TMI Blog2024 (2) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... ik. Such presumptions adopted by the Ld. AO are not permissible to invoke the provisions of section 13(3) r.w.s. 13(2C). Also, following the principle of consistency, since the reasonableness of salary to specified person has not been challenged by the revenue in the ensuing assessment years, no negative inference can be drawn in the relevant assessment year without any reasonable basis. Addition made by Ld. AO on account of payments in excess of reasonable salary u/s 13(2)(c), deserves to be struck down, and we do so. In the result, ground of the assessee is allowed. Exemption u/s 11 and 12 - denial of exemption on the ground that the assessee society has violated the provisions of section 13(1)(c) and 13 (2)(c) of the Income Tax Act - HELD THAT:- As in ground no. 2 of the present appeal, wherein we have observed that the addition made by invoking provisions of section 13(c) r.w.s. 13(2C) is not sustainable and thus, have been vacated subject to certain verifications. We, therefore, are of the view that once the primary addition of u/s 13(3) r.w.s. 13(2b) have been vacated therefore, there is no basis remains for denying the exemption u/s 11 and 12 of the Act. Accordingly, gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... society. 3. That the learned Assessing Officer has erred in denying the exemption u/s 11 and u/s 12 of the Income Tax Act on ground that assessee society has violated the provisions of section 13(1)(c) and 13(2)(c) of Income Tax Act by making excessive payment of salary to Shri G.S Patnaik, Chairman of governing body of society and tax the entire income of assessee society of Rs. 1,87,42,044/-. 4. The appellant craves for reserving the right to amend, modify, alter, add or forego any grounds of appeal at any time before or during the hearing of appeal. 3. Ground no. 1 4 of the appeal are general and academic in nature, whereupon, in absence any further contentions advanced by the Ld. AR, the same are not considered for adjudication. 4. Ground no. 2 : Addition of Rs. 8,28,636/- on account of excessive salary to Shri G.S. Patnaik, Chairman of the society within the meaning of section 13(3) and in violation of section 13(2)(c). 5. The brief facts are that the assessee is an educational society registered under Madhya Pradesh Society Registration Act, 1973 vide registration no. 4988 dated 25.07.1998. The assessee society is also registered as a charitable institut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,636/- has been added back to the surplus (income over expenditure) of the assessee society. 7. Aggrieved by such observations of the Ld. AO in the assessment framed u/s 143(3), making the aforesaid disallowance. The assessee preferred an appeal before the Ld. CIT(A), NFAC, wherein the appeal of the assessee is dismissed, and the disallowance made by Ld. AO invoking the provisions of section 13(3) r.w.s. 13(2)(c) of the Act was sustained. 8. Dissatisfied with the order of Ld. CIT(A), the assessee is in appeal before us. 9. At the outset Ld. AR of the assessee has furnished his written synopsis, the same is extracted as under: 10. It is the submission of Ld. AR that, Mr. G.S. Patnaik is highly qualified and experienced educationalist, his qualifications are M.A., M.Ed., D.EI.Ed., had been bestowed with several awards by the State Govt., Central Govt. and other prominent agencies in recognition of his services. It is pertinently mentioned by the Ld. AR that the salary paid to Mr. G.S. Patnaik was questioned and treated as excessive only in the year under consideration i.e., A.Y. 2016-17, however, in future years i.e., from A.Y. 2017-18 till of A.Y. 2023-24 also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly has been confirmed by the Ld. CIT(A). 13. On the perusal of the order of Ld. CIT(A), we find that the order was totally reproduction of the facts and observations from the assessment order and response of the assessee, however, no specific observations regarding the dismissal of the grounds of appeal by the Ld. CIT were recorded. We may herein observe and concur with the contention raised by the Ld. AR that, the equal salary was paid to Mr. Patnaik, which is disputed in the impugned year i.e., AY 2016-17 have been paid by the assessee in the future years also but that was never disputed by the department, this proves that the department has no agitation towards the reasonability of salary paid to Shri G.S. Patnaik in years subsequent to the relevant year, therefore, it can be safely comprehend that dehors any specific reasoning/ plausible explanation w.r.t. the excessive salary which has any distinguishing feature for the relevant year, the observation of the Ld. AO comparing the salary of the specified person with another employee, working out the excessive payment in the year under consideration is against the department s own stand in the future years. At this juncture, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le basis. In view of such observations the addition made by Ld. AO on account of payments in excess of reasonable salary u/s 13(2)(c), deserves to be struck down, and we do so. In the result, ground no. 2 of the assessee is allowed. 15. Ground no. 3 denying exemption u/s 11 and 12 of the Income Tax Act on the ground that the assessee society has violated the provisions of section 13(1)(c) and 13 (2)(c) of the Income Tax Act. 16. The disallowance challenged in ground no. 3 is consequential to the disallowance discussed and decided by us, in ground no. 2 of the present appeal, wherein we have observed that the addition made by invoking provisions of section 13(c) r.w.s. 13(2C) is not sustainable and thus, have been vacated subject to certain verifications. We, therefore, are of the view that once the primary addition of u/s 13(3) r.w.s. 13(2b) have been vacated therefore, there is no basis remains for denying the exemption u/s 11 and 12 of the Act. Accordingly, ground no. 3 of the present appeal is disposed-off in favour of the assessee. 17. The alternate contention raised by the Ld. AR that without prejudice to the above and without admitting the disallowance made, as per s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to in sub-clause (iia) of clause (24) of section 2, or which is of the nature referred to in sub-section (4A) of section 11, tax shall be charged on so much of the relevant income as is not exempt under section 11 or section 12, as if the relevant income not so exempt were the income of an association of persons: Provided that in a case where the whole or any part of the relevant income is not exempt under section 11 or section 12 by virtue of the provisions contained in clause (c) or clause (d) of sub-section (1) of section 13, tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate. (3) In a case where the relevant income is derived from property held under trust in part only for charitable or religious purposes or is of the nature referred to in sub-clause (iia) of clause (24) of section 2 or is of the nature referred to in sub-section (4A) of section 11, and either the relevant income applicable to purposes other than charitable or religious purposes (or any part thereof) is not specifically receivable on behalf or for the benefit of any one person or the individual shares of the beneficiaries in the income so applicable are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to specified persons. 43. As relied upon by the learned counsel, the coordinate bench decision in the case of Span Foundation versus ITO (supra) has also upheld the same proposition that in case of any alleged violation under section 13, the benefit of section 11 would not be available to the extent of application of income for the benefit of person referred to in section 13(3) the entire exemption cannot be forfeited. This decision of the coordinate bench has also been affirmed by the Hon ble Delhi High Court. Further, Hon ble Karnataka High Court in the case of CIT vs. FR. Mullers Charitable Institutions: 363 ITR 230 (Karn.) held that for violation of section 13(1)(d) entire exemption under section 11 cannot be withdrawn. Similar view has been taken by the Hon ble Madras High Court in the case of CIT versus Working Women s forum, 365 ITR 353 and in catena of other decision which has been placed on record by the learned counsel which is not being incorporated here. Thus, we hold that in the event of any violation of provision of section 13, the entire exemption under section 11 cannot be denied and would be restricted only to this extent of income misused by the Trust. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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