2019 (5) TMI 692 - AT - Income Tax

Exemption u/s 11 - salary paid to two specified persons u/s 13(3) - approval of the governing body of the society including the appointment and remuneration of both these persons - AO found that salary paid to these persons are excessive in comparison to the normal practice followed for other employees - HELD THAT - The assessee, however, submitted before Ld. CIT(A) that both these persons were appointed through the resolution passed under the General Body Meeting dated 04.06.2008. It was also submitted that both these persons have devoted full time to the educational institution to the best of their knowledge, ability and experience. It, therefore, appears that A.O. followed the orders for earlier years, in which the assessee did not produce documents regarding approval of the Governing Body. Further assessee explained that Governing Body passed resolution in earlier year on 04.06.2008. A.O. did not bring any evidence on record as to how the salary paid to these persons with reference to their qualification was excessive or unreasonable. A.O. did not make any comparison, but, appears to have followed order for earlier years. In earlier year, the matter have been decided in favour of the assessee as is noted by the CIT(A) in his Order because the same salary have been considered in earlier years. CIT(A) also referred to decisions of the Coordinate Bench of Delhi Tribunal in the case of ACIT vs. Idicula Trust Society 2015 (3) TMI 191 - ITAT DELHI in which the Tribunal has referred to the enhancement in pay/salary by Sixth Pay Commission in January, 2006. In the case of the assessee, assessee explained that salary paid to these persons was even less than the salary prescribed by the Sixty Pay Commission. Since the A.O. compared the facts of this year for earlier years, in which, relief has already been granted to the assessee as per findings of the CIT(A), therefore, CIT(A) correctly following the earlier precedence, deleted the addition - Decided in favour of assessee.

Summary

Issues:
1. Whether the salary paid to specified persons by the assessee society was excessive and in violation of provisions of section 13(1)(c) of the Income Tax Act.
2. Whether the assessee failed to produce documents regarding approval of the governing body of the society regarding the appointment and remuneration of the specified persons.
3. Whether the denial of exemption under section 11 of the Income Tax Act by the Assessing Officer was justified.

Analysis:
1. The case involved a dispute regarding the salary paid to two specified persons, Shri Devashish Gaur and Ms. Sharda Sharma, who were the son and wife of the Chairman of the assessee society. The Assessing Officer (A.O.) contended that the salaries paid to these individuals were excessive compared to normal practices for other employees, thus violating section 13(1)(c) of the Act. The A.O. also highlighted the lack of documentation regarding approval of the governing body for their appointment and remuneration, leading to denial of exemption under section 11 and computation of income as Association of Persons (AOP) totaling ?1.37 crores.

2. The assessee challenged the A.O.'s findings before the Commissioner of Income Tax (Appeals) [CIT(A)], asserting that the specified persons were appointed through a resolution passed in a General Body Meeting and were contributing significantly to the institution based on their qualifications and experience. The assessee argued that the salaries were reasonable and even below the levels recommended by the Sixth Pay Commission. The CIT(A) accepted the assessee's contentions and allowed the appeal, citing previous tribunal decisions and the Sixth Pay Commission's salary enhancements.

3. Upon further appeal by the Revenue, the Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision. The ITAT noted that the A.O. had failed to provide evidence supporting the excessive nature of the salaries paid to the specified persons, and had not conducted a proper comparison. The ITAT emphasized that the matter had been previously decided in favor of the assessee, referencing the earlier years' orders and the Sixth Pay Commission's guidelines. Consequently, the ITAT dismissed the Revenue's appeal, affirming the deletion of the addition and the correctness of the CIT(A)'s decision based on precedent and lack of new evidence.

In conclusion, the ITAT upheld the CIT(A)'s decision, dismissing the Revenue's appeal and emphasizing the importance of proper documentation, reasonableness of salaries, and adherence to precedents in tax assessments involving specified persons within a society.