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TMI Blog2023 (5) TMI 1051X X X X Extracts X X X X X X X X Extracts X X X X ..... and the use of the vehicles have not been doubted by any of the lower authorities, therefore, this interest is also to be allowed. For the balance of the interest paid to others lenders/depositors, the AO is directed to examine whether the loans were utilized for the objective of the society and if so, we direct the AO to restrict interest @ 9.25% p.a., which is equal to the interest rate of loan taken from State Bank of India. The assessee is directed to provide necessary documents for substantiating its case that the loans were utilized for the charitable purpose as set out in the object clause of the assessee and avoid unnecessary adjournments. Accordingly, this ground of appeal is partly allowed for statistical purpose. Disallowance of remuneration paid to the Secretary - Whether nature of duties performed by the Secretary cum Principal was justified who was carrying out various business activities of the trust? - HELD THAT:- CIT(A) has rightly observed that the nature of work undertaken by the Secretary-cum-Principal are common in other institutions also it is routine work. CIT(A) while deciding the issue verified through online information that the average pay is Rs.10.98 lak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o claim the financial charges a sum of Rs.2,27,12,206/- incurred in respect of the amount borrowed for the object of the society as application of income on the facts and circumstances of the case. 4. The learned Commissioner of Income-tax (Appeals) failed to appreciate that out of financial charges a sum of Rs.2,27,12,206/- (Rs.1,87,098/- is Bank charges, Rs.74,47,570/- interest paid on term loan to State Bank of India, Rs.1,48,90,558/- interest on loan, Rs.4,710/- loan processing charges and Rs.1,82,270/- interest on vehicle loan) and the same is allowable as expenditure in the hands of the appellant on the facts and circumstances of the case. 5. Without prejudice the learned Commissioner of Income-tac (Appeals) failed '-to appreciate that the learned Assessing Officer in the assessment order observed that financial charges, remuneration to the Secretary to the extent of 50 percent are not to be considered as application of income in computing the income of the society under the provisions of section 11 of the Act and the learned Assessing Officer disallowed the entire financial charges in the computation of income on the facts and circumstances of the case. 6. The lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 11 of the Income-tax Act,1961 ['the Act' for short]. The return was selected for scrutiny under CASS. Accordingly, notice u/s 143(2) of the Act was issued to the assessee on 16.9.2011 and other statutory notices were also issued to the assessee. The assessee submitted its reply on different dates. The AO also issued notice u/s 133(6) to the depositors who also replied. 2.1. On perusal of the replies received in response to letters issued u/s 133(6) of the Act from various persons, the AO observed that most of the persons have stated that the amount was given for earning interest at a higher rate and there is no other specific purpose. Many of the deposits made are still lying with the assessee society since three to four years and the society has been paying interest regularly at the rate of interest of 1.5 to 3% per month. Some of the persons have invested their entire retirement benefits with an intention to earn interest at a higher rate and have shown only such interest as their annual income. The Secretary of the Society Sri. T. Balakrishna and Smt. Sulochana Balakrishna have only stated that the advance is provided to support the working capital requirements of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount is deposited by one person of the family, subsequently the amount will be withdrawn by another person of the family. Likewise, so many entries are there in the Bank account statement. These entries clearly indicate that the family members are using the Bank account of the institution as conduit for their personal business and without any purpose are withdrawing the amount and remitting the amount. 2.4. The main objectives of the assessee society as per the Memorandum of Association are: i. To conduct Nursery, Primary and Middle school, High school. ii. To conduct technical institutions, like as typewriting, shorthand, etc., iii. To conduct Teachers training school iv. To conduct adult education v. To conduct blind and deaf schools. 2.5. From the above object clause of the assessee society the AO observed that the present activities of the society are running and maintaining schools in the name of St. Ann's School. The Society has been registered under the Karnataka Registrar of Societies Act vide registration certificate No. Sl.No.405/80-81 dated: 10th October 1980. The registration earlier rejected u/s 12A has been re-granted vide order No. ITO(E)/W-2/10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Secretary towards remuneration is covered u/s 13(3) of the Act, which is not reasonable amount looking to the services rendered by him. Accordingly, he allowed 50% of the remuneration paid to the Secretary. Accordingly, the AO completed the assessment as under:- 3. Aggrieved from the above order, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee filed detailed written submissions which were examined by the ld. CIT(A) and he observed that the assessee had taken loan from the banks as well as from others and the amount of the loan is increasing year to year. After considering the detailed submissions, the ld. CIT(A) partly allowed the appeal of the assessee. Aggrieved from the above order, the assessee has filed appeal before this Tribunal. 4. The ld. A.R. reiterated the submissions made before the lower authorities. He further submitted that during the previous year, the assessee has incurred expenditure towards interest of Rs.2,27,12,206/- for the funds borrowed and utilized for the purpose of activity of the society since the expenditure is related to the activity of the society the same was to be allowed as expenditure. The details of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncluded that the assessee is involved in business activity also. He further referred to paper book pages 31 to 32 which is a computation of income of Shri T. Bala Krishnan in which he offered salary and other income and paid tax thereon. Therefore, there is no loss to the revenue. The Secretary's taxable income is Rs.55,82,921/- and he is coming under the tax bracket of 30%. Since the AO has accepted 50% of the salary paid to the Secretary, therefore, he requested that this amount should not be added into the hands of the assessee. 4.3. The ld. A.R. in regard to ground No.10 submitted that the repayment of loan has not been granted by the lower authorities as application of income while computing the income u/s 11 and 12 of the Act based on wrong facts since the loan was taken for the day to day activity of the society and such loan has not been doubted by the revenue authorities, therefore, the repayment of such loan shall be granted as an application of income. The details of repayment of loans are as under: Sl.No. Details Amount (Rs.) 1 To bank and financial institutions 2,47,39,545/- 2 To Trustees 3,89,94,500/- 3 To others 7,24,25,727/- Total 13,61,59,772/- 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that assessee was not able to bring any case of charitable society where the remuneration is equivalent to the assessee society for the same activities. He also submitted that the remuneration is excessive, therefore, the tax should be charged in the hands of the right person and further submitted that the arguments advanced by the ld. A.R. that there is no loss to the revenue is incorrect. 5.1. Further, in respect of application of income the ld. D.R. relied on the order of the lower authorities and he drew our attention to the assessment orders for AYs 2003-04 to 2010-11 before the lower authorities, where for the AY 2010-11 there is a loss of Rs.1,31,33,243/-. It clearly shows that there was no income available for application of income for considering the income u/s 11& 12 of the Act and the assessee has repaid the loan by taking/accepting additional loan but not from the internal accrual of funds. Therefore, the case law and Circular No.100 of CBDT relied by the ld. A.R. of the assessee is not applicable. 6. After hearing both the sides and perusing the entire material available on record and orders of the authorities below, we note that during the impugned assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of remuneration paid to the Secretary, the ld. AR submitted that the nature of duties performed by the Secretary cum Principal was furnished before the lower authorities and Rs.24.00/- lakhs paid to the Secretary-cum-Principal was justified who was carrying out various business activities of the trust. The ld. DR submitted that the AO has rightly noted that the Secretary was engaged in personal activities and remuneration is very high which is 4 times the salary paid to other senior faculty. Further, from the details of activities of the Secretary furnished by the assessee before the AO, it was evident that the duties of the Secretary were normal duties and there were no special duties. Even otherwise, the remuneration allowed by the lower authorities at Rs.12 lakh/year is justified &the ld. AR of the assessee is unable to provide details to show that the remuneration paid is commensurate with other similar institutions. The CIT(A) has rightly observed that the nature of work undertaken by the Secretary-cum-Principal are common in other institutions also & it is routine work. The CIT(A) while deciding the issue verified through online information that the average pay is Rs.10.98 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source of income. Therefore Circular No.100 of CBDT relied on by the assessee will not support the case of the assessee. The ld. AR of the assessee has relied on judgment of the Co-ordinate Bench of the Tribunal in ITA No.1281/Bang/2016, order dated 01.11.2021 relied by the ld. AR is on a different footing. 9.1. We also note that from the facts available before us, it is not clear whether the loans taken were utilized for the application of income in the past years as well as in current year for the purpose of the objective of the institution. This issue has not been examined by the AO as well as CIT(A) in the light of the judgement relied by the ld. DR. For this limited purpose of verification, we remit this issue to the AO to examine the same and decide this issue as per law. AO is directed not to grant double benefit to the assessee. The assessee is directed to provide necessary documents for substantiating its case that the loans were utilized for the application of income for charitable purpose as set out in the object clause of the assessee and to avoid unnecessary adjournments for early disposal of the case. Accordingly, this ground is allowed for statistical purposes. 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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