TaxTMI 
TaxTMI 
2021 (2) TMI 528
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....ssessee is a charitable trust settled vide Trust Deed dated 01.04.2001 for the predominant charitable object of imparting education. The assessee-trust was initially declared/ setup in the name of `Ram Krishan Kulwant Rai Charitable Trust' and subsequently, the name of the trust was changed to 'IILM Foundation' vide amendment Deed dated 26th July, 2007. The assessee was duly registered under section 12A of the Income Tax Act, 1961 ("the Act") vide registration granted on 01.02.2001 read with modification dated 02.06.2008. In furtherance of its predominant object of imparting education, during the year under consideration, the assessee was running the following educational institutions: * Banyan Tree World School at Gurgaon. * IILM Under Graduate Business School at Lodhi Road. * IILM Early College at Lodhi Road. 3. We will now take up the appeal for the assessment year 2007-08, wherein the assessee has challenged the impugned order of CIT(A)-XII, New Delhi vide order dated 31.12.2010 on the following grounds of appeal: "1. That on the facts and circumstances of the case, the order, dated 31.12.2010, having been passed by the Commissioner of Inc....
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....haritable purposes, including acquisition of fixed assets for charitable purposes. 4.2 That the Commissioner of Income Tax(Appeals) erred on facts and in law in upholding the action of the assessing officer in assessing the income of the appellant as a business entity, after holding the activities of the appellant to be non-charitable under section 2(15) of the Act. 5. That the Commissioner of Income Tax(Appeals) erred on facts and in law in not adjudicating the alternative ground raised by the appellant that, assuming without admitting, there were violation(s) of section 13, still exemption under section 11/12 of the Act should not have been denied with respect to the entire income. 6. While computing income of the appellant as a business entity after denying exemption under sections 11/12 of the Act, the Commissioner of Income Tax (Appeals) erred on facts and in law in: (a) affirming the action of the assessing officer in making addition of Rs. 34,41,987 out of refundable security deposit of the students. (b) observing that although appellant's obligation to refund the above security deposits existed, but since the appellant did not re....
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....ng any proper opportunity of being heard. Apart from that, Assessing Officer while making the addition on account of refundable security deposit proceeded to draw adverse inference on the basis of details available on record which again was without offering any opportunity of hearing. Thus, he submitted the additional evidences filed by the assessee is critical for substituting the salary payment to Mrs. Malvika Rai, being the Chairperson of IILM Under- Graduate Business School (in short `IILM UBS') and the same should be admitted in terms of Rule 29 of ITAT Rules,1963. 5. The assessing officer on perusal of the bank book maintained by the Banyan Tree School which falls under IILM Foundation, noted that following payments have been made to Smt. Malvika Rai and Smt. Aarti Rai, who falls within the category of a specified person within the meaning of Section 13(3):- Bank Book Page No. Date Narration as per bank book 834 29.05.2006 Salary - TDS Aarti Rai 30,000/- Dr. 835 29.06.2006 Salary - TDS Malvika Rai 1,01,250/- Dr. Salary - TDS Aarti Rai 30,000/- Dr. 836 29.07.2006 Salary - TDS Malvika Rai 48,750/- Dr. 839 29.09.2006 Salary - TDS M....
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....ly, the undersigned proceed to assess his income as a business entity having a status of an AOP." 8. Apart from that, Assessing Officer has noted that there is a miscellaneous income on account of student security which he noted for various years in the following manner:- Students Security Opening Balance Closing Balance Refund Misc. Income 2000-03 6,05,226/- Nil Nil 6,05,226/- 2001-04 8,67,734/- 8,65,734/- 10,000/- 1,10,000/- 2002-05 790000 716075 20000 110000 2003-06 2810000 1607175 210000 1030000 2004-07 3700000 3449625 - 270000 2005-08 3390000 3180000 - 240000 1999-2002 439564 419564 - 20000 Total 240000 2275226/- 9. The AO observed that the appellant has shown only Rs. 1,18,537/- as miscellaneous income, whereas income and amount narrated in the HDFC bank expenses without the name of the relevant student comes to Rs. 22,75,226/-. He also noted that perhaps the students who have graduated during this period have not claimed any refund. Therefore, he has worked out understatement of income of Rs. 34,41,987/- in the following m....
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....ment Institutes of USA , UK and other countries, with a view to upgrade the level of providing education in the various educations institutions of which she is a part. * Mrs. Malvika Rai was on the Editorial Board of the quarterly management magazine of the appellant, namely 'The EDGE'. * Mrs. Malvika Rai was a member of the Advisory Board of the School of Management, University of Bradford, U.K. * Mrs. Malvika Rai was Vice President of FICCI Ladies Organization. 12. Before the CIT(A), the appellant, not only explained the profile alongwith justification for paying salary to Mrs. Malvika Rai, but also produced salary sheets of the appellant for various months for verification by the CIT(A). The appellant, also submitted details of salary paid to various other senior faculties, etc., of the appellant, on sample basis as follows: Mr. B. Bhattacharya Director 90,000 June, 2007 1,20,000 December, 2008 1,20,000 February, 2009 Mrs. Sapna Popli Assistant Director 1,01,166 October, 2007 1,35,331 January, 2007 1,31,786 February, 2009 1,01,166 October, 2007 85,670 October, 2007 13. Learned counsel fu....
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....t on record to controvert any of the factual submissions of the appellant; (e) Fifthly, none of the authorities (the assessing officer in subsequent years and also the CIT(A) in the year under consideration) have brought any evidence on record to show that the salary paid was excessive having regard to the legitimate needs of the appellant trust in carrying out educational activities; (f) Sixthly, the CIT(A), it appears, was influenced by the fact that Mrs. Malvika Rai was only a graduate, which cannot be the basis to hold that services rendered were not commensurate with the salary paid. It has not been appreciated that Mrs. Rai had experience of over two decades in the educational field. The CIT(A) has conveniently ignored all other factors, more particularly her diverse experience in the field of education, which adds to her educational qualification. 15. Apart from that. appellant has also placed on record following additional evidences under Rule 29 of ITAT Rules, 1963. * Copies of extracts from the brochure of IILM -UBS (refer page Nos. 1-4 @ 2); * Compilation of various editions of quarterly journal of the applicant Institute, namely 'T....
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....o violation of section 13(1)(c) of the Act, after taking into consideration the entire material/ evidences placed on record. Our attention was particularly invited to the following events relating to A.Y. 2008-09. In A.Y. 2008-09, when the errors in the order of the CIT(A) for assessment year 2007-08 were highlighted, the CIT(A) forwarded the additional evidence(s) and the submissions to the assessing officer for his comments; In remand report dated 08.08.2011 filed in A.Y. 2008-09, copy of which has been placed at pgs. 332-333/ PB for A.Y. 08-09. The assessing officer mainly relied upon the CIT (A) order for A.Y 2007-08 that remuneration is not commensurate with educational qualification and further stated that the additional evidence pertains to magazine "Edge" published by IILM institute of Higher Education, without realizing that the said educational institute is also part of the appellant. 18. Importantly, the assessing officer in none of the subsequent years has placed on record any material/ evidence to controvert any of the submissions of the appellant. In fact, in the subsequent years, the assessing officer made ad-hoc disallowance as tabulated hereunder: A.Y. ....
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....n the file. We are of the view that on the facts and in the circumstances of the case and for the detailed reasons given in the impugned appellate order, the ld. CIT(A) was justified in holding that the assessee was entitled to exemption under section 11 of the Act for the assessment year 1995-96. As noted above, the assessee is a registered society under section 12A(a) of the Act. It is providing services in the field of family planning, family welfare, birth control, etc. It was in existence since 1981 and it was allowed exemption under section 11 of the Act in earlier years. The reasons given for refusing exemption under section 11 by the Assessing Officer for the assessment year in question have been given hereinbefore. These reasons were payment of salary, rent, etc., to Mrs. Sudha Tewari, Chief Executive Officer and Project Coordinator, rent of the house to Mr. G.K. Tewari, husband of Mrs. Sudha Tewari, loan to Tyagi Foundation and expenditure incurred on conferences and clinics. The ld. CIT(A) has discussed all the items in his impugned appellate order at length and held that salary, rent, etc., paid to Mrs. Sudha Tewari was reasonable and for valuable services rendered by h....
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....larships to Students * Scholarships are given to the merit holder students and also to other students who after passing out from the college intends to pursue higher studies from abroad. Such scholarships are provided subject to the condition that these students would serve the institution, for a minimum period of 5 years after completion of their studies abroad, at reduced salary which would be decided by the Director of the Institute. * Scholarships to Employees/Faculties for Higher Studies * Scholarships are given to the employees of the appellant who intends to pursue higher studies from abroad. Such scholarships are provided subject to the condition that these employees would serve the institution, after completion of their studies abroad, under either of the following two alternatives: * Alternative-I: To serve the institution for a minimum period of 5 years at 50% salary as compared to the market norms * Alternative-II: To serve the institution at an Honorarium of Rs. 10,000 per month for atleast 3 years. * In the present case, Ms. Aarti Rai was given scholarship for pursuing higher education in management course from Lon....
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....008-09 which is as under. A.Y. Total income Application towards revenue purposes Application towards capital purposes Total application of income % of total amount actually spent 2006-07 86,043,803 39,240,739 58,856,879 98,097,618 114.01% 2007-08 92,798,002 41,556,750 44,586,357 86,143,107 92.83% 2008-09 153,883,440 91,946,213 35,307,637 127,253,851 82.69% 25. Thus, he submitted that both the authorities have failed to consider the acquisition of fixed assets and another capital expenditure which were shown in the statement of utilisation filed along with return of income as application of income for charitable purposes. He submitted that it is a well settled law that capital expenditure tantamount to application of income for charitable purposes as held in the following decision. * SRMMCTM Tiruppani Trust vs. CIT: 230 ITR 637 (SC) [pg. 240-243 of case law PB] 18 * St. Lawrence Educational Society (Regd). vs. CIT: 197 Taxman 504 (Del) [pg. 244-247 of case law PB] * Pinegrove International Charitable Trust vs. UOI: 327 ITR 73 (P&H) The Delhi Bench of the Tribunal in the case of U....
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....d to exemption under section 10(23)(iiiad) as there was surplus in its account books after meeting all expenses incurred towards imparting education and it had invested said surplus in fixed assets like furniture and buildings with a view to expand institution and to earn more income. 28. He submitted that the judgment of Hon'ble Uttarakhand High Court in the case of CIT versus Queen Educational Society [2009] 177 Taxman 326 (Uttarakhand), is no longer a good law and has been reversed by the Hon'ble Supreme Court in the case of Queen's Educational Society v. CIT: 372 ITR 699 wherein the Hon'ble Supreme Court held as under. (a) held that where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit [refer para 11 on page 258]; (b) elaborately dealt with the decision of the Uttarakhand HC and specifically reversed the said decision [refer para 19 & 20 on page 260]; (c) concurred with the decisions of the Delhi HC in the case of Lawrence E....
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....ourt in the case of CIT vs. FR. Mullers Charitable Institutions: 363 ITR 230 (Karn.). He further pointed out that SLP filed by the Revenue against the aforesaid judgment has been dismissed by the Hon'ble Supreme Court in SLP No.2223 of 2015. Thus, complete denial of exemption under section 11/ 12 cannot be made. 31. Regarding addition of Rs. 34,41,987/- made by the AO out of security deposit refundable to the students. He submitted that the appellant received refundable security deposit from the students taking admission in various institutes/ schools run by the appellant. As and when the student leaves the institute/ school and clears all the dues and also completes all the formalities, the entire security deposit, after adjusting any pending dues, is refunded to the student. As on 31st March, 2007, the appellant had refundable security deposit of Rs. 1,17,62,966, which was shown as liability in the books of account and the audited financial statements. In the assessment order, the assessing officer made addition of Rs. 34,41,987, out of the security deposit, which was computed as under: Particulars Amt. (Rs.) Reason by AO Amount under the heading "Misc. Income" in ....
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.... * Bharat Hotels Ltd. v. DCIT: 53 ITD 450 (Del) * Kabsons Gas Equipment Ltd. v. DCIT: 25 taxmann.com 172 / 53 SOT 196 (Hyd.) * Landbase India Ltd . vs. DCIT: ITA 4536/Del/2009 (Del Trib.) 33. Regarding ad hoc disallowance of Rs. 7,09,468/- being 50% of the maintenance and fuel expenses on cars, he submitted that this expenses incurred in respect of three cars which has been utilised by the officials appellant for discharging official duties, no evidence has been brought on record by the AO and the aforesaid cars were not utilised by the assessee for personal purposes, therefore, ad hoc disallowance has been deleted. 34. On the other hand, CIT-DR strongly relied upon the order of the AO and CIT (A). She further submitted that in so far as scholarship payment of Mrs. Aarti Rai is concerned, the same was, firstly, payment outside India as this scholarship has been paid for her education in UK in London School of Economics; secondly, such a huge payment has been made from the account of the Trust which is purely a benefit given to the relative who is a specified person in terms of Section 13. Thus, such an expenditure or application of income cannot be held ....
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....s is commensurate with the salary which she is drawing and; secondly, certain amount has been paid from the account of Banyan Tree School where she was not an employee. In such matters what is required to be seen is, whether the remuneration is based on services being rendered rather than evaluating on educational qualification, i.e., person attaining higher degree. The only requirement of the law is that salary paid should not be excessive or unreasonable having regard to the services rendered and educational qualification cannot be the parameter for benchmarking of the services rendered by the persons specified in Section 13. Requisite experience and skills is one of the key factors coupled with the amount of being services rendered. Nowhere the AO or Ld. CIT(A) have brought any material on record or any comparative analyses to evaluate that the services rendered by her is not in commensurate with the market value or is an excess as compared to any comparable third-party case. As brought on record, in subsequent assessment years, i.e., from 2008-09 onwards and on the basis of same the additional evidences which were filed in the subsequent year and also analysed by the Assessing ....
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....son for making any part disallowance for the reason that, firstly; because she has been actively involved in set up of Banyan Tree School and has been rendering services; and secondly no adverse material has been brought on record that her services and other contribution is not in commensurate with the payment of salary. 38. However, insofar as payment of scholarship is concern of Rs. 13.36 lakhs, it is an undisputed fact that she is related to the trustee and is covered under the definition of specified person given in section 13. The scholarship has been paid for pursuing a course in London School of Economics, U.K. and there, appears to be no uniform policy wherein any other faculty members or persons working for the trust has been sent abroad on such a high scholarship except for some minor incentive given to two faculty members as pointed out by the learned counsel. Another important fact is that the scholarship payment has been utilised for studying abroad and the payment has been made for fees and other expenses incurred in UK. This tantamount to application of Trust fund for the payments made outside India, because if it is reckoned that the appellant Trust has given the....
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.... of section 11, and either the relevant income applicable to purposes other than charitable or religious purposes (or any part thereof) is not specifically receivable on behalf or for the benefit of any one person or the individual shares of the beneficiaries in the income so applicable are indeterminate or unknown, the tax chargeable on the relevant income shall be the aggregate of- (a) the tax which would be chargeable on that part of the relevant income which is applicable to charitable or religious purposes (as reduced by the income, if any, which is exempt under section 11) as if such part (or such part as so reduced) were the total income of an association of persons; and (b) the tax on that part of the relevant income which is applicable to purposes other than charitable or religious purposes, and which is either not specifically receivable on behalf or for the benefit of any one person or in respect of which the shares of the beneficiaries are indeterminate or unknown, at the maximum marginal rate ........................" 40. The aforesaid sections provide that income of trust will be taxable at 'maximum marginal rate of tax' on following event: ....
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....and in catena of other decision which has been placed on record by the learned counsel which is not being incorporated here. Thus, we hold that in the event of any violation of provision of section 13, the entire exemption under section 11 cannot be denied and would be restricted only to this extent of income misused by the Trust. Accordingly, we hold that the Assessing Officer was not justified in completing denying exemption under section 11. If we look to the computation of income and even if the entire alleged allegation of Assessing Officer of contravention of section 13 is taken into consideration then also it is quite meager which is evident from the following:- • Total income eligible for exemption: - Rs. 9,27,98,002/- • Total application for charitable purposes: - Rs. 8,61,43,107/- • Alleged expenditure hit by Sec 13 [Rs. 2,25,000 + Rs. 13,36,000] - Rs. 15,61,000/- This works out to barely 1.6% and 1.8% of total income and expenditure respectively. 44. Thus, in view of our finding given above the exemption of section 11 in the case of the appellant Trust shall be denied to the extent of Rs. 13.36 lakhs only. 45. Coming to ....
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.... such an addition is unwarranted. 48. Lastly, regarding ad hoc disallowance of Rs. 7,09,468/- being ad hoc disallowance of 50% of maintenance and fuel expenses, it is seen from the records, that same pertains to the expenses in respect of three cars owned by the appellant Trust. It has been clearly stated that the cars have been utilised purely for the use of the Appellant Trust and for various high positioned faculty members, then adhoc disallowance cannot be made for personal use or it can be inferred or presumed to be not utilised for the activities of the Trust. Once the car is used for officials, like, Dean, Professors and other faculty members, then usage of car for such officials of the Trust cannot be held to be for personal benefit or for non-official purposes. Accordingly, such an adhoc disallowances is directed to be deleted. 49. In so far as donation of Rs. 37,900/- we find that no details have been provided and the purpose for making such donation. Therefore, no interference is called for in the finding of the Assessing Officer and CIT(A) as nowhere it has been explained about the nature of donation and its purpose. Thus, this issue is decided against. 50. ....
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.... per details given hereunder;- Date Partculars 01.02.2001 Trust Settled - Trust Deed 25.06.2002 Registration u/s 12A granted 19.04.2004 Supplementary Trust Deed 09.01.2008 Application for renewal of registration u/s 80G along with Supplementary Trust Deed 02.06.2008 DIT(Exemption) granted fresh certificate under section 12A of the Act pursuant to change in name. 02.06.2008 DIT(Exemption) also granted certificate under section 80G for the period from 01.04.2007 to 31.03.2010 54. Once the amended supplementary deed dated 29.04.2004 has been brought on records and placed before the DIT(E) and ld. DIT after considering the same has granted fresh registration, then ld. Assessing Officer cannot questioning the charitable character of the assessee. Accordingly, the order of the ld. CIT (A) on this core is upheld and the Revenue's appeal is dismissed on this core. 55. Regarding salary payment to Mrs. Malvika Rai rendering services for running of educational institution of the appellant trust, we have already given our detail finding in the appeal for the Assessment Year 2007-08 above, and thus, our finding will mutatis mutandis in this yea....
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.... is treated as dismissed. 61. In the result, the appeal for the Assessment Years 2009- 10 and 2010-11 are dismissed. 62. In the appeal for the Assessment Year 2011-12, the following grounds have been raised:- "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law ignoring the fact that assessee has committed violation within the meaning of provisions of section 13(1)(c) of the I.T. Act, 1961 by providing benefits to persons specified u/s 13(3) of the I.T. Act in the shape of providing cars for personal use and payment of unreasonable and excessive salary to Ms. Malvika Rai, Chairperson. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in law in ignoring the fact that luxury sedan cars were provided to the trustees and controlling persons of the trust. Assessee failed to justify that maintenance and fuel expenses of cars were exclusively incurred for the aims and objects of the assessee. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in law in ignoring the fact that due to the fact that assessee was denied benefits of exemp....