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2021 (2) TMI 528 - AT - Income TaxExemption u/s 11 - violation of the provision of Section 13(1)(c) on account of payment of remuneration to specified person -opportunity of being heard to the appellant on various issues - Incurring expenses versus generation of surplus - institution for elite class of the society - HELD THAT:- Assessing Officer has to bring something on record or carry out any comparative analysis to show that services rendered by her are not in commensurate with the payments made. We agree with the contention of the learned counsel which is well supported by the various judgments that while making such allegations, the onus is on the Revenue to prove that payment made to the person specified in section 13(3) is excessive or unreasonable by placing material on record and the services rendered or not in commensurate with the payments made. In so far as the payment of remuneration made to Mrs. Malvika Rai is not excessive and does not violate the provision of section 13(1)(c) and accordingly the entire payment made to her is treated as application of income. Payment of scholarship and salary to Mrs. Aarti Rai - In so far as payment of salary is concern, there is no reason for making any part disallowance for the reason that, firstly; because she has been actively involved in set up of Banyan Tree School and has been rendering services; and secondly no adverse material has been brought on record that her services and other contribution is not in commensurate with the payment of salary. Payment of scholarship - For rendering of services for any institution or school affiliated to the appellant Trust a person is compensated by the salary/remuneration and not by incurring any expenditure for sponsorship of higher education from foreign University. Thus, to the extent of ₹ 13.36 lakhs towards the scholarship payment for Ms. Aarti Rai, the same cannot be treated as application of income, and therefore, Assessing Officer and Ld. CIT (A) are justified in disallowing the payment as non application of income. We agree with the other contention of the learned counsel that, only to the extent of expenditure incurred on scholarship of ₹ 13.36 lakhs for which there is a violation under section 13, same should alone be disallowed and entire exemption under section 11 cannot be denied. In the event of any violation of provision of section 13, the entire exemption under section 11 cannot be denied and would be restricted only to this extent of income misused by the Trust. Accordingly, we hold that the Assessing Officer was not justified in completing denying exemption under section 11.Thus, in view of our finding given above the exemption of section 11 in the case of the appellant Trust shall be denied to the extent of ₹ 13.36 lakhs only. Computation of income and taxing of surplus by the Assessing Officer assuming that net profit of 44.4% of the gross income is wholly erroneous and incorrect, because both Assessing Officer and Ld. CIT (A) has failed to consider acquisition of fixed assets and other capital expenditure shown in the utilisation of income as application of income for charitable purposes. During the year, as per the income expenditure account, the total amount actually spent comes to 92.83% which is far less than a statutory limit of 85%. It is no longer res integra that capital expenditure is tantamount to application of income for charitable purposes as held by the Hon’ble Supreme Court and various other High Courts as relied upon by the Ld. Counsel above. Thus, the taxing of the surplus by the Assessing Officer is not justified on facts and in law. Only the education per se has been treated as charitable in section 2(15); and if Appellant trust is imparting education for which it has been granted registration under section 12A, then Assessing Officer cannot deny benefit of section 11 and treat the Appellant trust as a business entity on this ground alone. Accordingly, such an observation and finding of the Assessing Officer and CIT (A) is reversed. Addition on account of security deposit refundable to the students - As on 31st March 2007 the refundable deposit was ₹ 1,17,62,966/- whereas, the Assessing officer has erroneously taken ₹ 22,75,226. As pointed out by the learned counsel and is also evident from the record that ₹ 22,75,226/- represented repayment/ adjustment out of student security amount on various years and the same could not have been treated as income since the entire amount is refundable by the appellant as per its mandate and very nature of security. It cannot be treated as income because there was an obligation of the part of the trust to refund as and when necessary claim is made by the student. Thus, such an addition is unwarranted. Disallowance of 50% of maintenance and fuel expenses - As clearly stated that the cars have been utilised purely for the use of the Appellant Trust and for various high positioned faculty members, then adhoc disallowance cannot be made for personal use or it can be inferred or presumed to be not utilised for the activities of the Trust. Once the car is used for officials, like, Dean, Professors and other faculty members, then usage of car for such officials of the Trust cannot be held to be for personal benefit or for non-official purposes. Accordingly, such an adhoc disallowances is directed to be deleted. Donation - we find that no details have been provided and the purpose for making such donation. Therefore, no interference is called for in the finding of the Assessing Officer and CIT(A) as nowhere it has been explained about the nature of donation and its purpose. Exemption under section 11 to the assessee on the ground that assessee runs an institution for elite class of the society her sole purpose is to make profit and no charitable intention which could be seen its operation and application of fund - HELD THAT:- CIT (A) held that once the assessee is carrying out educational activities which is charitable in nature and also granted restriction under section 12A, therefore, the assessee cannot be treated as involved in any trading, commerce or business. 50% of donation relying upon the judgement of Hon’ble Supreme Court in Queen Educational Society vs. CIT [2007 (9) TMI 347 - UTTARAKHAND HIGH COURT] he held that there is no violation of section 11 or 12. Since already the issue of Smt. Malvika Rai and ad hoc disallowance fuel expenses have been dealt by us in the earlier appeals, therefore, these grounds raised by the revenue are dismissed. Disallowance of 50% of donation is concern, we agree with the finding of the CIT (A) that there is no violation of section 11 or 12. Accordingly, we hold the CIT ( A) has rightly allowed the exemption under section 11 of the Act. - Decided against revenue.
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