2015 (6) TMI 1130 - AT - Income Tax

Exemption u/s 11 & 12 - Held that - The income of the assessee should be assessed as per section 11 & 12 of the Act and if the assessee is able to establish that 85% or more of the income of the assessee has been utilized for the purpose of assessee institution then the income of the assessee should be exempt. Because there is no finding of the authorities below on this aspect of the matter, we restore the matter back to the file of the Assessing Officer for fresh decision after examining the facts of the present case regarding application of income for the purpose of objects of the assessee trust/institution. Payment of salary to persons specified u/s 13(3) was excessive - Held that - Said disallowance of ₹ 5.40 lac was deleted by the Tribunal in earlier years on the basis that the gross receipt has increased substantially in comparison to the earlier years but the payment of remuneration is the same and therefore, if the payment of remuneration was held to be allowable in the earlier year, the same cannot be said that it is excessive in the present year. The Learned D.R. of the Revenue could not point out any difference in facts and therefore, we do not find any infirmity in the order of CIT(A) on this issue. Ground No. 4 is rejected. Non deduction of tds - addition deleted by CIT(A) that since the registration granted to the assessee u/s 12A has been restored, the disallowance is not justified particularly when the provisions of section 13 are not applicable - Held that - We fail to understand the basis adopted by CIT(A) to delete this disallowance because when the disallowance was made by the Assessing Officer for the reason that TDS was not deducted from interest payment, such interest payment cannot be considered as an expenditure for computing the income of the assessee and therefore, the assessee has to show utilization of 85% of such increased income after making disallowance for non deduction of TDS. We, therefore, reverse the order of CIT(A) on this issue and restore that of the Assessing Officer but there will be no actual addition on this account if the assessee is able to establish that the income of the assessee after making disallowance was utilized to the extent of 85% or more of such income. The A.O. should decide this issue afresh as per above discussion after affording reasonable opportunity of being heard to the assessee

Summary

Issues:
1. Exemption u/s 11 & 12 of the Income Tax Act, 1961
2. Restoration of registration u/s 12A
3. Treatment of income as Income from business or profession
4. Disallowance of salary payment under section 13(3)
5. Disallowance of Interest on TDS

Analysis:

Exemption u/s 11 & 12:
The Revenue challenged the exemption granted by CIT(A) to the assessee under sections 11 & 12 of the Income Tax Act, 1961. The Revenue argued that the registration u/s 12A was withdrawn due to the commercial nature of educational activities. However, the Tribunal referred to a previous year's decision where it was held that if 85% or more of the income was utilized for the institution's purpose, the income should be exempt. As there was no finding on this aspect, the matter was remanded to the Assessing Officer for fresh decision.

Restoration of registration u/s 12A:
The Revenue contended that the restoration of registration u/s 12A was not accepted by the department and was pending before the High Court. The Tribunal, based on previous decisions, reiterated that the income should be computed as per sections 11 & 12 if the registration was restored. The Tribunal directed the Assessing Officer to examine the facts regarding income utilization for the institution's objects.

Treatment of income as Business Income:
The Revenue argued that the Assessing Officer rightfully treated the income as Income from business or profession by considering the society as an AOP. However, the Tribunal did not provide specific details on this issue in the judgment.

Disallowance of Salary Payment under section 13(3):
The Revenue claimed that the salary payment to specified persons u/s 13(3) was excessive, leading to a disallowance of Rs. 5,40,000. The Tribunal upheld the CIT(A)'s decision to delete this disallowance, citing consistency in payment despite increased receipts in previous years.

Disallowance of Interest on TDS:
The Revenue challenged the deletion of disallowance of Rs. 1,72,908 under Interest on TDS. The Tribunal reversed the CIT(A)'s decision, stating that non-deduction of TDS from interest payment affected the computation of income. The matter was remanded to the Assessing Officer to determine utilization of income after disallowance.

In conclusion, the Tribunal partly allowed the Revenue's appeal for statistical purposes, remanding specific issues back to the Assessing Officer for fresh examination and decision.