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2013 (12) TMI 1052 - AT - Income TaxExemption u/s. 11 Honorarium and LIC premium paid on life insurance policy of Secretary of Society - Held that - Following assessee s own case for preceding assessment year 2007-08 - The payment of honorarium to the office bearers of the society for bona fide services rendered by them - The amounts have been made for wholly and exclusively for the purpose and benefit of assessee-society. All the persons have rendered actual services to the assessee and even in the statement of Shri Narendra Singh, he has explained the details of the services rendered by him against the payment - The assessee exists wholly and exclusively for the education and all the amounts have been spent for educational purposes and for aims of the society - The assessee was entitled for exemption u/s. 11 of the IT Act Also the rule of consistency should be maintained and followed by the Income-tax Authorities while finalizing the assessment Following CIT vs. Escorts Ltd. 2011 (2) TMI 579 - DELHI HIGH COURT The decision regarding the nature of transaction continued for several years, have to be maintained on principle of consistency - No violation u/s. 13(1)(c) was accordingly found - In the assessment year under appeal, total honorarium / salary paid to Shri Narendra Singh Dhakre was found including LIC premium - Small benefit is given to specified persons, which was included in the honorarium of Shri Narendra Singh Dhakre, who is the key member of functioning of the society, nothing could be attributed to the assessee for violation of provisions of section 13 - The AO has failed to establish that any unreasonable or excessive payments have been made to any specified person Decided against Revenue. Disallowance u/s. 40(a)(ia) Legal expenses - Held that - Following S.B. Builders & Developers vs. ITO 2010 (5) TMI 686 - ITAT MUMBAI and assessee s own case for A.Y. 2007-08 - Disallowance made u/s 40(a)(ia) becomes only of academic importance only as the only criteria to examine is to see application/utilization of funds of the society towards its objects - Appellant s income is to be assessed as per provisions of section 11/13 of the IT Act in place of regular business income - Application of income & only fulfillment of requirements of section 11 needs to be seen which the appellant society is found to be satisfying - The assessee has utilized more than 85% of its income for achieving the objects of the Society. Even if addition was made for non-deduction of TDS, the same cannot be treated as additional income, for which benefit of section 11 have to be granted to the assessee Decided against Revenue.
Issues Involved:
1. Deletion of addition made on account of disallowance of exemption claimed under Section 11 of the Income Tax Act. 2. Deletion of addition made under Section 40(a)(ia) of the Income Tax Act for non-deduction of TDS on legal expenses. Detailed Analysis: Issue 1: Deletion of Addition Made on Account of Disallowance of Exemption Claimed Under Section 11 of the Income Tax Act Facts and Context: The assessee, engaged in educational activities, claimed exemption under Section 11 of the Income Tax Act. The Assessing Officer (AO) disallowed this exemption, citing a violation of Section 13(1)(c) due to the payment of LIC renewal premium of Rs. 70,872 for an endowment insurance policy of the society's secretary, Shri Narendra Singh Dhakre. The AO argued that this payment directly benefited a specified person under Section 13(3), thereby invalidating the exemption claim. Arguments by the Assessee: The assessee contended that the AO erred by not considering Section 13(2)(d), which governs Section 13(1)(c). The payment was justified as an incentive for the secretary's dedicated services, given his significant role in the society's operations and the risks involved in his duties. The total remuneration, including the LIC premium, was reasonable compared to other faculty members' salaries. CIT(A) Findings: The CIT(A) accepted the assessee's claim, noting that the AO failed to prove the payment was unreasonable or excessive. It was highlighted that the payment was for services rendered, and similar payments in previous years were accepted. The CIT(A) emphasized the broader scope of "for the purpose of achievement of charitable object," which includes such expenses. Tribunal's Analysis: The Tribunal upheld the CIT(A)'s decision, noting that the AO did not establish any unreasonable or excessive payment to the specified person. It was reiterated that the assessee's expenses were wholly for educational purposes, and no violation of Section 13(1)(c) was found. The Tribunal also referenced a previous year's case where similar payments were accepted, reinforcing the principle of consistency in tax assessments. Conclusion: The Tribunal dismissed the Revenue's appeal, confirming that the assessee was entitled to the exemption under Section 11, as the payment was reasonable and aligned with the society's objectives. Issue 2: Deletion of Addition Made Under Section 40(a)(ia) of the Income Tax Act for Non-Deduction of TDS on Legal Expenses Facts and Context: The AO made an addition of Rs. 7,00,000 for non-deduction of TDS on legal expenses, arguing that this should be disallowed under Section 40(a)(ia). Arguments by the Assessee: The assessee argued that the income of a charitable institution is not computed under the head "Business or Profession," and Section 40(a)(ia) does not apply. The legal expenses were an application of income towards the society's objectives, qualifying for exemption under Section 11. The assessee also pointed out that the excess application of income in previous years could be carried forward to the current year. CIT(A) Findings: The CIT(A) found the assessee's arguments acceptable, stating that the disallowance under Section 40(a)(ia) was of academic importance since the primary criterion was the application of funds towards the society's objectives. The CIT(A) referenced a Mumbai ITAT decision, which held that additions for non-compliance with TDS provisions should still be considered for deductions under Section 80-IB(10) and applied the same logic to Section 11. Tribunal's Analysis: The Tribunal agreed with the CIT(A), noting that the assessee had utilized more than 85% of its income for its objectives. Even if the addition was made for non-deduction of TDS, it should be treated as an application of income for the society's purposes, qualifying for exemption under Section 11. The Tribunal also referenced the previous year's decision, which dismissed a similar appeal by the Revenue. Conclusion: The Tribunal dismissed the Revenue's appeal, confirming that the addition under Section 40(a)(ia) was not sustainable and the assessee was entitled to the exemption under Section 11. Final Judgment: The Tribunal dismissed the departmental appeal, upholding the CIT(A)'s order to allow the exemption under Section 11 and delete the addition under Section 40(a)(ia). The assessee's application of income towards its objectives was deemed reasonable and in compliance with the relevant provisions of the Income Tax Act.
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