TMI Blog2020 (9) TMI 674X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) by which, it sustained only 50% of the addition to the tune of ₹ 4,47,500/-. The Tribunal pointed out that the allowance of 50% of salary to the Secretary granted by the CIT(A) was not disputed by the Department in their appeal before the Tribunal and therefore, found no reason to interfere with the order passed by the Tribunal. We find that no such contention was advanced based upon the documents, which are now pressed into service. Much reliance was placed on the Grant Contract with the European contributors and the conditions contained therein and contended that the payments made were in accordance with the terms of the contract and there is no possibility for the assessee to deviate. The documents, which were not placed before the CIT(A) if are to be placed before the Tribunal, then leave of the Tribunal should have been sought for. Appeals before us are under Section 260A of the Act and we are to decide as to whether a substantial question of law arises for consideration in these appeals. We are not here to exercise powers as a third appellate authority. We have set out the relevant facts in the preceding paragraphs to demonstrate that the entire matter, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '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 evidences placed on record? ii. 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) the issue on whether the Appellant is eligible to claim exemption under Section 11 of the Act, with a specific direction to solely consider the decisions relied on by the Departmental Representative? iii. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Appellant has violated the Foreign Contribution Regulation Rules, 2011 for defraying more than 50% of the foreign contribution towards administrative expenses, despit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary 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 the poor'. From the bare reading of this sub-Section as well as Circular No.11 of 2008, dated 19.12.2008 issued by the Central Board of Direct Taxes (Board), it would be clear that the two provisos under Section 2(15) would be applicable to the entities which come under the last limb, that is, 'advancement of any other object of general public utility'. However, the Assessing Officer has ignored this basic test and held that the appellant-Society comes under the mischief of the two provisos under Section 2(15) of the Act and denied exemption. According to the Assessing Officer, the appellant-Society had done micro finance activities an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 facts of the appellant-Society. However, at paras 6, 6.1. and 6.2., of the impugned order, the Tribunal has upheld that order of the Assessing Officer that the appellant-Society had violated the FCR Rules. 10.A Miscellaneous Petition under Section 254(2) of the Act was filed before the Tribunal praying for rectification of this mistake. However, the Tribunal has refused to rectify this mistake. It is submitted that the entire grant was spent in accordance with the donors' commands and that this act of the appellant-Society is in consonance with Section 8(1)(a) of FCR Act. The Tribunal/Assessing Officer has no jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 activity. Further, it was contended that the Assessing Officer is erred in coming to the conclusion that the administrative expenses incurred by them is in excess of the ceiling prescribed by the Foreign Contribution Regulation Rules, 2011 (for brevity the FCR Rules ). Further, the Assessing officer erred in making an addition of ₹ 9,95,000/- being the salary paid to the Project Coordinator and that the Assessing Officer erred in relying on media reports to depict the assessee-Society in bad light. 13.The CIT(A) by order dated 04.11.2016, partly allowed the appeal. Against the said order, both the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 CIT(A) could not have sustained the addition. Further, it was held that provision made for rental was duly agreed by the concerned agency and out of the foreign fund, the expenditure was met and the rent was not paid from the assessee's fund. Accordingly, the assessee's appeal was allowed to that extent and the addition made and sustained by the CIT(A) was deleted. 19.It was argued by Mr.S.Sendamarai Kannan, learned counsel for the assessee that the assessee-Society would fall within the first limb of sub-Section 2(15) of the Act. On a reading of the assessment order, it is seen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce charges amounting to ₹ 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 'commercial' since the activity of the trust has resulted in certain profit. Thus, the activity of Micro Financing is an activity in the nature of trade/commerce/business, it cannot be considered as charitable. The proviso to Section 2(15) further clarifies that, even in the income generated is ploughed back into its own micro finance activity or for any other activity stipulated in its objects, it cannot be considered charitable. Here in this case, the surplus is applied to earn more income by ploughing it back into micro finance activity. In othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 ₹ 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 are scanned and placed. It is observed that the trustees have been unduly benefitted viz., the business of Mrs. K.Akalya is tailoring, the receipts of which are very meagre but perusal of the balance sheet shows assets disproportionate to the income earned. Similarly the income of Shri Krishnakumar is also mainly salary receipts from the society, but the value of the properties acquired by him on which the rental income is admitted is also not explained. 24.1. By engaging in Micro Finance Activity, which is consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations, 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 manner now it is sought to be presented. 29.We have perused the grounds of appeals filed before the CIT(A) and we find that no such contention was advanced based upon the documents, which are now pressed into service. Much reliance was placed on the Grant Contract with the European contributors and the conditions contained therein and contended that the payments made were in accordance with the terms of the contract and there is no possibility for the assessee to deviate. The documents, w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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