TaxTMI 
TaxTMI 
2020 (9) TMI 674
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....- being 50% of the salary paid by the Appellant Society, out of the budgeted grants received from two foreign NGOs to its Secretary as excessive and unreasonable in terms of Section 13(2)(c) of the Income Tax Act, 1961 without applying their independent mind and providing coherent and germane reasons for the same? and ii. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the disallowance of Rs. 4,47,400/- being 50% of the salary paid by the Appellant Society, out of the budget grants received from two foreign NGOs to its Secretary without considering the fact that the said payment were made out of funds allocated by 'donor agencies' and does not tantamount as 'resources' of the Appellant Society under Section 13(2)(c) of the Act? T.C.A.No.496 of 2016 :- "i. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in remanding the file to the Commissioner of Income Tax (Appeals) with regard to the issue as to whether the appellant is eligible to claim exemption under Section 11 of the Act owing to the purported micro finance activity without perusing the submissions and evide....
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....onable and excessive, as when the two foreign NGOs have thought that these two amounts are reasonable for the services rendered by the Secretary, the Assessing Officer cannot substitute his discretion with the discretion of the two respectable International Organisations. 5.It is further submitted that "Reasonability" should be seen from the perspective of the donor and it cannot be dependent on the geographical location of the Appellant Society's headquarters or its relief operations (which happens to be a Tier 3 town) or the Head Quarters of the Assessing Officer. It is submitted that when the Income-tax Department has collected tax on the salary income from the Secretary, it should not disallow the very same salary from the payer Society, as that would tantamount to double taxation. 6.It is submitted that the first issue in T.C.A.No.496 of 2019 is whether the appellant-Society comes under the last limb of sub-Section 2(15) of the Act as well as the two provisos thereunder. On a perusal of both the original as well as the expanded objects of the Society, it is seen that the appellant-Society falls under the first limb of sub-Section 2(15) of the Act, viz., 'relief of th....
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....y bearing on the disallowance of the salary paid to the appellant-Society. The appellant-Society had received two grants from two foreign NGOs during the previous year relevant to the impugned assessment year. In the assessment order, at para 5.2, the Assessing Officer has held that in respect of the grant received from the EC, the appellant-Society has spent more than 50% toward its 'administrative expenses' and therefore, the appellant-Society has violated the provisions of FCR Rules/Charter for Associations. The CIT(A) agrees with the contention of the appellant-Society that the violation of another enactment does not have any implication in Income Tax law. 9.The Department had come on appeal before the Tribunal relying on the decision of the Supreme Court in the case of Maddi Venkatraman & Co. (P) Ltd. vs. CIT [(1998) 229 ITR 534]. The appellant-Society filed a written submission, wherein it was submitted that FCR Rules do not say that more than 50% of the grant received should not be spent on 'administrative expenses'. It was also submitted that the decision of the Supreme Court in the case of Maddi Venkatraman & Co. (P) Ltd. (supra), does not apply to the fac....
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....ntative appeared before the Assessing Officer and had produced the documents called for. The assessee's case was selected for scrutiny under CASS to examine the cash deposits and profit and gains from business or profession in case of Trusts. The assessee represented that the major receipts received are by way of contribution grants received from FCRA such as Child Development Project, AVVAI GTZ Project, Care BOC, CCF Pondy, grants received from Non-FCRA Project such as Nabard and also from interest from banks. The assessee produced relevant materials to show its activities and also certain information with regard to the activities done by them in the financial year 2011-12. The Assessing Officer completed the assessment under Section 143(3) of the Act by order dated 31.03.2015, denied the claim for exemption under Section 11 of the Act. 12.Aggrieved by such order, the assessee preferred appeal before the Commissioner of Income Tax (Appeals)-2, Tiruchirappalli, contending that the objects of the Trust have been carried out without any deviation at any point of time and that the Assessing Officer erroneously came to a conclusion that the assessee is indulging in commercial acti....
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....ng 50% towards administrative expenses does not have any implication with Income Tax Law. The Tribunal, after taking note of the said decision, pointed out that the Hon'ble Supreme Court has held that it is against the public policy to allow the benefit of deduction under one statue of any expenditure incurred in violation of the provisions of another statute and therefore, allowed the appeal filed by the Revenue to the said extend. 17.The next issue, which was considered by the Tribunal, was with regard to the rent paid by the assessee-Society to its Accountant, Shri Ashok. The Assessing Officer held that there was no necessity to pay rent because, the Society has already its own building and, the programmes of the Society are being held in coastal areas and, the need to have a separate rented building to maintain an office does not arise. Notwithstanding the same, the Assessing Officer held that the payment to the Accountant cannot be accepted as towards rent, as claimed by the assessee. The said addition was sustained by the CIT(A). 18.The Tribunal faulted the CIT(A) for sustaining the addition by observing that without even calling for any details from the assessee, the ....
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....ted and collected. The assessee Avvai Village Welfare Society in addition to the amount, receives services charges amounting to Rs. 6,63,015/-. Further, it is observed that the Secretary of the society Shri.M.Krishnakumar is seen receiving a salary from Namadhu Deepam Micro Financial Services amounting to Rs. 1,25,000/-. In the said company, Namadhu Deepam Micro Financial Services, the secretary of the association Shri. M.Krishnakumar is holding 7.24% of the shares. For the mere service of facilitating loan to its members, the assessee is receiving service charges amounting to Rs. 6,63,015/-. This clearly proves that the assessee is doing only commercial activity, i.e., acting as business correspondent of HDFC Bank which is not the original object of the Society. 3.9. The assessee-Society provides services to the SHGs in the name of 'charity' by collecting service charges and higher interest from them for managing its own expenses. Though the assessee claims that it is offering services to the poor, there are no services provided to them 'free of cost'. Hence, there is no element of 'charity' and the activities of the society is to be considered as '....
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....ceived a salary of Rs. 9,95,000/-. As can be seen, the Society has paid 10% of the amount earmarked for Charitable Purposes to the Secretary of the Society as 'salary'. If salary received by the Secretary alone is 10%, the question 'where is charity' remains to be answered. As per Section 5 of the FCR Rules, what constitutes 'Administrative Expenses' is defined. As per the Charter for Associations who have been granted Registration or prior permission under FCRA, it is clearly stated that "not more 50% of the foreign contribution shall be defrayed to meet administrative expenses of the Association". In this case, the point is 10% of the amount earmarked for Charitable Purposes is given to Shri.M.Krishnakumar as salary, who is the Secretary of the Association. Therefore, the assessee-Society has paid its Secretary salary in excess of what may be reasonably paid for such services as defined in Section 13(2)(c) of the Act. In view of this, the assessee-Society is denied exemption under Section 11 and the sum Rs. 9,95,000/- is brought to tax. 23.The returns of income filed by Shri Krishnakumar, Secretary of the assessee-Society and his spouse, Mrs. K.Akalya ar....
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....nterfere with the order passed by the Tribunal. 28.The endeavour of Mr.S.Sendamarai Kannan, learned counsel for the appellant was to substantiate his contentions by stating that the amount, which was paid to the Secretary as salary, was from the foreign funds and not the funds of the Society. Furthermore, the assessee is a very reputed organization and foreign contributions, which are remitted through banking channels, are from very reputed European Organizations and those European Organizations, who give contributions also specify the manner in which it has to be expended and that the Secretary, who is the Project Co-ordinator is entitled to 2000 Euros every month and this alone was paid as salary and looking from the angle of the foreign contributor, 2000 Euros is not a very huge sum to be portrayed, as being disproportionate. In this regard, the learned counsel has referred to the documents filed in the additional typed set of papers and stated that these documents were filed before the Tribunal, but the Tribunal did not consider the same. It is not in dispute that the documents now sought to be pressed into service were not placed before the Assessing Officer in the form and m....