2020 (9) TMI 460

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.... A.Y.2016-17- Assessee '' The Ld. CIT(A) has erred on facts and in law in confirming the disallowance of Rs. 15,90,480/- on account of alleged excess payment of salary to specified persons u/s 13 of IT Act, 1961 ITA No. 70/JP/2020 - A.Y. 2015-16- Revenue (i) On the facts, the circumstances of the case and in law the Ld. CIT(A) has erred in allowing the benefit of exemption u/s 11 of the Act to the assessee without appreciating the fact that the assessee trust has provided undue benefit in lieu of salary to the persons specified u/s 13(3) of the Act and thus provisions of section 13(1)(c)(ii) r.w.s. 13(2)(c) of the Act were clearly attracted. (ii) On the facts, the circumstances of the case and in law the Ld. CIT(A) has erred in allowing the benefit of exemption u/s 11 of the Act to the assessee by relying upon the order of Hon'ble ITAT dt. 18.07.2017 in ITA No.300/JP/2018 ignoring the fact that department has proceeded for further appeal before Hon'ble Rajasthan High Court against the order which is pending. (iii) On the facts, the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of surplus amounting....

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....e founder of the trust , treasurer of the trust and the person specified u/s 13(3) of the Act. After comparing the salary in the last year, the AO held that in some case increase in salary is almost 40% , accordingly the AO made disallowance of Rs. 27,83,520/- in respect of five persons in the order of assessment. It was further held that excess salary so paid amounts to benefit given to the trustee specified u/s 13(3) of the Act and thus Section 13(1)(ii) is attracted. Accordingly, the AO disallowed the claim of exemption u/s 11 of the Act and taxed the income at maximum marginal rate (MMR) under the head income from Business and Profession in the status of AOP u/s 164(2) of the Act. 2.2 In first appeal, the ld. CIT(A), after considering the explanation of the assessee restricted the disallowance of salary paid to the trustees by comparing salary paid to these persons in A.Y. 2012-13 with an increase of 10% and further observed that exemption u/s 11 cannot be denied in totality rather the disallowed part can be subjected to tax at MMR. 2.3 Aggrieved by the order of the ld. CIT(A), the Revenue has filed the present appeal before us on the grounds mentioned herein above. 2.....

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....Rastogi 5,75,600/- 6. Meghna Singhal 5,79,939/-   Total 74,84,455/- He compared the salary payment to above persons with that given in last year and noted that in last year salary paid to these persons was only Rs. 58,49,909/-. He further observed that in some cases increase in salary is almost 40% whereas to other employees the increase in salary is around 10%-15%. Accordingly, after accepting the salary payment to Mr. Deepak Choudhary he disallowed salary of Rs. 27,83,520/- to the remaining 5 persons as mentioned at Pg 5, Para 6.2 of the assessment order. He further held that the excess salary so paid amounts to benefit given to the trustees specified u/s 13(3) of the Act and thus section 13(1)(c)(ii) r.w.s. 13(1)(ii) is attracted. Accordingly, he disallowed the claim of exemption u/s 11 of the Act and after disallowing the claim of capital expenditure computed the total income at Rs. 5,77,58,981/- (surplus Rs. 3,52,40,552/- + excess salary paid Rs. 27,83,520/- + capital expenditure Rs. 1,97,34,909/-). He further taxed such income at maximum marginal rate under the head income from business and profession in the status of AOP u/s 164(2) of the A....

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....in case of payment of salary or allowance or otherwise to the specified persons for the services rendered and testing the same as per the para meter of reasonably paid for such services. It is apparent that the payment made to these persons clearly attracts the provisions of Sections 13(1) and 13(2) of the Act however, only to the extent of the payment which is found to be excess of what may be reasonably paid for such service. In case no services were rendered then the entire payments to such persons would be treated as the application of income of the trust in violation of the provision of Section 13(1) r.w.s. 13(3) of the Act and therefore, to the extent of the payment the benefit of Section 11 will not be available. Since neither the AO nor the ld. CIT(A) has examined the relevant facts on the point whether all these persons possess the requisite qualification for holding the position as shown by the assessee and further whether they have rendered any services to the trust. 6. Accordingly, in the facts and circumstances of the case and in the interest of justice, we set aside the impugned order of the ld. CIT(A) and remit the matter to the record of the Assessing Offic....

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....)(ii) had passed the order. The operative portion of the said order is reproduced below. "Co-joint ready of provisions of Section 13(1), read 13(2) and section 13(3) reveals the benefit of Sections 11 or 12 shall not be available inter alia in the case where the income which is applied or used directly or indirectly for the benefit of any person referred to Section 13(3) of the Act. So far as the salaries or allowances paid to any person referred in Section 13(3) the same has to be considered in the context of service rendered by such persons and if the amount so paid is found in excess what may be reasonably paid for such services then, only to the extent of excess amount it will be deemed as applied or used for the benefit of such persons. Hence, the disallowance U/s 13(1) r.w.s. 13(2) and 13(3) of the Act is only in respect of the income which is applied for the benefit of the persons specified U/s 13(3) of the Act and not entire income of the assessee trust. Sub-section (2) of Section 13 prescribes the manner in case of payment of salary or allowance or otherwise to the specified persons for the services rendered and testing the same as per the para meter of reasonably....

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....er of ITAT is not enough and the Revenue has to show as to whether the Hon'ble High Court has stayed the operation of the said impugned order and in case there is no stay order by the Hon'ble High Court then the Revenue is bound as on today by the decision of the Coordinate Bench of ITAT in assessee's own case (supra) for the A.Y. 2014-15 and thus we dismiss these grounds raised by the Revenue. According, the Ground No. 1 to 3 raised by the Revenue are dismissed. 3.1 The Ground No. 4 raised by the Revenue relates to challenging the order of the ld. CIT(A) in allowing the claim of capital expenditure. 3.2 After hearing both the parties at length, we found that once the ITAT Coordinate Bench in assessee's own case for the A.Y. 2014-15 has already held that the assessee is entitled to exemption u/s 11 of the Act then the capital expenditure is to be considered as application of income in computing the total income of the assessee. Therefore, the ld. CIT(A) under these facts and circumstances of the case has rightly directed the AO to allow the claim of capital expenditure as application of income. No new facts or circumstances have been brought before us in order....