2021 (7) TMI 1143 - AT - Income Tax

Exemption u/s 11 - excessive remuneration paid to Dr. N.K. Arora - specified person - HELD THAT - Given the profile of Dr. N.K. Arora who is associated with various search projects being carried out by the Indian Council of Medicine Research (ICMR), Member of National Advisory Group on immunization (NTAGI) - Ministry of Health Family Welfare, South-East Asia Regional immunization Technical advisory Group (SEAR ITAG) and he is also Member of the Covid 19 Group, is made to work under the assessee trust as per directions of the 16 Trustees of the Board of Trust. When undoubtedly Dr. N.K. Arora is not an author of the trust nor trustee nor has made substantial contribution to the trust he cannot be treated as a specified person. Hon ble Calcutta High Court in case of CIT vs. Rai Bahadur Biseswarlal Motilal Halwasiya Trust 2001 (6 ) TMI 31 - CALCUTTA HIGH COURT held that, when trusts and institutions are two different entities clause (cc) of sub-section (3) of section 13 refers to the Manager of the Institution and not Manager of the Trust. When charitable nature of the trust is not in dispute and Dr. N.K. Arora has been working as per directions issued by the Board of Trustees to carry out various research projects as an Executive Director and being paid remuneration by the trustee stated to be commensurate to his functional profile, there is no question of treating him as a specified person under the garb of self created principle of de facto trustee merely on the ground that he is supervising the substantial activities of the trust. We are of the considered view that ld. CIT (A) has rightly reached the conclusion that provisions contained u/s 13(1)(cc)(ii) of the Act are not applicable to the case of the assessee trust. - Decided in favour of assessee.

Summary

Issues:
1. Whether Dr. N.K. Arora qualifies as a specified person under section 13(3) of the Income Tax Act.
2. Whether the provisions of section 13(1)(cc) are applicable to the case of the assessee trust.

Analysis:

Issue 1:
The Appellant, the Income Tax Officer, challenged the order passed by the Commissioner of Income-tax (Appeals) regarding the status of Dr. N.K. Arora, the Executive Director of the trust, as a specified person under section 13(3) of the Income Tax Act. The Assessing Officer contended that Dr. Arora should be considered a Manager and a specified person under the Act, thereby denying the trust the benefits under section 11. However, the Tribunal examined the trust deed and found that Dr. Arora was appointed as the Executive Director with specific terms and conditions, not as a trustee. The Tribunal referred to relevant case laws and concluded that Dr. Arora did not fall under the definition of a specified person as per section 13(3) of the Act. The Tribunal dismissed the Revenue's appeal, upholding the decision of the Commissioner of Income-tax (Appeals).

Issue 2:
The crux of the issue revolved around the applicability of section 13(1)(cc) to the case of the assessee trust. The Revenue argued that Dr. N.K. Arora should be considered a de facto trustee and, therefore, a specified person under the Act. However, the Tribunal analyzed the trust's structure and Dr. Arora's role as the Executive Director, finding that he was not a trustee, author, or a person who made substantial contributions to the trust. The Tribunal cited previous judgments, including the Supreme Court and Calcutta High Court decisions, to support the conclusion that the provisions of section 13(1)(cc) were not applicable to the case of the assessee trust. Consequently, the Tribunal dismissed the Revenue's appeal, affirming the decision of the Commissioner of Income-tax (Appeals).

In conclusion, the Tribunal's detailed analysis of the issues highlighted the importance of interpreting the provisions of the Income Tax Act accurately and applying them appropriately to determine the status of individuals within charitable trusts. The judgment emphasized the need for a clear understanding of legal definitions and the specific roles of individuals within such organizations to prevent misinterpretation and ensure fair treatment under the law.