2020 (2) TMI 1641 - AT - Income Tax

Exemption u/s 11 - assessee had given benefit to its employees by giving them priority in allotments as well as concessions in the prices of plots and, therefore, was hit by the provisions of section 13(3) - HELD THAT - None of the core persons of the assessee Parishad got any preferential or concessional allotment of plots and the two persons who did get discount, are not either Trustees or Managers of the Parishad. It is the Department s own case that the allotments purportedly in violation of section 13(3) of the Act have been made to the employees of the assessee Parishad. There is no rebuttal, however, to the assertion on behalf of the assessee that these employees are not acting in any Managerial capacity, so far as regards the discharge of their duties under the Parishad; and that the specific requirement of the section is concerning Managers and not employees. Therefore, the assessee has a prima facie case in its favour and as such the balance of convenience is also in its favour. However, keeping in view the interest of justice to both the parties, we direct the assessee to deposit an amount of Rs.20 crores in two installments of Rs.10 crores each and the first installment is to be paid latest by 29th February, 2020 and the second installment is to be paid latest by 15th March, 2020. The appeal of the assessee is accordingly adjourned for hearing to 23rd March 2020. With these directions, we stay the outstanding demand for a period of six months from the date of this order or till disposal of the appeal, whichever is earlier, provided the assessee deposits the above noted amounts within the prescribed period. Stay application of the assessee is allowed

Summary

Issues:
Stay of recovery of demand based on rejection of exemption under section 11 of the Income Tax Act due to alleged violation of section 13(3) of the Act by giving benefits to employees.

Analysis:
The Stay Petition was filed by the assessee to halt the recovery of a demand amounting to Rs.3,01,83,05,459 until the appeal's disposal. The demand arose from the Assessing Officer's addition, rejecting the exemption under section 11 of the Act. The rejection was based on the assertion that the assessee provided benefits to its employees through priority in plot allotments and price concessions, thereby contravening section 13(3) of the Act. The Department contended that since the assessee allotted plots to employees on a concessional basis, a violation of section 13(3) occurred, opposing the stay application.

The assessee argued that the employees were not managers but performed routine tasks, were not involved in management, and did not make strategic decisions. The benefit to employees was claimed to be a declared policy under the Parishad Rules, specifically referring to para 36 of the rules. The assessee maintained that as an institution, not a trust, section 13(3) would apply only if benefits were given to managers. The assessee cited case law to support the argument that employees were not managers.

The assessee requested the stay, highlighting that over 30% of the disputed tax had been deposited, and a prima facie case was established, favoring the balance of convenience. The Department objected, citing case law to assert that employees fell under the purview of section 13(3) violation. The Tribunal found that core persons of the assessee did not receive preferential allotments, and employees who received discounts were not trustees or managers. It was noted that the employees did not act in managerial capacity, meeting the specific requirement of the section concerning managers. Consequently, the Tribunal directed the assessee to deposit Rs.20 crores in two installments, adjourning the appeal for further hearing.

In conclusion, the Tribunal allowed the stay application, requiring the assessee to make the specified deposits within set deadlines.