2013 (9) TMI 869 - HC - Income Tax

Exemption under Section 11 of the Income Tax Act, 1961 - fund alleged to used for personal benefit - section 13(3) - Assessee filed the return showing nil income after claiming exemption u/s 11 of the Income Tax Act, 1961. However, the assessment was completed under section 143 (3) of the Act on total income of Rs.65,56,933/- consisted of Rs.63,69,322/- as surplus and Rs.1,87,611/- disallowed as rent and electricity paid for the premises, partly occupied by the founder trustee of the trust and the Secretary of the trust Held that - Trust is a registered trust since 1994. Its activities are not doubtful regarding charitable activities - Office premises of the President was taken by the trust on reasonable rent. Perhaps other premises might be more costly - So, the rent is allowable deduction - President and the Secretary of the trust are providing voluntarily services to the trust. They are not charging any fee/remuneration for their services. By keeping the office in the same building where they are residing, the activities can be looked after without making any expenditure on conveyance. As per the tenancy agreement, there is no provision for separate electricity meter. It is not explained whether there was an arrangement of sub meter or not - Perks are higher than salary/remuneration. In the instant case, the President and Secretary are not charging any remuneration or conveyance allowance. They are available round the clock for the activities of the trust. Separate account has been maintained for paying the genuine rent and also the electricity charges Decided against the Revenue.

Summary

Issues Involved:
Appeal under Section 260 A of the Income Tax Act against Tribunal's judgment for assessment year 2002-2003 regarding exemption under Section 11 of the Act and violation of Section 13(3) in a case involving a registered trust.

Analysis:
The case involved an appeal by the department under Section 260 A of the Income Tax Act against a judgment passed by the Income Tax Appellate Tribunal for the assessment year 2002-2003. The substantial question of law revolved around whether the exemption granted to the assessee under Section 11 of the Income Tax Act was correct and not violative of provisions contrary to sub Section (3) of Section 13 of the Act, specifically related to funds alleged to be used for personal benefit. The assessee, a registered trust established in 1994, had a history of litigation concerning its income tax assessment. Initially, the assessee filed a return claiming exemption under Section 11, but the assessment was completed under section 143(3) of the Act, resulting in a total income of Rs.65,56,933. The department challenged the claim of exemption based on expenses incurred for rent and electricity, alleging personal benefit to the President and Secretary of the trust.

In the litigation process, the CIT(A) and Tribunal had differing views on the allowability of certain expenses claimed by the assessee. The department contended that expenses of Rs.1,87,611 incurred for rent and electricity were for the personal benefit of the trust's office bearers, thus denying exemption under Section 11 using provisions of Section 13(1)(c) read with Section 13(2)(g) of the Income Tax Act. On the other hand, the assessee argued that the expenses were legitimate and necessary for conducting charitable activities, emphasizing that the President and Secretary were not receiving any remuneration for their services.

After considering the arguments from both sides, the Court observed that the trust's activities were genuinely charitable, and the expenses claimed for rent and electricity were reasonable and necessary for its operations. The Court noted that the President and Secretary were providing voluntary services without any remuneration, and the expenses in question were minimal. The Court found no reason to interfere with the Tribunal's order, upholding the exemption under Section 11 in favor of the assessee. The appeal filed by the department was consequently dismissed, affirming the Tribunal's decision in favor of the assessee.