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TMI Blog2012 (5) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... lose status of a charitable institution and exemption under sec. 11 – Held that:- Restriction is applicable to those amounts which have been applied directly or indirectly for the benefit of any person referred to in sub-section (3) of the Act and will not lead to any conclusion that assessee would loose its charity status - if a small amount is to be disallowed that would not disqualify to enjoy the status of charity- against revenue. Whether assessee has extended any undue benefit directly or indirectly to the persons referred to in sub-section (3) – Held that:- As far as the salary paid to two persons is concerned in assessment years 2005-06 and 2006-07, AO made the disallowance and the ITAT has upheld the deletion of disallowance – looking to 6th Pay Commission which resulted into a handsome enhancement by 30% to 40%. in the salary of government teaching staff the increase in the salary of Shri Joseph John allowed to him by the ITAT in 2004-05, is being looked into with this angle also then sum of ₹ 55,000 would not be on a higher side – against revenue. - IT Appeal No. 4514 (DelHI) of 2011 - - - Dated:- 30-4-2012 - RAJPAL YADAV, K.D. RANJAN, JJ. ORDER Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of curricular activities, namely, dance, music and art etc. It has filed its return of income-tax on 30th September 2008 declaring nil income. Learned Assessing Officer noticed that the assessee has shown excess of income over expenditure amounting to ₹ 1,77,83,000. The case of the assessee was selected for scrutiny assessment and a notice under sec. 143(2) of the Income-tax Act, 1961 was issued on 3rd of September 2009 which was duly served upon the assessee. Shri AS Nagpal, Advocate appeared before the Assessing Officer from time to time and submitted the necessary details. On an analysis of the Memorandum of Association and the accounts of the assessee, learned Assessing Officer found that assessee has been running five educational institutions out of that four are in Faridabad (Hr.) and one at Thumpamom (Kerala). The managing committee of the society was consisting of seven members, namely, (pages 2 Assessing Officer's order 1. Sh. V.I. Idicula 2. Sh. T.I. John 3. Sh. V.I. Idicula 4. Sh. T.I. Oommen 5. Smt. Aleyamma John 6. Sh. V.T. Idicula 7. Sh. K. Geevarghese 4. Learned Assessing Officer found that the society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd records. There is no other source of income at all of this employee, except interest on SB/ FDR A/c. (B) Mrs. A. John (Manager of St. John's School, Sec-23, FBD):- (a) Recruitment of teachers. (b) Admission policies and fees structure for the school. (c) Academic and study profile of the school. (d) Co-ordination with CB.S.E Board and other government bodies. (e) Recognition of school with CB.S.E Board and other government bodies. (f) Training and guidance to teaching staff for improvement of over all education of children. (g) Over all administration of the running of school. (h) Co-ordination with State Government Educational and other authorities. Experience:- (a) 37 years experience of teaching line. (b) Started carrier with St. John School in the year 1971. (c) Worked on various positions in the school and have, over all experiences of administration of the school Remuneration of ₹ 68,000/- (Sixty eight thousand) per month during the year under consideration is quite justifiable and reasonable for the services rendered to the school as full time employee. Similarly her cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hn Mrs. A. John Mr. Joseph John 2002-03 6,84,000/- 5,88,000/- 4,94,500/- 2003-04 6,84,000/- 5,88,000/- 5,16,000/- 2004-05 7,56,000/- 6,60,000/- 6,00,000/- 2005-06 8,16,000/- 7,20,000/- 6,60,000/- 2006-07 8,16,000/- 7,20,000/- 6,60,000/- 2007-08 8,16,000/- 7,20,000/- 660000/- 6. Learned Assessing Officer after making a reference towards his observations in earlier years has disallowed the payment of salary to the extent of 2/3rd. According to the Assessing Officer, a total expenditure of ₹ 21,96,000 has been incurred by the assessee on the remuneration of the four persons. He disallowed a sum of ₹ 14,64,000 under section 40A(2b) of the Income-tax Act, 1961. 7. Dissatisfied with the action of the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imself has allowed this salary. He further pointed out that the Assessing Officer has not brought any evidence on evidence on record in this assessment year that the services rendered by these persons could be availed at a lower rate from the open market, rather the Assessing Officer has simply followed the assessment order in assessment year 2003-04 and 2004-05 etc. The dispute in this year pertains to the salary of three persons. Assessing Officer on page 21 has observed that an expenditure amounting to ₹ 21,96,000 was incurred on the remuneration of four persons deserve to be disallowed at 2/3rd under section 40A(2)(b) of the Income-tax Act, 1961. He further submitted that in the history of 39 years of assessment of the assessee, the income tax department could not point out any defects in the functioning of the assessee society. All of a sudden, from last three-four years, every effort is being made to deny the benefit of sections 11 and 12 of the Act. 9. We have duly considered the rival contentions and gone through the record carefully. Section 40A(2)(a) provides that where an assessee incurs any expenditure in respect of which payment has been made or is to be mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the person in receipt thereof- ( a ) to ( bb ) ** ** ** (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income ensure, or (ii) If any part of such income or any property of the trust or institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3) ** ** ** Section 13(3): The persons referred to in clause (c) of sub-section (1) and sub-section (2) are the following, namely:- (a) the author of the trust or the founder of the institution; (b) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds fifty thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer disallowed the salary to the extent of 2/3rd. We find that Learned CIT (Appeals) has considered the order of the ITAT in assessment years 2003-04 to 2006-07 wherein salary in the case of Mr. Joseph John has been partly disallowed. It was brought to our notice that in assessment year 2007-08, Assessing Officer has allowed the total salary paid to Mr. Joseph John and the salary was @ ₹ 55,000 per month. We further find that in this year, Assessing Officer has independently not brought any evidence which can show how much salary a person having qualification equivalent to Mr. Joseph John could fetch in the open market. What are the rates of salary paid by other institution to a person who is teaching as well as managing the school. We have noticed the duties performed by Shri Joseph John. Assessing Officer is harboring upon the evidence collected by the Assessing Officer in assessment year 2003-04. He has made reference to the salary of the staff in those years. With effect from 01.01.2006, Government of India has notified the 6th Pay Commission which resulted into a handsome enhancement in the salary of the employees including the government teaching staff and the sala ..... X X X X Extracts X X X X X X X X Extracts X X X X
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