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TMI Blog2013 (12) TMI 1052X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 40(a)(ia) for legal expenses on which TDS has not been made and of Rs.1,09,63,771/- on account of net surplus declared as per income and expenditure account by disallowing exemption claimed u/s. 11 of the IT Act. The assessee is engaged in educational activities and has declared receipts from running of two colleges in the name of Maharana Pratap College of Technology and Maharana Pratap College of Dentistry & Research Centre. The assessee in the return of income claimed exemption u/s. 11 of the IT Act. 3. As regards the disallowance made u/s. 11 of the IT Act, the said disallowance has been made by the AO by applying provisions of Section 13(1)(c) of the IT Act solely on the ground of payment of LIC renewal premium of Rs. 70,872/- from the funds of the society in respect of endowment insurance policy of Shri Narendra Singh Dhakre, Secretary of the Society. While holding so, AO has mentioned as under: "On going the through the audit report in Form 108 dated 28.09.2009, submitted along with return, it is seen that in Part II of Annexure to the audit report the CA at Paint No.3 has mentioned that the payment of Rs.18,95,000/- paid to office bearers of society and other staff as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dhakre was increased to Rs. 3,50,000/-. It is very important to be noted here that the second reply was submitted only when the undersigned had issued notice asking the assessee society why the exemption u/s 11 of Income Tax Act may not be disallowed on account of that Mr. Narendra Singh Dhakre, the secretary of the society has been directly benefited by taking LIC renewal premium. The second reply is completely fabricated one, and it is clear from the facts available on record that the assessee is trying to manipulate the issue of personal benefit which the assessee society has given to Shri Narendra Singh Dhakre by paying his personal LIC renewal premium of Rs. 70,872/-. In this regard, the reliance is place on the decision of the Hon'ble Bombay High Court delivered in the case of CIT vs. Jamuna Lal Bajaj Sewa Trust (1988) 171 ITR 568 wherein the Hon'ble High Court held as under. Section 13(1)(c) provides that where as part of the income of a charitable or religious trust or institution enures or is used or applied, directly or indirectly, for the benefit of those persons, specified in section 13(3), such a trust or institution shall forfeit the exclusion u/s 11. Even if only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, apex, and nodal bodies/statutory bodies of the state and central government. The institution is located at the outskirts of the city and is in isolated place, which is near to certain villages inhabited by rowdy & unscrupulous elements. He has to work therein day and night and returns home in late hours, involving risk to the property and life including kidnapping by unscrupulous elements. Therefore the governing body of the society considered it expedient and approved payment of insurance premium of Mr. Narendra Singh Dhakre, Secretary in additions to honorarium paid to him in appreciation and in lieu of services rendered by him as a measure of incentive for dedicated services. During the previous year 2008-09, the society has paid a sum of Rs. 2,80,000/- as honorarium and also paid a insurance premium sum of Rs. 70,872/- to Shri Narendra Singh Dhakre, Secretary making a total honorarium and LIC premium of Rs. 3,50,872/- whereas, the society has paid Rs. 9,61,000/- as salary to the Dean of Dental College and other various faculties were also paid annual remuneration over Rs. 4.00 lacs and upto Rs. 8.00 lacs per annum for the services in Dental & Engineering Colleges. Looking t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dministration. It may comprehend many other expenses incidental to achieving of the charitable objects. This matter must be judged not in the light of 19th century laissez faire doctrine but in the current scenario of economic and welfare philosophy that such payments are subscribed to the dedicated persons. This also results in reaping in of their working experience, fully loyalty and devotion. "In view of above submission, it is urged that the appellant society be allowed exemption/exclusion of its income u/s 11 of the IT Act." 3.2 The ld. CIT(A), considering the issue in detail in the light of provisions of section 13 accepted the claim of assessee for exemption u/s. 11 of the IT Act and deleted the addition of Rs.1,09,83,771/-. The findings of the ld. CIT(A) in paras 3.2 to 3.4 in the appellate order are reproduced as under : "3.2 Appellant's submissions have been considered carefully alongwith assessement order Assessment records have also been perused. The appellant is a society registered under Societies Registration Act, 1973 vide Registration No. GWL/3136 dt. 27.11.1995. The main object of the society is to provide education in various fields like engineering, managemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (3)." "13(2) Without prejudice to the generality of the provisions of clause (c) [and clause (d)] of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purpose of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3), (c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in subsection (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services." 3.3 In the appellant's case, Shri Narendra Singh Dhakre, Secretary of the Society, has been paid total remuneration (including honorarium & insurance) of Rs. 3,50,872/-. AO has not disputed the fact that he is a key member in the functioning of the society. Total amount of remuneration paid to him has also not been doubted or found reasonable or excessive vis-à-vis services rendered by him or s compared to other salaried employees of the society. As per provisions of the section 13 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leted." 4. The ld. DR relied upon the order of the AO and submitted that since the assessee has violated the provisions of section 13, therefore, the AO rightly disallowed the claim of exemption u/s. 11 of the IT Act. On the other hand, the ld. counsel for the assessee reiterated the submissions made before the authorities below and submitted that identical issue came up in the appeal of the department before ITAT, Agra Bench in ITA No. 242/2011 for the assessment year 2007-08, in which the departmental appeal has been dismissed vide order dated 05.10.2012. Copy of the order of Tribunal is placed on record. 5. We have considered the rival submissions and the material on record. The identical issue came up for consideration before the Tribunal in preceding assessment year 2007-08 (supra) and the Tribunal vide order dated 05.10.2012 dismissed the departmental appeal. The findings of the Tribunal in para 7 to 10.2 are reproduced as under : "7. We have considered the rival submissions and the material on record and do not find any justification to interfere with the order of the ld. CIT(A) in deleting the additions. The AO has nowhere doubted the payment of honorarium to the office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dhaswamy Satsang vs. CIT, 193 ITR321. Hon'ble Delhi High Court in the case of CIT vs. Escorts Ltd., 338 ITR 435 held that the decision regarding the nature of transaction continued for several years, have to be maintained on principle of consistency. We, therefore, do not find any violation u/s. 13(1)(c) of the IT Act. The assessee is entitled for exemption u/s. 11 of the IT Act. Considering the totality of facts and circumstances in the light of findings of ld. CIT(A), we do not find any infirmity in the order of the ld. CIT(A) in granting exemption u/s. 11 of the IT Act to the assessee and also in deleting the addition of Rs.12,47,250/- on account of disallowance of honorarium. In the result, grounds Nos. 1 & 3 of appeal of the Revenue are dismissed. 8. On ground No. 2 & 4, the Revenue challenged the deletion of addition on account of writing off of the capital expenditure and donations. The AO made addition of Rs.11,37,483/- as capital expenditure and of Rs.10,00,000/- on account of donation as nonbusiness expenses. The amount of Rs.11,37,483/- has been added in respect of write off of ITM loan/advance pertaining to the year 1997- 98, which matter has ultimately been decided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 is also found duly reflected in the books of accounts of the appellant. Making of such donation is a normal incidence of appellant's objectives and a case of application of its income in terms or provision of Section 11. CBDT vide instruction no. 1132 dated 05.01.1978 has stated that payment of a sum by a charitable trust to another charitable trust is an application of its income for charitable purposes. The same view has also been held by Hon'ble Allahabad High Court in case of CIT Vs. J.K. Charitable trust 196 ITR 31 (All).l In the remand report dated 02.03.2011 AO has simply stated the said donation is not allowable as business expenditure. Since the appellant's society is found eligible for exemption u/s 11 and donation made to another charitable trust is to be considered application of its income. Thus the AO is not found justified in making addition of Rs. 10,00,000/- on account of donation to the appellant's income. The same is, hereby, deleted." 9. The ld. DR relied upon the order of the AO and submitted that bad debt written off is not as per law and that the assessee should not have given donations to other societies. On the other hand, the ld. Counsel for the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of provision of s. 13(1)(d) r/w s. 11(5) to render withdrawal of exemption under s. 11." 10.1 Hon'ble Delhi High Court in the case of Alarippu (supra) held - "Conclusion of the Tribunal that amount advanced as temporary loan by assessee-society to another similar society was neither an investment nor deposit and hence there was no infringement of s. 13(1)(d) r/w s. 11(5) by assessee-society being based on facts found by Tribunal, No question of law arises." 10.2 Considering the facts of the case in the light of above discussion, we are of the view that the ld. CIT(A) rightly deleted the addition of Rs.10,00,000/- as well. No violation of section 13 f the IT Act has been found. The ld. CIT(A), therefore, rightly deleted both the additions. In the result, grounds Nos. 2 & 4 of appeal of the Revenue are dismissed." 5.1 In the preceding assessment year 2007-08, the issue of honorarium paid to various persons including the honorarium paid to Shri Narendra Singh Dhakre, Secretary was considered in detail and in the year 2007-08, the total remuneration / honorarium paid was Rs.24,94,000/- to several persons including Shri Narendra Singh Dhakre. It was found that Shri Narendra Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and is therefore to this extent the income is exempt. The other applications on the object of the trust or institution are also exempt u/s 11. It is immaterial that TDS has not been inadvertently made on this payment. Non deduction of TDS does not mean that there is no application of income on the object and purpose of the society. It may also be stated that the income of a charitable trust or institution is not computed under the head "Business or Profession" as the object of any charitable institution can not be carrying on of any business or commercial activities and section 40(a)(ia) has no application. Section 11 of the IT Act, 1961 does not otherwise, provide that if TDS is not made in respect of certain income applied on the purpose and object of the trust, such an application would not be deemed as application of income. Accordingly the amount of Rs. 7.00 lacs paid on account of legal expenses as cannot be treated non application of this amount towards the object of the trust. It may also be stated that application of income of earlier years in the case of assessee institution was more that 85% of its income and the excess application over 85% in earlier years is also avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e & hereby deleted." 6.2 On consideration of the rival submissions, we are of the view that the addition has been rightly deleted by the ld. CIT(A). It is not in dispute that the assessee has utilized more than 85% of its income for achieving the objects of the Society. Even if addition was made for non-deduction of TDS, the same cannot be treated as additional income, for which benefit of section 11 have to be granted to the assessee. This issue was also considered in the preceding assessment year 2007-08 and the departmental appeal has been dismissed. The ld. counsel for the assessee also submitted that the provisions of section 40(a)(ia) are meant for business income only and since in the case of the assessee it is doing charitable activities by providing education, therefore, such a provision would not be attracted in the case of assessee. Further, we find that this issue has not been decided by the authorities below and since we are dismissing the departmental appeal on this ground as well, we do not find it appropriate to give any finding on the submissions of the ld. counsel for the assessee. In view of the above, the departmental appeal on ground No. 2 is also dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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