2015 (4) TMI 327 - HC - Income Tax

High Court upholds Trust's entitlement to exemption under Section 11, payments to trustees deemed reasonable and justified.

The High Court ruled in favor of the Trust, dismissing the Revenue's appeal. It found that the payments to trustees were reasonable, justified for ... Entitlement to exemption u/s. 11 denied - the payments made to the trustees Mr. K.R.Lakshmeesh of ₹ 9,10,000/-, to Dr. Sabita Ramamurthy of ₹ 8,41,950/- and Mr. K.R.Jayadeep of ₹ 1,75,000/- was in violation of Section 13(1)(c) - Held that:- The payments of the aforesaid amounts to the trustees, out of the Trust amount, is not in dispute. The Tribunal has clearly set out the services rendered by these trustees for the Trust and thereafter it has come to the conclusion that the said amount paid, are reasonable and not excessive. When the Trust is availing the services of these trustees and on account of the services rendered by them, there is a substantial growth in the Trust and its activities, when the payments are made for such services rendered, it cannot be said that it contravenes Section 13(1)(c) of the Act. Consequently there is no justification for denying the benefit under Section 11 of the Act. - Decided in favour of assessee. Issues:Violation of provisions of Sec.13(1)(c) of the Income Tax Act, 1961 and relevant provision for grant of exemption under Section 11.Analysis:Violation of Sec.13(1)(c) of the Income Tax Act, 1961:The case involved a Trust registered under Section 12A of the Income Tax Act, 1961, running educational institutions, which filed a return of income for the assessment year 2005-06. The Assessing Authority noted payments made to trustees, raising concerns about a potential violation of Section 13(1)(c) of the Act. The Commissioner of Income Tax (Appeals) later ruled in favor of the assessee, stating no violation occurred. The Tribunal upheld this decision, emphasizing that the payments to trustees were justified for services rendered, proportional to the institution's growth, and not part of any tax planning strategy or colorable device. Consequently, the Tribunal dismissed the appeal by the Revenue, leading to the current challenge.Exemption under Section 11:The central issue revolved around whether the payments made to the trustees were in violation of Section 13(1)(c) of the Act, impacting the Trust's entitlement to exemption under Section 11. The High Court, after hearing arguments from both sides, affirmed the Tribunal's findings. It acknowledged that the payments to trustees were undisputed and reasonable, considering the services they provided and the subsequent growth of the Trust. The Court concluded that such payments did not contravene Section 13(1)(c) and, therefore, upheld the Trust's right to exemption under Section 11. Consequently, the Court dismissed the appeal, ruling in favor of the assessee and against the Revenue.In summary, the High Court's judgment addressed the issues of potential violation of Section 13(1)(c) of the Income Tax Act, 1961 and the consequent impact on the Trust's eligibility for exemption under Section 11. The Court found that the payments to trustees were justified, not excessive, and in line with the services rendered, leading to the Trust's growth. As a result, the Court dismissed the appeal, upholding the Trust's right to exemption under Section 11.