TaxTMI 
TaxTMI 
2026 (8) TMI 132
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....'s claim of being a charitable trust even when the assessee trust is making unreasonable payment to its CEO who is covered as per provision of section 13(3)(cc) of the Act. iii. That on the facts and in the circumstances of the case, the Id. CIT(A) has erred in law in treating the payment made by Sehgal Family Foundation USA amounting to Rs. 10 lacs as explained even when the claim of assessee that it is following cash basis of accounting, is not acceptable as the assessee is following mercantile system of accounting. iv. That on the facts and in the circumstances of the case, the Id. CIT(A) has erred in law in holding that the AO incorrectly restricted the expenses to 85% of total receipts and taxed the balance 15% at Maximum Marginal Rate even when the assessee's activities are not charitable in nature. v. That the appellant craves to add, delete or amend any grounds of appeal on or before the appeal is heard or disposed off. Additional ground of Appeal vi. That on the facts and circumstances of the case the proviso to section 2(15) of the Income Tax Act is applicable in this case as the activities of the assessee are mainly co....
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....dustry standards and the prevailing market scenario. It was further submitted that Ms. Jane Elien Schukoske has vast national and international experience and was responsible for all functions of the Trust. A detailed biodata of Ms. Schukoske was also filed. On the other hand the Assessing Officer has not brought on record any adverse observation in this regard. Merely disbelieving the salary paid as being exorbitant without any basis is not justified. In the light of the above observations, the action of the Assessing Officer treating the Trust as an AOP and taxing it as such, is not justified. The ground of appeal is therefore allowed. Ground No. 3:- The payment of Rs. 10,00,000/- by Sehgal Family Foundation, USA to International Maze and Wheat Improvement Centre, was considered by Assessing Officer, as unaccounted cash received by the appellant. The appellant has submitted that Sehgal Family Foundation in USA made charitable disbursement (Donation) to CIMMYT in Mexico for US $18,600.00, an amount equivalent to INR 1,000,000/- in the month of February 2013. CIMMYT is an autonomous, nonprofit, International research organization for science based agricultural dev....
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....Persons (AOP), making an addition of Rs. 10,00,000/-, and restricting the application of income to 85% of the receipts. 4. The assessee, M/s S.M. Sehgal Foundation, is a charitable trust registered under the provisions of the Income-tax Act. During the assessment proceedings, the Assessing Officer held that the assessee had violated the conditions prescribed under sections 11 and 12 on several grounds, namely, discrepancies in accounting of grants, receipt of foreign contributions, earning of rental income, amendments in the trust deed, alleged excessive remuneration paid to the Chief Executive Officer, and an amount of Rs. 10,00,000/- allegedly representing unexplained cash. On these premises, the Assessing Officer denied the exemption under sections 11 and 12, assessed the assessee in the status of an AOP and further restricted the allowable expenditure to 85% of the total receipts. 5. In appeal, after considering the assessment order, the remand reports submitted by the Assessing Officer, the documentary evidence placed on record and the detailed submissions of the assessee, the learned CIT(A) held that the Assessing Officer had failed to bring any cogent material on recor....
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....ed that the learned CIT(A) had incorrectly described the addendum as a rectification deed and had misinterpreted its contents while granting relief to the assessee. 6.3 The learned Sr. DR further submitted that a substantial portion of the assessee's receipts comprised rental income earned from leasing out its immovable properties. According to the Revenue, the magnitude and nature of such rental activity demonstrated that the assessee had ventured into commercial exploitation of its properties, thereby deviating from its charitable character. It was argued that the Assessing Officer had rightly held that the assessee was not entitled to exemption under sections 11 and 12 of the Act, as the activity of earning rental income had assumed a commercial complexion inconsistent with the charitable objects of the trust. 6.4 On the issue relating to the remuneration paid to the Chief Executive Officer, Mrs. Jane Elien Schukoske, the learned Sr. DR submitted that although the learned CIT(A), while dealing with the issue at page 22 of the appellate order, had observed that the remuneration paid was normal, no detailed reasoning, comparative analysis or supporting material had been ....
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....RA returns and the books of account, the learned AR submitted that the entire issue stood satisfactorily reconciled during the remand proceedings. The Assessing Officer himself, in the remand report, had accepted several factual explanations furnished by the assessee. It was further submitted that the assessee had been duly registered under the Foreign Contribution (Regulation) Act since the year 2001 and that the subsequent registration obtained under the amended FCRA provisions was necessitated merely on account of the shifting of its registered office and did not constitute a fresh registration. 7.4 Addressing the issue of rental income, the learned AR submitted that the Revenue had proceeded on an erroneous understanding of the trust deed. It was argued that the dominant objects of the trust, as contained in the original trust deed and the Addendum dated 15.06.2010, remained purely charitable and included activities relating to genetic research, agricultural education, conservation of natural resources, sustainable agriculture, environmental protection, family planning, improvement of the status and literacy of women, and, subsequently, relief to the poor and education. The ....
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....s professionally managed and required competent professionals for the effective implementation of its various charitable programmes. Although the learned CIT(A) had observed that the remuneration was reasonable, the learned AR fairly submitted that no comparative analysis had been undertaken by the appellate authority. However, it was emphasised that the Revenue had equally failed to bring on record any comparable material or objective evidence to establish that the remuneration was excessive, unreasonable or violative of any provision of the Act. It was also pointed out that the remuneration structure had remained substantially similar in the preceding and subsequent years and had never been objected to by the Department. 7.8 Lastly, with regard to the payment of Rs.10,00,000/- made by Sehgal Family Foundation, USA directly to CIMMYT, the learned AR submitted that the said amount represented an independent charitable contribution made by the donor on behalf of the Foundation and was never received by the assessee trust. Consequently, the same neither constituted the income of the assessee nor could it be treated as an undisclosed receipt. It was, therefore, contended that the l....
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....ever, contained in the trust deed is a separate enabling provision conferring powers upon the Board of Trustees. Clause VIII merely authorises the trustees to acquire, hold, manage or otherwise deal with land, buildings and other immovable properties with the funds of the trust for effectuating the charitable objects of the trust. Such an enabling clause cannot be elevated to the status of an independent charitable object. The power to acquire and manage trust properties is only incidental to the effective administration of the trust and to facilitate the attainment of its charitable purposes. Therefore, the finding of the learned CIT(A) that leasing of properties itself constituted one of the objects of the trust is clearly erroneous and is not borne out from the trust deed. 8.4 At the same time, we also notice that the trust deed, along with the Addendum dated 15.06.2010, has been the subject matter of adjudication in the preceding as well as subsequent assessment years. At no stage have the Revenue authorities questioned the charitable nature of the objects or recorded any finding that the activities of the trust were not genuine. The entire controversy is confined to the int....
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.... the rival submissions and carefully perused the material available on record. The Revenue has challenged the remuneration paid to Mrs. Jane Elien Schukoske, Chief Executive Officer of the assessee trust, on the ground that the salary paid was excessive and not commensurate with the services rendered. We, however, find no merit in the said contention. 8.10 Admittedly, neither the Assessing Officer nor the learned CIT(A) has brought on record any comparable material to demonstrate that the remuneration paid to the Chief Executive Officer was excessive, unreasonable or disproportionate to her qualifications, experience, duties and responsibilities. The entire disallowance is founded on mere surmises without any objective benchmark or comparable instance. It is a settled proposition that an allegation of excessive remuneration cannot rest upon subjective perception; it must be supported by cogent evidence establishing that a similarly placed professional would ordinarily command substantially lower remuneration. 8.11 The assessee has consistently maintained that the trust is managed on professional lines and that the Chief Executive Officer possesses the requisite qualifications....
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....t, no interference is called for. 8.16 Consequently, the ground raised by the Revenue challenging the remuneration paid to the Chief Executive Officer is dismissed. Likewise, the Revenue has not brought any material to demonstrate that the payment of Rs.10,00,000/- received from Sehgal Family Foundation, USA, was utilised for any purpose other than the charitable objects of the trust or that it resulted in any violation of the provisions of the Act. Accordingly, this aspect of the ground also fails. 8.17 The ground of appeal raised by the Revenue is, therefore, dismissed. 8.18 Alleged discrepancies in FCRA receipts and accounting of grants We have carefully considered the rival submissions and perused the material available on record. One of the principal reasons assigned by the Assessing Officer for denying exemption under sections 11 and 12 of the Act was the alleged discrepancy between the figures reflected in the FCRA returns, the books of account and the financial statements of the assessee. According to the Assessing Officer, the foreign grants received by the assessee had not been properly accounted for and substantial grants remained unutilised, thereby leading to ....