Attraction of Section 13(1)(c): higher profits or remuneration do not attract it absent material showing diversion of trust income.

Whether payments from a trust to related concerns attract the embargo in Section 13(1)(c) turns on material showing diversion of trust income for the direct or indirect benefit of persons specified in Section 13(3); mere higher profit margins or higher director remuneration in related entities, without comparative material demonstrating diversion, do not attract the embargo, and earlier acceptance by the tax authority in identical factual matrices must be maintained under the rule of consistency. The appeals were dismissed in favour of the assessee.

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Issues: Whether Section 13(1)(c) of the Income-tax Act, 1961 is attracted to disallow payments made by a trust to related concerns and whether the Tribunal was justified in dismissing the Revenue's appeals relying on consistency with earlier assessment years.

Analysis: The matter involves scrutiny of payments from a trust claiming exemption under Section 11 of the Income-tax Act, 1961 and the applicability of the embargo in Section 13(1)(c) read with Section 13(3) where concerns in which trustees or their relatives have substantial interest are concerned. The factual record shows that the concerned entities carried on activities and earned profits; the Assessing Officer did not dispute the genuineness of those entities. For earlier assessment years involving identical facts the Assessing Officer, after scrutiny under Section 143(3), had accepted the payments and did not invoke Section 13(1)(c). Mere higher profit margins or higher director remuneration, without comparative material demonstrating that payments resulted in diversion of income for the direct or indirect benefit of persons specified in Section 13(3), does not automatically attract Section 13(1)(c). The rule of consistency requires maintaining the same view in the absence of any change in factual matrix or legal position, and the Tribunal applied that principle in rejecting the Revenue's appeals.

Conclusion: The appeals are dismissed and the result is in favour of the assessee.

Ratio Decidendi: Mere higher profit margins or remuneration in related concerns, without material showing diversion of trust income resulting in benefit to persons specified in Section 13(3), do not attract Section 13(1)(c); consistency requires maintaining an earlier accepted view in the absence of change in facts or law.

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