TMI Blog2012 (10) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... ned and followed by the Income-tax Authorities while finalizing the assessment - in favour of assessee. Amount written off treating the same as capital expenditure - Held that:- It is well settled in law that in the case of charitable institutions, any expenditure whether revenue or capital in nature, incurred for the furtherance of its objects is an application of income to the objects of the institution and, therefore, allowable as per provisions of section 11(1) - The amount on account of bad debt was spent by the assessee as per AO for capital purposes for the object of the assessee-society and in case, it was not returned, even after the matter was settled by the Civil Court, the writing off the debt are normally to be noted in the books of account as per law. Therefore, the assessee was entitled for deduction of the same on account of application of income towards the objects of the assessee society. Therefore, addition of Rs. 11,37,483/- is hereby deleted - in favour of assessee. Disallowance of honorarium - marginal increase as compared to earlier years - Held that:- The AO has nowhere doubted the payment of honorarium to the office bearers of the society for bona fid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal expenditure. 3. Whether on the facts and in the circumstances of the case CIT(Appeals) has erred in deleting the addition of Rs.12,47,450/- on account of disallowance of honorarium even though the assessee violates the provisions of section 11(5) of the Income Tax Act. 4. Whether on the facts and in the law of the case the CIT(Appeals) has erred in deleting the addition of Rs.10,00,000/- on account of donations treated as non business expenses holding that the assessee is entitled to exemption u/s. 11 of the Income Tax Act even though the assessee violates the provision of section 13(1)(c)/2(c) of the Income Tax Act. 2. We have heard the ld. Representatives of both the parties, perused the findings of the authorities below and considered the material available on record. 3. The brief facts of the case are that the assessee has filed return of income in form No. ITR-7 on 31.10.2007, declaring Nil income by claiming exemption u/s. 11 of the IT Act. The assessee-society is registered u/s. 12AA of the IT Act. The assessee has enclosed Form No. 10B as per Rule 17-B alongwith annexure regarding application of its income. During the year, the assessee has shown receipt of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also been disallowed vide para 6.1 of the assessment order again by enumerating the instance of Smt. Shanti Devi. 4.1 In appeal before the ld. CIT(A), the ld. Counsel for the assessee submitted as under:- Submission on Ground no.2 It is submitted that the assessing officer without any supporting material in a subjective manner and on his imagination held that the annual honorarium paid @ 2,40,000/- or 2,60,000/- or 2,54,900/- to certain office bearer were excessive looking to the age, qualification, experience, expertise services, although he had not raised any query regarding the age, qualification, experience and expertise The A.O. had only asked to file the details and reasonability about the services rendered and honorarium paid, which were duly reported to him vide letter dated 16.11.2009 as under:- There was no direct or indirect benefit derived by any person of precluded class, the payment made to all the persons is fully commensurate to the services rendered by them, the details of services rendered and the honorarium paid are detailed as under: Name of the person (office bearer) Duties fulfilled Honorarium paid during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter the matter of fees fixation before the committee set up by the state government for fixation of fees of private unaided professional institutions under the direction of apex court. Rs. 260000/- Smt. Poonam Chouksey She involved on day to day working of the institutions run by the society and looking after the office administration work and govt. liaison work at Bhopal Rs. 260000/- Smt. Pratibha Chouksey She involved on day to day working of the institutions run by the society and looking after the office administration work and govt. liaison work at Bhopal Rs. 254900/- Total Honorarium paid to office bearers Rs. 2494900/- The same amount of honorarium was also paid to the above person in the earlier assessment years the Department has accepted the same. It is further submitted that the above persons are deeply involved in carrying out the functions for the development and efficient management of the institutions run by the society, they are all the time in the campus or contacting various agencies for adding new courses, getting new affiliations for academics and fulfilling the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bearer of the society and chairman power to fix and finalize the payment is enclosed as Annexure-3 to this submission). The I.T.O. in gross injustice summarily in an arbitrary capricious manner held that the honorarium (remuneration) paid to certain office bearers of the society is unreasonable therefore exemption u/s 11 is lost in terms of section 13(2)(c) of the I.T. Act. The I.T.O. disallowed 50% of the honorarium added the same in the income of the appellant. Without prejudice to the above it is submitted that AO has not examined the past history of the case nor examined any comparable cases of educational institutions paying remuneration to office bearer deeply involved in administrative, management, financial, monitoring functions etc. as held in the following cases. 1. RMP Perianna Pillai Co. V/s. CIT 42 ITR 370(Mad) In the past the Assessing officer have allowed honorarium vide orders passed u/s. 143(3) as under: Assessment year Order dated 2000-2001 28.03.2003 2001-2002 10.03.2004 2003-2004 14.03.2006 The copies of relevant assessment orders are annexed as Annexure-4 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven detailed description of services rendered by him for which remuneration of Rs. 2,40,000/- has been paid to him by the appellant society. It is further seen that the same office bearers have been paid honorarium during last four years which has marginally increased in case of some office bearers whereas it has also decreased marginally in case of other office bearers as compared to last year s honorarium payment for which has also been duly approved in the resolution passed by the appellant s society. This fact is evident from the following. Name of the person (Office bearer) Age Qualification Honorarium paid during A.Y. 2007-08 (current year) Honorarium paid during A.Y. 2006-07 Honorarium paid during A.Y. 2005-06 Honorarium paid during A.Y. 2004-05 Honorarium paid during A.Y. 2003-04 Sh. Lokendre Singh Dhakre 48 yrs. Bachelor of Art Rs. 240000/- Rs. 200000/- Rs. 120000/- Rs. 120000/- Rs. 120000/- Sh. Narendra Singh Dhakre 40 yrs. Bachelor of Science Rs. 240000/- Rs. 200000/ Rs. 120000/ Rs. 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excessive and undue. There is not denying the fact that Smt. Shanti Devi, wife of the Chairman of the society is 60 years of age but this fact in itself does not prove that she is not involved in the activities of the society, as to not being eligible for remuneration of Rs. 2,40,000/-. It is also seen that the total number of students in the educational institutions run by the appellant society has been increasing steadily from 1845 in the year 2005-06 to 2090 in the current year alongwith commensurate increase in the receipts of the society. This is possible through the efforts of the office bearers of the society. In any case, honorarium paid to them is very nominal as compared to salary and honorarium paid to staff members shown at Rs. 4,20,84,208/- and accepted by the A.O. also. Similar is the position in earlier years as is evident hereunder: Assessment Year Honorarium paid to office bearers Honorarium Salaries to Faculty and other staff members Accepted in Order u/s 143(3) Dated 2000-2001 Nil 4948761.00 28.03.2003 2001-2002 700000/- 7320746.00 10.03.2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected the claim of exemption on the ground that interest free loans and advances have been given to office bearers, their relatives or the institutions run by the office bearers of the assessee society. These loans and advances have been given to the interested persons without approval of the managing committee or provision of adequate security. Also such loans and advances are not in conformity with provisions of Section 11(5) of the IT Act. The assessee s submissions on this issue are reproduced as under : It is submitted that as per para 5 of the order the ITO, Shivpuri has erroneously treated the loan of Rs. 27.20 Lacs to Shri N.S. Dhakre and a loan of Rs. 5.00 Lacs to Shri Shivendre Singh Dhakre, as given interest free loans to the members of the society. It was clarified during the Assessment proceedings as required by the AO through written reply dated 07.12.2009, submitted on 14.12.2009, that Regarding the loans made to Shri N.S. Dhakre and Shri Shivendre Singh Dhakre persons referred to in sub-section 3 of section 13, there is both (i) adequate security in the form of properties and the valuables (Annexure-5) and (ii) adequate rate of interest @ 12% and the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TO s view is erroneous not sustainable in law. It is further submitted that these loans were given in the earlier years for which assessments have been already made and income exempted. During the year no loans to the impugned institutions have been made, the assessing officer has not appreciated and considered this factual position. Assessment order made u/s. 143(3) exempting the income of past three years are enclosed. The assessee is entitled to exemption u/s 11 of the IT Act. 4.4 The ld. CIT(A) considering the explanation of the assessee granted exemption u/s. 11 of the IT Act and deleted the addition of Rs.2,04,62,920/-. His findings in para 5.2 to 5.4 of the appellate order are reproduced as under : 5.2 On perusal of records, appellant s submissions are found to be acceptable. At the outset, the said interest free loans/advances have been given in the earlier years as per the audited accounts of the appellant s society in respect of which exemption already granted by the A.O. During the course of assessment year under consideration, no such fresh loans/advances to the concerned institutions/members have been given. AO is also not correct in stating that the said l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, the ld. Counsel for the assessee reiterated the submissions made before the authorities below and submitted that the assessee has been carrying out educational activities and as such, the assessee satisfied the conditions of section 11 of the IT Act. No surplus was left with the assessee and only surplus was Rs. 88.66 and referred to PB-5 and PB-13 to show that the assessee utilized its receipts in 107.38% and as such, the addition is wholly unjustified. He has submitted that all the funds have been used for educational purposes and last year also same deduction has been allowed by the AO in the proceedings u/s. 143(3) of the IT Act and copies of the assessment orders for assessment years 2000-01, 2001-02 and 2003-04 are filed in the paper book to show that the assessee has been granted benefit u/s. 11 of the IT Act by the AO on the same facts. He has submitted that no excess amount has been paid. There was marginal increase in the payments. Whatever loans were given were given in earlier years against proper securities and interest has been charged. The ld. CIT(A) on proper appreciation of facts and the material on record rightly deleted both the additions. 7. We have consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., 156 ITR 835 and decision of Hon ble Punjab Haryana High Court in the case of Vikas Chemi Gum India, 276 ITR 32 and the decision of Hon ble Supreme Court in the case of Union of India vs. Satish Panalal Shah, 249 ITR 221 and Radhaswamy Satsang vs. CIT, 193 ITR321. Hon ble Delhi High Court in the case of CIT vs. Escorts Ltd., 338 ITR 435 held that the decision regarding the nature of transaction continued for several years, have to be maintained on principle of consistency. We, therefore, do not find any violation u/s. 13(1)(c) of the IT Act. The assessee is entitled for exemption u/s. 11 of the IT Act. Considering the totality of facts and circumstances in the light of findings of ld. CIT(A), we do not find any infirmity in the order of the ld. CIT(A) in granting exemption u/s. 11 of the IT Act to the assessee and also in deleting the addition of Rs.12,47,250/- on account of disallowance of honorarium. In the result, grounds Nos. 1 3 of appeal of the Revenue are dismissed. 8. On ground No. 2 4, the Revenue challenged the deletion of addition on account of writing off of the capital expenditure and donations. The AO made addition of Rs.11,37,483/- as capital expenditure an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Trust is approved u/s 80G(5) of the IT Act vide approval no. DIT (E)/2004-05/813/00/2162/15-10-2004 which is valid from 01.04.2004 to 31.03.2007. The said donation given through account payee demand drafts on 12.09.2006 and 29.09.2006 is also found duly reflected in the books of accounts of the appellant. Making of such donation is a normal incidence of appellant s objectives and a case of application of its income in terms or provision of Section 11. CBDT vide instruction no. 1132 dated 05.01.1978 has stated that payment of a sum by a charitable trust to another charitable trust is an application of its income for charitable purposes. The same view has also been held by Hon ble Allahabad High Court in case of CIT Vs. J.K. Charitable trust 196 ITR 31 (All).l In the remand report dated 02.03.2011 AO has simply stated the said donation is not allowable as business expenditure. Since the appellant s society is found eligible for exemption u/s 11 and donation made to another charitable trust is to be considered application of its income. Thus the AO is not found justified in making addition of Rs. 10,00,000/- on account of donation to the appellant s income. The same is, hereby, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi High Court in the case of Acme International Society (supra) held Advancing of interest-free temporary loan by assessee society to another society having similar objects is not an investment or a deposit , hence, there was no violation of provision of s. 13(1)(d) r/w s. 11(5) to render withdrawal of exemption under s. 11. 10.1 Hon ble Delhi High Court in the case of Alarippu (supra) held Conclusion of the Tribunal that amount advanced as temporary loan by assessee-society to another similar society was neither an investment nor deposit and hence there was no infringement of s. 13(1)(d) r/w s. 11(5) by assessee-society being based on facts found by Tribunal, No question of law arises. 10.2 Considering the facts of the case in the light of above discussion, we are of the view that the ld. CIT(A) rightly deleted the addition of Rs.10,00,000/- as well. No violation of section 13 f the IT Act has been found. The ld. CIT(A), therefore, rightly deleted both the additions. In the result, grounds Nos. 2 4 of appeal of the Revenue are dismissed. 11. No other point is argued or pressed. 12. In the result, the departmental appeal is dismissed. - - TaxTMI - TM ..... X X X X Extracts X X X X X X X X Extracts X X X X
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