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TMI Blog2020 (12) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... ere having the higher qualification and no comparable case was brought on record to substantiate that the salary / remuneration paid to them was excessive. Therefore, the disallowance made by the AO and sustained by the Ld. CIT(A) was not justified. Also noticed that the remuneration / salary paid to the same persons in the earlier years had been accepted while framing the assessment orders under section 143(3) of the Act. Therefore, by keeping in view the principles of consistency no disallowance is to be made for the year under consideration if the facts are identical in the preceding years wherein the similar payments have been accepted by the Department. Payment on account of salary / remuneration to the same specified persons had been accepted by the Department in the preceding years therefore keeping in view the principles of consistency the disallowance made by the AO and sustained by the Ld. CIT(A) for the year under consideration was not justified. - Decided in favour of assessee. - ITA Nos. 1069 to 1071/Chd/2019 - - - Dated:- 3-12-2020 - Shri. N.K. Saini, VP And Shri, Sanjay Garg, JM For the Assessee : Shri Sudhir Sehgal, Advocate For the Revenue : Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.1.2001. It is also registered u/s 12AA of the Act with the Ld. CIT-1, Chandigarh vide registration No. CIT/CHD/Tech/02-03/4125 dated 9.10.2002. The assessee filed return of income on 6.8.2010 declaring nil income. Thereafter, the case was reopened u/s 147 of the Act and the notice u/s 148 of the Act was issued to the assessee on 28.3.2017. Subsequently notice u/s 142(1) of the Act along with questionnaire was issued on 19.6.2017. The assessee furnished various details and documents along with books of accounts and vouchers which were examined by the Assessing Officer on test check basis. During the course of assessment proceedings, the Assessing Officer noticed that the assessee was paying salary / honorarium to S/Shri Anup Soni, Amit Kumar Bansal and Mukeh Bansal @ ₹ 18 lacs per annum each. These persons were related as per the provisions of section 13(3) of the Act. The Assessing Officer observed that during the assessment proceedings for the assessment year 2015-16, the local enquiries had been made by the then Assessing Officer u/s 131 of the Act and it was found that these payments were not genuine and reasonable and then it was asked that the payments made to speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, (a complete detail of services offered by such persons are attached with this letter_ if such services are availed by society from outside (third party), society has to shed more cost than current cost. So no benefit (direct or indirect) was transferred to specified persons by society. Benefit must be a case where there is one way flow of advantages/profit means from trust to specified persons. But in our case the assessee trust had full value its consideration paid in shape of professional/specialized expertise of such persons. Reliance is placed on various judicial pronouncements as below: CIT V Bharat Sewa Sansthan (2013) 217 Taxman 337 (All): Therefore, the term benefit would cover a case of one way flow of privilege and advantage to the persons of prohibited category, our of the funds, property or income of the trust CIT Vs. Shreeram Memorial Foundation 269 ITR 35, the Delhi High Court held that as the Trust had given loan without adequate security but the loan was not large and interest was adequate, exemption was granted. The The Gujarat High Court in CIT Vs. Sarladevi Sarabhai Trust No. 2 172 ITR 698 has held that where a charitable trust donates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation was found by the AO- there is a vital difference between eligibility for exemption and withdrawal of exemption/forfeiture for exemption for contravention of the provisions of law-Decided against Revenue. 5. The Assessing Officer did not find merit in the aforesaid reply of the assessee for the following reasons:- 4.1 Assessee has made payments to their members regarding Salary. These amounts are not reasonable because assessee has only submitted that trust is paying charges to them against the services provided by them and they are well qualified persons. The reply of assessee duly considered but not accepted on this ground, because members or trustees are well qualified cannot be a ground for the payments of high Salary. The salary paid to members is not reasonable and undue benefit to these related persons u/s 13(3) of I.T. Act. Assessee has failed to produce or submit any documentary evidences regarding the services provided by these persons. Only run a charitable institution can not be a ground to pay the salary or other allowance to them. 4.2 It is also seen from the personal ITR of these persons that they are also doing some other work along with ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ol, in the balance sheet of M/ sHeritage Education Society, which prima-facie appears to be accumulated surplus of the school. The exemption granted up 12AA should be cancelled forth with and prosecution should be launched as per law against the violators. 4. The said society is running a school under the aegis of Delhi Public School at Chandigarh since 2001. The said society has claimed the exemption u/s 11 of the Income Tax Act, 1961. Whereas society is being run as a profit making organization by its members. The members of the Governing body are being paid salary ₹ 57.60 lacs as per below:- Mr. Amit Kumar Bansal S/o Sh. Pawan Kumar Bansal₹ 19,20,000/- Mr. AnupSoni S/o Smt. AmbikaSoni₹ 19,20,000/- Mr. MukeshBansal S/o S. BalKrishanBansal₹ 19,20,000/- 5. During the course of inquiry society was asked to justify the payment made to the above persons along with the supporting evidences. However on perusal of the reply it is found that the society has not submitted any material evidences of their work. Moreover discreet enquiries were got made through inspector. It has been reported by the Inspector that Sh. Amit Bansal Sh. Anup Soni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the cases u/s 147 of IT. Act. Kindly find enclosed herewith the TEP report in the case for further verifications and necessary action at your end. 7. On the basis of the aforesaid letter, the Assessing Officer asked the copy of investigation from the DDIT-1(Investigation), Chandigarh. In response, report from Inspector of the Investigation Wing was received which reads as under:- I visited today i.e. on 01.12.2015 to the premises of Delhi Public School, Sector-40, Chandigarh to make discreet enquiries in relation to Sh. Amit Bansal, Sh. Anup Soni Sh. Mukesh Bansal, office bearer of the society namely Heritage Educational Society as directed. I, has been gathered in the discreet enquiries that Sh. Amit Bansal, Sh. Anup Soni Sh. Mukesh Bansal do not daily come to the school premises. They have no fixed schedule or time table to come to the school. They come to the school premises only to attend meetings. The meeting themselves are not conducted on regular or routine basis. 8. On the basis of the aforesaid report, the Assessing Officer observed that the said three persons i.e; S/Shri Anup Soni, Amit Kumar Bansal Mukeh Bansal were office bearers of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tives. The above facts, show that these members have taken advantage of being relatives trustees of the assessee. As is clear from the above table that salary/honorium is paid only to the persons covered u/s 13(3). Rather the members are managing the society for charitable purposes and claiming exemption from tax, they should all the more be doing a selfless service or at least should not be siphoning off the funds of the society under the garb of honorium/salary payments to their own self family members. On top of it assessee is projecting as if huge favour is done to the society by the members by services provided to it. Trustees are the persons managing the society they decide for themselves what benefits are to be extracted from the society for themselves the family members. This is blatant misuse and manipulation of the society by its own members such transactions are covered u/s 13(3) r.w.s 13(l)(c) r.w.s 164(2) and section 11. 4.9 However, Case laws regarding the taxability of the amount u/s 13(l)(c) is concerned, these case laws are duly considered and according the case laws and section 164 (2) of I.T.Act,1961 taxability is applicable limited to violation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and salary was paid to only three members, who take active participation in the day to day function of the school. Benefit must be a case where there is one way flow of advantages/profit means from trust to specified persons. But in our case the assessee trust had full value its consideration paid in shape of professional/specialized expertise of such persons. The intention of assessee to run the trust for charitable purpose only. The assessee had made application of income even more than the receipts of the trust therefore, if the salary paid to specified persons were ignored than also the assessee had made 85% of the receipts as application of income for the purpose of society. Also it was covered under proviso to section 13(l)(c) of the Act that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue which had already been discussed by the department during the assessment proceedings of previous assessment years. So this is only a mere change of opinion regarding salary paid to trustees for which Id. AO had already accepted the assessee submissions. Reliance is placed on the following case laws/ judicial pronouncements: Commissioner of Income Tax, Delhi Versus M/s Kelvinator of India Limited [2010] 320 ITR 561 (SC) Commissioner of Income Tax, Faridabad Versus M/s ITW India Ltd 2015] 377ITR 195 (PSnH) Commissioner of Income Tax, Delhi Vs. Kelvinator of India Ltd. [2010 (1) TM 11 J SUPREME COURT OF INDIA] Mitsubishi Electric Automotive India Pvt. Ltd. Versus Union of India And Others 2015] 377 ITR 266 (P H) jurisdictional High Court in the case of State Bank of Patiala Versus Commissioner of Income Tax 86 another [20151 375 ITR 109 (P H) Also the amount paid to members includes travelling expenses also incurred by them for works of society. Also the school was managed by the principal but all the decision were taken by the members in the back. The principal consult with them on day to day basis. The amount paid top them includes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 26.12.1974 is reproduced as under :- 1. Attention is invited to Board's Instruction No. 45/78/66/ITJ(5), dated 24-2-1967 [printed here as Clarification 2] on the subject of assessment made under section 41 (2) of the 1922 Act/section 166 of the 1961 Act. In spite of the clear instructions to the effect that neither section 41 which give an option to the department to tax either the representative assessee or the beneficial owner of the income nor the parallel provisions of the 1961 Act contemplated assessment of the same income both in the hands of the trustees and the beneficiaries, instances have come to the notice of the Board of such double assessment According to the Scheme of the 1961 Act, even as it was under the 1922 Act, the general principle is to charge all income only once. The Board desire to reiterate the earlier instructions in this regard. In order that there is no loss of revenue, the Income-tax Officer should keep this point in view at the time of raising the initial assessment either of the trust or the beneficiaries and adopt a course beneficial to the revenue. Having exercised his option once, it will not be open to the Income-tax Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the public benefit on the basis of which exemption from taxation is granted to such entities. Trusts and societies can not be allowed to act as firms / business where members of the governing body assume that they are partners / directors and take out substantial chunks from the public funds meant, in the present case, to be spent for education. In that light the alternate claim that the amounts received from the society have been duly disclosed in the individual return of income and taxes have been paid also does not hold water. Infractions arising from misuse of exemption provisions can not be absolved on account of payment of taxes on the relevant amounts. Moreover, such conclusions, about a part of claimed utilization not being for charitable purposes, may also bring the assessee within the fold of entities that failed to utilize 85% of their income for charitable purposes. In this case, however this issue may not be relevant because of absence of any finding by the AO on this count as also the claims of the assessee that the utilization has been substantially as per the threshold of 85% (The AO needs to examine this aspect whether the threshold of 85% utilization is m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the society's school) could be usurped by a few of the members of the society who subsequently would go on to claim pecuniary benefits. This claim towards ostensible assumption of roles (which in fact remains uncorroborated and unevidenced) can not be accepted to accord any benefit to the assessee society. He further observed as under: Further the facts brought out in the assessment order lead to a fair conclusion that the members of the governing body of the society have been made unreasonable payments. Additionally, it is held that the AO was perfectly justified in holding the amount of ₹ 54,00,000/- as the amount paid unreasonably to the members of the governing body and the infraction was duly covered under section 13(l)(c) rws 13(3) 164(2) of the Income Tax. These grounds of appeal are dismissed. 12. Now the assessee is in appeal. 13. Ld. Counsel for the Assessee reiterated the submissions made before the authorities below and further submitted that the assessee is a charitable society Registered under section 12AA of the Act and is running a school in Chandigarh in the name of Delhi Public School(DPS). The reference was made to page no. 19A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -11. iii. The detail of work/services as rendered by the 'specified persons' had been explained in detail at pages 45 to 45A of the Paper Book, which is being relied upon and reference be made to specific replies for Asstt. Years 2008-09, 2009-10 and 2010-11 at pages 72 to 88 of the Paper Book-ll. iv. The salary has been paid for the past many years earlier to Asstt. Year 2008- 09 as well and accepted by the department in the orders passed u/s 143(3)/143(1) and the issues have attained finality. 13.2 The reliance was placed on the following case laws: CIT Vs. Idicula Trust Society reported in 104 DTR 0009 (P H) CIT Exemptions Vs. CMR Jnanadhara Trust reported in 55 taxmann.com 516 (Karnataka HC) Dr. D.Y. Patil Pratisthan Vs. DCIT reported in 39 taxmann.com 138 ITAT Pune Bench Young Scholars Educational Society Vs. ITO reported in 25 taxmann.com 422 ITAT Chandigarh Bench Pinegroave International Charitable Trust Vs. DCIT reported in ITA No. 567/CHD/2019 (Chd Trib) 13.3 It was further submitted that in the earlier years on the basis of similar facts payment to salary had been accepted. Therefore in view of the principles of cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on presumption/assumption without any substantive material on record. There is no misuse of exemption provisions. e. The CIT(A) has totally ignored all such factual facts and circumstances and has only presumed certain things and it is a settled law that no presumption can be made in justifying the addition as per the judgment of Hon'ble Supreme Court in the case of Omar Salay Mohamed Sait Vs CIT 37 ITR 151. f. The memorandum of association clearly stipulates about the payment to the members of the society, it is as per clause (xi) of the memorandum of association as per page 21 K of the Paper Book., which is being reproduced as under:- xi). To recompense members for all bonafide expenditure incurred for the Society and to provide for other services required for the discharge of functions of the Society. However, no member of the Governing body shall be appointed to any salaried officer. g. From the above, it is very clear that the for the services rendered by the members, the society has paid certain amount as salary/honorarium as per past practice and even the justification is there viz salary paid to staff of the school and for which, no doubt has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that since the specified persons were not providing any service and they were not attending the office regularly therefore the salary paid to them was not justified and disallowance made by the AO was rightly sustained by the Ld. CIT(A). 15. We have considered the submissions of both the parties and perused the material available on the record. In the present case the A.O. disallowed the remuneration/salary amounting to ₹ 54 Lac paid by the assessee to the members of the society for the reason that no service was provided by them and that having the qualification is not a criteria to make the payment of salary/remuneration to the members of the society. Ld. CIT(A) sustained the disallowance made by the A.O. In the instant case it is noticed that the A.O. on the one hand said that the persons were not doing any service on the contrary in para 4.2 of the assessment order he mentioned that those persons apart from doing services were also doing some other work alongwith getting salary / honorarium from the assessee. Therefore, the stand taken by the A.O. is contradictory because on the one hand the remuneration / salary paid to the members of the society was disallowed on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15.4 Similarly the Hon ble Karnataka High Court in the case of CIT (Exemption) Vs. CMR Jnanadhara Trust(supra) held as under: The payment of the amounts in question to the trustees, out of the trust amount, is not in dispute. The Tribunal has clearly set out the services rendered by these trustees for the trust and thereafter it has come to the conclusion that the said amounts paid, are reasonable and not excessive. When the trust is availing the services of these trustees and on account of the series rendered by them, there is a substantial growth in the Trust and its activities, when the payments are made for such services rendered, it cannot be said that it contravenes section 13(1)(c). Consequently, there is no justification for denying the benefit under section 11. 15.5 In the present case also when the assessee society was availing the services of the members of the society and if they have not provided those services to assessee society, it would have engaged the person from outside to whom salary was required to be paid. Therefore, the disallowance made by the AO and sustained by the Ld. CIT(A) was not justified particularly when nothing is brought on recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of CIT Vs. Leader Valves Ltd. (supra)held as under: Held, that keeping in view the principle of consistency, the Revenue could not be permitted to raise an issue in isolation only for one year in the case of one assessee, while accepting the findings on the same issue in the case of other assesses and for other years in the case of assessee. 15.11 A similar view has been taken by the Hon ble Jurisdictional High Court in the case of CIT Vs. Dalmia Dadri Cement Ltd. wherein it has been held as under: Held also, that though as a general rule the principle of res judicata is not applicable to decisions of income tax authorities and an assessment for a particular year is final and conclusive between the parties only in relation to the assessment for that year and the decisions given in an assessment for an earlier year are not binding either on the assessee or the department in a subsequent year, this rule is subject to limitations, for there should be finality and certainty in all litigations including litigation arising out of the Income Tax Act and an earlier decision on the same question cannot be reopened. 15.12 Similarly the Hon ble Gujarat High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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