AI Drafter 
TaxTMI 
TaxTMI 
2020 (12) TMI 443
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.... Court. 2. That the Ld. CIT(A) has failed to consider the fact that the Assessing Officer has only relied upon the report of the Investigation Wing and which, reopening is bad in law in view of the various judgments of the Apex Court and of different High Courts. 3. That there was no reason to believe as per reasons recorded by the Assessing Officer and, therefore, the reopening is bad in law. 4. Notwithstanding the above said grounds of appeal, the Ld. CIT(A) has erred in adding back a sum of Rs. 54 lacs on account of disallowance of salary/honorarium paid to the qualified trustees u/s 13 (l)(c) r.w. section 13(3) and 164(2) of the Income Tax Act, 1961. 5. That the Ld. Assessing Officer has failed to appreciate the judgment of Jurisdictional High Court in the case of Idicula Trust Society, Faridabad as reported in 104 DTR 9. 6. That the addition have been made against the facts and circumstances of the case. 3. Vide Ground Nos. 1 to 3 the assessee has raised the legal issue challenging the validity of the reopening while ground Nos. 4 & 5 relates to the issue on merit relating to the sustenance of addition made by the Assessing Offic....
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.... Section 13(1)(c) has been reproduced below: Section 13..... (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof - (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, Directly or indirectly for the benefit of any person referred to in sub-section (3) The contention of the legislature is to restrict any undue benefit which was derived by any persons (covered under section 13(3) of the Act) must be excluded from exemption provided in section 11 of the Act. So the thrust of the complete section is basically lies on "any direct or indirect benefit" Act does not define the word "benefit", but it is a general clause and as per oxford dictionary the "benefit" means "An advantage or profit gained from something" Specified persons must got some advantage or profit ....
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....dself is not satisfied with the above submission, without surrendering our right to avail all legal remedies in case of any addition, we want to articulate proviso of section 164 (2) of the Indian Income Tax Act 1961 (reproduced below), which speaks to tax the relevant part (income) at maximum marginal rate, without attracting any other limb of trust (either exemption status or surplus of receipt over income) As per Section 164(2) of the Act, In the case of relevant income which is derived from property held under trust wholly for charitable or religious purposes, or which is of the nature referred to in sub-clause (iia) of clause (24) of section 2, or which is of the nature referred to in sub-section (4A) of section 11, tax shall be charged on so much of the relevant income as is not exempt under section 11 or section 12, as if the relevant income not so exempt were the income of an association of persons: Provided that in a case where the whole or any part of the relevant income is not exempt under section 11 or section 12 by virtue of the provisions contained in clause (c) of clause (D) of sub-section (1) of section 13, tax shall be charged on the relevant income or par....
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.... persons are not reasonable and liable for disallowance u/s 13 (l)(c) r.w. 13(3) of I. T. Act, 1961 and taxed u/s 164 (2) of I. T. Act. 6. The Assessing Officer also mentioned that during assessment proceedings information from DDIT-1(Investigation) had been received vide letter dated 3.10.2016 having the following details:- "4.3 It is mentioned here that during the assessment proceedings information from DDIT-1 (Investigation), Chandigarh has been received vide letter no 924, dated-03-10-2016, received in the office of undersigned on 06-10-2016. The details of the same are as under:- "2. In this connection, it is intimated that survey u/s 133A has been carried out by this office in the case of M/s Mirage Infra Ltd. On 01.12.2014. The enquiries has also been made by this office in reference to Tax Evasion Petition in the case of Sh. Pawan Kumar Bansal from various parties and found that M/s Mirage Infra Ltd. a company of Sh. Pawan Kumar Bansal and his family members has made transaction with the various companies/Trust. 3. As per the allegation mentioned in the TEP, the trust M/s Heritage Educational Society, Chandigarh promoted by the family of Mr. Pa....
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.... 6. The next issue is that vide reply dated 15.12.2015 submitted by the counsel of the assessee during assessment proceedings A.Y. 2014-15, as per the balance sheet as on 31.03.2011 shown the loss of Rs. 12.40 crores and stated the society is maintaining separate books of accounts of MJs Heritage Educational Society & M/s Delhi Public School. After the consolidated balance sheet of M/s Heritage society is prepared the reserve and surplus of M/s Heritage Educational Society & M/s Delhi Public School comes to Rs. 12,60,83,332/- as on 31.03.2011 mainly due to claim of depreciation, interest and salary as there is no corresponding income receipt. The income generated through school has been reflected in the books of Delhi Public School. The consolidated result of the society and the School is excess of income over expenditure. This is regular practice of the society, therefore, you are requested reopen the cases of the society u/s 147 of the Act, for the A.Y. 2008-09 to 2015-16 to disallow since the society is misusing the exemption for benefit of the office bearer/member of the trust On perusal of the balance sheet of the society it is also seen that the society has received u....
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....the premises of the school." 9. On the basis of the aforesaid report, the Assessing Officer observed that the assessee society was providing salary to its members without any services provided by them and they were not regular employees of the school. He further observed that the assessee had provided salary to those persons before May, 2013 and thereafter the nature of payments was changed in the name of honorarium. The Assessing Officer reproduced the details of the honorarium paid from financial year 2013-14 to 2015-16 along with salary to the teaching staff and administrative staff in para 4.6 at pages 7 to 9 of the assessment order dated 28.12.2017, for the sake of repetition the same is not reproduced herein. The Assessing Officer observed that assessee was providing salary to the aforesaid persons till May 2013 and suddenly changed the nature of payments and that those persons never worked as salaried employees in the school and the assessee society. They were getting those payments as designated members of the society as office bearers which was not allowable u/s 13(1)(c) r.w. section 13(3) of the Act. He further observed that those persons attended meeting of the assess....
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....e thrust of the complete section is basically lies on "any direct or indirect benefit. Act does not define the word "benefit", but it is a general clause and as per oxford dictionary the "benefit" means "An Advantage or profit gained from something" Specified persons must got some advantage or profit to attract section 13 (3) of Act. But in our case the assessee had paid Honorarium to such persons against services received, it is purely a normal contract without any undue benefit/profit or advantage to such persons.lt is Heritage Educational Society not such specified persons who is benefited from this contract, as the specified persons are providing various specialized & Expert services to trust at concessional price. The work of these persons involves selection of teachers, interaction with parents, management of capital expenditure, providing resources to schools including its funding, managing fees, collection, administrative control, interaction with the main DPS society, laisoning with it, implementing its policies, interaction with CBSE and other day to day affairs of the school, which also includes budgeting, financing and even interaction with parents and....
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.... is placed on the following case laws/judgement in support to the contention of the assessee: * Hon'ble Bench of ITAT Ahmedabad in the case of PNR SOCIETY FOR RELIEF & REHABILITATION OF THE DISABLED TRUST VERSUS THE DDIT (EXEMPTION) BHAVNAGAR [2014] 34 ITR (Trib) 465 (ITAT [Ahm]) * Hon'ble Gujarat High Court (upheld by Hon'ble Supreme Court) in the case of COMMISSIONER OF INCOME TAX VERSUS BHOLARAM EDUCATION SOCIETY R/ Tax Appeal No. 306 of 2018 * Jurisdictional court in the case of Commissioner of Income Tax Versus M/s. Idicula Trust Society, Faridabad 2014 (4) TMI 535 - PUNJAB & HARYANA HIGH Court * Hon'ble bench of ITAT, Chandigarh in the case of Young Scholars Educational Society Versus ITO [2011] 12 ITR Further assessment proceedings for the AY 2010-11 was completed under section 143(3) and no disallowance of salary paid to above trustees was made. AO had asked for justification of salary paid to members and had accepted the same without drawing any wrong inference on the same. It is well settled law that the doctrine of res judicata is not applicable to the fiscal statutes. However, the doctrine of consistency preva....
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.... are qualified persons and providing services for selection of teachers, interaction with parents, management of capital expenditure, providing resources to schools including its funding, managing fees, collection, administrative controls and interaction with main DPS society, implementing its policies, interaction with CBSE and other day to day affairs of the school. The members are more convenient and manageable as compared to outside hired resources. All these services were provided by them by visiting school at Chandigarh on time to time basis and the remaining work was done by them electronic & telephonic media. Therefore it cannot be presumed that they are not performing any duties at all and salaries provided to them was in violation of section 13(l)(c)of the Act. The Id. AO had ignored the fact that the members who had received salary/honorarium from assessee had paid taxes @ 30% on the same in their return of income i.e. at maximum marginal rate of taxes and in the case of assessee the income of trust was exempted u/s 11 even if the expenditure of salary to members was ignored as the expenditure was higher than 85% of the receipts. The same income cannot ....
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....ing in para 7.3 as under: During the course of assessment proceedings no documentary evidences, w.r.t. the services claimed to be provided to the assessee society, were adduced either. Mere claims that they are well qualified does not entitle them to claim unrequited payments. No evidence of the exact work being done and the expenditure incurred (which is claimed to be recompensed) were provided during the appellate proceedings either. The reasons contained in the written submissions are clearly untenable. It has been claimed that even as the school was managed by the principal all the decisions were taken by the members in the back. This clearly is not sound reasoning. It connotes subversion of the roles of a principal who alone is responsible and accountable for all decisions w.r.t running of an institute and no one else. The written submissions also claim that the members were reimbursed for their travels from Chandigarh to Delhi and back three times a week. The purposes of such frequent travel have not been provided. Even if one presumes that such visits were undertaken for interaction with CBSE and DPS Society (as contained in subsequent submissions) the frequency of ....
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.... funds of a public charitable trust/society are utilized for purposes that are not charitable and the assessee trusts/societies keep on infringing on the rights of the beneficiaries by claiming that taxes have been paid on amounts extricated from the trust/society. The assessee claims that the memorandum of association provides for recompensing members for all the expenditures incurred by them for the society. The clauses specifically means reimbursing of small amounts ( as is in vogue in the case of all other societies and also in sync with the MOAs approved by the Registrar of societies apart from the conditions inherent in the Society's Registration Act, 1860) in lieu of any expenditures that may have been incurred for the Society. In the instant case there is no evidence of any expenditure being reimbursed. The claims that the assessee was covered by the proviso to section 13(l)(c) have to be negated. No evidence about the mandatory terms of the society and the rules governing the institution has been filed, to corroborate the claims, either. The other claim that honorarium (salaries) were paid only to three and not to all specified persons, in fact, would....
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....yment was made to specified persons during the previous years by way of salary, allowance or otherwise", the details had been mentioned which were noticed by the A.O. while framing the original assessment, so there was no failure on the part of the assessee to disclose all material facts necessary for completion of the assessment. The reference was made to page no. 3 of the assessee's paper book. It was further contended that the A.O. in the order sheet dt. 11/12/2012 (copy of which is placed at page no 21 of the paper book) clearly mentioned that the reply relating to the salary to the specified persons had been given and other details were also furnished. The reference was made to page no. 70 to 71 of the assessee's paper book which is the copy of original assessment order dt. 11/12/2012 passed under section 143(3) of the Act. It was reiterated that the salary to the specified persons had been paid in the earlier years also and no adverse view had been taken and that in the A.Y's 2008-09, 2009-10 and 2010-11 the salary / honorarium to specified persons was at Rs. 36 lacs, Rs. 45 lacs and Rs. 54 Lacs respectively which have been accepted by the Department. 13.1 Ld. Counsel for ....
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....sang Vs. CIT (1992) 193 ITR 321 (SC) * CIT Vs. Arthur Andersen & Co. (2009) 318 ITR 229 (Bom) * CIT Vs. Leader Valves Ltd. (2007) 295 ITR 273 (P&H) 13.4 Ld. Counsel for the Assessee also furnished the written submission to rebut the findings of the Ld. CIT(A) and the A.O. relating to the disallowance of salary which read as under: a. The finding of CIT(A) in para 7.3 that no additional services have been provided is absolutely incorrect in view of the clear cut submissions of the assessee about the services being rendered, which are there at pages 45 to 45A of the Paper Book and at pages 72 to 88 of the Paper Book. b. Both the CIT(A) and Assessing Officer has not doubted the qualification, but then has held that the qualification is not enough, but has totally ignored the services rendered by them and which services have been rendered not only from this year, but from the past ten years. c. The finding of the CIT(A) that it is only the Principal, who is only capable for running the school is again misconceived, because ultimately, it is only under his guidance and support of the management that, the institution is run, which involves ....
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.... misconceived, because of the nature of duties, there cannot be any attendance required of the members to come to the school premises on day to day basis and it has rightly been stated that there cannot be a fixed schedule and time table for coming to the school to the members, but then it has categorically been stated that they come to the school to attend the meeting and the nature of the duty itself suffice that these duties which they are rendering, i.e. maintenance of capital assets and other day to day activities and if any other person employed at their place, would have demanded more honorarium/salary. No comparative instance has been quoted as to what could be reasonable of salary/honorarium. All these services demand experienced person and consume lot of time and efforts. The proof of the services is a smooth and efficient conduct of the School functions and its continuous growth which is more than documentary evidence. h. The Assessing Officer and CIT(A) has taken a very narrow view and they have compared the members of the society with the teaching staff, which is wholly misconceived as per para 7 of the order of the Assessing Officer and they have ign....
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....t came daily to the school premises, they had no fixed schedule or time table to come to the school and that they came to the school premises only to attend the meetings which were not conducted on regular or routine basis. From the aforesaid report also it is clear that those persons although did not come daily to the school but they were coming whenever the meetings were fixed. 15.1 As regards to the services provided by those persons, the contention of the assessee was that the specified persons to whom salary/honorarium was paid were possessing the requisite qualification and they were providing guidance and support to the management for selection of Teachers, management of capital expenditure, interaction with members of DPS society, liasoning with it, implementing its policies, interaction with CBSE and Teachers Association etc. which involved lot of time and efforts for which otherwise assessee society would have to engage outside persons. The said explanation of the assessee was not rebutted at any stage. 15.2 On a similar issue the Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Indicula Trust Society (supra)held as under: " Payment was made to th....
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....' certificate. A number of certificates and distinctions had also been mentioned having regard to professional qualifications of the principal 'S'. Though the payment of salary fell under the bar placed by section 13, however, having regard to her qualifications and services rendered to the assessee, the case of the assessee fell under section 13(2)(c) as the salary paid was not unreasonable. In view of this, the assessee went out of the bar placed by the provisions of section 13. 15.7 In the present case also the AO himself admitted that the specified persons were having the higher qualification and no comparable case was brought on record to substantiate that the salary / remuneration paid to them was excessive. Therefore, the disallowance made by the AO and sustained by the Ld. CIT(A) was not justified. 15.8 In the present case it is also noticed that the remuneration / salary paid to the same persons in the earlier years had been accepted while framing the assessment orders under section 143(3) of the Act. Therefore, by keeping in view the principles of consistency no disallowance is to be made for the year under consideration if the facts are identical in the pr....