Trust exemption under section 11 upheld after salary and rental payments deemed reasonable not excessive

ITAT Mumbai upheld CIT(A)'s decision allowing exemption under section 11 for a trust. The AO had disallowed salary payments to a specified person, reducing allowed amount from Rs. 8,93,468 to Rs. 4,80,000 based on comparison with other clerks. However, considering the employee's 17 years experience versus others, the excessive payment allegation was rejected. Similarly, rental payments were justified through government-approved valuer's market rental report of Rs. 14,80,024, while AO's ad hoc reduction to Rs. 60,000 monthly lacked basis. Since payments weren't excessive under section 13(3), provisions under sections 13(3)(c), 13(2)(c) and 13(2)(g) didn't apply. Assessee's appeal allowed.

---

---

Issues Involved:
1. Excessive payments on account of salary and rent to persons specified u/s 13(3).
2. Justifiability of huge salary payments to specified persons compared to others.
3. Allowance of exemption u/s 11 despite alleged violations of section 13(3).

Summary:

Issue 1: Excessive Payments on Account of Salary and Rent to Persons Specified u/s 13(3)
The Revenue challenged the allowance of exemption u/s 11, arguing that the assessee trust made excessive payments on account of salary and rent to persons specified u/s 13(3), thereby attracting provisions of section 13(1)(c), 13(2)(c) r.w.s. 13(2)(g). The Assessing Officer (AO) disallowed Rs. 41,59,236/- on account of excessive salary and Rs. 9,12,000/- on account of excessive rent paid to specified persons, rejecting the exemption u/s 11.

Issue 2: Justifiability of Huge Salary Payments to Specified Persons Compared to Others
The AO compared the salaries of specified persons with other staff members and found them unjustifiable. For instance, Mr. Moses M Gomes, with 29 years of experience, was paid Rs. 14,93,022/-, which the AO reduced to Rs. 6 lakh, disallowing the excess. Similarly, Mrs. Jean M Gomes, with 29 years of experience and multiple qualifications, was paid Rs. 20,32,594/-, which the AO reduced to Rs. 9 lakh. The learned CIT(A) found the salaries reasonable considering the experience and roles of the specified persons and deleted the disallowances.

Issue 3: Allowance of Exemption u/s 11 Despite Alleged Violations of Section 13(3)
The AO denied the exemption u/s 11, citing unreasonable payments to specified persons. However, the learned CIT(A) found the payments justified based on the experience and roles of the individuals. The CIT(A) also deleted the disallowance of rent, noting that the AO's ad hoc basis of Rs. 60,000/- per month lacked a scientific methodology. The Market Rental Report supported the rent payments. The Tribunal upheld the CIT(A)'s findings, concluding that the provisions u/s 13(3)(c), 13(2)(c) r.w.s. 13(2)(g) were not attracted, and the exemption u/s 11 was rightly claimed.

Conclusion:
The appeal by the Revenue was dismissed, and the order pronounced in the open Court on 04/06/2024.

---