TaxTMI 
TaxTMI 
2006 (10) TMI 185
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....income of the assessee, in respect of which income only, deduction could have been disallowed, in the event it is held there was violation of ss. 11 and 12 of IT Act. 3. Briefly stated facts are that assessee is a society registered under the Societies Registration Act 1860. It is engaged in the field of family planning as well as maternal and child health care. There is no change in the aims and objects during this year. The society is registered under s. 12A of IT Act, 1961. In the asst. yrs. 1996-97 and 1997-98 the exemption under s. 11 was denied to the assessee trust for violation of provision of s. 13(1)(c) of the Act. During the course of assessment the assessee was asked to give details of payments to persons who are covered under s. 13(1)(c) of the Act. As per the audit report filed by assessee under s. 12A(b), payments has been made during the year to: (i) Mrs Sudha Tewari, member/executive secretary of governing body of the Sanstha and managing director of all amount of Rs. 10,21,820 and (ii) M/s B.C. Dasgupta & Co., solicitors and advocate for professional services. Mrs. V.K. Govil, partner in this firm is a governing member of the Sanstha. 4. The AO pointed....
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....that from an increment of Rs. 6,100 per month in January, 1997, she had received an. increment of Rs. 38,333 per month from January, 1998. Before the AO it was explained by the trust that the salary etc. of Smt. Sudha Tewari was fixed as a result of the resolution dt. 9th March, 1993 wherein Dr. Tim Black, chief executive of Marie Stopes International was authorised to fix the same and that his decision would be final. The AO stated that it was very strange that a trust could be running on the arbitrary decisions of one trustee Dr. Tim Black who decides and fixes salaries as a single person. Besides, no other comparable increase was noticed in the salary of any other trustee or member of the organization. As Smt. Sudha Tewari was an executive secretary and member of the governing body since 22nd Jan., 1982, she was a person covered by s. 13(3), as had also been mentioned in the audit report. The AO looked into the justification for the increase in salary of Smt. Sudha Tewari. She was informed that she was a highly qualified person and the CYP of the organization since instruction was furnished before the AO along with data of growth of the income since inception. It was stated befo....
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.... Tewari and issue of abnormal increase in the same. The learned CIT(A) after having examined the matter in great details has observed that she was paid a total of Rs. 11,17,600 (and not Rs. 13,97,596 as mentioned by the AO, since the ex gratia payment of Rs. 2,80,000 was already included) which gave an increase of 59 per cent over the immediately preceding year, when it was Rs. 7,04,199. He has further considered whether the increase of 59 per cent in this year over the last year was justified and reasonable so as to attract the s. 13(1)(c). He has observed that an increase would normally be on account of two reasons. Firstly, normal increase on account of inflation as occurs in any organization and as considered by Tribunal. and secondly on account of some extraordinary work that may have been done by a person which translates into a better performance or higher relieves/profits for the organization. The percentage income of the Sanstha for asst. yr. 1998-99 was only 17.79 per cent over the preceding assessment year as compared to 40.07 per cent in asst. yr. 1997-98 over 1996-97. That is to say that in terms of total income of the Sanstha, the rate of increase had actually decreas....
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....nder ss. 11 and 12. With regard to denial of exemption on the ground of payment of rent to M/s Gopal Tewari & Sons, HUF and to M/s B.C. Dasgupta & Co., the learned CIT(A) has held that AO was not justified to deny the exemption under ss. 11 and 12. As regards the action of AO in bringing to tax the entire receipt of Rs. 12,91,48,034, the learned CIT(A) has held thus: Ground No. 2 relates to the AO's action in bringing to tax entire gross receipts of Rs. 12,91,48,034 as reflected in the income and expenditure account. Even if the AO denies exemption under ss. 11 and 12 of the IT Act and assesses the income of the appellant under the head 'Income from other sources', what is to be brought to tax is the net income after allowing the expenses incurred for earning that income. The AO was therefore not justified in bringing to tax the entire gross receipts of the appellant. The AO is, therefore, directed to allow the expenses reflected in the income and expenditure account amounting to Rs. 9,28,83,209 and bring to tax the resulting income of Rs. 3,62,64,825. The appellant's objection that the amount of closing stock of medicines reflected in the income and expenditure account should b....