2017 (6) TMI 1247 - AT - Income Tax

Exemption u/s 11 - question of payment of excessive salary to the persons specified u/s 13(3) - Held that - The Ld. CIT(A), after considering the submissions has given a finding that salary paid to these persons are comparable to earlier years with yearly increase of 10% assessment of the trust for the assessment year 2006-07 and 2011-12 were framed u/s 143(3) wherein the salary to these persons were accepted. The Assessing Officer has not given any justification except saying that the salary cannot be higher than salary of the Principal. - Benefit cannot be denied - Decided in favor of assessee.

Summary

Issues:
- Excessive salary allowance under Section 13(3) of the Income Tax Act
- Benefit of exemption under Sections 11 and 12 of the IT Act, 1961

Analysis:

Issue 1: Excessive Salary Allowance under Section 13(3) of the Income Tax Act
The Revenue appealed against the order of the Ld. CIT (A) allowing excessive salary to persons specified under Section 13(3) of the Income Tax Act. The Revenue contended that the salary paid was excessive, violating the provisions of Sections 11 and 12 of the Act. The Departmental Representative argued in support of the AO's findings, stating that the salary was indeed excessive. However, the Counsel for the assessee trust argued that the salary was justified based on the duties and functions of the individuals. The Ld. CIT (A) had allowed the benefit of exemption under Sections 11 and 12, considering the trust's explanations and previous assessments. The tribunal found that the AO failed to provide sufficient justification for disallowing the claim, as the salary was comparable to previous years and no evidence of excessiveness was presented. The tribunal dismissed the Revenue's appeal on this ground.

Issue 2: Benefit of Exemption under Sections 11 and 12 of the IT Act, 1961
The Revenue also challenged the benefit of exemption under Sections 11 and 12 of the IT Act, claiming that the assessee was not eligible due to the disallowance under Section 13(3). Similar to the first issue, the tribunal found that the salary paid to the specified persons was comparable to previous years, with no evidence of excessiveness. The tribunal upheld the Ld. CIT (A)'s decision to allow the benefit of exemption, as the AO failed to provide any material supporting the claim of excessive salary. Consequently, the tribunal dismissed the Revenue's appeal on this ground as well.

In conclusion, the tribunal dismissed both appeals by the Revenue, emphasizing that the salary payments were justified and comparable to previous years, and the AO failed to substantiate the claim of excessive salary. The tribunal upheld the benefit of exemption under Sections 11 and 12 of the IT Act, 1961, based on the trust's explanations and previous assessments.