TaxTMI 
TaxTMI 
2017 (3) TMI 578
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....cted. (2) allowing the benefit of section 11(1) of the IT Act without considering the huge surpluses being earned by the society and expenses were incurred for the benefit of persons covered u/s13(3) of the IT Act. (3) allowing salary expenses to the extent of the following amounts - Rs. 90,450/- (Mrs. Mohini Bakshi), Rs. 24,750/- (Mr. M.S. Bakshi), Rs. 29,025/- (Mr. Sandeep Bakshi) and Rs. 25,125/- (Ms. Preeti Bakshi) which is higher than reasonable. (4) deleting addition made on account of foreign travelling expenses despite the fact that the assessee society failed to prove that these expenses were incurred for the objects of the society. (5) allowing contribution made to Jaipur National University during the year under consideration as application of income u/s 11 of the Act despite the fact that the assistance provided to JNU is the violation of byelaws of society as well as the violation of provision of section 13(1)(c) and 13(2)(a) of the IT Act, 1961." In ITA No. 30/JP/16(Assessee): "Under the facts and circumstances of the case and in law, the ld. AO has erred in holding that depreciation under section 32 of the IT Act, 1961 is not admissible in respect of the ....
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....elief and is limited is the last limb "the advancement of any other object of general public utility. 6. The objectives of the assessee society, on perusal of its Bye-laws, are as follows:- 7. On perusal of the above objectives of the assessee society, it is clear that the main objects of the society are setting up of educational institutions and operating them for the promotion of education and there are other stipulated objectives which are related to promotion and spreading of systematic education. During the year under consideration, in pursuance of its objectives, the assessee society is operating two educational institutions namely, Seedling Public School, Jawahar Nagar, Jaipur and Seedling Modern High School, Mahaveer Nagar, Jaipur.The society has also established a University in name of "Jaipur National University" and is the sponsoring body of the said University. The Jaipur National University has been set up by the society mainly for the promotion of technical and other higher education. It is therefore not a matter of dispute that the society is imparting "education" through various educational institutions set up by it as per its stated objectives and the activities ....
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....ing that year from property held under trust, or, as the case may be, held under trust in part, by any amount- (i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other reason, then - (a) in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount, and (b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, may, at the option of the person in receipt of the income such option to be exercised in writing before the expiry of the time allowed under subsection (1) of section 139 for furnishing the return of income be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the c....
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....of the transfer and the cost of any improvement thereto within the meaning assigned to that expression in sub-clause (b) of clause (1) of section 55; (iii) "net consideration" means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.] (1B) Where any income in respect of which an option is exercised under clause (2) of the Explanation to sub-section (1) is not applied to charitable or religious purposes in India during the period referred to in sub-clause (a) or, as the case may be, sub-clause (b), of the said clause, then, such income shall be deemed to be the income of the person in receipt thereof- (a) in the case referred to in sub-clause (i) of the said clause, of the previous year immediately following the previous year in which the income was received; or (b) in the case referred to in sub-clause (ii) of the said clause, of the previous year immediately following the previous year in which the income was derived.] [(2) Where eighty-five per cent of the income referred to in clause (a) or clause (b) of sub-section (1) read w....
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....(5), or (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof, (d) is credited or paid to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or subclause (via) of clause (23C) of section 10, shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited or credited or paid or, as the case may be, of the previous year immediately following the expiry of the period aforesaid. (3A) Notwithstanding anything contained in sub-section (3), where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited in accordance with the provisions of clause (b) of sub-section (2) cannot be applied for the purpose for which it was accumulated or set apart, the Assessing Officer ....
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.... issued by the Central Government under the Small Savings Schemes of that Government; (ii) deposit in any account with the Post Office Savings Bank; (iii) deposit in any account with a scheduled bank or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank). Explanation.-In this clause, "scheduled bank" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934); (iv) investment in units of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963); (v) investment in any security for money created and issued by the Central Government or a State Government....
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....ery or plant installed in a building for the convenient occupation of the building) even though attached to, or permanently fastened to, anything attached to the earth;] (xi) deposits with the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964);] [(xii) any other form or mode of investment or deposit as may be prescribed. (6) In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year. (7) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) of section 12AA or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)] and the said registration is in force for any previous year, then, nothing contained in section 10 [other than clause (1) and clause (23C) thereof] shall operate t....
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....iry of the aforesaid period. 10. The scheme of granting fiscal incentive by way of exemption u/s 11 of the Income Tax Act, 1961 to the charitable institutions is thus devised by the legislature in such a manner that the institutions who earn from charitable work are not liable to tax if they either apply such earnings during the year or accumulate such earnings for further achieving the "charitable purposes" and do not withdraw such income for utilization for any purposes other than "charitable purposes". In other words, the charitable institutions may earn income and enjoy tax exemptions so long as they re-circulate such earnings for charitable objectives and thereby further promote the charitable purpose. The conditions which are required to be fulfilled are as follows: a. Income should be derived from property held under trust by the person claiming exemption. b. Such Property from which income is derived should be held wholly for charitable or religious purposes. c. Income for which exemption is claimed is being applied for charitable or religious purposes in India. If such income is accumulated/ set apart for such application in future then the exemption is limited to the ....
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....ceive surplus property:- If upon dissolution of any society registered under this Act there shall remain after the satisfaction of all its debts and liabilities any property whatsoever, the same shall not be paid to or distributed among the members of the said society or any of them, but shall be given to some other society, whether registered under this Act or not, to be determined by the votes of not less than two-thirds of the members present personally or by proxy at the time of the dissolution or, in default thereof, by such court as aforesaid: Provided that the section shall not apply to any society which have been founded or established by the contributions of share-holders in the nature of a joint-stock company. Provided further that noting in this section shall be deemed to affect any provision contained in any instrument for the payment or distribution of the property of a society dissolved under section 13" "Section 14-A. Surplus property may be given to government:- Not-withstanding anything contained in section 14, it shall be lawful for the members of any society dissolved under section 13 to determine by the votes of not less than two-third of their total numb....
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.... of the term "charitable purpose" as defined under section 2(15) of the Income Tax Act, 1961. Thus, the society not only exists solely for "charitable purpose" but also there is no object of the society which is beyond the scope of "charitable purpose". Whatever income is generated by the society is from the "property held under trust" for charitable purpose and the income earned by the society can be used and is actually used only for the "charitable purpose" as defined u/s 2(15) of the Act. 14. On perusal of the assessment order, it is noted that the prime reason for denial of exemption under section 11 of the Act by the Assessing officer is systematic generation of surplus year after year under various heads of income by the assessee society. As per Assessing officer, the systematic generation of surplus year after year establishes that various educational institutions are being run by assessee society with profit motive and not for any charitable purposes. The institutions are being run on commercial basis by charging hefty fees and generating heavy surplus from its education activity just like a business establishment with dominant motive being to earn profits. Negating the s....
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....d up as follows: (1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for education purposes and becomes an institution for the purpose of making profit. (2) The predominant object test must be applied - the purpose of education should not be submerged by a profit making motive. (3) A distinction must be drawn between the making of a surplus and an institution being carried on "for profit". No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit. (4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not be cease to be one existing solely for educational purposes (5) The ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to educating persons." 16. The Hon'ble Supreme Court in above decision also approved the decision of Hon'ble Punjab and Haryana High Court in case of Pine Grove International Charitable Trust....
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....r and the assessment are complete with the finding that there is no contravention of the statutory provisions, need not be reopened. However, after grant of approval if it comes to the notice of the prescribed authority that the conditions on which approval was given, have been violated or the circumstances mentioned in 13th proviso exists, then by following the procedure envisaged in 13th proviso, the prescribed authority can withdraw the approval. (3) The capital expenditure wholly and exclusively to the objects of education is entitled to exemption and would not constitute part of the total income. (4) The educational institutions which are registered as a society would continue to retain their character as such and would be eligible to apply for exemption under section 10(23C)(vi) of the Act. (5) Where more than 15% of income of an educational institution is accumulated on or after 1st April, 2002, the period of accumulation of the amount exceeding 15% is not permissible beyond five years, provided the excessincome has been applied or accumulated for application wholly and exclusively for the purpose of education." 17. The Hon'ble Supreme Court also approved the decision of....
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.... Though the above referred decision of the Hon'ble Supreme Court in case of Queen's educational society has been rendered in the context of section 10(23C)(iiiad) where the legislature has used the words "income received by any person on behalf of educational institution existing solely for education purposes and not for the purposes of profit", in our view, the proposition in law is equally relevant and applicable in context of section 11 of the Act where the legislature has used the words "income derived from property held under trust wholly for charitable purposes" and wherein similar provisions exist in terms of accumulation and plough back of surplus for educational purposes as the intent behind both the provisions is essentially the same. The said analogy also becomes clear from the fact that the Hon'ble Supreme Court in case of Queen Education Society has itself referred to and approved its earlier decision in case of S.R.M.M.C.T.M Tiruppani Trust (2 SCC 584) which was rendered in context of section 11 while discussing the principle of accumulation and utilization of surplus for educational purposes in para 19 of its order as under: "...9. In the present case, the assessee ....
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.... Lodging Association, Educational Institute vs. CBDT(2008) 10 SCC 509). It is clear that when a surplus is ploughed back for educational purposes, the educational institution exists solely for educational purposes and not for purposes of profit." In that case, the facts of the case before the Hon'ble Supreme Court were that the University had generated huge surplus of about Rs. 500 crores from the year 1999 to 2010 by realising fees under different heads in consonance with the power vested in the University. The difference between the fees collected and actual expenditure was significant and represents only a minuscule part of the fees collected. No remission, rebate or concession in the amount of fees charged under the different heads were granted to the students. At the same time, it was noted that University has grown, number of private engineering colleges affiliated to it has increased from about 64 to 194, the infrastructure of the University has increased offering educational avenues to an increasing number of students in different and varied subjects. The University has spent about Rs. 504 crores and available surplus in the year 2010 to the tune of Rs. 440 crores was also....
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....g borrowings) . Even for the two years under consideration, there is surplus of Rs. 16.97 Crores and out of that, Rs. 9 crores have already been spent on the infrastructure. 21. The CBDT has also come out with a clarification vide its circular No. 14/2015 dated 17th August, 2015, wherein, the guidance to the Field Officers has been provided precisely on the issue under consideration on generation of surplus out of gross receipt, the relevant para is reproduced as follows:- "3. Generation of surplus out of gross receipts: A doubt has been raised whether generation of surplus out of gross receipts would necessarily 'breach' the threshold condition that the educational institution should exist 'solely for educational purpose and not for the purpose of profit'. Perusal of prescribed provisions clearly reveal that mere generation of surplus cannot be a basis for rejection of application u/s 10(23C)(vi) on the ground that it amounts to an activity of the nature of profit making. In fact, the third Proviso to the said clause clearly provides that accumulation of income is permissible subject to the manner prescribed therein provided such accumulation is to be applied "wholly and exclus....
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....her the surplus so generated is ploughed back in furthance of its educational objectives and related activities or not. As we have discussed above, there is no dispute that in the earlier years, the surplus has been ploughed back and utilised for the purposes of promotion of education through setting up educational institutions, operating them and also upgrading them from time to time for further benefits to the students at large. For the year under consideration, the assessee society has disclosed a surplus of Rs. 8,37,63,255. In terms of application of such surplus, it has shown addition to Fixed Assets amounting to Rs. 27,48,064, contribution to Jaipur National University amounting to Rs. 3,86,84,912 and amount set apart u/s 11(2) amounting to Rs. 50,00,00,00. In this regard, the Assessing officer has stated in his assessment order that the assessee society has allowed certain benefits to persons covered under section 13(3) by way of salary and foreign travel expenditure which has been disallowed, contribution to Jaipur National University which has not been held to be application of income in view of violation of section 13(1)(c) and section 13(2)(a) of the Act, and addition to....
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....ncome Tax Act and contribution made is well within the object of the assessee society and contribution made is eligible to be treated as application. The relevant findings of the Coordinate Bench are contained at para 2.8 of its order which reads as under: "2.8. We have heard and considered the arguments advanced by the parties in light of the material on record. The scheme of statutory exemption as contained in sections 11, 12, 12A, 12AA read with the provisions of Section13 is devised by the legislature in such a manner that the institutions who earn from charitable work are not liable to tax if they plough-back such earnings for further achieving the 'charitable purpose' and do not withdraw such income for utilization for any purposes other than 'charitable purposes'. The activities of appellant society have been held to be charitable in all preceding years by the Tribunal and therefore, following the same, the appellant is entitled to the exemption u/s 11 of the Act during the year under consideration also.It has also been disputed by the Assessing Officer and upheld bythe Ld. CIT(A) that the Jaipur National University is a specified person within the meaning of the section 13....
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....utions and operating them for the promotion of education and there are other stipulated objectives, most of which are related to promotion and spreading of systematic education to the students. It was submitted that in terms of objectives mentioned at serial No. 3 and 7 of its bye-laws which provides for establishment and promotion of various educational institutions including schools, colleges and universities, the assessee society sponsored a university in the name of Jaipur National University (referred to as 'the University' or 'JNU'). JNU has been established and incorporated in Rajasthan as a private University under the Jaipur National University Act, 2008 (Act No. 5 of 2008) (referred to as 'the JNU Act') with the objective to undertake research and studies in various disciplines of systematic education/knowledge. As per the preamble and Section 3 of the JNU Act, the assessee society is the sponsoring Body of JNU and accordingly, the society agreed to invest its educational infrastructure(as detailed in Schedule-1 of the JNU Act) alongwith a contribution of Rs. 2 Crores in establishment of an endowment fund for JNU. 31. It was further submitted that in the initial period o....
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....n various judicial pronouncements. 34. In view of the above, it was submitted that the amount advanced by the Society to JNU was in accordance with the objectives of the Society and is, therefore, deserves to be treated as application of income under section 11(1)(a) of the Act. The application of the income of a trust can be for revenue or capital purpose or even assistance (temporary or permanent), loan or any other form of utilization of funds towards the objectives of the Institution. 35. Further to above, under Section 11 of the Act, the exemption from Income Tax is granted only in respect of the income applied for charitable purposes during the previous years. However, the word 'applied' need not necessarily be equated with the word 'spent' and even if an amount is irretrievably earmarked and allocated for charitable purpose or purposes, it would be said to have been applied to the purpose. Reliance for this is placed on the following judgments:- * CIT vs. Trustees of H.E.H. The Nizam's Charitable Trust (1981) 131 ITR 497 (AP) * CIT vs. Radhaswami Satsang Sabha (1954) 25 ITR 472 36. It was further submitted that it is an established legal position that granting of loan....
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....e trust on the ground that the donations given by it were not utilized for the objects enumerated in the trust deed. 38. Further, on facts, it was submitted that Ld. Assessing Officer denied exemption under section 11 of the Act by alleging that the assessee society has lent an amount of Rs. 3,86,84,912/- to the persons covered u/s 13(3), without adequate security and interest and has thus, violated provisions of section 13(2)(a) of the Act and that on account of the same, the assessee society has violated the provisions of Section 13(1)(c) and 13(2)(a) of the Act.In this regard, it was submitted that Ld. Assessing Officer failed to appreciate that JNU to whom the contribution was made is itself a public charitable institution imparting higher education in various areas/subjects. The same is also registered u/s 12AA of the Act and is eligible for exemption of its income u/s 11 of the Act. Since it is a public charitable trust, the same is not covered within the definition of Specified Persons u/s 13(3) of the Act. The provisions of section 13(3) of the Act is reproduced herein alongwith evaluation of the facts clause by clause of the instant case:- Provisions of section 13(3) Ev....
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....n charitable institutions, no person is entitled to any profits. Therefore, it cannot be said that any 'specified person' has interest in the assessee societysociety. Therefore, cannot fall under section 13(3)(e). (ii) In the case of any other concern, if such person is entitled, or such person and one or more of the other persons referred to in sub section (3) are entitled in the aggregate at any time during the previous year, to not less than twenty percent of the profits of such concern." 39. It was further submitted that the assessee society has never received any contribution from JNU, therefore, the case of Champa Charitable Trust vs Commissioner Of Income-Tax, (1995) 214 ITR 0764, relied upon by Ld AO is not applicable and have distinguishable facts. 40. It was further submitted that on perusal of the requirement of a person to be qualified as a Specified Person under section 13(3) r.w.s. 13(2) applied to the facts of the instant case as demonstrated in above Para, it is crystal clear that JNU is not specified person covered under the provisions of section 13(3) r.w.s. 13(2) as much as assessee society is concern. 41. It was further submitted that it has ....
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....ble or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India: Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income; [(d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.] [Explanation.-For the purposes of clauses (a) and (b),- (1) in computing the fifteen per cent of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income; (2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of eighty-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount- (i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other reason, then - (a) in the case referred to in sub-clause (i), so much of ....
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....n order or injunction of any court, shall be excluded: Provided further that in respect of any income accumulated or set apart on or after the 1st day of April, 2001, the provisions of this sub-section shall have effect as if for the words "ten years" at both the places where they occur, the words "five years" had been substituted. [Explanation.-Any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter. (3) Any income referred to in sub-section (2) which- (a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for applicati....
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....ted as application of income. However, any such payment out of the accumulated income shall not be treated as application of income and will be taxed accordingly. (Emphasis supplied) It is also proposed to insert a new clause (d) in sub-section (3) of section 11 so as to provide that if any income referred to in sub-section (2) of the said section, is paid or credited to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or (v) or (vi) or (via) of clause (23C) of section 10, such payment or credit shall be deemed to be the income of the person in receipt of the income from property held under trust, of the previous year in which such payment or credit is made. It is further proposed to insert a proviso in sub-section (3A) so as to provide that the Assessing Officer shall not allow application of accumulated income by way of payment or credit made for the purposes referred to in the proposed clause (d) of sub-section (3) of section 11. This takes away the discretion of the Assessing Officer provided in sub-sectio....
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....f the Act to provide that any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1) of section 11, being contributions with specific direction that they shall form part of the corpus of the trust or institution, shall not be treated as application of income. It is also proposed to insert a proviso in clause (23C) of section 10 so as to provide similar restriction as above on the entities exempt under subclauses (iv), (v), (vi) or (via) of said clause in respect of any amount credited or paid out of their income. These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years. " 47. On perusal of above provisions, It is clear that as per the existing provisions of the Act, donations made by a trust to any other trust or institution registered under section 12AA, except those made out of accumulated income, is considered as application of income for the purposes of its objects. Even where such donation is given by a exempt entity to another exempt entity, with specific direction that it shall form part of corpus of the recipient entity, it is considered as....
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.... sponsoring body and donations/grant from the general public at large. As a sponsoring body of the Jaipur National University, it was the responsibility of the assessee society to provide the necessary physical and financial resources for the set up of the University. The same is manifestly clear from perusal of the Preamble to the Jaipur National university Act, 2008 and other related provisions relating to Endowment Fund and General Fund. 50. The Preamble to Jaipur National University reads as under: "With a view to keep pace with the rapid development in all spheres of knowledge in the world and the country, it is essential to create world level modern research and study facilities in the State to provide state of the art educational facilities to the youth at their door steps so that they can make out of them human resources compatible to liberalized economic and social order of the world. And whereas, rapid advancement in knowledge and changing requirements of human resources makes it essential that a resourceful and quick and responsive system of educational research and development be created which can work with entrepreneurial zeal under the essential regulatory setup an....
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....t the University complies with the provisions of this Act and functions as per provisions of this Act, Statutes and Ordinances. The State Government shall have the powers to forfeit in the prescribed manner, a part or whole of the Endowment Fund in case the University or the Sponsoring Body contravenes any of the provisions of this Act or Statutes, Ordinances, Regulations or rules made thereunder. (3) Income from the Endowment Fund may be utilised for development or infrastructure of the University but shall not be utilized to meet out the recurring expenditure of the University. (4) The amount of the Endowment Fund shall be invested and kept invested under the dissolution of the University in long term securities issued or guaranteed by the State Government or deposited and kept deposited under the dissolution of the University in the interest bearing Personal Deposit Account of the Sponsoring Body in the Government Treasury. (5) In case of investment in long term security, the certificates of the securities shall be kept in the safe custody of the State Government and in case of deposit in the interest bearing Personal Deposit Account in Government Treasury, the deposit sha....
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.... also one of the reasons for denial of exemption under section 11 of the Act. 56. As per the Assessing officer, the salary paid to the members of Bakshi family who are persons referred in section 13(3) of the Act has been increased sharply in comparison to the salary paid during the preceding year and is much higher than those paid to the head of the institutions.The Government allows upgradation of salary of its employees and officers by 3% every year, whereas, the assessee society has increased salary of specified persons ranging from 5.26% to 9.09%, and hence, increment beyond 3% was disallowed and an amount of Rs. 169,350 was added to the income in the hands of the assessee society. 57. Being aggrieved, the assessee society carried the matter in appeal before ld CIT(A) who has held that the basis of allowing only 3% increment by Assessing officer is not backed by any documentary evidence. And in view of the commercial expediency and following the judgments of the Coordinate Bench on the issue for the AY 2003-04 to AY 2008-09, it was held that the Assessing officer was not justified in disallowing the claim of salary expenditure. 58. At the outset, the ld AR submitted that th....
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....alary is paid do not fall under the purview of section 13(2)(c) of the Income Tax Act, 1961. 61. It was further submitted that all the members of Bakshi family who are entitled to salary are the key persons for the management of all the activities of the assessee society. Therefore, all these expenses are under the commercial expediency of the assessee society and are incurred wholly and exclusively for the purpose of management of society. Moreover, in applying the test of commercial expediency for determining whether expenditure was wholly and exclusively laid out for the purpose of the business, the reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the revenue. In adjudging the reasonableness of the remuneration paid to the employees, the expenditures incurred should be examined from the point of view of a businessman and not of the revenue. 62. To support the above said contentions, the ld AR placed reliance on the following judicial pronouncements:- - D. N. Sinha (P.) Ltd. v. CIT. (1976) 102 ITR 491, 498 (Cal.) "Whether another employee would have been available at a less salary or whether the assessee could have man....
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....enefit of a person referred to in section 13(2) of the Act 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 institutions for services rendered by that person to such trust or institutions and the amount so paid is in excess of what may be reasonably paid for such services." 65. It is not in dispute that the members of the Bakshi family have rendered services during the year to the assessee society in terms of management and day to affairs of the society . The only challenge raised by the Revenue is that the remuneration paid to Bakshi family is not commensurate with the services so rendered and the increment during the year over and above 3% has been held unreasonable. 66. For determining the reasonableness of the salary paid to a person what is essential to examine is the relevant qualification and experience which that person holds, and whether the same is commensurate with the work responsibilities he/she has been assigned and for which he/she is responsible for. Further, the reasonableness has to be seen vis-a-vis legitimate needs of the assessee society a....
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....ansion of the group for example by establishing Jaipur National University. 6. General Administration a. To make certain that the day-to- day running of the institutions under the group is efficient through a study of all academic records. b. counselling of students in order to develop good moral values and overall personality development. 7. Undertaking and other work delegated by the Samiti. 68. Mr. Sandeep Bakshi who is a Treasurer of the assessee society holds the Bachelor'sdegree in Commerce, B.Ed. degree and has done MBA. His area of work responsibility are as under: 1. Ensuring that the institutions run by the group are progressing towards the objectives laid down by the Mahima Shiksha Samiti. 2. Planning & implementing programs for the diversification and expansion of the group and collaborating with foreign universities for globalization of education. Travelling extensively within and outside the country for selection of faculty and implementing the latest programs and technology in the institutions of the group. 3. Monitoring and co-ordination of academic functioning of the institutions i.e. schools & colleges run by the group. a. Coordinating with principals ....
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....enhance brand value. 69. Dr. Preeti Bakshi who is a member of the assessee society is a practicing MBBS Doctor. Her area of work responsibility are as under: 1. Ensuring that the institutions run by the group are progressing towards the objectives laid down by the Mahima Shiksha Samiti. 2. Participating actively in Executive Committee Meetings, AGMs and School Management Committee Meetings- Monitoring and coordinating of academic functions of Jaipur National University and Seedling Modern High School. 3. Monitoring and Co-ordination of academic functioning of the institutions i.e. of Seedling Modern High Nursery School and Jaipur National University. a. Overseeing procedures for admissions and proposing fee structure. b. Coordinating with principals and Directors for finalization of syllabi, books curricular and extra curricular activities ( Annual Function, Sports Day, University Cultural Festival, Technical Festival, convocation etc.), Monitoring their implementation to the members of staff. Coordinating with the Directors and Staff members required. c. Interacting with the parents in order to satisfy their queries and seeing that their wards are progressing satisfactor....
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....he figures are as under: Year 2007-2008 2008-2009 2009-2010 S.No. Name Salary & Allowances Salary & Allowances Salary & Allowances A Mrs. Mohini Bakshi 930,000 14,85,000 16,20,000 B Mr. M.S. Bakshi 495,000 675,000 720,000 C Mr. Sandeep Bakshi 17,55,000 12,82,500 13,50,000 D Mr. Preeti Bakshi 450,000 412,500 450,000 72. On perusal of the salary it is noticed that Mrs. Mohini Bakshi was paid total remuneration of Rs. 16.20 lacs in F.Y. 2009-10as compared to 14.85 lacs in F.Y. 2008-09 wherein the salary has increased by 9.09%. In case of Mr. M.S. Bakshi he has drawn salary of Rs. 7.2 lacs as against Rs. 6.75 lacs last year with an increase of 6.62%. In case of Mr. Sandeep Bakshi who has been paid salary of Rs. 13.5 lacs the increment has been 5.26% vis-a-vis last year and here it is a relevant to note that his salary in F.Y. 2008-09 has in fact gone down vis-a-vis F.Y. 2007-08. In case of Mrs. Preeti Bakshi she has drawn salary of Rs. 4.5 lacs which is the same as the salary which she has drawn in F.Y. 2007-08 and in fact salary in F.Y. 2008-09 has come down to Rs. 4.12 lacs. 73. In our view, given the qualification and the experience of....
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....well as area of their responsibility in terms of management and day to day affairs of the assessee society and commensurate vis-a-vis legitimate needs of the assessee society and benefit derived or accruing to the assessee society. In the result, we do not see any violation in terms of section 13 and the disallowance made by the A.O. which has been deleted by the ld. CIT(A) is upheld.In the result, ground No.3 of the Revenue is dismissed. 74. We now refer to Revenue's ground no. 4 where the Revenue has challenged the action of ld CIT(A) in deleting the addition made on account of foreign travelling expenses despite the facts that the assessee society failed to prove that these expenses were incurred for the objects of the society and one of the reasons for denial of exemption under section 11 of the Act. 75. The Assessing officer noted that expenses of Rs. 5,60,911/- was incurred by Mrs. Mohini Bakshi and M.S. Bakshi for their Germany tour and expenses of Rs. 4,45,042/- was incurred by Smt. Preeti Bakshi towards her China visit. After going through the tour reports submitted by the assessee society, the Assessing officer hold that expenses to the extent of visit to Germany are fo....
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....legation is factually incorrect and consequent disallowance is also wrong. 80. It further appears that Ld. A.O. compared the total expenditure incurred on foreign travel by Mrs. Preeti Bakshi, considering that she has carried out one foreign trip as against the fact that she has carried out two foreign trips, while the expenditure incurred by Mrs. Mohini Bakshi and Mr. M.S. Bakshi was in respect of one trip. 81. Under the facts, no such adhoc disallowance can be made by alleging that expenditure is not subject to verification. Further, different judicial authorities are consistently taking the view that adhoc disallowances are not permissible. In this regard, we placed our reliance on following case laws:- (a) Delta Construction Vs ITO, ITA No. 817/Kol/2012 (b) Asstt. CIT v. Arthur Anderson & Co. [2005] 94 TTJ (Mum.) 736 (c) Syntex (India) Ltd. v. CIT [1996] 130 Taxation 101 (Jp-Trib.) (d) ACIT V/s B.R. Oil Mills reported at 27 TW 43 (e) ACIT, Circle 1, Faridabad v. TALBROS Engineering Limited (f) Friends Clearing Agency (P) Ltd. Vs CIT (2011) 332 ITR 0269 (Delhi) (g) DCIT Vs M/s Janki Corp Limited, ITA No. 601/Jodh/2013, ITAT Jodhpur (h) T&T Motors Limited Vs ACIT, ITA N....
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....ry, economy, geography, civilization, law & order, educational systems, political scenario, infrastructural, living standards of different classes of people, requirement of different kind of human resources, employment of environment protection measures etc. Such knowledge and information on the one hand makes them a very experienced mentor and counselor for the students but also the teachers of these educational institutions, which in turn, is reflected in imparting better education to the students. Need not be emphasized that a person who is widely travelled, gained first hand all round knowledge of various countries/geographies, is well versed with variety of cultures and encountered several kind of people becomes very enlightened and confident resource person. - The educational institutions these days, as a part of their curriculum, not only have the lessons and chapters having direct nexus with the Indian context but also the subjects and chapters relating to cultures of various countries, geography of various places, history of various regions, cross country lifestyles, various religions practiced in different parts of the world, global recent affairs and events, internation....
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....nd only for the furtherance of the object of the society. The whole tour was for the purpose of the assessee society and benefitted the Samiti, therefore, in such circumstances, expenditure on foreign visit cannot be disallowed and Ld. CIT(A), recognizing the purpose and necessity has rightly allowed the expenditure. 88. It was further submitted that in no case, Section13(3) or 13(1)(c) of the Act can be invoked on account of disallowance of foreign travel expenses because even if such travel is considered to be perquisites to the persons at the helm of applicant societies affairs, the same commensurate with the fair value of the services provided by them to the assessee society particularly, keeping into consideration that their dedicated services have led to significant growth and popularity of the educational institutions run by the assessee societysociety.Under the above narrated facts and circumstances, the Ld. CIT(A) has rightly deleted the disallowance. 89. We have gone through rival contentions and perused the material on record. The assessee society has incurred an amount of Rs. 5,60,911/- towards foreign travel to Germany by Mrs. Mohini Bakshi and Mr M.S. Bakshi and an ....
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....2. It is further noted that as part of these foreign visits which have been undertaken from time to time, the assesses society has been able to put in place a regular and systematic student/teacher exchange programme with schools based overseas wherein there are regular visits by students along with their teachers based in India have visited overseas schools and similarly, students from overseas schools along with their teachers have visited India. The visits therefore have helped strengthened and contributed in the growth and development of students and in turn is in consonance with the overall objectives of the assessee society. Further, it is noted that on similar lines the Co-ordinate Bench in its order dated 31.01.2008 in ITA No. 7932/JP/2006 has allowed the claim of the foreign travelling expenses and the said view has been followed by subsequent Bench in its order dated 11.03.2014 for A.Y. 12009-10 which has been followed by the ld. CIT(A) while deleting the subject disallowance. In the entirety of facts and circumstances of the case, we do not see any infirmity in the order of the ld. CIT(A). Hence, the ground no. 4 of the Revenue is dismissed. ITA No. 30/JP/16 93. Now c....
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....ves to be deleted. 98. In support, the ld AR placed reliance on following case laws:- A) In the case of DIT vs. Indrprastha Cancer Society vide order dated 18.11.2014 wherein the Hon'ble Delhi High Court has observed that "the newly enacted sub-section (6) to section 11, would change the legal position after 01.04.2015, not for the year prior to this." B) Hon'ble Jaipur ITAT in the case of Santokbha Trust Vs ITO vide order dated 13.03.2015 in ITA No. 241 & 242/JP/2014 held that as under:- "2.8 Apropos Revenue's appeals also, we find merit in the arguments of the ld. Counsel for the assessee that the change in law has been specifically brought with prospective effect from 01-04-2015 and is not retrospective. Thus the old position settled by judgment cited (supra) in this behalf i.e. depreciation remains intact. In view thereof, we find no infirmity in the order of the ld. CIT(A) on this issue allowing depreciation. Hence, the appeals of the Revenue are dismissed." C) Hon'ble Karnataka High Court in the case of DIT Vs. Al- Ameen Charitable Fund Trust, IT Appeal No. 62 and 414 of 2010 vide order dated 22.02.2016 has held as under:- "21. Section 11(6) inserted with effect fro....
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....ect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years". The Memo explaining the provisions in Finance (No.2) Bill, 2014 reads thus: "The second issue which has arisen is that the existing scheme of section 11 as well as section 10(23C) provides exemption in respect of income when it is applied to acquire a capital asset. Subsequently, while computing the income for purposes of these sections, notional deduction by way of depreciation etc. is claimed and such amount of notional deduction remains to be applied for charitable purpose. Therefore, double benefit is claimed by the trusts and institutions under the existing law. The provisions need to be rationalized to ensure that double benefit is not claimed and such notional amount does not excluded from the condition of application of income for charitable purpose". 23. Paragraphs 7.5, 7.5.1, 7.6 of Central Board of Direct Taxes Circular reported in 371 ITR 22 makes it clear that the said amendment shall take effect from 1.4.2015 and will accordingly apply in relation to the assessment year 2015-16 and subsequent assessment years. 24. The Constitution Bench of the Ap....
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....idered the Notes on Clauses appended, the Finance Bill and the understanding of the Central Board of Direct Taxes in this regard. The Apex Court has also taken cognizance of the fact that the legislature is fully aware of 3 concepts insofar as amendments made to a statute: (i) prospective amendments with effect from a fixed date; (ii) retrospective amendments with effect from a fixed anterior date; and (iii) clarificatory amendments which are prospective in nature. Keeping in view, the aforesaid principles enunciated by the Apex Court, in Vatika Township (P.) Ltd.'s case (supra), it would be safely held that Section 11(6) of the Act is prospective in nature and operates with effect from 01.04.2015. This is further clarified when compared with certain other provisions which have been made retrospectively in the same Finance Act." 99. The subject issue is no more res integra. As per Hon'ble Karnataka High Court, the plain language of the amendment by way of insertion of subsection 6 to section 11 establishes the intent of the legislature in denying the depreciation deduction in computing the income of Charitable Trust prospectively with effective from 1.4.2015. This view is furt....