TaxTMI 
TaxTMI 
2020 (12) TMI 443
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....der 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 Officer on account of disallowance of salary / honorarium paid to the trustees u/s 13(1)( c) r....
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....r 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 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 nor....
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....ome 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 part of relevant income at the maximum marginal rate. Reliance is also placed on2015 (9) TMI1447- SUPREME COURT: DIRECTOR OF INCOME TAX CHENNAI VS. M/S. WORKING WOMENS FORUM: wherein SPL was dismissed by Hon &#....
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....DIT-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. Pawan Kumar Bansal Smt. Ambika Soni& Sh. BalKrishan Bansal, which is involved in financial irregularities. The allegation in the TEP is "the account of the society have been grossly misrepresented. In the balance sheet of Heritage Educational Society, los....
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....s 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 unsecured loan of Rs. 40,22,68,419/- till 31.03.2015 from various persons, name of the persons is also mentioned in the balance sheets. This unsecured loan includes amount of Rs. 34,97,68,419/-rom Delhi Public School till. 31.03.2015. This society has not submitted any detail of such unsecured....
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.... 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 assessee society only in the capacity of members and those meetings were held occasionally, therefore, the huge payments made could not be considered as genuine and reasonable. The Assessing Officer also mentioned that the case laws relied by the assessee were on different facts than the facts of the assessee. He made the addition of Rs. 5....
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....ad 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 teacher associations etc, which involves a lot of time and efforts for which otherwise society would have to engage outside persons otherwise and due to the fact that such talent was within the home circle i.e. the wards of the trustees. Even the provisions of Income Tax Act under section 11 to 13 do not put any bar on such persons having adequate qualifications and capabilities....
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....ION 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 prevails over the doctrine of res judicata where the facts and circumstances of the case are identical and the Revenue has granted allowance of salary for the assessment year 2010-11. The same point had already been discussed during the assessment proceedings of AY 2010-11. The department had accepted the assessee's submission of salary without drawing any wrong inference. The Assessment orders for A.Y. 2010-11 had been passed without making any addition....
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....handigarh 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 be taxed twice in the hands of members and in the hands of trust. The members had paid taxes at maximum marginal rate and the tax is to be paid by one entity only and by relying upon circular no. 157 (F.No.228/8/73-IT (A-II) dated 26.12.1974 making clarification for section 164/166 of the Act contended that all the income are to be charged to tax only once and it is not open to the Income-tax Officer to assess the same income for that assessment year in the hands of other persons i.e. assessee trust. For ready perusal, operative....
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....ged 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 the claimed travels by itself is not borne by the requirements per se. The assessee further does not elucidate whether CBSE acknowledges the member of the governing body as the representatives of the school. It is another matter that the claims of travel are mere statements which have not been corroborated by evidence suggesting any benefit to the assessee society. Additionally, persons who come together wearing the badge of altruism on their collars and flaunt that as the guiding force while seeking exemption are not expected to bleed the assessee society of the....
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....eties 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 go against the assessee as an acknowledgement that it was meant for aggrandizing specified persons and possibly invite withdrawal of registration in the case. Further, the contribution of the persons that were cited as rationale for giving them pecuniary benefits all pertain to the headmaster or principal, the bursar, the administrative officer etc of the school under the society who are being paid handsome amounts as salaries separately. It cannot be that the credit for works assigned to and falling within the domain of professionals and other officials (duly recognized by the Board of Education r....
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....nd 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 the Assessee also furnished the written submission running into page no. 1 to 14 copy of which is placed on record and on the issue relating to disallowance of salary / honorarium paid to specified persons wherein, it has been submitted as under: " i. It has been accepted by the Assessing Officer/CIT(A) that the Members possess the requisite qualification. ii. The Assessing Officer was satisfied during the course of original assessment proceedings with regard to the justification of salary/honorarium to the 'specified persons' and also the same issue was examined in Asstt. Years 2008-09, 2009-10 and 2010-11. ....
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....ification 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 devoting of time to manage the school, selection of teachers, management of capital expenditure, interaction with the members of DPS society, liasoning with it, implementing its policies, interaction with CBSC and other day to day affairs of the school, which also includes budgeting, financing and even interaction with parents and teacher associations etc. All these works involve lot of time and efforts for which otherwise society would have to engage outside persons otherwise and due to the fact that such talent was within the home circle i.e. the wards of the trustees and thus, their services were taken. d. The reliance by the CIT(A) on general presumption in para-1 of the order at page 8 is again on presumption/assumption without any substantive material on rec....
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....es 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 ignored the present day circumstances as to how the school are being run. i. In view of the above said facts and circumstances and case laws, the salary/honorarium as allowed in earlier years, may, please, be allowed and the order of Ld. CIT(A) sustaining the addition deserves to be deleted. 13.5 It was also stated that the A.O. while invoking the provisions of Section 13(3) of the Act had not cited any comparable case, therefore, the disallowance made by the A.O. and sustained by the Ld. CIT(A) was not justified. 14. In his rival submissions the Ld. Sr. DR strongly supported the impugned order passed by the Ld. CIT(A) and reiterated the observations made by the A.O. and the Ld. CIT(A) in their orders. It was further stated that since the specified persons were not providing any service and they were not attending the o....
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....c. 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 the stated persons and was confirmed by the taxauditors as well, is not in dispute. The payments have been made and the expenditure is actually incurred by the assessee (which is a charitable society existing solely for the purpose of education). There is nothing to show that the payments made to the persons mentioned in the return as also in tax audit reports, were excessive." 15.3 In the present case also the payments made to the specified persons was reported by the Tax Auditor and thus said payment was not in dispute and no comparable case has been cited by the AO to substantiate that how and in what manner the payment made to the members of the society was excessive while invoking the provisions of Section 13(1)(c) of the Act. 15.4 Similarly the Hon'ble Karnataka High Court in the case of CIT (Exemption) Vs. CMR Jnanadhara Trust(supra) hel....
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....on / 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 preceding years wherein the similar payments have been accepted by the Department. 15.9 On a similar issue the Hon'ble Apex Court in the case of Radhasoami Satsang Vs. CIT (supra) held as under: ""Strictly speaking, res judicata does not apply to income tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year". 15.10 Similarly the Hon'ble Jurisdictional High Court in the case of CIT Vs. Leader Valves Ltd. (supra)held as under: Held, that keeping in view the principle of consistency, the Revenue could not be permit....