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TMI Blog2025 (4) TMI 1272X X X X Extracts X X X X X X X X Extracts X X X X ..... ls) [CIT (A)]. The impugned order also disposed of the Assessee's appeal in respect of AY 2007-08, being ITA 1142/Del/2011. 2. The above captioned appeals are in respect of the impugned order pertaining to the appeals preferred by the Revenue (being ITA 2871/Del/2014, ITA 2872/Del/2014 and ITA 1131/Del/2016) for AY 2009-10, 2010-11 and 2011-12. 3. By a common order dated 12.09.2023 passed by this Court. The aforementioned appeals were admitted and the following questions of law were framed for consideration of this Court: "(i) Whether the Income Tax Appellate Tribunal [in short, "Tribunal"] misdirected itself on facts and in law in holding that the respondent/assessee had not violated the provisions of Section 13 (l)(c) of the Income Tax Act, 1961 [in short, "Act"] in remunerating Ms Malvika Rai for services rendered? (ii) Whether the impugned order passed by the Tribunal is perverse both on facts and in law? 4. For the purposes of the present appeals, we consider it apposite to refer to the facts as relevant to the assessment in respect of AY 2009-10, which is the subject matter of ITA 181/2023. The Assessee (formerly known as Ram Krishna Kulwant Rai Charitable Trust) came ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of making profit. Apart from the disallowance under Section 40A (2) (a) of the Act in respect of salaries paid to Ms Rai, the AO also added expenditure incurred by the Assessee in maintaining cars and fuel expenses as well as donations made by the Assessee. In aggregate, the AO disallowed a sum of Rs. 26,06,844/-, which was booked as expenditure by the Assessee in its accounts. The Assessee's income was, accordingly, assessed at Rs. 12,69,57,640/- and the Assessee was treated as an association of persons for the purposes of levy of income tax on the assessed income. 10. As noted above, the Assessee's registration under Section 12A of the Act was cancelled in terms of an order dated 07.07.2011 passed by the Director Income Tax (Exemptions) with effect from AY 2003-04. The Assessee had filed an appeal against the said decision before the learned ITAT, which was pending at the material time. 11. The Assessee preferred an appeal before the CIT (A). The CIT (A) allowed the appeal and deleted the addition made by the AO in respect of expenses booked under the head of Maintenance and Fuel Expenses as well as the addition of Rs. 4,86,000/- made on account of part disallowance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 11/12 of the Act. The Revenue also challenged the finding of the CIT (A) that the salary drawn by Ms Rai was commensurate with her educational classification. The Revenue's appeal was allowed by a common order dated 08.11.2017. 14. The Assessee filed an application before the learned ITAT for recalling of the common order dated 08.11.2017 passed by the learned ITAT, inter alia, on the ground that the learned ITAT had not rendered any decision in the application filed by the Assessee for producing additional evidence under Rule 29 of the Income Tax Appellate Tribunal Rules, 1963. The learned ITAT allowed the said application and recalled the common order dated 08.11.2017, whereby the Revenue's appeal was allowed. 15. Thereafter, the learned ITAT proceeded to examine the Revenue's appeal in the light of the additional evidence produced by the Assessee and dismissed the Revenue's appeal. We consider it apposite to set out the following passages from the impugned order: "14. Learned counsel rebutted the aforesaid observation and the conclusion of the learned CIT (A) in the following reasons: (a) First and foremost, the CIT (A) erroneously considered remuneration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, 210, 212, 213, 215, 216, 217, 218, 219) 16. On a perusal of the aforesaid additional evidence placed on record, it was submitted that being Chairperson of 'IILM' as a whole, Mrs. Malvika Rai has been actively engaged in the working of the Institutes and managing the day to day affairs of the schools and colleges run by the appellant. She was a part of the events organized by the schools and has represented IILM before distinguished guests on numerous occasions. To further substantiate the activities undertaken by Mrs. Malvika Rai, the assessee has given the following gist of activities for various events organized by the assessee in the under the guidance of Mrs. Malvika Rai, as submitted before the CIT (A) for assessment year 2008-09: S.No. Particulars of Event Page Nos of Add. Evidence Application 1 Convocation ceremony wherein Mrs. Malvika Rai is seen meeting with Prof Chris Taylor Vice-Chancellor, University of Bradford 210*211 2 Function at Banyan Tree World School (formerly known as IILM Word School) wherein Mrs. Malvika Rai is seen meeting with Mr. Patrich Rittee from International Baccalaureate Organisation 212*213 3 Alumni Association get-together meeting. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deleted by CIT (A) 2011-12 16,20,000 NIL No disallowance by AO. 19. In view of the aforesaid profile/ roles and responsibilities and contributions / services of Mrs. Malvika Rai, it has been submitted that the aforesaid salary paid to her was very much justified and not at all unreasonable/excessive and cannot, in any manner, be considered as giving of any undue benefit by the appellant. It was further submitted that under section 13 (1) (c) read with section 13 (2) (c) there is no bar on payment of salary, etc., to the persons mentioned in section 13 (3) of the Act for the services rendered by such persons. The law only provides that if payment is made to persons mentioned in section 13 (3) of the Act in respect of services rendered by such persons, the same should not be unreasonable." SUBMISSIONS 16. Mr Abhishek Maratha, the learned counsel appearing for the Revenue submitted that the exemption under Section 11/12 of the Act was unavailable to the Assessee as it was admitted that it had paid salary to a related party. He relied on the decision of the Coordinate Bench of this Court in Director of Income Tax (Exemption) v. Charanjiv Charitable Trust: 2014 SCC OnLine Del 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (2) of Section 13 of the Act. The said provisions are set out below: "13. Section 11 not to apply in certain cases. -(1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- *** *** *** (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3): Provided 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 2 of the Act if any amount is paid by way of a salary or allowance to a person, which is specified under sub-section (3) of Section 13 of the Act, it would be deemed that the income of the property or trust has been applied for the benefit of that person for the purposes of Clause (c) and (d) of sub-section (1) of Section 13. However, if a person specified under sub-section (3) has rendered any service and the amount or allowance paid to such person is such, that is, reasonably paid for such services, the same cannot be deemed to have been applied for the benefit of the said person for the purposes of clauses (c) or (d) of Section 13(1) of the Act. This is apparent from the plain language of clause (c) of sub-section (2) of Section 13 of the Act. The opening words of the said clause must be read in conjunction with the last words of the said clause - "If any amount is paid by way of salary, allowance or otherwise .... in excess of what may be reasonably paid for such services". Thus, if the amount paid for services is such as is reasonably payable for such service, the same cannot be construed as applied for the benefit of a prohibited person notwithstanding that it is paid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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