TMI Blog2007 (9) TMI 446X X X X Extracts X X X X X X X X Extracts X X X X ..... long as the objects are charitable purposes, merely because there is some surplus in the activities carried out by the assessee will not disentitle it to claim exemption u/s 11 and 12 of the Act. Such exemption u/s 11 and 12 can be denied provided there is violation as contemplated in section 13 of the Act. Under section 13(1)( c ) only where the income or property is used for applying directly or indirectly for the benefit of any person like author of the trust or the person who has made substantial contribution or any trustee or manager or any relative of such aforesaid person etc. is given. As found by learned CIT(A), the payments made to person referred to in sub-section (3) of section 13 are for the services rendered by those persons and which is commensurate with the nature of services rendered. There is no prohibition in the Act to remunerate the interested person but such remuneration should be commensurate with the services rendered by them. If so found, it cannot be said that provisions of section 13(1)( c ) are attracted so as to deny benefit of exemption u/s 11 and 12 of the Act. Since it is found by learned CIT(A) that payment is not undue or unreasonable, the exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities. Pending the registration under section 10( 23C )( vi ), the assessee claimed exemption under sections 11 and 12 of the Act. The Assessing Officer found that financial benefits are provided to the relatives of the Chairman, Members of Governing Board and Members of the society. He accordingly held that there is infringement of provisions of section 13(1)( c ) of the Act and hence, the benefit of exemption under sections 11 and 12 of the Act are not available. It was observed by the Assessing Officer that total salary of Rs. 1,64,289 was paid to Shri Prasant Pandey who is the son of the Chairman Capt. V.K. Pandey. Assessing Officer also observed that Shri Prasant Pandey was the governing body member of the society and employed as bursar in the roll of Higher Secondary School. It was further observed by the Assessing Officer that the appellant failed to file any evidence regarding service rendered by Shri Prasant Pandey. He also observed that salary to non-teaching staff was given as per Delhi Government norms. Basic salary of accountant with B.Com. degree was Rs. 5900 p.m. salary of LDC in the school was Rs. 3,500 p.m. while the gross salary of Prasant Pandey was Rs. 13, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity and not entirely for educational purposes. On these basis the Assessing Officer held that the society has infringed the provisions of section 13(1)( c ) and, therefore, benefit of sections 11 and 12 cannot be allowed to the appellant. 2.2 Learned CIT(A), after considering the reply of assessee, held as under: 4. I have considered the submissions of the appellant and facts of the case carefully. It is a fact that appellant is running educational institution whose income has been treated as exempt under section 10( 22 ) of the Income-tax Act in the past. I have also perused the judgment of Hon ble ITAT Delhi in the case of appellant and ITAT has held vide various orders in assessment years 1991-92, 1992-93, 1993-94, 1994-95 and 1995-96 consistently that the income of the appellant is exempt under section 10( 22 ) of the Income-tax Act. During this year the appellant has claimed the income as exempt under new section i.e. 10( 23C )( vi ). But as per provisions of this section approval is to be granted by the prescribed authority i.e. DG(E) and the matter is pending for the decision before the DG(E) in this regard. Therefore, Assessing Officer was not in a posi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been used for personal purposes by the principal or the chairman. On the contrary appellant has shown that both chairman and the principal are having their separate car for personal purposes. Even if for argument sake there is some personal use of car the Assessing Officer should take the perquisite value of the same in the hand of the principal or the chairman but this cannot be considered as a violation of provisions of section 13(1) of the Income-tax Act as there is no undue or unreasonable expenditure on these amenities. 4.2 As far as the payment to Nikhil Pandey is concerned I have examined the facts carefully. He is B.E. (Civil) from a reputed institute namely National Institute of Technology, Allahabad in 1991 and has rendered services at various places and has got sufficient experience. He has been appointed as a counselor in the institute and considering his qualification and experience the total salary of Rs. 1,77,155 cannot be treated as excessive salary by any standard. His salary is quite reasonable considering his qualification and experience and it cannot be called as personal benefit and there is no violation of section 13(1) in this regard. 4.3 As far as sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 10( 23C ) of the Income-tax Act. 4.5 The Assessing Officer has also raised the issue that there a surplus during this year which shows that the activities of the assessee is profit earning activity. The object of the assessee has always been imparting education which has been held justified on the facts of the case by Hon ble ITAT, Delhi has mentioned in para 4. The Hon ble ITAT has held that institute is solely existed for educational purposes and therefore the institution is eligible for exemption under section 10( 22 ) of the Act. Simply if there is a surplus in this activity it will not amount to denial of the exemption. It has been held by Hon ble Supreme Court in the case of Addl. CIT v. Surat Silk Cloth Mfrs. Assn. 121 ITR 1, 28 (SC) that the test is what is predominant object of the society whether it is to carry out a charitable purpose or to earn profit If the predominant object is to carry out a charitable purpose and not to earn profit the purpose would not lose its charitable character merely because some profit arises from the activity. Similar view was also held in the case of CIT v. Andhra Pradesh State Road Transport Corporation 159 ITR 1 , (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not admissible, is devoid of merits. So long as the objects are charitable purposes, merely because there is some surplus in the activities carried out by the assessee will not disentitle it to claim exemption under sections 11 and 12 of the Act. Such exemption under sections 11 and 12 can be denied provided there is violation as contemplated in section 13 of the Act. Under section 13(1)( c ) only where the income or property is used for applying directly or indirectly for the benefit of any person like author of the trust or the person who has made substantial contribution or any trustee or manager or any relative of such aforesaid person etc. is given. As found by learned CIT(A), the payments made to person referred to in sub-section (3) of section 13 are for the services rendered by those persons and which is commensurate with the nature of services rendered. There is no prohibition in the Act to remunerate the interested person but such remuneration should be commensurate with the services rendered by them. If so found, it cannot be said that provisions of section 13(1)( c ) are attracted so as to deny benefit of exemption under sections 11 and 12 of the Act. Since it is foun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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