Facts of the Case

The Revenue filed an appeal under Section 260A of the Income-tax Act, 1961 against the order dated 27.09.2023 passed by the Income Tax Appellate Tribunal, Delhi Bench, for Assessment Year 2016–17. The ITAT had dismissed the Revenue’s appeal and upheld the order of the Commissioner of Income Tax (Appeals), which allowed exemption to Hamdard Laboratories (India) under Sections 11 and 12 and also recognised eligibility under Section 10(23C)(iv).

The Assessing Officer had denied exemption by invoking Section 13(2)(b) read with Section 13(3), alleging that two residential properties owned by the trust at Kautilya Marg and Rajdoot Marg, New Delhi were provided to trustees and their family members at an allegedly concessional rent of ₹90,000 per month, thereby conferring undue benefit. Consequently, the AO assessed the total income at ₹1,93,93,48,991 and denied exemption under Sections 11 and 12.

Issues Involved

Whether Hamdard Laboratories (India) is entitled to exemption under Section 10(23C)(iv) and Sections 11 and 12 of the Income-tax Act, whether alleged concessional rent to trustees attracts Section 13(2)(b) and Section 13(3), and whether the rule of consistency applies in absence of change in facts or law.

Appellant’s Arguments

The Revenue contended that the CIT(A) erred in allowing exemption under Section 10(23C)(iv), which was not claimed in the original return of income, and ought to have remanded the matter to the Assessing Officer. It was argued that providing residential accommodation to trustees at concessional rent constituted violation of Section 13(2)(b), disentitling the trust from exemption under Sections 11 and 12. The Revenue further submitted that exemption granted in earlier years could not automatically apply to the year under consideration.

Respondent’s Arguments

The assessee submitted that it is a charitable institution established in 1948 and has consistently enjoyed exemption under Section 10(23C)(iv) and earlier under the 1922 Act. It was argued that the dominant purpose of the trust is charitable and not profit-oriented, as conclusively held by the Delhi High Court in earlier Hamdard decisions.

It was further submitted that the burden to prove inadequacy of rent lay on the Revenue, which relied only on internet data without any valuation report. The assessee invoked the rule of consistency, contending that in absence of any change in facts or law, exemption could not be denied for AY 2016–17 when it had been granted in preceding years.

Court Order / Findings

The Delhi High Court examined the long history of the assessee trust and noted that its charitable character and eligibility under Section 10(23C)(iv) had been conclusively settled by earlier judgments of the Court, including Hamdard Laboratories (India) & Anr. v. ADIT (Exemptions).

The Court held that the CIT(A) was empowered to entertain the additional claim under Section 10(23C)(iv) and that there was no requirement to remand the matter to the Assessing Officer. It was observed that the Revenue failed to demonstrate any change in facts or law to justify departure from the consistent view taken in earlier assessment years.

On the issue of Section 13(2)(b), the Court held that the Revenue did not discharge its burden of proving that the rent charged was inadequate. Reliance on website listings without corroborative evidence or valuation could not establish undue benefit to trustees. The Court reiterated that market rent is not the sole yardstick and that adequacy must be examined in factual context.

Important Clarification

The Court clarified that where a charitable institution has been consistently granted exemption and there is no material change in facts or law, the rule of consistency must be followed. Alleged concessional benefits to specified persons must be proved with cogent evidence, failing which Section 13 cannot be invoked to deny exemption.

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court upheld the order of the ITAT and the CIT(A), reaffirmed the charitable status of Hamdard Laboratories (India), and held that exemption under Section 10(23C)(iv) and Sections 11 and 12 of the Income-tax Act for Assessment Year 2016–17 was rightly allowed.

Link to download order- https://www.mytaxexpert.co.in/uploads/1769682360_COMMISSIONEROFINCOMETAXEXEMPTIONSDELHIVsHAMDARDLABORATORIESINDIA.pdf

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