1. This is an appeal field at the instance of the assessee-trust against the order of the CIT (A)-III, Calcutta dated 27-9-1991 for the assessment year 1989-90.
2. The assessee owns a premises which was let out to M/s. New Jatinga Valley Tea Estate Ltd. on rent. The Assessing Officer has found during the course of completion of assessment that a sum of Rs. 1,36,212 is due from the said company towards the rent payable to the assessee-trust. As Sri S. Chatterjee, Director in that company, happens to be the son of the trustee Sri P. C. Chatterjee, the Assessing Officer has examined the facts with reference to the provisions of sec.
13(1)(c) of the IT Act. The Assessing Officer found that though the amount towards rent is not paid by the company M/s. New Jatinga Valley Tea Estate Ltd., the assessee-trust has not taken any steps for realisation of the said rent and hence the non-realisation thereof amounts to violation of the provisions of sec. 13(1)(c)/13(3) of the Act. The Assessing Officer has also held that the assessee has not taken any adequate security from the persons referred to in sub-section (3) of sec. 13 in spite of the said trust-amount held with the said-company and hence it amounts to violation of provisions of sec.
13(2)(a) 11 of the act for the year under consideration.
3. Aggrieved thereby, the assessee filed an appeal before the CIT (A) where it was contended that the tenant M/s. New jatinga Valley Tea Estate Ltd. has been occupying the building before the Trust took over the property and as such the trust cannot evict the company in view of the Tenancy Act. It was also contended that New Jatinga Valley Tea Estate Ltd. had contributed substantially for the construction of the building of the trust to the tune of Rs. 2 lakhs and hence there was no question of the assessee either evicting the company or taking legal action to realise the outstanding amount. In any case it was submitted that he rent was paid in full in the next year and as the rent charged to the said company is the normal rent chargeable to other tenants, there is no violation of any of the provisions of sec. 13 of the Act.
The CIT (A) held that the old building, in which the said company was enjoying the tenancy right, has been demolished and hence, the tenancy right, if any, of the company would automatically cease. He further observed that since the trust acquired the said property later, there is not obligation on the part of the trust vis-a-vis the said company.
It was further observed that the sum of Rs. 2 lakhs was advanced by the company as per the Tenancy Agreement with the assessee-trust whereby the sum was paid for the purpose of construction of the building subject to the condition of letting out a part of the building to the company by the trust. He thus held that the advance so given was a normal advance in terms of the agreement and hence no special favour is done by the company to the trust. Consequently, he held that he trust need not be obliged by showing any extra-consideration to the company by not collecting the rental income and since the assessee has not made any attempt to collect the same, the trust has violated the provisions of section 13(1)(c)/13(3) of the Act. In so holding he has also observed that there is no evidence produced by the assessee to show that the rent charged from the company is at par with other tenants.
4. With regard to the claim of the assessee that the amount of Rs. 45,000 is less than 75% of the income set apart for specified purpose and deposited to Hong Kong and Shanghai Banking Corpn. and hence there is no violation of any of the provisions of sec. 13 of the Act, the CIT (A) held that since the benefit of sec. 11 has been denied by the Assessing Officer and upheld by him, this question becomes redundant.
5. Further aggrieved, the assessee is in appeal before us. The ld.counsel for the assessee contended that the assessee has not violated the provisions of sec. 13(1)(c)/13(2)(a)/13(3) of the Act, inasmuch as, the assessee has not advanced/lent any sum to the said company. He has submitted that as per the provisions of sec. 13(1)(c) of the Act, the benefit of exemption u/s. 11 is not available to the assessee if any part of the income or any property of the trust is, during the previous year, used or applied directly or indirectly for the benefit of any person referred to sub-section (3). The ld. counsel for the assessee explained that in the present case, the assessee has not used nor applied any property of the trust or any part of the income of the trust for the benefit of any person. He contended that the words 'used or applied' connote a positive act on the part of the trust and in the present case the rent, which the assessee is entitled to receive at any moment, was not collected by the assessee. Hence, thee is no user or application of the rental income, inasmuch as, it only amounts to non-collection of the outstanding rent. Thus it is the case of the ld.counsel for the assessee that the provision of sec. 13(1)(c) are not applicable to the facts and circumstances of the case and in this regard he has relied on the decisions in CIT v. Nachimuthu Industrial Association [1982] 138 ITR 585/[1983] 14 Taxman 224 (Mad.) and CIT v.Birla Charity Trust [1988] 170 ITR 150/[1987] 34 Taxman 504 (Cal.).
With regard to the provisions of sec. 13(2)(a) of the Act, the ld.counsel of the assessee contended that the advance given by the said company to the assessee of Rs. 2 lakhs is available with the assessee and hence the non-collection of a sum of Rs. 1,36,212 cannot be said to partake the character of lending of sum without adequate security. He has also submitted before us that the CIT (A) has not appreciated the facts in proper perspective, inasmuch as, the said company has still got the tenancy right over the said property and in view of the advance given by them, the assessee is obliged to continue with the said tenant and thus the provision of sec. 13(2)(a) of the Act are not applicable.
He further submitted before us that even u/s. 13(2)(a), the property or income of the trust shall be deemed to have been used or applied for the benefit of the person referred to in sub-section (3) if the same is lent to any person referred to in sub-section (3). He submitted that in the cases cited (supra), in the facts and circumstances of the case, the assessee-trust cannot be said to have lent the amount to the company M/s. New Jatinga Valley Tea Estate Ltd. In other words, the contention of the ld. counsel for the assessee is that non-collection of the outstanding rent cannot be equated to 'lending'. He finally submitted that the assessee has been charging the normal rent at par with the other tenants and hence there is no special benefit that accrues or arises to the person referred to in sub-section (3) of the Act. It is also the contention of the ld. counsel fort he assessee that the CIT (A) is wrong in observing that the assessee has not produced any evidence in support of the rent charged from the company so as to prove that it is at par with other tenants. He further submitted that it is not the case of the Assessing Officer that the assessee has not been charging adequate rent and hence the CIT (A) without any valid basis, is thereof. He has also submitted that it is neither the cases of the Assessing Officer nor the case of the CIT (A) that the assessee has violated the provisions of sec. 13(2)(b) of the Act. Such being the case, and more particularly, in the absence of any material to show that the assessee has been charging lesser rent, the provisions of sec.
13(2)(b) is not applicable. He thus contended that the Assessing Officer is not correct in applying the provisions of sec. 13(2)(a) which are not at all applicable and the Assessing Officer has not chosen to apply sec. 12(2)(b) as the factual position is not disputed.
5A. On the other hand, the ld. departmental representative contended that the son of the trustee happens to be a director of the said-company and hence the said company is a person within the meaning of sec. 13(3) of the Act. He further submitted that the assessee has not made any attempt to collect huge outstanding rent from the said company and as such by invoking the provisions of sec.
13(1)(c)/13(2)(a) the assessee's deemed to have used or applied the said amount for the benefit of person referred to in sec. 13(3) without any adequate security.
5B. We have heard the rival submissions and also perused the records.
For the purpose of appreciating the facts it may be necessary to reproduce relevant provisions of the Act :- "13(1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- (c) in the case of a trust for charitable or religious purposes or a charitable or religious, any income thereof - (i) if such trust or institution has been, created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied.
directly or indirectly for the benefit of any person referred to in sub-section (3).
(2) Without prejudice to the generality of the provisions of clause (c) and clause (d) of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3) - (a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub-section (3) for any period during the previous year without either adequate security or adequate interest or both; (b) if any land, building or other property of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-section (3), for any period during the previous year without charging adequate rent or other compensation;** ** ** (3) The person referred to in clause (c) of sub-section (1) and sub-section (2) are the following namely :- (b) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to end of the relevant previous year exceeds fifty thousand rupees; (c) where such author, founder or person is a Hindu undivided family, a member of the family; (cc) any trustee of the trust or manager (by whatever name called) of the institution; (d) any relative of any such author, founder, person, member, trustee or manager as aforesaid; (e) any concern in which any of the persons referred to in clauses (a), (b), (c), (cc) and (d) has a substantial interest." 6. Whiled holding that the assessee has violated the provisions of section 13(1)(a)/13(2)(a)/13(3) of the Act, the Assessing Officer has never disputed the adequacy of the rent charged by the assessee. We also find that the CIT (A) except merely observing that the assessee has to prove that the rent charged is adequate, no other material has been brought on record to show that the rent charged by the assessee is low compared to the rent chargeable under similar circumstances. We therefore accept the plea of the assessee that the rent charged is adequate rent which is chargeable for the premises let out to the company. In other words, the assessee can be said to have been adequately compensated in the form of rent for the premises let out to the company. Under he provisions of section 13(1)(c)(ii) the benefit of exemption under section 11 is denied to an assessee who has 'used' or 'applied' any part of the income or property of the trust for the benefit of any person referred to in sub-clause (3). We are, therefore, of the opinion that the connotation 'used' or 'applied' should be understood as a positive act of user or application of the income of the trust or the property of the trust. In the present case, the assessee has let out the property on rent and as we have held hereinabove, the rent being reasonable with reference to the area of the premises let out, it cannot be said that there is any benefit passed on directly or indirectly to the person referred to in sub-section (3) of sec. 13 of the Act. In fact, by not making efforts to collect the outstanding rent, the assessee cannot be said to have used or applied the income or property of the trust as there is no positive act on the part of the assessee in that regard. We are, therefore, of the opinion that the provisions of sec. 13(1)(c)(ii) of the Act are not violated by the assessee-trust. Section 13(2)(a) which has been applied by the Assessing Officer is also not applicable to the facts of the case, inasmuch as, under the said provisions, the income or property of the trust would be deemed to have been used or applied if the same is lent to any person referred to in sub-section (3). The word 'lent' connotes the positive act of lending by the assessee-trust and the same, in our opinion, cannot be applied to a case where the assessee has not lent any sum. In the present case, the objection raised by the department is that the assessee has not chosen to realise the rent by taking any legal action. We are of the opinion that the inaction on the part of the assessee in not collecting the rent cannot be equate to an act of lending the income or property of the trust. We are, thereof, of the opinion that that the provisions of sec. 13(2)(a) of the Act are not applicable to the facts of the present case. We are, therefore, hold that the assessee is entitled to the benefit of exemption under section 11 of the Act, if the other conditions stipulated therein are complied with by the assessee.
10. In the result, the appeal field by the assessee is allowed for statistical purpose.