9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (4) TMI 535 - HC - Income TaxAllowability of benefit of exemption u/s 11 of the Act - Whether the remuneration paid to specified persons was excessive and is in violation of section 13(1)(c)(ii) read with section 13(2)(c) of the Act Held that - The fact that the 1/3rd of the total expenditure made on payment of salaries to the stated persons had been allowed by the AO, is clearly indicative that engagement of the stated persons by the petitioner for rendering services to it, is neither disputed nor disbelieved by the revenue - the AO has not explained any formula or the parameters vide which he allowed 1/3rd of the total expenditure, whereas rest of the payment was disallowed - No basis much less objective, transparent and verifiable have been spelled out - Merely because Form No.10-B (giving complete details of the expenditure incurred on payment of managerial remuneration to persons specified under Section 40A(2)(b) and in terms of Section 13(3) of the Act) instead of being filed along with the return was furnished afterwards, was not a circumstance to reject the claim of the assessee. Mr. Joseph John has 10 years of teaching and administrative experience and his remuneration comes only to Rs.41,200/- per month which is not only justifiable but also reasonable in the terms of quantum of services rendered by him to the school as full time teacher as also as Secretary of the assessee-trust - He is also an individual income tax assessee and has shown salary receipt of Rs.4,94,500/- and return of income submitted by him for the year in question, has been accepted by the Income Tax Department also, Ms. Sonia Joseph, is a post graduate teacher and is working as full time teacher-cum-administrator - Her salary comes to only Rs.27,480/- per month - She is an existing income tax assessee and return of income submitted by her for the year has been accepted and assessed by the Income Tax Department, Faridabad. The Tribunal had faulted in taking Mr. Joseph John and his wife Mrs. Sonia Joseph merely as teachers when it has fixed their salaries Rs.30,000/- and Rs.20,000/- respectively comparable with other teachers of the school the order of the Tribunal fixing salary of Mr. Joseph John to Rs.30,000/- per month and of his wife Mrs. Sonia Joseph to Rs.20,000/- per month being neither correct on facts nor in law would not hold good the finding of the Tribunal to the effect that excessive remuneration was paid to the two specified persons, being bad on facts and in law ans is set aside the matter is remitted back to the CIT(A) for allowing benefit of exemption to the assessee u/s 11 of the Act, being legally sustainable Decided against Revenue. Computation of salary under PGBP Salary from charitable education institution Held that - Computation of salaries of members of the trust could not have been done under the head business or profession the order of the AO as also partially of ITAT are wrong and untenable in law thus, the Order of CIT(A) is restored in toto Decided in favour of Assessee. Benefit of section 11, 12 and 13 of the Act - Computation of percentage of profits @ 85% - Expenses on account of salary Held that - The Tribunal and the CIT(A) rightly held that there was no diversion of profits of the assessee for the benefit of an individual and rather, profits had been utilised for the purpose of education - the surplus over and above 85% of profits, could be retained by the assessee and the assessee could apply its receipt to the extent of 85% for the fulfilment of its objects in the field of education - the excess over expenditure is within the limit of 15% - the assessee could not be denied the benefit of Section 11 of the Act - No violation of provisions of Section 13(2)(c) of the Act were found - the additions was deleted on holding that benefits of Sections 11, 12 and 13 of the Act could not be denied and rather would be available to the assessee - The revenue has not been able to show that 85% receipt of the assessee was not being utilised for fulfilment of its objects - expenses on account of salary have not been shown to be excessive - Since there is no violation of stipulations made in memorandum of association of the trust, for the reasons mentioned earlier, there is no merit in the pleas of the revenue Decided against Revenue.
Issues Involved:
1. Eligibility for exemption under Sections 11 and 12 of the Income Tax Act, 1961. 2. Reasonableness of salaries paid to trustees and their relatives. 3. Applicability of Section 40A(2)(b) of the Act. 4. Initiation of penalty proceedings under Section 271(1)(c). 5. Determination of whether the trust is a charitable organization or an ordinary association of persons. 6. Compliance with Section 13(2)(c) and 13(3) of the Act. 7. Application of income for charitable purposes and compliance with Section 11. Detailed Analysis: 1. Eligibility for Exemption under Sections 11 and 12: The assessee-trust, registered under Section 12A since 1971, was engaged in charitable work of imparting education through five schools. The trust claimed exemption under Sections 11 and 12 of the Act. The Assessing Officer (AO) challenged this, treating the trust as a normal business entity due to alleged unreasonable payments to specified persons. The High Court upheld the trust's eligibility for exemption, emphasizing that the trust's status as a charitable organization had been consistently accepted by the revenue authorities. 2. Reasonableness of Salaries Paid: The AO disallowed 2/3rd of the salaries paid to the trustees and their relatives, deeming them unreasonable. The CIT(A) found the disallowance arbitrary and without proper basis, restoring the full salaries. The Tribunal partially agreed with the CIT(A), but reduced the salaries of two trustees (Mr. Joseph John and Mrs. Sonia Joseph) to align with those of senior teachers, which the High Court found flawed. The High Court restored the CIT(A)'s order, noting that the salaries were justified given the dual roles of the trustees as teachers and administrators. 3. Applicability of Section 40A(2)(b): The AO applied Section 40A(2)(b) to disallow part of the salaries, treating the trust as a business entity. The High Court found this approach incorrect, emphasizing that the trust was not a business or profession under the Act. The Tribunal's focus on Section 40A was also deemed misplaced, as the trust's status as a charitable institution was not in question. 4. Initiation of Penalty Proceedings: The AO initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income. The CIT(A) and the High Court found no basis for this, given the consistent acceptance of the trust's returns and the lack of excessive payments. 5. Determination of Charitable Status: The AO questioned the trust's status as a charitable organization, but the CIT(A) and the High Court reaffirmed it, noting the trust's long-standing registration under Section 12A and its consistent engagement in educational activities. 6. Compliance with Section 13(2)(c) and 13(3): The AO alleged violations of Section 13(2)(c) due to excessive payments to specified persons. The CIT(A) and the High Court found the payments reasonable and within the scope of services rendered. The High Court emphasized that the AO failed to apply the correct test of "fair market value" for the services. 7. Application of Income for Charitable Purposes: The AO denied the trust's charitable status for certain assessment years, citing high profits and expenditures on fixed assets and cars. The CIT(A) and the Tribunal found no diversion of profits for individual benefits and confirmed that the surplus was within the permissible limit of 15%. The High Court upheld this, noting that the trust's income was applied for educational purposes. Conclusion: The High Court dismissed the revenue's appeals and allowed the assessee's appeals, restoring the CIT(A)'s order in full. The trust was reaffirmed as a charitable organization entitled to exemptions under Sections 11 and 12, with the salaries paid to its trustees and their relatives deemed reasonable and justified. The AO's approach under Section 40A and the initiation of penalty proceedings were found to be legally and factually flawed.
|
