2022 (3) TMI 1185 - AT - Income Tax

Exemption u/s 11 - expenditure on advertisement was legitimate expenditure incurred for the purpose the objects of the society - whether the ld. CIT(A) was correct in holding that the expenditure on advertisement was a legitimate expenditure incurred for the purpose of object of the society? - Whether funds of the society were not applied or used or diverted for the benefit of the persons referred to section 13(3) of the Act in violation of condition laid down u/s 13(1)(c) and 13(2)(c)? - HELD THAT - As decided in Shri Balaji Society 2017 (6) TMI 1363 - ITAT PUNE Clause (c) of sub-section 2 of Section 13 of the Act can be invoked, if any amount is paid by way of salary, allowance or otherwise to any person referred to in sub-section 3 out of resources of the Trust for services rendered to the Trust and the amount so paid is in excess of what may be reasonably paid for such services. Thus, essential requirement for invoking the said provision is that the amount paid was in excess of what may be reasonably paid for the services. In the present case, the CIT(A) and the Tribunal have elaborately examined the accounts of the assessee, the payments made to the SBC, the payments made to other agencies for similar work, comparative rates of payments and came to the conclusion that no excess payment was made to the related person. Essentially, this is a pure question of fact. Two authorities concurrently held in favour of the assessee.

Summary

Issues Involved:
1. Legitimacy of expenditure on advertisement for the purpose of society's objects.
2. Application of society's funds for the benefit of certain persons in violation of specified conditions.

Analysis:
1. The appeal by the Revenue questioned the legitimacy of the expenditure on advertisement as per the ld. CIT(A)'s order. The Revenue contended that the society's funds were diverted for the benefit of specific individuals, violating statutory conditions. The ld. A.O scrutinized the expenditure details and found discrepancies in the discount rates granted by M/s. SBC, a firm with trustee partners, leading to the denial of exemption u/s 11 of the Act. However, the ld. CIT(A) ruled in favor of the assessee, citing similar cases from previous years where exemption was granted. The Tribunal upheld the ld. CIT(A)'s decision, emphasizing the lack of distinguishable facts and dismissing the Revenue's appeal.

2. The issue of diverting society's funds for specific individuals was a focal point in the case. The Tribunal's analysis of the matter highlighted the consistent decisions in the assessee's favor in previous years, emphasizing the absence of new evidence to warrant a different outcome. The Tribunal's reliance on precedents and the absence of material demonstrating factual distinctions between the years under review reinforced the dismissal of the Revenue's appeal. The Tribunal's decision aligned with the principles outlined in the Act, ensuring that the society's funds were not misapplied for the benefit of prohibited individuals, as per the specified conditions.

3. The Hon'ble High Court's ruling further supported the Tribunal's decision, emphasizing the necessity for excess payments to invoke the provisions of the Act. The Court's detailed examination of the payments made to related parties and the comparative rates established the absence of overpayments, affirming the Tribunal and CIT(A)'s findings. The Court's dismissal of the appeals reinforced the consistent application of legal principles in assessing the legitimacy of expenditure and the proper utilization of society's funds. The Tribunal's adherence to legal precedents and the High Court's endorsement validated the relief granted to the assessee, ensuring compliance with statutory provisions.

In conclusion, the judgment upheld the legitimacy of the expenditure on advertisement and confirmed that the society's funds were not misused for the benefit of specific individuals, aligning with statutory requirements and legal precedents. The consistent application of legal principles and the absence of new evidence warranting a different outcome led to the dismissal of the Revenue's appeal, ensuring fair treatment and compliance with the provisions of the Income-tax Act.