2024 (9) TMI 517 - AT - Income Tax

Benefit of exemption u/s 11 and 12 - AO disallowed the salary/honorarium paid to Trustees u/s 13(1)(c) r.w.s. 13(3) and 164(2) thereof invoking the provisions of Section 40A(2)(b) holding such payment to be unreasonable - assessee claimed before the AO that the specified persons had not benefited from the contract, but they were qualified persons and the salary being paid to them was in accordance with the services provided by them - HELD THAT - Assessee society was availing the services of the members of the society and if they had not provided those services to the assessee society, it would have engaged persons from outside, to whom, salary was required to be paid. AO himself admitted that the specified persons were having the higher qualification and no comparable case was brought on record to substantiate that the salary / remuneration paid to them was excessive. The remuneration/ salary paid to the same persons in the earlier years had been accepted while framing the assessment orders u/s 143(3) of the Act. As seen that for the years under consideration, as rightly submitted on behalf of the assessee and not disputed on behalf of the Department, the facts have not undergone any change whatsoever. The specified persons also remain the same. Department has not been able to show as to how, as contended in Ground No.1, the observations of the AO in the years under consideration, are effectively any different from those made by the AO for assessment years 2010-11, 2014-15 and 2015-16, the years decided by the Tribunal in favour of the assessee. No merit in the appeals filed by the Department, which appeals are liable to be dismissed.

Issues Involved:

1. Applicability of ITAT Chandigarh Bench "A" order to the current assessment years.
2. Legality of salary/honorarium payments to specified persons under Section 13(1)(c)(ii) r.w.s 13(2)(c) r.w.s 13(3) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Applicability of ITAT Chandigarh Bench "A" order to the current assessment years:

The Department contended that the order of ITAT Chandigarh Bench "A" for assessment years 2010-11, 2014-15, and 2015-16 was not applicable to the current assessment years (2011-12, 2012-13, 2013-14, and 2017-18) as the facts and observations made by the Assessing Officer (AO) were different. However, the CIT(A) allowed the assessee's appeal by relying on the Tribunal's decision in the assessee's case for the previous assessment years. The Tribunal had held that the payments made to specified persons were not in dispute and no comparable case was cited by the AO to substantiate that the payments were excessive.

The Tribunal further noted that the specified persons had higher qualifications and that similar payments had been accepted by the Department in earlier years under section 143(3) of the Act. The principle of consistency was emphasized, stating that no disallowance should be made if the facts were identical to those in the preceding years where similar payments had been accepted.

2. Legality of salary/honorarium payments to specified persons under Section 13(1)(c)(ii) r.w.s 13(2)(c) r.w.s 13(3) of the Income Tax Act:

The AO disallowed the salary/honorarium paid to Trustees under Section 13(1)(c) of the Income Tax Act, read with Sections 13(3) and 164(2), invoking the provisions of Section 40A(2)(b), holding such payments to be unreasonable. The AO argued that the Memorandum of Association of the assessee Society allowed only the reimbursement of travel and other bona fide expenses, not regular salary/honorarium. The AO observed that the assessee did not have any proof of expenses incurred by the members for the Society and that the specified persons were engaged in other businesses, indicating a lack of time and commitment to the Society.

The AO also noted that the salaries paid to the specified persons were more than the pay of the Principal of the school, which was unjustified given the qualifications and contributions of the specified persons. The assessee's argument that the salary was only 4% of the receipts was dismissed as the payment was deemed unreasonable and not commensurate with the time and effort devoted to the Society. The AO concluded that the payments were an undue benefit to persons specified under Section 13(3) of the Act.

The CIT(A), however, allowed the assessee's appeal, relying on the Tribunal's earlier decision, which found no evidence to substantiate that the payments were excessive. The Tribunal noted that the specified persons had higher qualifications and that similar payments had been accepted in earlier years. The principle of consistency was applied, and no disallowance was deemed justified for the years under consideration.

Conclusion:

The Tribunal dismissed the Department's appeals, finding no merit in the arguments presented. The CIT(A)'s reliance on the Tribunal's earlier decision was upheld, and the principle of consistency was applied. The Department's inability to show any significant difference in the facts and observations for the current assessment years compared to the earlier years decided in favor of the assessee led to the dismissal of the appeals. The appeals filed by the Department were ordered to be dismissed, and the order was pronounced on 07th August 2024.

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