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TMI Blog2016 (10) TMI 311X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the remuneration paid was in excess of what may be reasonably paid for such services. It is also not the case that the expenses relating to telephone etc. were not incurred for furtherance of the objectives of the assessee society. In the present case, the AO has observed that the development charges were not shown in the income and expenditure account and reopen the assessment on the said basis. This observation of the AO was factually incorrect because the assessee had shown the development charges in its books of account which is evident from the various copies of the ledger account furnished by the assessee to the AO vide letter dated 19.12.2011 which are placed at page nos. 282 to 305 of the assessee’s paper book. The assessee also furnished copies of the journal vouchers in respect of tuition fees and development fees along with student wise details which are placed at page nos. 306 to 314 of the assessee’s paper book. In the present case, the AO has not brought anything on record to substantiate that the expenditure on salary or facilities provided to the relatives of the trustees of the assessee society were excessive having regard to fair market value of the services p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd and the reasons for reopening, and therefore the reassessment is bad in law. 6. Because the Id. CIT (A) has erred in facts and law in upholding the action of the AO, in invoking section 13(3) of the IT Act, wrongly denying exemption u/s 11, when there was no such violation of section 13(3) on any count whatsoever, in the present case. 7. Because the Ld. CIT(A) has erred in facts and law in upholding the action of the AO holding the assessee to have violated the provisions of section 13(3) of the Act, when there was no undue benefit to specified persons as alleged, nor any huge financial losses were caused to the society there was nor any in transparency in the functioning of society. 8. Because the Id. CIT(A) has erred in facts and law in upholding the action of the assessing officer holding the assessee to have violated the provisions of section 13(3) of the Act, without appreciating the Regulations / Directions / Circulars issued by the Directorate of Education. 9. Because the Ld. CIT(A) has erred in facts and law in upholding the order of assessment without appreciating the various contentions / submissions / evidences and replies filed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployed specified persons as per Section 13(3) of the Act in the School run by the Society on various capacities. On the basis of aforesaid reasons, the AO recorded the reasons to believe for issuing the notice u/s 148 of the Act on 08.02.2011. In the mean time, the assessee approached the Hon ble Delhi High Court wherein vide order dated 20.11.2011 in W.P.(C) 5467/2010, the AO was barred from passing the final assessment order. However, on 02.02.2012, the Hon ble High Court directed the AO to proceed in accordance with law. The AO made the addition of ₹ 1,16,57,941/- out of the development fund by observing that the assessee violated the provisions of Section 13(3) of the Act by giving undue benefit to the family members of the specified persons and the action of the management had duly caused huge financial losses to the assessee s society. He also disallowed the depreciation on the assets which were purchased in the preceding years by observing that capital expenditure for earlier years had already been allowed as application of income. Accordingly, the AO allowed the depreciation of ₹ 52,25,727/- in respect of the assets purchased during the year under consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordance with law vide order dated 02.02.2012. The ld. CIT(A) accordingly dismissed the grounds raised by the assessee against the reopening of the assessment. As regards to the addition made by the AO, the assessee submitted written submissions dated 30.07.2012 before the ld. CIT(A) which has been reproduced in para 3 of the impugned order and read as under: The Assessing Officer has raised some Queries during the assessment proceedings u/s. 143(3) relating to the survey conducted on the premises of the assessee on 14.01.2011 and we had submitted all papers and documents before the assessing officer during the assessment proceedings itself, but the assessing officer has not even considered the same and passed the order against the law. Hence we are submitting herewith following details and documents for your consideration. 1. The school has sold four buses, some old broken furniture, one almarah and one old scooter. In respect of sale of old furniture, it is explained that a list of unserviceable furniture and fixture is being prepared and advertisement for the same is being' given. In addition to that a notice was also displayed at a school notice board outside th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansport department has already been submitted with the submission dated 10.05.2012. 3. Appointment of Principal, Vice Principal and Director (Administration) has properly been made as per norms and procedures prescribed by the Directorate of Education, NCT of Delhi in this behalf. Copy of documents, statement in this regard has already been submitted with submission dated 10.05.2012. 4. The assessing officer has invoked the provision of Sec. 13(3) of the IT Act, 1961 for the use of word Lancer, here we would like to say that the word Lancer neither registered nor copyright by the society anywhere as a brand Name and any person can use the word lancer with their institution. There are schools around Delhi who have named their school as Lancer, one on Sikandrahad (UP) by name Lancer Public School, Two in Shamli, Copy of proof is enclosed herewith for your kind consideration. Further, there are Lancer Car, Lancer Shoes and even Lancer playing card. This ANAND EDUCATION SOCIETY and any of its office members are not connected or concerned with the above mentioned Lancer name organization. Further, Lancer Convent School is affiliated to CBSE whereas Lancer International Schoo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT/DVI/ TE/269/84/19 dated 01.04.1985 and also registered u/s.80G(vi) of the IT Act, 1961, copy of order is enclosed herewith for your kind consideration. Further the society is running only one school under the name and style of LANCERS CONVENT SCHOOL AT PRASHANT V1HAR, ROHINI, Delhi-110085 and no other activities has been done ever by the society since its inception and the Memorandum of Association of the society have only on object, EDUCATION and no other object are exist in the Memorandum of Association of any type, copy of Memorandum of Association and registration u/s.12A(a) of the IT Act, 1961 is enclosed herewith for your kind consideration. 3. The Assessing Officer in its assessment order dated 02.03.2012 has alleged the activities of the society arc non-charitable and no longer be regarded as a charitable organization without any base and legal back, here it is well settled law that once registration u/s.l2A(a) of the IT Act, 1961 stands granted, the charitable character of the activities of the Society/Trust cannot be challenged/doubted. In this regard reliance has been placed on ACIT Vs Surat State Gymkhana, 170 Taxmann 612 (SC), hold that the AO in the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not impose any bar and restriction to remunerate the specified persons and the Trust and charitable Society can made payments of salary to specified persons commensurate to their service provided. Here we would like to say that the Assessing Officer was not fully aware about the provisions of section 13(3) of the IT Act, 1961 and has made his own interpretation in this regard which is not in any way permitted by the law. Hence in this allegation the Assessing Officer was not legally correct and action of the Assessing Officer to denying the exemption u/s. 11 to the society was illegal, arbitrary and unilateral. 5. The society has appointed the Principal, Vice- Principal and Director (Administration) as per the proper procedure and practice prescribed by the Directorate of Education and paid monthly salary of ₹ 35,970.00, 28,108.00, 41,190.00 respectively as per the scale prescribed by the Govt. of NCT of Delhi which was not in any way excess, undue and unreasonable. Further they have been appointed and receiving salary since many years and the same has been accepted by the department and assessed the case u/s. 143(3) of the IT Act, 1961, copy of Assessment order u/s. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Sudesh Singh, Mrs. Latesh Chaudharv and Mrs. Anita Mann are in receipt of salary of ₹ 66,047/- pm, ₹ 49,382/- pm, and ₹ 73,471/- pm respectively. All the three ladies are stated to be MA. B.Ed. Mrs. Sudesh Singh has been provided with car by the school. As per the norms of Education Department, the schools cannot have the post of Director (Admn.) but Mrs. Anita Mann is occupying the seat of Director (Admn.) and is being paid a hefty amount in the name of salary. Sh. A.S. Mann was stated to be looking after the transportation, sale purchase, school activity etc. No remuneration was stated to be taken by him but the society had provided car and phone facility to him. Looking to age of Sh. A.S. Mann who is at 79 years old, the possibility of his active involvement in the affairs of the schools is remote. There is a clear-cut violation of Section 13(3) as the assessee is paying unreasonable salary to Mrs. Sudesh Singh, Mrs. Lalesh Choudhary, Mrs. Anita Mann along with providing car and phone facility to Sh. A.S. Mann. The recruitment of Mrs. Anita Mann as Director Administration leaves no doubt that the recruitment process was a sham o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion given by the assessee was not convincing. He further observed that Mrs. Anita Mann was occupying the seat of Director Administration and was being paid hefty salary and that Sh. A.S. Mann who was 79 years old was provided phone facilities and car, however, it was not known that what kind of activities were performed by him. The ld. CIT(A) also observed that unreasonable salary was being paid to Mrs. Sudesh Singh and Mrs. Latesh Chaudhary. He also mentioned that Sh. A.S. Mann was the President of the society, his son Sh. Joginder Mann was the Secretary and that Mrs. Sudesh Singh and Mrs. Latesh Chaudhary are the daughters of Sh. A.S. Mann, so, whole affair had been managed in such a way that this was totally a family affair, so, there was violation of Section 13(3) of the Act. The reliance was placed on the decision of the ITAT Hyderabad Bench in the case of ADIT(E) Vs Chirec Education Society reported at 58 DTR 453 and the judgment of the Hon ble Allahabad High Court in the case of CIT Vs Vijeta Educational Society (2011)-TIOL-592. Accordingly, the ld. CIT(A) held that the AO was justified in denying the exemption u/s 11 of the Act as the assessee had violated provisions of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his basis was not justified. The reliance was placed on the decision of the Hon ble Delhi High Court in the case of Lalit Bagai Vs DCIT, WP(C) No.5054/2014 order dated 05.12.2014. 15. It was further submitted that the second reason recorded for reopening u/s 148 of the Act was that, the assessee had employed specified persons in violation of the Section 13(3) of the Act. The said reason could not be a valid reason for reopening, as there was no prohibition in employing specified persons u/s 13(3) of the Act unless the amount is in excess then what may be reasonably paid for such services. It was further submitted that as per the provisions of Section 13(2)(c) of the Act, there are two conditions firstly the salary, allowances has to be paid to the persons referred to in Section 13(3) of the Act and the same is in excess of what may be reasonably paid for such services. Therefore, both the conditions as mentioned u/s 13(3) of the Act must have been fulfilled. But in the present case, it is not the case of the AO that the amount was paid in excess what may be reasonably paid for such services. Contrary to that the salary was paid in accordance to the pay scale fixed by the Directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 3 of the assessment order. It was submitted that the Principal of the School was appointed in 1996 after following the proper procedure (a reference was made to page nos. 111 112 of the assessee s paper book). He also submitted that the applications were received against the advertisement for the post of the Principal (a reference was made to page nos. 116 to 118 of the assessee s paper book). It was contended that the salary was fixed in accordance with the fixation by the 6th Pay Commission, so there was no violation of Section 13(3) of the Act as there was no prohibition in appointing the relatives of the trustees. It was further submitted that nothing was brought on record to substantiate that excessive salary was paid to the Principal Mrs. Sudesh Singh, Mrs. Latesh Chaudhary and Mrs. Anita Mann and that in the subsequent year the salary paid had been accepted, so there was no application of mind by the AO while alleging that the excessive payment was made to the relative and there was violation of the provisions of Section 13(3) of the Act. 18. In his rival submissions the ld. DR supported the orders of the authorities below and further submitted that in this case i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 11. The question arose as to how the income available for application to charitable and religious purposes should be computed. JagannathaSetty, J. speaking for the Division Bench of the Court held that income derived from property held under trust cannot be the total income as defined in Section 2(45) of the Act and that the word income is a wider term than the expression profits and gains of business or profession . Reference was made to the nature of depreciation and it was pointed out that depreciation was nothing but decrease in the value of property through wear, deterioration or obsolescence. It was observed that depreciation, if not allowed as a necessary deduction for computing the income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income. The circular No.5-P (LXX-6) of 1968, dated July 19, 1968 was reproduced in the judgment in which the Board has taken the view that the income of the trust should be understood in its commercial sense. The circular is as under:- Where the trust derives income from house property, interest on securities, capital gains, or other sources, the word 'income1 should b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned with the applicability of these provisions we are concerned only with the concept of commercial income as understood from the accounting point of view. Even under normal commercial accounting principles, there is authority for the proposition that depreciation is a necessary charge in computing the net income. Secondly, the Supreme Court was concerned with the case where the assessee had claimed deduction of the cost of the asset under Section 35(1) of the Act, which allowed deduction for capital expenditure incurred on scientific research The question was whether after claiming deduction in respect of the cost of the asset under Section 35(1), can the assessee again claim deduction on account of depreciation in respect of the same asset. The Supreme Court ruled that, under general principles of taxation, double deduction in regard to the same business outgoing is not intended unless clearly expressed. The present case is not one of this type, as rightly distinguished by the CIT(Appeals). 14. Having regard to the consensus of judicial opinion on the precise question that has arisen in the present appeal, we are not inclined to admit the appeal and frame any substantial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso the AO simply stated that there was violation of the provisions of Section 13(3) of the Act and unreasonable salary was paid to Mrs. Sudesh Singh, Mrs. Latesh Chaudhary and Mrs. Anita Mann. However, nothing is brought on record as to how much salary paid to these ladies was excessive. On the contrary, the assessee adopted the proper procedure for appointment of the Principal and Vice-Principal by giving an advertisement in the newspaper Hindustan Times, New Delhi dated 28.05.1996 (copy of which is placed at page no. 111 of the assessee s paper book). Thereafter, Mrs. Sudesh Singh applied for the post of Principal (copy of the application is placed at page nos. 112 to 115 of the assessee s paper book) while applying for the post of the Principal, the said lady was having the teaching experience of 8 years and the degree of MA, B.Ed. The selection was made by the Selection Board out of the 14 persons who were called for interview which is evident from page no. 140 of the assessee s paper book. The Selection Board was having two nominees of the Education Department. Similarly, Mrs. Latesh Chaudhary applied for the post of Vice-Principal in lieu of the advertisement dated 08.03.199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iety is to impart the education among the general public. It is well settled that the imparting of education is a charitable activity. However, the AO denied the exemption u/s 11 of the Act to the assessee, which is available on the income from property held for charitable or religious purposes, for denying the said exemption, the AO invoked the provisions of Section 13(3) r.w.s. 13(2)(c) of the Act. The provisions contained in Section 13(2)(c) of the Act reads as under: 13(2)(c) 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 purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3)- (a) . (b) .. (c) If any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (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 serv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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