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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 ..... e to be maintained on principle of consistency - No violation u/s. 13(1)(c) was accordingly found - In the assessment year under appeal, total honorarium / salary paid to Shri Narendra Singh Dhakre was found including LIC premium - Small benefit is given to specified persons, which was included in the honorarium of Shri Narendra Singh Dhakre, who is the key member of functioning of the society, nothing could be attributed to the assessee for violation of provisions of section 13 - The AO has failed to establish that any unreasonable or excessive payments have been made to any specified person – Decided against Revenue. Disallowance u/s. 40(a)(ia) – Legal expenses - Held that:- Following S.B. Builders & Developers vs. ITO [2010 (5) TMI 686 - ITAT MUMBAI] and assessee’s own case for A.Y. 2007-08 - Disallowance made u/s 40(a)(ia) becomes only of academic importance only as the only criteria to examine is to see application/utilization of funds of the society towards its objects - Appellant’s income is to be assessed as per provisions of section 11/13 of the IT Act in place of regular business income - Application of income & only fulfillment of requirements of section 11 needs to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted 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 honorarium for meeting out expenses wholly, necessarily and exclusively incurred for the purpose of carrying and performing functions for the benefit of the society The assessee vide order sheet dated 25.11.2011 was asked to furnish details of honorarium paid. In this regard, the assessee submitted vide its reply dated 29.11.2011 and as per details filed, out of honorarium paid to the different office bearers. One payment of Rs.2,80,000/- was made to Mr. Narendra Singh Dhakre, as Secretary of the society. During the course of assessment of proceedings, the AR of the assessee was asked to furnish details and justification of expenditure of Rs.1,49,224/- and Rs.99,000/- incurred on the insurance and Key man insurance respectively. Vide its reply dated 29.11.2011, the assessee submitted as regarding insurance expenses of Rs.1,49,224/- it consists of Rs.86,224/- incurred by the society. The expenditure of Rs.86,224/- by MPCT include a payment of Rs.70,872/- towards the key man in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a small portion of the income enures or is used or applied for the benefit of a person mentioned in section 13(3), the entire income of the trust is denied the exclusion, except in the case provided in section 13(4). In this light of the above decision and the facts narrated above it is concluded that the LIC renewal premium paid to Mr. Narendra Singh Dhakre, Secretary of the society is the person mentioned in section 13(3) of the Income tax Act, 1961 and the payment of LIC renewal premium made by the assessee society is treated as diversion of society within the meaning of section 13(2) of the Income Tax Act, 1961 and therefore, the assessee society is not entitled for exemption u/s 11 of Income Tax Act, 1961, as claimed. The surplus of the society shown in the income and expenditure account will be assessed as income from business and profession a chargeable to tax and the status of AOP at a maximum marginal rate. The total surplus as per audited statement Rs. 1,09,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00/- 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 to the present scenario of salary structure in private sector and after implementation of the VIth pay commission in the technical colleges, the total remuneration including LIP premium paid to Mr. Narendra Singh Dhakre are bare minimum for running of the institution providing technical, medical, management education. To summarise the fact the tabular presentation showing comparative analysis are as under:- Name of person Duties fulfilled Gross honorarium/Salary paid during F.Y. 2008-09 Narendra Singh Dhakre Secretary 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 faculty development work, appointment of the staff, arrangement of campus placement, liaison with universities and also looking after the accounts and financial matters. Rs. 3,50,872/- (including LIC premium) Dr. S. Sundarraj Dean of Dental College ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant 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, management, medical etc. During the year, it has shown educational activities from two college of engineering dental. The society has also been granted regn. u/s 12AA of the IT Act by CIT, Gwalior vide order dated 28.12.2001. As per the return filed on 29.09.2009, the appellant has filed its audited financial statements, prescribed audit report in Form No. 108 certificate regarding utilization of funds. Audited books of accounts with supporting bills and vouchers have also been produced which have been accepted by the AO. Also the appellant has declared total receipts of Rs. 11,40,03,799/- out of which total expenditure of Rs. 10,30,40,028/- has been incurred meaning thereby that about 90% of funds have be utilized towards objects of the society. The sole ground for denial of exemption claimed u/s 11 is that the society has paid premium of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rance) 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- -vis services rendered by him or s compared to other salaried employees of the society. As per provisions of the section 13 of the IT Act specifying conditions for disallowance of exemption u/s 11, onus is on the AO to conclusively establish the fact of unreasonableness or excessiveness of the payment made to concerned specified person in lieu of market value of comparable services. AO has not brought on record any such material in his support but has merely stated that the Secretary has directly benefited from such payment has made disallowance u/s 13(1)(c). It has been held by Hon ble Gujrat High Court in case of Surat City Gymkhana vs. DCIT 245 ITR 733 (Guj) that that the law is well settled that: (a) a person who makes positive averment is required to establish the same; (b) it is not for the person against whom the averment is made to establish negatively that the state of affairs averred by other person does not exist. Further, reasonableness of a par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 bearers of the society for bona fide services rendered by them. The honorariums have been paid in earlier year also and have been accepted by the Revenue department in the proceedings u/s. 143(3) of the IT Act. All the amounts have been made for wholly and exclusively for the purpose and benefit of assessee-society. 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 hono ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount 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 the Civil Court with no recovery to the assessee-society. AO has treated the same as business expenses being in the nature of capital expenditure and accordingly disallowed the same. The assessee submitted before the ld. CIT(A) that bad debts in the books of account are required to be deducted while computing its normal 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. ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und 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 assessee reiterated the submissions made before the authorities below and referred to PB-41 to show that bad debt was written off in the books of account and referred to Board Circular No. 1132 and decision of Delhi High Court in the case of DIT(Exemption) vs. Acme International Society, 326 ITR 146 and DIT (Exemption) vs. 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-so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Singh Dhakre has rendered actual services to the assessee and there is marginal increase in the honorarium and no material was found on record to justify the findings of the AO. Further, similar honoraria were paid in earlier year and the AO had allowed exemption u/s. 11 of the IT Act in favour of the assessee. It was, therefore, held that since the assessee incurred expenses wholly and exclusively for educational purpose and all the amounts have been spent for educational purposes and for achieving the aims of assessee-society, therefore, the assessee would be entitled for exemption u/s. 11 of the IT Act. No violation u/s. 13(1)(c) was accordingly found. In the assessment year under appeal, total honorarium / salary paid to Shri Narendra Singh Dhakre was found in a sum of Rs.3,50,872/- including LIC premium. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 available to this institution in the current year. These arguments pleadings were made before the AO in writing. Without prejudice to above it is further submitted that the appellant society by running various education institution duly affiliated to universities or other regular bodies is engaged in the philanthropic charitable objects, it is not engaged in carrying on a business like a coaching classes. The income if any of that appellant society is not be computed under the head Income from Business or profession . If any income has to be computed, it would be computed under the head of Income from other sources . And in the computation of income under the head of other sources section 58 titled as Amount not deductible does not stipulated that provision of section 40(a)(ia) would be applicable. In other wor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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