2024 (9) TMI 1310 - AT - Income Tax

Charitable trust retains Section 11 exemption despite honorarium payments and educational loan to sister trust

The Dy. Commissioner of Income Tax, Exemptions Circle, Chennai. Versus The Indian Institute of Engineering Technology

ITAT Chennai upheld exemption under Section 11 for a charitable trust formed in 1961. The tribunal dismissed revenue's challenge regarding honorarium ... Exemption u/s 11 - Violation of Section 13(1)(d) regarding excess payment to sister trust - Disallowance of honorarium paid to Ms. Meenakshi Sundaraja - HELD THAT:- As noted that the Trust has been formed on 01.02.1961 which is before the commencement of the Income Tax Act, 1961. As per clause 36 to 41 of the Memorandum of Association of the assessee trust, Ms.Meenakshi Sundararajan is entitled for honorarium in rendering services to the benefits of the assessee society. According to the Ld. AR the payment paid was towards medical expenses of the spouse of the Trustee, who was also employee of the organization until his death. This issue of payment of honorarium has already been allowed in favour of the assessee in the Tribunal in its decision in [2018 (8) TMI 643 - ITAT CHENNAI], which has not been further challenged by the Revenue. Respectfully following the decision of this tribunal, we do not find any infirmity in the order of the Ld.CIT(A) and hence the ground of the Revenue is dismissed. Payment of loan to M/s.Ganapathy Educational Trust(GET) - As noted that the recipient Trust is also into charitable and education Trust. According the ld.AR the payment of loan of Rs. 70,25,780/- has not been claimed by the assessee as application of fund of the income of the society. Assessee Trust has paid this loan amount for the purpose of construction of the college building by the sister concern which is also carrying on the similar objects. As noted that loan amount has been paid by the assessee Trust during the Financial years 2003 – 2005 towards construction of the college building. It is pertinent to note that the sister concern had given loan to the assessee Trust to the tune of Rs. 3.12 crores as on 31/03/2004 and later on the assessee trust repaid the same along with excess amount which has been shown as loan receivable in the audited financials of the Trust. The assessee Trust has furnished all the details invoices, payments particulars for amounts paid to the contractors M/s.L & T, who built the college building of the sister concern M/s.GET, before the AO for verification, in pursuance of the directions of the Honourable High Court of Madras. Payments made to other charitable trust as loan does not violate the provisions of Section 13(1)(c) - Decided in favour of assessee. Issues Involved:1. Delay in filing the appeal by the Revenue.2. Violation of Section 13(1)(c) regarding honorarium payment.3. Violation of Section 13(1)(d) regarding excess payment to sister trust.4. Denial of exemption under Section 10(23C)(vi).5. Disallowance of depreciation on assets.Detailed Analysis:1. Delay in Filing the Appeal by the Revenue:The Tribunal noted that there was a delay of six days in filing the appeal by the Revenue. Upon considering the petition/affidavit, the Tribunal was satisfied that there was sufficient cause for the delay. Consequently, the delay was condoned.2. Violation of Section 13(1)(c) Regarding Honorarium Payment:The Assessing Officer (AO) had denied the exemption under Section 11 of the Income Tax Act, 1961, citing a payment of Rs. 1,11,900/- to Ms. Meenakshi Sundararajan as a violation of Section 13(1)(c). The AO argued that the payment was made without any services being rendered. However, the Tribunal referred to the case of the same assessee for the Assessment Year 2010-11, where it was held that the payment was in compliance with the trust's mandatory rules and thus did not violate Section 13(1)(c). The CIT(A) and Tribunal both upheld this view, allowing the honorarium payment as an allowable expense.3. Violation of Section 13(1)(d) Regarding Excess Payment to Sister Trust:The AO disallowed an amount of Rs. 70,25,780/- shown as a loan receivable from Ganapathy Educational Trust, arguing that it violated Section 13(1)(d). The CIT(A) initially upheld this view. However, the High Court remanded the matter back to the AO for fresh consideration, directing that the amount given to another trust with similar objects should be considered as an application of funds rather than an investment. The AO, upon re-examination, denied the exemption again, but the CIT(A) overruled this, stating that the loan to the sister trust did not violate Section 13(1)(d) as it was for charitable purposes.4. Denial of Exemption Under Section 10(23C)(vi):The AO denied the exemption under Section 10(23C)(vi) on the grounds that the assessee was running a profitable venture, citing a substantial surplus. The CIT(A) and Tribunal upheld this denial, stating that the assessee did not have the necessary registration for exemption under Section 10(23C)(vi) for the relevant assessment years. The Tribunal referred to various judicial precedents, including the Supreme Court's decision in 'Aditanar Educational Institution vs. Additional Commissioner Of Income-Tax,' to support the view that the exemption should be evaluated each year.5. Disallowance of Depreciation on Assets:The AO disallowed the depreciation claim of Rs. 97,90,776/-, arguing that the assets had already been claimed as an application of income. The CIT(A) upheld this disallowance. However, the High Court allowed the depreciation claim, citing the Supreme Court's decision in 'CIT Vs. Rajasthan and Gujarati Charitable Foundation,' which held that normal depreciation could be considered a legitimate deduction in computing the real income of the assessee. The AO, upon re-examination, allowed the depreciation claim, and the Tribunal upheld this decision.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow the honorarium payment and the loan to the sister trust as allowable expenses. The denial of exemption under Section 10(23C)(vi) and the allowance of depreciation were also upheld. The order was pronounced on August 30, 2024.