The officer says we let our building to a related party below market rent. Is that by itself a breach of s.13(2)(b)?
No, not by itself. The burden of showing that the rent was inadequate is on the Department, and the market rate is not the only yardstick. Where the rent charged was higher than the valuation the municipal corporation had adopted for house tax, and the officer's only material was enquiries from estate agents and figures picked off the internet, the Delhi High Court held that s.13(2)(b) was not attracted and the s.11 exemption stood.
Decided by the High Court (Delhi High Court — Manmohan and Navin Chawla JJ (judgment delivered by Navin Chawla J); IT Appeal Nos. 115, 142 and 144 of 2021 and 15 of 2022 with CM Appeal No. 32406 of 2021) on 2022-02-16, reported as [2022] 135 taxmann.com 348 / 286 Taxman 441 / 443 ITR 348 (Delhi); IT Appeal Nos. 115, 142 and 144 of 2021 and 15 of 2022. It bears on section 13(2)(b), section 13(3), section 13(1)(c), section 11, section 12 of the Income Tax Act 1961, in Charitable Trusts & Exemption, Capital Gains Exemptions and Evidence & Burden of Proof matters.
This is the answer to the commonest form of a s.13(2)(b) charge: the officer prints property-portal listings for the locality, compares them with the trust's rent, and treats the difference as a benefit conferred on a specified person. The decision puts the onus back on the Department, gives a usable benchmark in the municipal ratable value, and adds a consistency point for a lease the Department has accepted in earlier years. The department's usual counter is that res judicata does not apply to income-tax proceedings, so each year stands alone; the Court dealt with that by saying that a position of fact accepted over a period should not be reopened without good reason.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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For assessment year 2007-08 the assessee trust received donations of Rs 9,43,81,000 and a corpus donation of Rs 20 crore from Hamdard Dawakhana (Wakf), and rental income of Rs 46,41,028. It had let its property at Asaf Ali Road, New Delhi, to Hamdard Laboratories (India) or Hamdard Dawakhana (Wakf) since 1981-82 under a lease with periodical increases in rent, a position the revenue had accepted until assessment year 2007-08, and it also owned a property at Rajdoot Marg, Chanakyapuri. Relying on enquiries of CB Richard Ellis South Asia Private Limited and HSN Reality Services and on the websites makan.com, 99acres.com and magicbricks.com, the Assessing Officer held the properties let at far below market rate in lieu of the donations, invoked s.13(2)(b) read with s.13(3) and denied exemption under ss.11 and 12 for assessment years 2007-08 to 2010-11. The letter from CB Richard Ellis had itself said there was no verified market referral rate and had asked the officer to verify the rates independently, which he did not do. The Commissioner (Appeals) upheld the addition for two years and allowed the assessee's appeals for two others. By common order of 1 November 2019 the Tribunal decided all four years for the trust and directed deletion of the additions. The revenue appealed.
The revenue's appeals were dismissed on the footing that no substantial question of law arose (para 27). Two propositions are the Court's own. Under s.13(2)(b) the burden of showing that the rent charged was not adequate lies on the revenue; unless the rent is such as to shock the conscience of the Court and cannot be a reasonable consideration at all, the transaction cannot be held to be bereft of adequate consideration, and adequacy has to be judged in the context of the facts of the particular case. Market rent or rate is not the sole yardstick; other circumstances have to be considered (para 20.2). And a security deposit may be one factor bearing on adequacy but cannot be the sole determinative factor; here the officer, apart from the brokers' opinions and the websites, made no independent inquiry into the adequacy of the rent or into the age and condition of the building, and one of the properties was not even ready and was lying vacant in assessment year 2008-09, so the invocation of s.13(2)(b) was clearly flawed and was rightly rejected by the Tribunal (para 26). The rest of the decision is the Court declining to disturb findings of fact. The statements that the revenue brought no cogent evidence, that material collected from the internet and from estate agents cannot be corroborative evidence, and that the rent exceeded the municipal valuation for house tax are the Tribunal's findings, which the Court set out and held not to be perverse (paras 21 and 22).
The Court began from two admitted facts: the property at Asaf Ali Road had been let to the Hamdard entities since 1981 and the trust had enjoyed ss.11 and 12 until assessment year 2007-08 (para 19). On that footing it applied the rule of consistency, holding that although res judicata does not strictly apply to income-tax proceedings, a position of fact accepted by the revenue over a period should not be reopened without compelling reasons, and it set out the Supreme Court's treatment of the point in Excel Industries and Radhasoami Satsang (para 20.1). It then took the burden and the meaning of adequate consideration from the gift-tax line — Reva Investment in the Supreme Court and Indo Traders and Agencies in Madras — under which inadequacy must shock the conscience, adequate consideration is construed in a broad commercial sense, and market value is not a universal yardstick (paras 20.2 to 20.2.2). Against that, the Tribunal's findings were findings of a final fact-finding authority and were not perverse (para 22), and the Court set out the limits of a second-appellate jurisdiction confined to substantial questions of law by reference to Ram Kumar Agarwal, Khalsa Motors, Hero Vinoth and Maharashtra State Electricity Distribution (para 23). The revenue's other complaints failed: the Tribunal was entitled, hearing a batch of years in which the Commissioner (Appeals) had gone both ways, to adopt the reasoning of the order it agreed with (para 24), and its figure for standard rent could not be attacked when no contrary determination had even been pleaded (para 25).
For determining "Adequate" consideration/rent, however, market rent or rate is not the sole yardstick; other circumstances of the case also need to be considered.
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Handle my notice → Ask a CA on WhatsAppNo, not by itself. The burden of showing that the rent was inadequate is on the Department, and the market rate is not the only yardstick. Where the rent charged was higher than the valuation the municipal corporation had adopted for house tax, and the officer's only material was enquiries from estate agents and figures picked off the internet, the Delhi High Court held that s.13(2)(b) was not attracted and the s.11 exemption stood. This was decided by the High Court (Delhi High Court — Manmohan and Navin Chawla JJ (judgment delivered by Navin Chawla J); IT Appeal Nos. 115, 142 and 144 of 2021 and 15 of 2022 with CM Appeal No. 32406 of 2021) and bears on section 13(2)(b), section 13(3), section 13(1)(c), section 11, section 12 of the Income Tax Act 1961. It is reported as [2022] 135 taxmann.com 348 / 286 Taxman 441 / 443 ITR 348 (Delhi); IT Appeal Nos. 115, 142 and 144 of 2021 and 15 of 2022. This is the answer to the commonest form of a s.13(2)(b) charge: the officer prints property-portal listings for the locality, compares them with the trust's rent, and treats the difference as a benefit conferred on a specified person. The decision puts the onus back on the Department, gives a usable benchmark in the municipal ratable value, and adds a consistency point for a lease the Department has accepted in earlier years. The department's usual counter is that res judicata does not apply to income-tax proceedings, so each year stands alone; the Court dealt with that by saying that a position of fact accepted over a period should not be reopened without good reason. If it applies to you, the first step is this: Ask in writing for the comparables the officer is relying on, and object at the assessment stage if they are internet listings or oral estate-agent enquiries rather than material collected under s.133(6).
For assessment year 2007-08 the assessee trust received donations of Rs 9,43,81,000 and a corpus donation of Rs 20 crore from Hamdard Dawakhana (Wakf), and rental income of Rs 46,41,028. It had let its property at Asaf Ali Road, New Delhi, to Hamdard Laboratories (India) or Hamdard Dawakhana (Wakf) since 1981-82 under a lease with periodical increases in rent, a position the revenue had accepted until assessment year 2007-08, and it also owned a property at Rajdoot Marg, Chanakyapuri. Relying on enquiries of CB Richard Ellis South Asia Private Limited and HSN Reality Services and on the websites makan.com, 99acres.com and magicbricks.com, the Assessing Officer held the properties let at far below market rate in lieu of the donations, invoked s.13(2)(b) read with s.13(3) and denied exemption under ss.11 and 12 for assessment years 2007-08 to 2010-11. The letter from CB Richard Ellis had itself said there was no verified market referral rate and had asked the officer to verify the rates independently, which he did not do. The Commissioner (Appeals) upheld the addition for two years and allowed the assessee's appeals for two others. By common order of 1 November 2019 the Tribunal decided all four years for the trust and directed deletion of the additions. The revenue appealed. The matter was decided on 2022-02-16 by the High Court (Delhi High Court — Manmohan and Navin Chawla JJ (judgment delivered by Navin Chawla J); IT Appeal Nos. 115, 142 and 144 of 2021 and 15 of 2022 with CM Appeal No. 32406 of 2021). On those facts the High Court held as follows. The revenue's appeals were dismissed on the footing that no substantial question of law arose (para 27). Two propositions are the Court's own. Under s.13(2)(b) the burden of showing that the rent charged was not adequate lies on the revenue; unless the rent is such as to shock the conscience of the Court and cannot be a reasonable consideration at all, the transaction cannot be held to be bereft of adequate consideration, and adequacy has to be judged in the context of the facts of the particular case. Market rent or rate is not the sole yardstick; other circumstances have to be considered (para 20.2). And a security deposit may be one factor bearing on adequacy but cannot be the sole determinative factor; here the officer, apart from the brokers' opinions and the websites, made no independent inquiry into the adequacy of the rent or into the age and condition of the building, and one of the properties was not even ready and was lying vacant in assessment year 2008-09, so the invocation of s.13(2)(b) was clearly flawed and was rightly rejected by the Tribunal (para 26). The rest of the decision is the Court declining to disturb findings of fact. The statements that the revenue brought no cogent evidence, that material collected from the internet and from estate agents cannot be corroborative evidence, and that the rent exceeded the municipal valuation for house tax are the Tribunal's findings, which the Court set out and held not to be perverse (paras 21 and 22).
The Court began from two admitted facts: the property at Asaf Ali Road had been let to the Hamdard entities since 1981 and the trust had enjoyed ss.11 and 12 until assessment year 2007-08 (para 19). On that footing it applied the rule of consistency, holding that although res judicata does not strictly apply to income-tax proceedings, a position of fact accepted by the revenue over a period should not be reopened without compelling reasons, and it set out the Supreme Court's treatment of the point in Excel Industries and Radhasoami Satsang (para 20.1). It then took the burden and the meaning of adequate consideration from the gift-tax line — Reva Investment in the Supreme Court and Indo Traders and Agencies in Madras — under which inadequacy must shock the conscience, adequate consideration is construed in a broad commercial sense, and market value is not a universal yardstick (paras 20.2 to 20.2.2). Against that, the Tribunal's findings were findings of a final fact-finding authority and were not perverse (para 22), and the Court set out the limits of a second-appellate jurisdiction confined to substantial questions of law by reference to Ram Kumar Agarwal, Khalsa Motors, Hero Vinoth and Maharashtra State Electricity Distribution (para 23). The revenue's other complaints failed: the Tribunal was entitled, hearing a batch of years in which the Commissioner (Appeals) had gone both ways, to adopt the reasoning of the order it agreed with (para 24), and its figure for standard rent could not be attacked when no contrary determination had even been pleaded (para 25). In the words reproduced by the source cited on this page: "For determining "Adequate" consideration/rent, however, market rent or rate is not the sole yardstick; other circumstances of the case also need to be considered."
It was decided by the High Court on 2022-02-16 and is reported as [2022] 135 taxmann.com 348 / 286 Taxman 441 / 443 ITR 348 (Delhi); IT Appeal Nos. 115, 142 and 144 of 2021 and 15 of 2022. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 13(2)(b), section 13(3), section 13(1)(c), section 11, section 12, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The revenue's appeals were dismissed on the footing that no substantial question of law arose (para 27). Two propositions are the Court's own. Under s.13(2)(b) the burden of showing that the rent charged was not adequate lies on the revenue; unless the rent is such as to shock the conscience of the Court and cannot be a reasonable consideration at all, the transaction cannot be held to be bereft of adequate consideration, and adequacy has to be judged in the context of the facts of the particular case. Market rent or rate is not the sole yardstick; other circumstances have to be considered (para 20.2). And a security deposit may be one factor bearing on adequacy but cannot be the sole determinative factor; here the officer, apart from the brokers' opinions and the websites, made no independent inquiry into the adequacy of the rent or into the age and condition of the building, and one of the properties was not even ready and was lying vacant in assessment year 2008-09, so the invocation of s.13(2)(b) was clearly flawed and was rightly rejected by the Tribunal (para 26). The rest of the decision is the Court declining to disturb findings of fact. The statements that the revenue brought no cogent evidence, that material collected from the internet and from estate agents cannot be corroborative evidence, and that the rent exceeded the municipal valuation for house tax are the Tribunal's findings, which the Court set out and held not to be perverse (paras 21 and 22). It arises in Charitable Trusts & Exemption, Capital Gains Exemptions and Evidence & Burden of Proof matters, on section 13(2)(b), section 13(3), section 13(1)(c), section 11, section 12 of the Income Tax Act 1961, and was decided by Delhi High Court — Manmohan and Navin Chawla JJ (judgment delivered by Navin Chawla J); IT Appeal Nos. 115, 142 and 144 of 2021 and 15 of 2022 with CM Appeal No. 32406 of 2021. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Put the municipal ratable value or house-tax valuation of the property on record and show that the rent charged exceeds it. Where the lease has been on the same terms for several years and accepted, plead the rule of consistency and give the years and the assessment orders. Keep the alternative argument alive that even a proved breach denies exemption only on the diverted amount, on the line in CIT (Exemptions) v. Audyogik Shikshan Mandal.
Still good law. Followed by a later Division Bench of the same Court. In CIT (Exemptions), Delhi v. Hamdard Laboratories (India) [2025] 178 taxmann.com 420 (Delhi), decided 10 September 2025 by Nitin Wasudeo Sambre and Anish Dayal JJ in IT Appeal No. 258 of 2025, this judgment was set out at paras 52 and 53 and followed, the Court holding at para 54 that the issue may not be res integra because it had already made an assessment of the allegation of undue benefit to specified persons where the Assessing Officer had relied on online platforms to show that the value at which property was provided was inadequate. That appeal, on the same group's facts for assessment year 2016-17, was dismissed for want of a substantial question of law. Nothing overruling or doubting the judgment was traced. Separately, the Finance Act 2022 changed the consequence of a proved s.13 violation from assessment year 2023-24, confining the inclusion to the part of the income applied in violation and taxing it under s.115BBI; that goes to consequence and not to the adequacy test stated here. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Read this as a s.260A dismissal. What the Court decided for itself is at para 20.2 — the burden under s.13(2)(b) is the revenue's, inadequacy must shock the conscience, and market rent is not the sole yardstick — and at para 26, that a security deposit is one factor and not a determinative one, and that the officer made no independent inquiry into the rent or into the age and condition of the building. Everything else is the Court declining to reopen findings of fact of the Tribunal, which it called the final fact-finding authority, and setting out at para 23 why a second-appellate jurisdiction confined to substantial questions of law does not permit that. The much-quoted sentence about material collected from the internet and estate agents is the Tribunal's, recorded by the Court at para 21; the Tribunal's own words there read 'collaborative piece of evidence'. Two supporting facts a reader should hold on to: the officer's own source, CB Richard Ellis, told him there was no verified market referral rate and asked him to verify independently, and the Rajdoot Marg property was not ready and was lying vacant in assessment year 2008-09. The judgment is dated 16 February 2022, the bench is Manmohan and Navin Chawla JJ, and the appeals are IT Appeal Nos. 115, 142 and 144 of 2021 and 15 of 2022. A taxguru page listed here earlier as a corroborator in fact reports a different assessee — CIT (Exemptions) v. Hamdard Laboratories (India) — which is the 2025 decision that follows this one. The judgment has now been read. It still does not tell you what evidence would be enough for the department, only what was not enough: the Court's point is that the officer made no independent inquiry at all, not that a properly conducted valuation would have failed. It does not say what weight a valuation report or a s.133(6) enquiry of neighbouring tenants would carry, and because the appeals were dismissed for want of a substantial question of law, the Tribunal's findings on the municipal valuation and the standard rent under the Delhi Rent Control Act 1958 stand unexamined on their merits. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The revenue's appeals were dismissed on the footing that no substantial question of law arose (para 27). Two propositions are the Court's own. Under s.13(2)(b) the burden of showing that the rent charged was not adequate lies on the revenue; unless the rent is such as to shock the conscience of the Court and cannot be a reasonable consideration at all, the transaction cannot be held to be bereft of adequate consideration, and adequacy has to be judged in the context of the facts of the particular case. Market rent or rate is not the sole yardstick; other circumstances have to be considered (para 20.2). And a security deposit may be one factor bearing on adequacy but cannot be the sole determinative factor; here the officer, apart from the brokers' opinions and the websites, made no independent inquiry into the adequacy of the rent or into the age and condition of the building, and one of the properties was not even ready and was lying vacant in assessment year 2008-09, so the invocation of s.13(2)(b) was clearly flawed and was rightly rejected by the Tribunal (para 26). The rest of the decision is the Court declining to disturb findings of fact. The statements that the revenue brought no cogent evidence, that material collected from the internet and from estate agents cannot be corroborative evidence, and that the rent exceeded the municipal valuation for house tax are the Tribunal's findings, which the Court set out and held not to be perverse (paras 21 and 22).
TaxSphere, “CIT (E) v Hamdard National Foundation (India)”, https://taxnotice.vittsphere.com/caselaw/case/cit-e-v-hamdard-national-foundation-adequate-rent/ (validity last checked 2026-08-20)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
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Trust funds went to a trustee. Does the trust lose exemption on all its income or only that amount?
Our trust pays a salary to its chairperson, who is a trustee. Does that cost us the s.11 exemption?
My trust gave interest-free or low-interest advances to entities connected with its trustees. The Assessing Officer has treated the interest not charged as a benefit to specified persons, disallowed it under s.40A(2)(a) and denied exemption on the whole income. Can he do that?
My trust paid an advance to a company in which the trustees are interested, under an agreement to buy land, and the deal was later cancelled. Is that a s.13(1)(c) violation even though no money went out in the year in question?
