TaxTMI 
TaxTMI 
2014 (4) TMI 535
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.... assessment years 2007-08 and 2008-09 have been preferred by the revenue against the orders of the Tribunal dated 13.7.2012 and 30.4.2012 in ITA Nos.2116/Del/2011 and 4514/Del/2011 respectively. 2. Since issues to be adjudicated are common and inter-connected, for convenience, clarity and effective adjudication, all these appeals have been taken up together and are being decided by this common order. 3. For clarity and better comprehension of the matter in dispute, facts of ITA No.1 of 2011 out of the appeals of the revenue and ITA No.53 of 2011 out of the appeals of the assessee are being referred to. 4. The assessee-trust is registered under Section 12A of the Income Tax Act, 1961 (hereinafter referred to as, the Act) since 6.7.1971. It is doing charitable work of imparting education through five schools. The assessee carries on charitable work of education through its President, Secretary, Member and Manager, who work in a dual capacity i.e. as whole time administrators as also regular time teachers and are being paid salaries from earning of these schools. 5. Under Section 12A of the Act, the assessee was availing the benefit of exemption of its income under Section....
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....y, but with regard to the other two, comparing their salaries with other teachers, had modified the order of the CIT(A) and thus had upheld part of the disallowance made by the AO qua the said two trustees. 10. Aggrieved with order of the Tribunal, the revenue claims that order of the AO refusing to treat the assessee as a charitable organization and taking it to be an ordinary association of persons, had rightly rejected amount allegedly paid as salaries to its trustees as it was unreasonable and thus, had rightly disallowed the exemption from income sought by the assessee. 11. So far as the assessee is concerned, it claimed that once the assessee was registered as a charitable organization and its accounts were being accepted since the very beginning, it was entitled to the benefits of exemption in terms of Sections 12A and 10(23C)(vi) as also under Sections 11 and 12 of the Act. 12. In ITA No.1 of 2011 filed by the revenue is concerned, following substantial questions of law had been formulated by the revenue, for adjudication by this court: I "Whether, on the facts and in the circumstances of the case, the Ld. ITAT was right in law in allowing the benefit of exempti....
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....roach towards the issue of the tax treatment of the salaries of the Founder, Secretary and two Managers of the duly registered charitable educational trust, by treating the salary of the Founder and one Manager under Section 40(2)(a) in one manner and that of the Secretary and another Manager in another manner, without applying to any of them the legal standard of the fair market value of their services to assess whether the salaries are reasonable or not excessive vis a vis this legal standard? F Whether the ITAT was right in substituting the salaries paid to the Secretary and to the Manager as teacher-cum-administrator/s solely on basis of scales applicable to the teaching staff, without any material to support the same? 14. Since the questions of law in ITA No.1 of 2011 of the revenue and ITA No.53 of 2011 of the assessee primarily cover the field of controversy in all the appeals of the revenue as also of the assessee, entire adjudication is being made keeping those in view. 15. We have heard counsel for the parties while going through the paper books. 16. The revenue contends that the assessee had not only failed to furnish details with regard to services rendered ....
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.... count contained in para 3.4 of the order (Annexure A-II) dated 28.2.2008, are to the following effect: "I have enquired into the genuineness of the remuneration paid to the above trustee members from Sr. 1 to 3 and 1 family member at Sr. No.4. From the data supplied by the Ld. AR in his written submissions for the Financial year 2000- 01, 2001-02 and 2002-03 from which it is quite evident that compared to the earlier years, the remuneration has been more or less the same and if there is any increase in the remuneration of Mrs. S. Joseph, it is due to the services rendered to the Institution in the dual capacity of a full time teacher and administrator, the responsibilities of which are increasing dayby- day. Moreover, the AO has pointed out only a needle of suspicion towards the managerial remuneration to the above persons specified u/s 13(3) of the I.T.Act which has been confirmed by the auditors in the audit report in form 3CD dated 15.3.2003, but the AO has not given a proper basis or validity of remuneration for restricting it to the extent of Rs.6,98,753/- being 1/3rd allowable worked out by him out of total of Rs.20,96,260/- only and disallowing the balance at Rs.13,97,50....
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....ceived as salaries from the assessee and their said returns had also been continuously accepted by the revenue. They do not have any other income except as salaries received from the assessee. Relevant provisions of law At this stage, it would be appropriate to refer to few provisions of the Act. These are as under: Section 2(15)-"Charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility. Section 11-Income from property held for charitable or religious purpose:- (1) Subject to the provisions of Section 60 to 63, the following income shall not be included in the total income of the previous year of persons in receipt of the income (A) income derived from property held under trust wholly for charitable or religious purposes to the extent to which such income is applied to such purposes in India. Section 13 (2)(c)- If any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is ....
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....ion. Though the sole question before the AO was allowance or disallowance of the salaries paid to the trustee members and to a manager of the assesseetrustee and there was no question as to whether the trust is a charitable trust or not, the AO wrongly held that it was not a charitable organization; (ii) Despite availability of complete documentary details with him revealing the services rendered by the members of the trust, without disputing the fact that such members were engaged in full time teaching as also in whole time management of the schools assigned to them, digressing from the legal test under Section 13(2)(c) of the Act went on to question reasonableness of the quantum of payment made as salary to the members. Even when he came to a conclusion that payments were 'unreasonable', the test to determine reasonableness of such services was to make reference to sums paid for similar administrative and teaching work in an institution of similar students strength. But, the AO neither made reference to Section 13(2)(c) of the Act nor to any similar institution with same students strength. Thus, without going into the aspect of payments made to administrators-....
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....named four teachers-cum-administrators of the assessee over the years. Expenditure on payment of salaries made by the assessee-trust had regularly been accepted when there was no substantial variation. Financial year Mr. T.I. John Mr. A. John Mr. Joseph John Mrs. SoniaJoseph 2001-02 6,24,000/- 5,40,000/- 4,80,000/- 2,70,518/- 2001-02 6,24,000/- 5,40,000/- 4,80,000/- 2,86,740/- 2002-03 6,84,000/- 5,88,000/- 4,94,500/- 3,21,552/- 2003-04 6,84,000/- 5,88,000/- 5,16,000/- 3,63,662/- 2004-05 7,56,000/- 6,60,000/- 6,00,000/- 4,48,794/- 2005-06 8,16,000/- 7,20,000/- 6,60,000/- 5,40,000/- This position is continuing since assessment year 2001-02. The Tribunal has accepted even quantum of salaries paid to Mr. Joseph John and Mrs. Sonia Joseph. (ii) Attention of the Tribunal was wrongly focussed on Section 40A of the Act when it has mentioned that "basic issue before us is the disallowance under Section 40A". Concededly, the assessee is registered as a 'charitable trust' under Section 12A of the Act and had been furnishing its returns in terms of Section 10(23C) of the Act a....
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....r of the schools and were performing whole time duties assigned to them. 27. Though there is no clear finding of the Tribunal regarding 'charitable status' of the assessee, since the CIT(A) had restored it to the assessee reversing order of the AO, it is to be taken that to that extent, the findings of the CIT(A) have not been interfered with by the Tribunal. 28. Plea of the revenue is that neither the assessee is entitled to status of a charitable trust nor benefits of provisions of Sections 11 and 12 of the Act regarding exemption of income from taxation are to follow for it. It is claimed that exorbitant salaries paid to its members could not be approved and thus, order of the AO should be restored. The assessee, on the other hand, seeks complete restoration of the order of the CIT(A), denouncing the order of the AO as also of the Tribunal to the extent it had modified the order of the CIT(A) against the assessee. 29. Evaluation of the entire issue on this aspect requires some more discussion which thus follows: 30. The very fact that 1/3rd of the total expenditure made on payment of salaries to these stated persons had been allowed by the AO, is clearly indi....
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....mployee managing the entire show. He has also shown this income as 'salary receipt' in his individual income tax return which has been duly accepted and assessed by the Income Tax Department, Faridabad. 34. So far as Mrs. A. John, Manager of Saint John School, Sector 23, Faridabad is concerned, she has 35 years of teaching experience. Her remuneration comes only to Rs.49,000/- per month which is just and reasonable. She is also an individual income tax assessee and has submitted her return of income showing salary receipts of Rs.5,88,000/- for the year in question which have been accepted and attested by the Income Tax Department, Faridabad. 35. It is, thus, to be seen that the Tribunal though agreed with the CIT(A) in deletion of 2/3rd disallowance made by the AO in respect of Mr. T.I.John and that of Mrs. A.John but with respect to the remuneration paid to Mr. Joseph John and Mrs. Sonia Joseph, the Tribunal disagreeing with the CIT(A) wrongly tended to considerably side with the AO when it made a comparison of their salaries with the salaries paid to other teachers, came to an opinion that their remunation has to be at the same level as was being given to other teac....
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....r salary comes to only Rs.27,480/- per month. She is an existing income tax assessee and return of income submitted by her for the year in question has been accepted and assessed by the Income Tax Department, Faridabad. 39. It is, thus, clear that the Tribunal had clearly faultered in taking Mr. Joseph John and his wife Mrs. Sonia Joseph merely as teachers when it has fixed their salaries Rs.30,000/- and Rs.20,000/- respectively comparable with other teachers of the school, completely ignoring the fact that Mr. Joseph John was also engaged in whole time management activities of the Trust and also was rendereing administrative functions qua running of the schools for which he was not being paid any extra salary. Similarly, Mrs. Sonia Joseph in addition to whole time teaching as was being done by other teachers had also been assigned the duties of administrator of the school which she was doing over and above her duties as a teacher for which she was not being paid any extra salary or remuneration and before and after the regular teaching. 40. Resultantly, order of the Tribunal fixing salary of Mr. Joseph John to Rs.30,000/- per month and of his wife Mrs. Sonia Joseph to Rs.20,....