Market rent isn’t sole yardstick to treat ‘rent’ as inadequate to invoke deeming provision of section 13(2)(b): HC

Case Details: CIT v. Hamdard National Foundation (India) - [2022] 135 taxmann.com 348 (Delhi)

Judiciary and Counsel Details

• • Manmohan and Navin Chawla, JJ.
  • Abhishek Maratha, Sr. Standing Counsel for the Appellant. 
  • Salil Aggarwal, Sr. Adv. and Madhur Aggarwal, Adv. for the Respondent.

Facts of the Case

The assessee-Hamdard National Foundation (India) had received voluntary and corpus donations from Hamdard Dawakhana (Wakf). The assessee had also let out its property to Wakf under a lease agreement.

Relying upon inquiries made from estate agents and information gathered from various websites, the Assessing Officer (AO) held that the assessee let out the property to the Wakf at a much lower rate than the market rate. Therefore, he invoked the provisions of section 13(2)(b) and made additions to the assessee’s taxable income.

On appeal, the CIT(A) upheld the order of AO. However, the Tribunal ruled in favour of the assessee. Aggrieved revenue filed an instant appeal before the High Court.

High Court Held

The Delhi High Court held that under Section 13(2)(b), the burden of showing that the rent charged by the assessee was not ‘adequate’ is on the revenue. Thus, AO was required to prove that the property was made available for the use of any person referred to in Section 13(3) otherwise than for adequate consideration.

To determine the same, the context of the facts of the particular case needs to be appreciated. The market rent or rate is not the sole yardstick for determining’ Adequate’ rent, and AO is required to consider various other circumstances of the case.
The material collected from the internet and the estate agents cannot be termed as a corroborative piece of evidence to prove that the rent received by the assessee was inadequate.

In the instant case, rent received by the assessee exceeded the valuation adopted by the Municipal Corporation of Delhi to levy house tax.
However, apart from relying upon some opinions of rent from property broker firms and websites, AO did not make any independent inquiry on the adequacy of the rent being charged by the assessee from Wakf.

In the absence of any such inquiry by the AO, the invocation of Section 13(2)(b) was clearly flawed and rightly rejected by the learned ITAT.