2021 (9) TMI 131 - AT - Income Tax

Exemption u/s.11 - salary paid to the trustees was by way of undue benefit given to them - Denial of exemption to the assessee trust on account of income found to have been applied for the benefit of the related persons, as per the provisions of section 13(1)(c) read with section 13(3) of the Act - HELD THAT - Where the current trustees had stepped in the shoes of their founder trustee fathers and took the trust from strength to strength since then, on the strength of their highly educated background and work experience, the finding of the Revenue that the fact of their having rendered services needed to be established with documentary evidences, we cannot agree with - it is on account of their role as President and Chairman of the trust and with their educational background and experience the trust has gone to strength to strength - no denial that the overall management of the trust rests with the trustees, Chairman and President of the trust, it is definitely not left to the employees who are employed to carry out day-to-day duties and the fact that the trust has advanced in the past years since the two trustees took over, clearly demonstrates the amount of work and involvement of two trustees in the trust. Finding of the Revenue that in the absence of any evidence demonstrating that the trustees had rendered services to the trust, the salary paid to them has tantamounted to undue benefit being given to them, we find is not in consonance with the facts of the case and is rejected. Basis adopted by the Revenue authorities for quantifying the undue benefit given to the aforesaid trustees, by comparing with the salary paid to employees of the trust i.e. the members and other working staff, is unreasonable. The quality of work rendered by the management of the trust on one hand, which includes the two trustees, and that by the employees of the trust, who are involved only in execution of the decisions taken by the management and other day-to-day activities, is totally different and there can be no comparison between the two. Therefore, the basis adopted for determining the undue benefit to the two trustees is also not found to be correct. - Decided in favour of assessee.

Summary

Issues:
Denial of exemption u/s. 11 of the Act to the assessee trust on account of income applied for the benefit of related persons.

Analysis:
The appeal pertains to the denial of exemption u/s. 11 of the Act to the assessee trust due to the salary paid to two trustees being considered excessive by the Assessing Officer (AO). The AO disallowed a portion of the salary paid to Ms. Mandeep Ahluwalia Pahwa and the entire salary paid to Ms. Sandeep Kaur Ahluwalia, totaling &8377; 15 lacs, invoking the provisions of section 13(1)(c) read with section 13(3) of the Act. The Commissioner of Income Tax (Appeals) upheld this disallowance citing lack of evidence on services rendered by the trustees.

The trustees, Ms. Mandeep Ahluwalia Pahwa and Ms. Sandeep Kaur Ahluwalia, are highly qualified individuals who inherited their positions in the trust from their respective fathers, the founder trustees. The trust has significantly progressed under their leadership, with a substantial increase in students and staff since they took over. The trustees' educational background and experience have contributed to the trust's growth and development.

The tribunal found that the Revenue's insistence on documentary evidence to prove the trustees' services rendered was unwarranted. The trustees' roles as President and Chairperson, coupled with their qualifications and the trust's progress, substantiate their contributions. The tribunal rejected the Revenue's contention that the salary paid to the trustees constituted undue benefit, emphasizing the trustees' integral role in the trust's management and growth.

Furthermore, the tribunal criticized the Revenue's comparison of the trustees' salaries with those of regular employees, highlighting the distinct nature of their responsibilities and contributions. The tribunal concluded that the basis for quantifying the alleged undue benefit to the trustees was flawed, as the trustees' managerial roles differed significantly from routine employee duties.

Ultimately, the tribunal set aside the disallowance of &8377; 15 lacs and allowed the appeal of the assessee trust. The tribunal held that the trustees' salaries were not deemed as undue benefits, considering their pivotal roles in the trust's advancement and management.

In conclusion, the tribunal's decision favored the assessee trust, emphasizing the trustees' qualifications, contributions, and the trust's substantial progress under their leadership. The tribunal's analysis highlighted the trustees' integral roles in the trust's management and growth, refuting the Revenue's claims of undue benefit and lack of evidence on services rendered.