2024 (6) TMI 686 - AT - Income Tax

Exemption u/s 11 - Excessive payments on account of salary and rent to persons specified u/s 13(3) - CIT(A) deleted addition - Huge Salary Payments to Specified Persons Compared to Others - HELD THAT - As per the assessee, Mr. Allwyn Gomes is designated as member and is assigned the duty of clerk. The assessee further submitted Mr. Allwyn Gomes is having educational qualification of B.Com and having experience of 17 years in service. Accordingly, he was paid the salary of Rs. 8,93,468/- during the year under consideration. We find that the AO by considering other employees at the position of clerk and having similar educational qualification noted that they are being paid within the range of Rs. 3-5 lakh per year. Accordingly, the AO considered it fair and reasonable to allow monthly salary of Rs. 40,000/- which comes to Rs. 4,80,000/- for the year under consideration and disallowed the remaining amount of Rs. 4,13,468/- paid to Mr. Allwyn Gomes. We find that Mr Allwyn Gomes is having the experience of 17 years in service, as compared to the other staff member at the position of clerk and having similar educational qualification. Accordingly, we find no infirmity in the findings of the learned CIT(A) in deleting the addition made by the AO in respect of salary paid to the aforesaid member. Payment of rent to persons specified u/s 13(3) - It is evident from the record, in order to justify that the payment of rent paid, the assessee furnished Market Rental Report prepared by Government Approved Registered Valuer, who computed the market rent of Rs. 14,80,024/-. However, the AO merely on ad hoc basis considered Rs. 60,000/- as the monthly rent and disallowed the balance rental payments of Rs. 9,12,000/- paid by the assessee. Therefore, we agree with the finding of the learned CIT(A) that the AO made the impugned addition on account of rental payment to specified persons u/s 13(3) of the Act without any basis. Accordingly, we find no infirmity in the findings of the learned CIT(A) on this issue and therefore, the same are upheld. Since the payment made by the assessee on account of salary and rent is not found to be excessive of what may be reasonably paid to specified persons u/s 13(3) of the Act, we are of the considered view that the provisions u/s 13(3)(c), 13(2)(c) r.w.s. 13(2)(g) of the Act are not attracted in the present case, and the assessee has rightly claimed the exemption u/s 11 of the Act. Appeal of assessee allowed.

Summary

Issues Involved:
1. Excessive payments on account of salary and rent to persons specified u/s 13(3).
2. Justifiability of huge salary payments to specified persons compared to others.
3. Allowance of exemption u/s 11 despite alleged violations of section 13(3).

Summary:

Issue 1: Excessive Payments on Account of Salary and Rent to Persons Specified u/s 13(3)
The Revenue challenged the allowance of exemption u/s 11, arguing that the assessee trust made excessive payments on account of salary and rent to persons specified u/s 13(3), thereby attracting provisions of section 13(1)(c), 13(2)(c) r.w.s. 13(2)(g). The Assessing Officer (AO) disallowed Rs. 41,59,236/- on account of excessive salary and Rs. 9,12,000/- on account of excessive rent paid to specified persons, rejecting the exemption u/s 11.

Issue 2: Justifiability of Huge Salary Payments to Specified Persons Compared to Others
The AO compared the salaries of specified persons with other staff members and found them unjustifiable. For instance, Mr. Moses M Gomes, with 29 years of experience, was paid Rs. 14,93,022/-, which the AO reduced to Rs. 6 lakh, disallowing the excess. Similarly, Mrs. Jean M Gomes, with 29 years of experience and multiple qualifications, was paid Rs. 20,32,594/-, which the AO reduced to Rs. 9 lakh. The learned CIT(A) found the salaries reasonable considering the experience and roles of the specified persons and deleted the disallowances.

Issue 3: Allowance of Exemption u/s 11 Despite Alleged Violations of Section 13(3)
The AO denied the exemption u/s 11, citing unreasonable payments to specified persons. However, the learned CIT(A) found the payments justified based on the experience and roles of the individuals. The CIT(A) also deleted the disallowance of rent, noting that the AO's ad hoc basis of Rs. 60,000/- per month lacked a scientific methodology. The Market Rental Report supported the rent payments. The Tribunal upheld the CIT(A)'s findings, concluding that the provisions u/s 13(3)(c), 13(2)(c) r.w.s. 13(2)(g) were not attracted, and the exemption u/s 11 was rightly claimed.

Conclusion:
The appeal by the Revenue was dismissed, and the order pronounced in the open Court on 04/06/2024.