2023 (5) TMI 1051 - AT - Income Tax

Exemption u/s 11 - Assessment of trust - assessee has paid interest to three financial institutions - AO has disallowed the on the premise that the interest rate is very high the loan taken has been utilized for the payment of earlier loans leading to unnecessary/excess interest running in loss - HELD THAT - The funds of the assessee is not utilized for the objectives of the institution but utilized for repayment of earlier loan and interest. On perusal of details it is noticed that the SBI has sanctioned loan to the assessee at 9.25% p.a. on monthly basis. The bank has granted loan for the specific purpose i.e. land development expenses Building amenities computer etc. for Rs. 10.80 Crores - Assessee has shown application of income under the capital expenditure it shows that the bank loans were utilized for the designated purpose. In view of this interest paid to the bank is allowed. Assessee has paid interest to HDFC Bank Ltd. and Tata Motors Ltd. for the vehicle loan 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 lakhs per year as of 2020 whereas the case of the assessee relates to AY 2010-11 i.e. 10 years back where the remuneration must be much lower. Assessee s contention is that the recipient has paid due taxes on the entire amount of Rs.24 lakhs and produced computation of income along with the copy of acknowledgment of return and submitted that there is no loss to the revenue.This aspect has not been examined by the lower authorities. Therefore we remit this issue to the AO for the purpose of verification as to whether there is any loss to the Revenue or not and decide the issue as per law. This ground is allowed for statistical purposes. Application of income for repayment of loan - HELD THAT - As 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. This ground is allowed for statistical purposes.

Summary

Issues Involved:

1. Disallowance of financial charges.
2. Disallowance of remuneration paid to the Secretary.
3. Non-recognition of loan repayments as application of income.
4. Liability to pay interest under section 234B of the Act.

Summary:

1. Disallowance of Financial Charges:

The assessee challenged the disallowance of financial charges amounting to Rs.2,27,12,206/- by the Assessing Officer (AO). The AO observed that the funds received from various creditors were not loans but deposits made to earn higher interest rates, indicating that the society was involved in banking and finance business. The AO disallowed the interest paid on these deposits, citing that the funds were not utilized for the society's objectives but for repaying earlier loans and interest. The Tribunal allowed the interest paid to banks (Rs.74,47,570/-) and vehicle loans (Rs.1,80,656/- and Rs.1,614/-) but directed the AO to verify and restrict the interest paid to other lenders (Rs.1,50,82,366/-) to 9.25% p.a. if used for the society's objectives.

2. Disallowance of Remuneration Paid to the Secretary:

The assessee contested the disallowance of 50% of the remuneration (Rs.12,00,000/-) paid to the Secretary, arguing that the Secretary was involved in day-to-day activities and the payment was reasonable. The AO found the remuneration excessive compared to other faculty members. The Tribunal remitted the issue to the AO for verification of whether there was any loss to the Revenue, as the Secretary had paid taxes on the entire amount.

3. Non-Recognition of Loan Repayments as Application of Income:

The assessee argued that loan repayments of Rs.13,61,59,772/- should be considered as application of income under section 11 of the Act. The AO and CIT(A) did not grant this, citing that the loans were repaid by raising fresh borrowings, not from internal accruals. The Tribunal remitted the issue to the AO to verify if the loans were utilized for the society's objectives in the past and current years, and to ensure no double benefit is granted.

4. Liability to Pay Interest Under Section 234B:

The assessee denied liability to pay interest under section 234B, arguing that there was no additional tax liability. The Tribunal did not specifically address this issue in the summary provided.

Conclusion:

The Tribunal partly allowed the appeal for statistical purposes, directing the AO to re-examine certain aspects and verify the utilization of funds and the reasonableness of the remuneration paid to the Secretary. The order emphasized the necessity of substantiating claims with proper documentation and avoiding unnecessary adjournments.