₹5.16 crore against ₹32.98 lakh that the society had declared.

During scrutiny, the I-T department had found the “assesse [the society] received rent of ₹32,98,954 on account of hiring the building of the Indian Cancer Society at Maharashi Karve Road to various doctors and medical professionals. The assesse was receiving very low rent from the tenants”.

The I-T department calculated assessed rent of ₹134 per sqft every month and found the notional rent in the area to be ₹40,00,838 ( ₹134 x 29,857 sqft). However, the society evaluated the rent at ₹7 per sqft, which was ₹2,08,999 ( ₹7 x 29,857 sqft). The I-T department then found the differential rent to be ₹4,55,02,068 and added it to the income of the Society. The total income of the society was assessed to be ₹5,16,28,330 by the I-T department, which was upheld by the I-T commissioner.

Aggrieved by this, the society approached the tribunal claiming that an error had occurred in upholding the action of the AO (assessing officer) in evaluating the difference between the actual rent received by the appellant and the rent, which as per the AO, should have been received as “deemed rental income”.

The society argued that “the rent has been fixed at ₹7 per sqft per month, which was approved by the Bombay high court and by the Charity Commissioner in 2003, and finally by the collector. So, the assesse is unable to increase the rent unilaterally. The collector is the owner of the land and has given it to the appellant at ₹1 per year along with the annual license fee of ₹3,25,000, based on the recovery of ₹7 as rent which is not variable at the instance of the assesse. Therefore, assessing the deemed income (notional rent) by AO which has been confirmed by the commissioner is not justifiable.”

The tribunal said “provisions of Part-II of the Act Bombay Rents, Hotel and Lodging House Rates Control, Act, 1947, is not applicable to the case of the assesse trust. No deemed rent is liable to be assessed in the case of the assesse. Hence, the finding of the Commissioner of Income-tax (Appeals) is not justifiable.”