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TMI Blog2012 (10) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... orarium even though the assessee violates the provisions of section 11(5) of the Income Tax Act. 4. Whether on the facts and in the law of the case the CIT(Appeals) has erred in deleting the addition of Rs.10,00,000/- on account of donations treated as non business expenses holding that the assessee is entitled to exemption u/s. 11 of the Income Tax Act even though the assessee violates the provision of section 13(1)(c)/2(c) of the Income Tax Act." 2. We have heard the ld. Representatives of both the parties, perused the findings of the authorities below and considered the material available on record. 3. The brief facts of the case are that the assessee has filed return of income in form No. ITR-7 on 31.10.2007, declaring Nil income by claiming exemption u/s. 11 of the IT Act. The assessee-society is registered u/s. 12AA of the IT Act. The assessee has enclosed Form No. 10B as per Rule 17-B alongwith annexure regarding application of its income. During the year, the assessee has shown receipt of Rs.10,32,51,702/- out of which Rs.9,15,40,595/- have been utilized which comes to 88.6% of the total gross receipts. The surplus of Rs.2,04,62,919/- has been declared which has been tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted as under:- "Submission on Ground no.2" It is submitted that the assessing officer without any supporting material in a subjective manner and on his imagination held that the annual honorarium paid @ 2,40,000/- or 2,60,000/- or 2,54,900/- to certain office bearer were excessive looking to the age, qualification, experience, expertise & services, although he had not raised any query regarding the age, qualification, experience and expertise - The A.O. had only asked to file the details and reasonability about the services rendered and honorarium paid, which were duly reported to him vide letter dated 16.11.2009 as under:- There was no direct or indirect benefit derived by any person of precluded class, the payment made to all the persons is fully commensurate to the services rendered by them, the details of services rendered and the honorarium paid are detailed as under: Name of the person (office bearer) Duties fulfilled Honorarium paid during the year. Shri Lokendre Singh Dhakre He was holding treasurer post in the society and in the institutions run by them, he involved on day to day working of the institutions run by the society and looking after the accounts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ksey She involved on day to day working of the institutions run by the society and looking after the office administration work and govt. liaison work at Bhopal Rs. 254900/- Total Honorarium paid to office bearers Rs. 2494900/- The same amount of honorarium was also paid to the above person in the earlier assessment years & the Department has accepted the same. It is further submitted that the above persons are deeply involved in carrying out the functions for the development and efficient management of the institutions run by the society, they are all the time in the campus or contacting various agencies for adding new courses, getting new affiliations for academics and fulfilling the prescribed standards for continuation of the courses, which are affiliated to various educational, apex and nodal bodies/statutory bodies of the state and central government. If these duties are given to some experts them they would charge much more remuneration than what we have paid. The few examples of experts services are detailed as under:- Name of the person Duties fulfilled Salary paid during the year Dr. S. Sunder Raj Dean of Dental College 5,88,600.00 Dr. Basa Shrinivasa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... functions etc. as held in the following cases. 1. RMP Perianna Pillai & Co. V/s. CIT 42 ITR 370(Mad) In the past the Assessing officer have allowed honorarium vide orders passed u/s. 143(3) as under: Assessment year Order dated 2000-2001 28.03.2003 2001-2002 10.03.2004 2003-2004 14.03.2006 The copies of relevant assessment orders are annexed as Annexure-4 to this submission. And therefore u/s 143(1), the entire honorarium has been allowed and the AO did not consider it expedient or necessary to verify the same. The AO has also not specified as in respect of which office bearer the honorarium is considered as excessive or unreasonable. The A.O. has not placed himself in the position & place of the assessee and in a subjective manner & on conjunctive and surmise held that honorarium paid is excessive." 4.2 The ld. CIT(A), considering the explanation of the assessee and the material on record set aside the order of the AO rejecting the claim of exemption u/s. 11 of the IT Act and also deleted the addition of Rs.12,47,450/-. His findings in paras 4.2 are reproduced as under : 4.2 Appellant's submissions alongwith assessment order have been considered carefully. Assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48 yrs. & Bachelor of Art Rs. 240000/- Rs. 200000/- Rs. 120000/- Rs. 120000/- Rs. 120000/- Sh. Narendra Singh Dhakre 40 yrs. & Bachelor of Science Rs. 240000/- Rs. 200000/ Rs. 120000/ Rs. 120000/ Rs. 120000/ Sh. Shailendra Singh Dhakre 29 yrs. & Bachelor in Engineering & Master in Business administration Rs. 240000/ Rs. 200000/ Rs. 120000/ Rs. 120000/ Rs. 120000/ Smt. Kamlesh Chauhan 45 yrs. & Master of Art Rs. 240000/ Rs. 200000/ Rs. 120000/ Rs. 120000/ Rs. 120000/ Smt. Shanti Devi 65 yrs. & High School Rs. 240000/ Rs. 200000/ Rs. 120000/ Rs. 120000/ Rs. 120000/ Sh. Ashish Jaiswal 40 yrs. & Bachelor of Commerce Rs. 260000/ Rs. 270000/- Rs. 120000/ Rs. 120000/ Rs. 120000/ Sh. Anupam Chouksey 26 yrs. & Bachelor in Engineering & Master in Engineering Rs. 260000/ Rs. 270000/ Rs. 120000/ Rs. 120000/ Rs. 120000/ Sh. Suprabhat Chouksey 27 yrs. & Bachelor in Engineering Rs. 260000/ Rs. 270000/ Rs. 120000/ Rs. 120000/ Rs. 120000/ Smt. Poonam Chouksey 49 yrs. & Bachelor of Science Rs. 260000/ Rs. 270000/ Rs. 120000/ Rs. 120000/ Rs. 120000/ Smt. Pratibha Chouksey 47 yrs. & Bachelor of Art Rs. 254900/- Rs. 270000/ Rs. 120000/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nowledged and sustained cannot be allowed to be changed in subsequent year without any adverse evidence on record. AO has also failed to specify the reasonable honorarium payable to the office bearers on the basis of services rendered by them whereas the appellant has shown that for similar services payment at much higher amount is being made to other faculties and administrators involved. In view of facts above, AO is not found justified in considering the amount of honorarium paid to the office bearers of the appellant, society excessive and undue on the basis of which exemption claimed u/s 11 has been denied to it. Similar is the position regarding disallowance of 50% of honorarium in computing the total income of the appellant by treating it s a business entity. Vide letter dated 16.11.2009 the appellant has been asked to give details and reasonability of the honorarium paid to the office bearers on the basis of services rendered by them. Thereafter, vide order-sheet entry dated 01.12.2009 the appellant has been asked as to why exemption u/s 11 be not disallowed as the office bearers and their relatives have derived direct or indirect benefit by taking honorarium and loans. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the assessing officer during assessment proceedings. These advances were made in pursuance of enforceable agreements & there was no violation whatsoever of section 13 of the I.T. Act. Full facts with supporting documents as required by the I.T.O. were furnished before the ITO. However the ITO rejected the same without judiciously considering the explanations, and in a summary manner & without any material contradicting our submission summarily held that this is an after-thought and a cooked up story. It is further submitted that the members concerned have already repaid the interest and part of principal sum during current financial year 2009- 10 and the relevant copies of loan accounts are enclosed in support as Annexure-6 to this submission. The A.O. has treated the loan to the following charitable institution as investment & which according to the ITO are not conforming to the provisions of section 11(5) of IT Act, & there by ITO held that provisions of section 11 are not applicable. 1. H.K. Educational Society, Bhopal. 2. Rishi Raj Memorial Society, Bhopal. 3. Samta Lok Sansthan, Gwalior. At the outset it is submitted that section 11(5) of the Income Tax Act, 1961 pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educational institutions. The said loans/advances have been given in respect of said activities. Also the entire amount has not been advanced interest free since as for its books of accounts for subsequent year i.e. 2009-10 interest on loan has been paid at Rs. 2,79,850/- in case of Shri Shivendra Singh and Rs. 9,79,200/- in case of Shri N.S. Dhakre. Further, AO in his remand report dated 02.03.2011 has also not made any adverse comment regarding such loans but has treated them to be disallowable. 5.3 Further, provisions of section 11(5) are not found applicable in case of other loans/advances to H.K. Educational society, Rishi Raj Memorial Society and Samta Lok Sansthan as the appellant's society has not accumulated or set apart any part of its income for any specific purposes as required u/s 11(2) (b) r/w Rule 17 of Income Tax Rules. Also these loans/advances to various societies and members i.e. Shri N.S. Dhakre and Shri Shivendra Singh Dhakre can not be considered either investment or deposit in view of decision of Hon'ble Delhi High Court in case of DIT Vs. Acme Education Society 326 ITR 146 (2010). 5.4 On the basis of facts above appellant's society is found entitled for cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. There is only marginal increase in the case of some of the officer bearers, which have been duly approved by the resolution of the society. The details are noted above. The ld. CIT(A) also found that the total number of students in the educational institution run by the assessee have increased. Therefore, the increase in the honorarium was justified as compared to the earlier years. The ld. CIT(A), thus, rightly found that there were no violation of provisions of exemption claimed in this case. As regards the interest free loans/advances, it was found that same have been given in earlier years on which exemption has already been granted by the AO. There were no fresh loan/advances given in the assessment year under appeal. Whatever loans were given in earlier year have been given with adequate securities against the properties and same were also authorized by the resolution of the assessee society. Thus, the ld. CIT(A) rightly found that there were no violation of section 13. Therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormal income. As regards the donations made, it was submitted that the same was made to the trust having the similar objects and donations were given through banking channel and is allowable deduction. The ld. CIT(A) considering the explanation of the assessee deleted both the additions. His findings in paras 6.2 to 6.4 of the appellate order are reproduced as under : "6.2 Appellant submissions have been considered carefully. As mentioned in preceding paras the appellant is found entitled for exemption u/s 11. A.O. has added the capital expenditure mainly on the ground that the appellant is carrying on business activity and the said expenditure has been incurred as a result of write off of bad debts of earlier year advance given to ITM. It is well settled in law that in the case of charitable institutions, any expenditure whether revenue or capital in nature, incurred for the furtherance of its objects is an application of income to the objects of the institution and, therefore, allowable as per provisions of section 11(1) of the I.T. Act. As per section 11(1)(a) of the I.T. Act, any income derived from property held under trust wholly for charitable or religious purposes, to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Alarippu, 244 ITR 358. 10. We have considered the rival submissions and do not find any merit in both the grounds of appeal of the Revenue. The ld. CIT(A) granted exemption to the assessee u/s. 11 of the IT Act, which is confirmed by us also in the preceding paras. Since the assessee is doing educational activities and was considered as charitable institution, therefore, all the expenditure, revenue or capital, incurred in furtherance of its objectives, are application of income to the objects of the assessee-society. Therefore, the same expenditures are allowable deduction. The amount on account of bad debt was spent by the assessee as per AO for capital purposes for the object of the assessee-society and in case, it was not returned, even after the matter was settled by the Civil Court, the writing off the debt are normally to be noted in the books of account as per law. Therefore, the assessee was entitled for deduction of the same on account of application of income towards the objects of the assessee society. The ld. CIT(A) on proper appreciation of facts and material on record rightly deleted the addition of Rs.11,37,483/-. As regards the donations, the assessee gave dona ..... X X X X Extracts X X X X X X X X Extracts X X X X
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