2012 (5) TMI 483 - AT - Income Tax

Exemption u/s 11 - Disallowance of salary - salary paid to Smt Shanta Kumar, member of the society section 13(3) - Held that the payment of salary falls under the bar placed by section 13 of the Act, however, having regard to her qualifications and services rendered to the assessee, the case of the assessee falls under section 13(2)(c) of the Act as the salary paid is not unreasonable. In view of this, the assessee goes out of the bar placed by the provisions of section 13 of the Act, as the salary paid is reasonable - Decided in favor of the assessee Regarding disallowance of advertisement expense - Held that the nature of professional services rendered by Shri Varun Bharati, who possesses requisite professional qualifications and evidence filed to prove the factum of rendering of such services, the impugned payment cannot be disallowed as it goes out of the mischief of the provision of section 13 - Decided in favor of the assessee

Issues Involved:
1. Disallowance of salary paid to Smt. Shanta Kumar under section 13(1)(c)(ii) of the Income-tax Act, 1961.
2. Disallowance of advertisement expenses paid to Shri Varun Bharati under section 13(1)(c)(ii) of the Act.
3. Disallowance of exemption under section 11 to the appellant-society.
4. Charging of interest under section 234B of the Act.

Issue 1: Disallowance of Salary to Smt. Shanta Kumar
The appeal contested the disallowance of salary paid to Smt. Shanta Kumar under section 13(1)(c)(ii) of the Act. The authorized representative argued that the salary was previously accepted in assessment under section 143(3) and presented evidence of her qualifications and services. The tribunal noted that section 13 bars exemption under section 11 if income is used for the benefit of certain individuals. It highlighted the Revenue's burden to prove section 13 application. Despite the bar, the tribunal found Smt. Shanta Kumar's salary reasonable based on her qualifications and services, thus allowing the appeal.

Issue 2: Disallowance of Advertisement Expenses to Shri Varun Bharati
The disallowance of advertisement expenses paid to Shri Varun Bharati was challenged under section 13(1)(c)(ii) of the Act. The authorized representative provided evidence of the genuine nature of the transaction and Varun Bharati's qualifications. The tribunal observed that the payment for professional services in advertising, supported by evidence, did not fall under section 13's restrictions. Consequently, the disallowance was overturned, considering the professional qualifications and evidence of services rendered by Varun Bharati.

Issue 3: Disallowance of Exemption under Section 11
The appellant contested the disallowance of exemption under section 11 to the society by the Commissioner of Income-tax (Appeals). However, as the tribunal allowed the appeals regarding salary to Smt. Shanta Kumar and advertisement expenses to Shri Varun Bharati, the issue of exemption under section 11 became inconsequential and was dismissed without separate adjudication.

Issue 4: Charging of Interest under Section 234B
The appellant raised concerns about the charging of interest under section 234B of the Act. The tribunal clarified that charging interest under section 234B is mandatory and consequential, requiring no separate adjudication. It is a well-settled principle that interest under this section is mandatory, and the appeal was allowed accordingly.

In conclusion, the tribunal allowed the appeal of the assessee concerning the disallowance of salary to Smt. Shanta Kumar and advertisement expenses to Shri Varun Bharati, while dismissing the issues regarding exemption under section 11 and charging of interest under section 234B. The judgment highlighted the importance of evidence, qualifications, and reasonableness in determining the applicability of legal provisions related to income disallowances.

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