TMI Blog2014 (4) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. Mr. Joseph John has 10 years of teaching and administrative experience and his remuneration comes only to Rs.41,200/- per month which is not only justifiable but also reasonable in the terms of quantum of services rendered by him to the school as full time teacher as also as Secretary of the assessee-trust - He is also an individual income tax assessee and has shown salary receipt of Rs.4,94,500/- and return of income submitted by him for the year in question, has been accepted by the Income Tax Department – also, Ms. Sonia Joseph, is a post graduate teacher and is working as full time teacher-cum-administrator - Her salary comes to only Rs.27,480/- per month - She is an existing income tax assessee and return of income submitted by her for the year has been accepted and assessed by the Income Tax Department, Faridabad. The Tribunal had faulted in taking Mr. Joseph John and his wife Mrs. Sonia Joseph merely as teachers when it has fixed their salaries Rs.30,000/- and Rs.20,000/- respectively comparable with other teachers of the school – the order of the Tribunal fixing salary of Mr. Joseph John to Rs.30,000/- per month and of his wife Mrs. Sonia Joseph to Rs.20,000/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Petitioner : Mr. Tajinder K. Joshi, Advocate For the Respondent : Mr. Aman Bansal, Advocate ORDER Dr. Bharat Bhushan Parsoon, J. First four appeals by the revenue pertaining to the assessment years 2003-04, 2004-05, 2005-06 and 2006-07 and next three appeals by the assessee pertaining to the assessment years 2003-04, 2004-05 and 2005-06 are directed against a common order dated 21.5.2010 (Annexure A-III) passed by the Income Tax Appellate Tribunal, Delhi Bench C , New Delhi (hereinafter referred to as, the Tribunal) in ITA Nos.1769, 2620, 2621/Del/08 and ITA No.4484/Del/09. Next two appeals pertaining to the assessment years 2007-08 and 2008-09 have been preferred by the revenue against the orders of the Tribunal dated 13.7.2012 and 30.4.2012 in ITA Nos.2116/Del/2011 and 4514/Del/2011 respectively. 2. Since issues to be adjudicated are common and inter-connected, for convenience, clarity and effective adjudication, all these appeals have been taken up together and are being decided by this common order. 3. For clarity and better comprehension of the matter in dispute, facts of ITA No.1 of 2011 out of the appeals of the revenue and ITA No.53 of 2011 out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l etc. was disallowed under Section 40(A)(2b) of the Act. For furnishing inaccurate particulars, penalty proceedings under Section 271(1)(c) were also ordered to be initiated separately. 9. When the matter was taken in appeal before the Commissioner of Income Tax (Appeals) [hereinafter referred to as, the CIT(A)], the disallowance made by the AO was found to be wrong and without merit. Rejecting the claim of the revenue, plea of the assessee was accepted. The revenue then had brought these appeals before the Tribunal, which upheld the decision of the CIT(A) only with regard to two of its trustees viz. the President and Secretary, but with regard to the other two, comparing their salaries with other teachers, had modified the order of the CIT(A) and thus had upheld part of the disallowance made by the AO qua the said two trustees. 10. Aggrieved with order of the Tribunal, the revenue claims that order of the AO refusing to treat the assessee as a charitable organization and taking it to be an ordinary association of persons, had rightly rejected amount allegedly paid as salaries to its trustees as it was unreasonable and thus, had rightly disallowed the exemption from income s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one by the CIT(A) instead of the Business or Profession provisions as done by the A.O. and reversed by the CIT(A)? D Whether an ITAT even while wrongly applying the Business or Profession approach in taxing a duly registered charitable institution, ignore the standard in Section 40(2)(a) of the Act, or the fair market value of the administration and teaching services of the Secretary and manager trustees, and instead apply the standard of the salaries of the teaching staff viz the Principal and vice Principal in the non-market charitable institution's own schools? E Whether the ITAT can arbitrarily adopt a fiftyfifty approach towards the issue of the tax treatment of the salaries of the Founder, Secretary and two Managers of the duly registered charitable educational trust, by treating the salary of the Founder and one Manager under Section 40(2)(a) in one manner and that of the Secretary and another Manager in another manner, without applying to any of them the legal standard of the fair market value of their services to assess whether the salaries are reasonable or not excessive vis a vis this legal standard? F Whether the ITAT was right in substituting the salaries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.20,96,260/- 19. The AO was dissatisfied with the details of the services rendered by these persons to the assessee and had also found that the payments made to them were 'unreasonable'. However, presuming that they had rendered at least some services for the functioning of the petitionersociety, had allowed Rs.6,98,753/- i.e. 1/3rd of the total Rs.20,96,260/- and the balance payment was disallowed under Section 40A(2)(b) of the Act. Recording his satisfaction that the assessee had furnished inaccurate particulars of income, penalty proceedings had also been separately initiated under Section 271(1)(c) of the Act. 20. Keeping in view the totality of facts and circumstances, the CIT(A) had found no merit in the appeal of the revenue. Findings of the CIT(A) on this count contained in para 3.4 of the order (Annexure A-II) dated 28.2.2008, are to the following effect: I have enquired into the genuineness of the remuneration paid to the above trustee members from Sr. 1 to 3 and 1 family member at Sr. No.4. From the data supplied by the Ld. AR in his written submissions for the Financial year 2000- 01, 2001-02 and 2002-03 from which it is quite evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts: The assessee, a charitable organization is registered as such under Section 12A of the Act since 6.7.1971. It is engaged in charitable work of imparting education through various schools run by it. Accounts maintained by the assessee as also returns of income filed by it regularly year after year have always been accepted by the revenue since then. The four trustee members are not only engaged in regular teaching to the students as is done by their other teachers but in addition to such assignment of teaching, those are engaged in managing the affairs of the schools run by the assessee as well and are not being paid separately for such managerial work done by them. These trustee members are also furnishing their income tax returns regularly as individuals and are duly showing their income received as salaries from the assessee and their said returns had also been continuously accepted by the revenue. They do not have any other income except as salaries received from the assessee. Relevant provisions of law At this stage, it would be appropriate to refer to few provisions of the Act. These are as under: Section 2(15)- Charitable purpose includes relief of the poor, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to them have protection provided under Section 13(2)(c) of the Act which clearly stipulates that salaries etc. may be made to the persons covered under Section 13(3) of the Act. 24. The AO without disputing these facts and details clearly fell in error prominently on the following counts: (i) Without mentioning as to what was already on record before it and without specifying as to what were the documents and details required by him which had not been supplied by the assessee despite demand, had drawn a conclusion that the assessee was not a charitable organization as it had not furnished vital details and documents. Before coming to this conclusion, the AO did not take into account the fact that the revenue had been assessing the assessee as a charitable organization since its very inception. Though the sole question before the AO was allowance or disallowance of the salaries paid to the trustee members and to a manager of the assesseetrustee and there was no question as to whether the trust is a charitable trust or not, the AO wrongly held that it was not a charitable organization; (ii) Despite availability of complete documentary details with him revealing the ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance made by the AO under Section 40A(2) was arbitrary. Consequently, CIT(A) had set aside the order of the AO. The Tribunal in its order of 21.5.2010 (Annexure A3), in partially affirming the salaries paid to two of the trustee members had rejected the claim of the assessee with regard to two others. The Tribunal thus had faulted like the AO, when it arbitrarily fixed the quantum of salaries taking them only as teachers. The Tribunal, in our considered opinion, had no jurisdiction to adopt such a course. 26. When order of the Tribunal impugned in these appeals is tested on legal pedestal, it also is found to be flawed on the following counts: (i) From the tabular presentation, as given below, it transpires that there had hardly been any substantial variation in the salaries paid to the named four teachers-cum-administrators of the assessee over the years. Expenditure on payment of salaries made by the assessee-trust had regularly been accepted when there was no substantial variation. Financial year Mr. T.I. John Mr. A. John Mr. Joseph John Mrs. SoniaJoseph 2001-02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the schools run by the assessee as also in running of the Trust and in performance of their duties with that regard management and administration assigned to them. (iv) Even when tested on the line of thinking of the Tribunal, the rational criteria of services and salaries paid in a similar institution of similar strength for the same type of services rendered by the members was not even referred to. (v) Even taken on its own merit, when the Tribunal reversed the order of CIT(A) concerning salaries paid to the Secretary and the Manager while upholding the order of CIT(A) concerning the President and Member of the assessee Trust, it did not follow a coherent approach. Application of different standards to the same issue giving different treatment to the salaries of the paid members of the trust, was clearly a flawed approach; and, (vi) Making reference to Section 40A(2)(a) of the Act without invoking the test of fair market value of the services enshrined in this provision for determining as to whether expenditure of salaries was 'reasonable or unreasonable', the Tribunal simply compared salaries of the Secretary and the Manager with other teachers, ignoring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t reports, were excessive. 32. Conclusion drawn by the AO that the petitioner-society is not a charitable society but exists for the benefit of persons specified in Section 13(3) of the Act, is misfounded. It is, rather, to be noticed that the appellant trust/society is pursuing an object of general public utility. Even the AO has not given any finding that the activities of the assessee had ceased to be in the nature of general public utility. It remains a fact that the petitioner is also catering to poor or economically weaker sections by imparting education to their children either without any fee or at concessional rates. 33. It is noteworthy that four persons to whom the payments have been made are full time employees of the four schools being run by the petitioner at Faridabad and they were being paid their salaries from the income of the schools. When we examine the matter a little further on the facts becoming available in the paper book, it transpires that Mr. T.I.John, Manager of Saint John School, Faridabad and of Kerala schools has 40 years of teaching experience. He is himself an individual income tax payee. His remuneration turns out to be only Rs.57,000/- per m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rincipal : Rs.29,000/- p.m. iii) Shri R. Mattoo, Vice Principal : Rs.19,765/- p.m. iv) Smt. Sadhana Sharma, Principal : Rs.20,358/- p.m. Hence in our considered opinion the salary paid to Mr. Joseph John should not exceed Rs.30,000/-. Keeping in mind the difference in salary maintained by the assessee, the salary of Mrs. Sonia Joseph should not exceed Rs.20,000/- per month. Hence, we restore the disallowance to the extent as indicated in this regard. 36. Though the Tribunal has tried to draw distinction on facts in case of Mr. Joseph John and his wife Mrs. Sonia Joseph but the same is not resting on sound pedestal against the assessee. 37. It is to be noticed that Mr. Joseph John has 10 years of teaching and administrative experience and his remuneration comes only to Rs.41,200/- per month which is not only justifiable but also reasonable in the terms of quantum of services rendered by him to the school as full time teacher as also as Secretary of the assessee-trust. He is also an individual income tax assessee and has shown salary receipt of Rs.4,94,500/- and return o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the AO as also partially of ITAT are wrong and untenable in law. Order of CIT(A) is restored in toto. All these questions of law are answered in favour of the assessee and against the revenue. 43. So far as ITA Nos.290 and 249 of 2012 filed by the revenue for the assessment year 2007-08 and 2008-09 are concerned, the AO vide orders dated 17.3.2006 and 30.11.2010 respectively, had found that percentage of profit earned by the assessee was more than 85% and most of the amount had been put in fixed assets. It was also found that the assessee had purchased cars including Toyota Corolla. Denying the charitable status to the assessee, the AO had also refused to grant benefit under Section 11 of the Act. 44. The CIT(A) in order dated 28.2.2008 disagreeing with the AO had come to a firm finding that there was no diversion of profits of the assessee for the benefit of an individual and rather, profits had been utilised for the purpose of education. It is further concluded by the CIT(A) that the surplus over and above 85% of profits, could be retained by the assessee and the assessee could apply its receipt to the extent of 85% for the fulfilment of its objects in the field o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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