Income Tax Appellate Tribunal - Agra
Pratap Wahini Samaj Kalyan Sansthan, ... vs Department Of Income Tax on 27 February, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL,
AGRA BENCH, AGRA
BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND
SHRI A.L. GEHLOT, ACCOUNTANT MEMBER
ITA No. 301/Agra/2012
Asstt. Year : 2009-10
A.C.I.T., Circle 3(1), vs. M/s. Pratap Wahini Samaj Kalyan Sansthan,
Gwalior. 67, Vivek Nagar, Gwalior (M.P.)
(PAN : AAATP 5148 P)
(Appellant) (Respondent)
Appellant by : Shri Waseem Arshad, Sr. D.R.
Respondent by : Shri Rajendra Sharma / Manuj Sharma, Adv.
Date of hearing : 27.02.2013
Date of pronouncement of order : 08.03.2013
ORDER
Per Bhavnesh Saini, J.M.:
This appeal by the Revenue is directed against the order of ld. CIT(A), Gwalior dated 30.04.2012 for the assessment year 2009-10 on the following grounds :
"(i). Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.1,09,63,771/-
made by assessing officer on account of disallowance of exemption claimed u/s. 11 of the Income Tax Act.
(ii). Whether on the facts and in circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.7,00,000/- made by assessing officer on account of disallowance u/s. 40(a)(ia) of the Income Tax Act."
2 ITA No. 301/Agra/20122. Briefly, the facts of the case are that as against nil returned income, assessment has been made on total income of Rs.1,16,63,770/- by making addition of Rs.7,00,000/- u/s. 40(a)(ia) for legal expenses on which TDS has not been made and of Rs.1,09,63,771/- on account of net surplus declared as per income and expenditure account by disallowing exemption claimed u/s. 11 of the IT Act. The assessee is engaged in educational activities and has declared receipts from running of two colleges in the name of Maharana Pratap College of Technology and Maharana Pratap College of Dentistry & Research Centre. The assessee in the return of income claimed exemption u/s. 11 of the IT Act.
3. As regards the disallowance made u/s. 11 of the IT Act, the said disallowance has been made by the AO by applying provisions of Section 13(1)(c) of the IT Act solely on the ground of payment of LIC renewal premium of Rs.
70,872/- from the funds of the society in respect of endowment insurance policy of Shri Narendra Singh Dhakre, Secretary of the Society. While holding so, AO has mentioned as under:
"On going the through the audit report in Form 108 dated 28.09.2009, submitted along with return, it is seen that in Part II of Annexure to the audit report the CA at Paint No.3 has mentioned that the payment of Rs.18,95,000/- paid to office bearers of society and other staff as honorarium for meeting out expenses wholly, necessarily and exclusively incurred for the purpose of carrying and performing functions for the benefit of the society The assessee vide order sheet dated 25.11.2011 was asked to furnish details of 3 ITA No. 301/Agra/2012 honorarium paid. In this regard, the assessee submitted vide its reply dated 29.11.2011 and as per details filed, out of honorarium paid to the different office bearers. One payment of Rs.2,80,000/- was made to Mr. Narendra Singh Dhakre, as Secretary of the society. During the course of assessment of proceedings, the AR of the assessee was asked to furnish details and justification of expenditure of Rs.1,49,224/- and Rs.99,000/- incurred on the insurance and Key man insurance respectively. Vide its reply dated 29.11.2011, the assessee submitted as "regarding insurance expenses of Rs.1,49,224/- it consists of Rs.86,224/- incurred by the society. The expenditure of Rs.86,224/- by MPCT include a payment of Rs.70,872/- towards the key man insurance policy of Narendra Singh Dhakre, secretary of the society.
On exemption of the above submission, it was observed that LIC premium receipt in the name of Shri Narendra Singh Dhakre, was in fact an Endowment policy and not a Key man insurance policy as claimed by the assessee society. For further clarification, the Income Tax Inspector-Shri Suraj Ram was deputed to make enquiry in this regard and submit the report, the findings of the ITI is reproduced as under:
mDr ikWfylh dh tkWpa gsrq eSa vkt fnukad 08-12-2011 dks Hkkjrh; thou chek fuxe 'kk[kk ua- 4 feRry dkWEYksDl] u;k cktkj] Xokfy;j x;k vkSj mDr 'kk[kk izc/a kd Jh jfoUnz i.Mkxjs ls feyk vkSj mijksDr ikWfylh ds ckjs esa iwNrkN] tkudkjh yh] rks muds }kjk vius flLVe ij mDr ikWfylh ua- vafdr dj tks tkudkjh nh] og ;g gS fd mDr ikWfylh cUnkscLrh chek ;kstuk ¼rkfydk&14½ Endowment (Table No.14) gS tks ifjiDrk vof/k ds I'pkr~ mlh O;fDr dks O;fDrxr ykHk ds fy, gS rFkk dh&esu chek (key Man Insurance)fdlh laLFkk izeq[k ds uke ij gksrh gS ftldk ykHk flQZ e`R;q i'pkr~ flQZ laLFkk dks feyrk gSSA From the above discussion it is clear that, above mentioned LIC paid was not for the key Man Insurance but for the Endowment policy of Shri Narendra Singh Dhakre, who has been directly benefited by taking this policy.
The assessee society was asked vide notice dated 29.11.2011 "Why exemption u/s 11 of Income Tax Act, 1991, be not disallowed as office bearer Mr. Narendra Singh Dhakre has been directly benefited by taking LIC renewal premium of Rs. 70,872/-". Assessee vide letter dated 14.12.2011, stated that "honorarium of Rs. 2,80,000/- was paid alongwith the insurance premium of Mr. Narendra Singh Dhakre".4 ITA No. 301/Agra/2012
The assessee society has submitted contradictory replies vide its letters dated 29.11.2011 and 14.12.2011 respectively. In its first reply, the assessee stated that the society had paid total Rs. 2,80,000/- to Shri Narendra, as Honorarium, while in the second reply the honorarium paid to Mr. Nraendra Singh Dhakre was increased to Rs. 3,50,000/-.
It is very important to be noted here that the second reply was submitted only when the undersigned had issued notice asking the assessee society why the exemption u/s 11 of Income Tax Act may not be disallowed on account of that Mr. Narendra Singh Dhakre, the secretary of the society has been directly benefited by taking LIC renewal premium.
The second reply is completely fabricated one, and it is clear from the facts available on record that the assessee is trying to manipulate the issue of personal benefit which the assessee society has given to Shri Narendra Singh Dhakre by paying his personal LIC renewal premium of Rs. 70,872/-.
In this regard, the reliance is place on the decision of the Hon'ble Bombay High Court delivered in the case of CIT vs. Jamuna Lal Bajaj Sewa Trust (1988) 171 ITR 568 wherein the Hon'ble High Court held as under.
Section 13(1)(c) provides that where as part of the income of a charitable or religious trust or institution enures or is used or applied, directly or indirectly, for the benefit of those persons, specified in section 13(3), such a trust or institution shall forfeit the exclusion u/s
11. Even if only a small portion of the income enures or is used or applied for the benefit of a person mentioned in section 13(3), the entire income of the trust is denied the exclusion, except in the case provided in section 13(4).
In this light of the above decision and the facts narrated above it is concluded that the LIC renewal premium paid to Mr. Narendra Singh Dhakre, Secretary of the society is the person mentioned in section 13(3) of the Income tax Act, 1961 and the payment of LIC renewal premium made by the assessee society is treated as diversion of society within the meaning of section 13(2) of the Income Tax Act, 1961 and therefore, the assessee society is not entitled for exemption 5 ITA No. 301/Agra/2012 u/s 11 of Income Tax Act, 1961, as claimed. The surplus of the society shown in the income and expenditure account will be assessed as income from business and profession a chargeable to tax and the status of AOP at a maximum marginal rate. The total surplus as per audited statement Rs. 1,09,63,770/- (Rs. 11,40,03,799 - Rs. 10,30,40,028) is taxable."
3.1 The order of the AO was challenged before the ld. CIT(A) and written submissions of the assessee is reproduced in the appellate order and read as under :
"It is submitted that the AO has erred in law while denying the exemption u/s 11 in as much as:
The AO has partly considered the provision of section 13 of the IT Act. He has only considered the provisions of section 13(1)(c) (ii) of the IT Act, which stipulates that nothing contained in section 11 or 12 shall operate to exclude from the total income of charitable institution, if any part of income or any property of the trust is during the previous year used or applied directly or indirectly for the benefit of any person referred to in section 13(3) of the IT Act. The AO has failed & grossly erred in not considering the provisions of section 13(2)(d) of the IT Act which overrides & further governs section 13(2)(d).
The AO did not appreciate and consider assessee's submission that Narendra Singh Dhakre is deeply involved in carrying out of the functions for the development and efficient management of the institutions run by the society. He is all the time in the campus for contacting various agencies for adding new courses, getting new affiliations for academics and fulfilling the prescribed standards for continuation of the courses, which are affiliated to various educational, apex, and nodal bodies/statutory bodies of the state and central government. The institution is located at the outskirts of the city and is in isolated place, which is near to certain villages inhabited by rowdy & unscrupulous elements. He has to work therein day and night and returns home in late hours, involving risk to the property and life including kidnapping by unscrupulous elements. Therefore the governing body of the society considered it expedient 6 ITA No. 301/Agra/2012 and approved payment of insurance premium of Mr. Narendra Singh Dhakre, Secretary in additions to honorarium paid to him in appreciation and in lieu of services rendered by him as a measure of incentive for dedicated services.
During the previous year 2008-09, the society has paid a sum of Rs. 2,80,000/- as honorarium and also paid a insurance premium sum of Rs. 70,872/- to Shri Narendra Singh Dhakre, Secretary making a total honorarium and LIC premium of Rs. 3,50,872/- whereas, the society has paid Rs. 9,61,000/- as salary to the Dean of Dental College and other various faculties were also paid annual remuneration over Rs.
4.00 lacs and upto Rs. 8.00 lacs per annum for the services in Dental & Engineering Colleges. Looking to the present scenario of salary structure in private sector and after implementation of the VIth pay commission in the technical colleges, the total remuneration including LIP premium paid to Mr. Narendra Singh Dhakre are bare minimum for running of the institution providing technical, medical, management education. To summarise the fact the tabular presentation showing comparative analysis are as under:
Name of person Duties fulfilled Gross honorarium/Salary paid during F.Y. 2008-09 Narendra Singh Secretary in the society and Rs. 3,50,872/- (including Dhakre in the institutions run by LIC premium) them, he involved on day to day working of the institutions run by the society and looking after the faculty development work, appointment of the staff, arrangement of campus placement, liaison with universities and also looking after the accounts and financial matters.
Dr. S. Sundarraj Dean of Dental College Rs. 9,61,600/-7 ITA No. 301/Agra/2012
Dr. Basa Shrinivasa Faculty in Dental College Rs. 8,11,200/- Dr. K. Vinod Faculty in Dental College Rs. 8,11,200/- Dr. C.A. Jeevan Faculty in Dental College Rs. 8.11.200/-
From the above it would be sent that the amount of honorarium paid to Narendra Singh Dhakre, the key person (Secretary of the society) it very small and minuscule amount as compared to the salary and honorarium paid to the faculty members by the society, the payment made is fully commensurate with the services rendered by him for achieving the objectives and growth of the society.
Therefore, the payment made by the society to Shri Narendra Singh Dhakre, Secretary is incurred for the purpose for carrying and performing function for the benefits of the society & achieving its objectives and the same is quite reasonable & commensurate to the valuable services rendered by him.
Looking to the fair market value of the services rendered, the reliability and stability of the services of Shri Narendra Singh Dhakre, the payment of honorarium plus LIP made to the Secretary (Shri Narendra Singh Dhakre) can not be said excessive or unreasonable. The payment of LIP has been made wholly & exclusively for the purpose of advancement and in furtherance of charitable objects of the society. The expression 'for the purpose of achievement of charitable object' is wider in scope. It may take not only the day today running of the institution(s) but also relationship of its administration. It may comprehend many other expenses incidental to achieving of the charitable objects. This matter must be judged not in the light of 19th century laissez faire doctrine but in the current scenario of economic and welfare philosophy that such payments are subscribed to the dedicated persons. This also results in reaping in of their working experience, fully loyalty and devotion.
"In view of above submission, it is urged that the appellant society be allowed exemption/exclusion of its income u/s 11 of the IT Act."8 ITA No. 301/Agra/2012
3.2 The ld. CIT(A), considering the issue in detail in the light of provisions of section 13 accepted the claim of assessee for exemption u/s. 11 of the IT Act and deleted the addition of Rs.1,09,83,771/-. The findings of the ld. CIT(A) in paras 3.2 to 3.4 in the appellate order are reproduced as under :
"3.2 Appellant's submissions have been considered carefully alongwith assessement order Assessment records have also been perused. The appellant is a society registered under Societies Registration Act, 1973 vide Registration No. GWL/3136 dt. 27.11.1995. The main object of the society is to provide education in various fields like engineering, management, medical etc. During the year, it has shown educational activities from two college of engineering & dental. The society has also been granted regn. u/s 12AA of the IT Act by CIT, Gwalior vide order dated 28.12.2001. As per the return filed on 29.09.2009, the appellant has filed its audited financial statements, prescribed audit report in Form No. 108 & certificate regarding utilization of funds. Audited books of accounts with supporting bills and vouchers have also been produced which have been accepted by the AO. Also the appellant has declared total receipts of Rs. 11,40,03,799/- out of which total expenditure of Rs. 10,30,40,028/- has been incurred meaning thereby that about 90% of funds have be utilized towards objects of the society. The sole ground for denial of exemption claimed u/s 11 is that the society has paid premium of Rs. 70,872/- out of funds for its life insurance policy of its Secretary viz. Shri Narendra Singh Dhakre, AO has accordingly held violation u/s 13(1)(c) of the IT Act & by relying on decision of Hon'ble Bombay High Court in case of CIT vs. Jamuna Lal Bajaj Sewa Trust (1988) 171 ITR 568, entire surplus has been brought to tax. However, in my view AO has not considered the provisions of sec. 13 in totality. The legislature has also created a fiction & enumerated in clauses(a) to (h) of sub-section (2) of same section 13 of the IT Act, a list of circumstances in which the income shall be deemed to have been used or applied for the benefit of the specified persons, if found unreasonable or in excess. For clarification, provisions of section 13(1)(c), as applied by the AO & of 13(2) (c) are reproduced hereunder.9 ITA No. 301/Agra/2012
"13(1) Nothing contained in section 11 (or section 12) shall operate so as to exclude from the total income of the previous year of the person in receipt thereof -
(c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof -
(i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or
(ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, Directly or indirectly for the benefit of any person referred to in sub-
section (3)."
"13(2) Without prejudice to the generality of the provisions of clause (c) [and clause (d)] of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purpose of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),
(c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-
section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services."
3.3 In the appellant's case, Shri Narendra Singh Dhakre, Secretary of the Society, has been paid total remuneration (including honorarium & insurance) of Rs. 3,50,872/-. AO has not disputed the fact that he is a key member in the functioning of the society. Total amount of remuneration paid to him has also not been doubted or found reasonable or excessive vis-à-vis services rendered by him or s compared to other salaried employees of the society. As per provisions of the section 13 of the IT Act specifying conditions for disallowance of exemption u/s 11, onus is on the AO to conclusively establish the fact of unreasonableness or excessiveness of the payment made to concerned specified person in lieu of market value of 10 ITA No. 301/Agra/2012 comparable services. AO has not brought on record any such material in his support but has merely stated that the Secretary has directly benefited from such payment & has made disallowance u/s 13(1)(c). It has been held by Hon'ble Gujrat High Court in case of Surat City Gymkhana vs. DCIT 245 ITR 733 (Guj) that that the law is well settled that:
(a) a person who makes positive averment is required to establish the same; &
(b) it is not for the person against whom the averment is made to establish negatively that the state of affairs averred by other person does not exist.
Further, reasonableness of a particular expenses is to be judged from the point of view of the taxpayer. If there is a nexus between the expenditure & business purpose or the objects of the Society, as in the appellant's case, AO cannot be allowed to substitute his opinion for that of the appellant's as if he himself is the businessman or the taxpayer. Also, the expression 'for the purpose of achievement of charitable object' is wider n scope & includes expenses incurred for its functioning carried out by person concerned. Even in the case law relied on by the AO of CIT vs. Jamuna Bajaj Sewa Trust (1988) 171 ITR 568, Hon'ble Court itself has taken cognizance of exceptions provided in section 13(4), whereby it has ben mentioned that notwithstanding anything contained in section 13(1)(c), the exemption u/s 11 shall not be denied on account of investment of funds for specified person if it does not exceed a certain specified amount.
3.4 On the basis of above & the fact that no adverse view has been taken by the AO in respect of similar insurance premium paid during earlier years vide assessments completed u/s 143(3), AO is not found justified n disallowance of exemption claim made u/s 11 without bringing on record any material to prove that the payment to the Secretary of the society is unreasonable or excessive in terms of provisions of section 13(2)(c) of the IT Act. Accordingly, the appellant society is fund entitled for exemption u/s 11 as per its return & addition of Rs. 1,09,63,771/- made in pursuance of such disallowance of exemption claim is, hereby, deleted."
11 ITA No. 301/Agra/20124. The ld. DR relied upon the order of the AO and submitted that since the assessee has violated the provisions of section 13, therefore, the AO rightly disallowed the claim of exemption u/s. 11 of the IT Act. On the other hand, the ld.
counsel for the assessee reiterated the submissions made before the authorities below and submitted that identical issue came up in the appeal of the department before ITAT, Agra Bench in ITA No. 242/2011 for the assessment year 2007-08, in which the departmental appeal has been dismissed vide order dated 05.10.2012.
Copy of the order of Tribunal is placed on record.
5. We have considered the rival submissions and the material on record. The identical issue came up for consideration before the Tribunal in preceding assessment year 2007-08 (supra) and the Tribunal vide order dated 05.10.2012 dismissed the departmental appeal. The findings of the Tribunal in para 7 to 10.2 are reproduced as under :
"7. We have considered the rival submissions and the material on record and do not find any justification to interfere with the order of the ld. CIT(A) in deleting the additions. The AO has nowhere doubted the payment of honorarium to the office bearers of the society for bona fide services rendered by them. The honorariums have been paid in earlier year also and have been accepted by the Revenue department in the proceedings u/s. 143(3) of the IT Act. All the amounts have been made for wholly and exclusively for the purpose and benefit of assessee-society. All the persons have rendered actual services to the assessee and even in the statement of Shri Narendra Singh, he has explained the details of the services rendered by him against the payment. There is only marginal increase in the 12 ITA No. 301/Agra/2012 case of some of the officer bearers, which have been duly approved by the resolution of the society. The details are noted above. The ld. CIT(A) also found that the total number of students in the educational institution run by the assessee have increased. Therefore, the increase in the honorarium was justified as compared to the earlier years. The ld. CIT(A), thus, rightly found that there were no violation of provisions of exemption claimed in this case. As regards the interest free loans/advances, it was found that same have been given in earlier years on which exemption has already been granted by the AO. There were no fresh loan/advances given in the assessment year under appeal. Whatever loans were given in earlier year have been given with adequate securities against the properties and same were also authorized by the resolution of the assessee society. Thus, the ld. CIT(A) rightly found that there were no violation of section 13. Therefore, the AO should not have denied the claim of exemption u/s. 11 of the IT Act in favour of the assessee. Since the assessee exists wholly and exclusively for the education and all the amounts have been spent for educational purposes and for aims of the society, therefore, the assessee was entitled for exemption u/s. 11 of the IT Act. It is well settled law that though principle of res judicata does not apply in the Income-tax proceedings, but rule of consistency should have been maintained and followed by the Income-tax Authorities while finalizing the asstt. We rely upon the decision of M.P. High court in the case of CIT vs. Godavari Corporation Ltd., 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.13 ITA No. 301/Agra/2012
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 and of Rs.10,00,000/- on account of donation as non- business expenses. The amount of Rs.11,37,483/- has been added in respect of write off of ITM loan/advance pertaining to the year 1997- 98, which matter has ultimately been decided by the Civil Court with no recovery to the assessee-society. AO has treated the same as business expenses being in the nature of capital expenditure and accordingly disallowed the same. The assessee submitted before the ld. CIT(A) that bad debts in the books of account are required to be deducted while computing its normal income. As regards the donations made, it was submitted that the same was made to the trust having the similar objects and donations were given through banking channel and is allowable deduction. The ld. CIT(A) considering the explanation of the assessee deleted both the additions. His findings in paras 6.2 to 6.4 of the appellate order are reproduced as under :
"6.2 Appellant submissions have been considered carefully. As mentioned in preceding paras the appellant is found entitled for exemption u/s 11. A.O. has added the capital expenditure mainly on the ground that the appellant is carrying on business activity and the said expenditure has been incurred as a result of write off of bad debts of earlier year advance given to ITM.
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) of the I.T. Act. As per section 11(1)(a) of the I.T. Act, any income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India, shall not be included in the total income of the institution. Thus, any income applied to the objects of the institution, which includes capital expenditure also, will not be included in the total income of the institution. Therefore, addition of Rs. 11,37,483/- is hereby deleted.
6.3 As regards donation of Rs. 10,00,000/- to Delhi Vascular Foundation Trust, AO has added the same being non-business 14 ITA No. 301/Agra/2012 expense and the fact that the donee trust has not been grated exemption u/s 80G of the IT Act.
6.4 The appellant has submitted that the donee trust i.e. Delhi Vascular Foundation 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, deleted."
9. The ld. DR relied upon the order of the AO and submitted that bad debt written off is not as per law and that the assessee should not have given donations to other societies. On the other hand, the ld. Counsel for the assessee reiterated the submissions made before the authorities below and referred to PB-41 to show that bad debt was written off in the books of account and referred to Board Circular No. 1132 and decision of Delhi High Court in the case of DIT(Exemption) vs. Acme International Society, 326 ITR 146 and DIT (Exemption) vs. Alarippu, 244 ITR 358.
10. We have considered the rival submissions and do not find any merit in both the grounds of appeal of the Revenue. The ld. CIT(A) granted exemption to the assessee u/s. 11 of the IT Act, which is confirmed by us also in the preceding paras. Since the assessee is doing educational activities and was considered as charitable institution, therefore, all the expenditure, revenue or capital, incurred 15 ITA No. 301/Agra/2012 in furtherance of its objectives, are application of income to the objects of the assessee-society. Therefore, the same expenditures are allowable deduction. 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. The ld. CIT(A) on proper appreciation of facts and material on record rightly deleted the addition of Rs.11,37,483/-. As regards the donations, the assessee gave donations through banking channels to the trusts having similar objects, which is recorded in the books of account of both the concerns. CBDT vide Instruction No. 1132 noted by the ld. CIT(A) in the appellate order clearly clarified and decided that the payment of sum by one charitable trust to another for utilization by the donee trust towards its charitable objects is proper application of income for charitable purpose in the hands of the donee trust and donor trust would not lose exemption u/s. 11 of the IT Act. Same view is supported by the decision of Hon'ble Allahabad High Court in the case of J.K. Charitable Trust (supra). Hon'ble Delhi 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 16 ITA No. 301/Agra/2012 additions. In the result, grounds Nos. 2 & 4 of appeal of the Revenue are dismissed."
5.1 In the preceding assessment year 2007-08, the issue of honorarium paid to various persons including the honorarium paid to Shri Narendra Singh Dhakre, Secretary was considered in detail and in the year 2007-08, the total remuneration / honorarium paid was Rs.24,94,000/- to several persons including Shri Narendra Singh Dhakre. It was found that Shri Narendra Singh Dhakre has rendered actual services to the assessee and there is marginal increase in the honorarium and no material was found on record to justify the findings of the AO. Further, similar honoraria were paid in earlier year and the AO had allowed exemption u/s. 11 of the IT Act in favour of the assessee. It was, therefore, held that since the assessee incurred expenses wholly and exclusively for educational purpose and all the amounts have been spent for educational purposes and for achieving the aims of assessee-society, therefore, the assessee would be entitled for exemption u/s. 11 of the IT Act. No violation u/s. 13(1)(c) was accordingly found. In the assessment year under appeal, total honorarium / salary paid to Shri Narendra Singh Dhakre was found in a sum of Rs.3,50,872/- including LIC premium. The assessee is admittedly registered u/s. 12AA of the IT Act and produced complete books of account supported by vouchers and 85% of the receipts were spent / utilized towards the objects of the assessee-society. Small benefit is given to specified persons, which was included in the honorarium of Shri Narendra Singh Dhakre, 17 ITA No. 301/Agra/2012 who is the key member of functioning of the society, nothing could be attributed to the assessee for violation of provisions of section 13 of the IT Act. The AO has failed to establish that any unreasonable or excessive payments have been made to any specified person. Considering the above discussion, we are of the view that the ld. CIT(A) on proper appreciation of facts and material on record rightly deleted the addition and allowed the exemption to the assessee u/s. 11 of the IT Act. In the result, ground No. 1 of the appeal of Revenue is dismissed.
6. On ground No. 2, the AO made addition of Rs.7,00,000/- for non-deduction of TDS in respect of legal expenses. The addition was challenged before the ld.
CIT(A) and written submissions of the assessee are reproduced in the impugned order as under :
"It is submitted the assessment of charitable trust or institution is governed by section 11 to 13 of the IT Act, 1961. Section 11 enjoins that the income to the extent applied for the purposes of the trust or institution is exempt. In out case legal charges have been paid (including legal charges of Rs. 7.00 lacs paid to Shri Vivek Tankha, Senior advocate of Supreme Court) is qualified as application of income of the trust or institution and is therefore to this extent the income is exempt. The other applications on the object of the trust or institution are also exempt u/s 11. It is immaterial that TDS has not been inadvertently made on this payment. Non deduction of TDS does not mean that there is no application of income on the object and purpose of the society. It may also be stated that the income of a charitable trust or institution is not computed under the head "Business or Profession" as the object of any charitable institution can not be carrying on of any business or commercial activities and section 40(a)(ia) has no application. Section 11 of the IT Act, 1961 18 ITA No. 301/Agra/2012 does not otherwise, provide that if TDS is not made in respect of certain income applied on the purpose and object of the trust, such an application would not be deemed as application of income. Accordingly the amount of Rs. 7.00 lacs paid on account of legal expenses as cannot be treated non application of this amount towards the object of the trust.
It may also be stated that application of income of earlier years in the case of assessee institution was more that 85% of its income and the excess application over 85% in earlier years is also available to this institution in the current year.
These arguments & pleadings were made before the AO in writing. Without prejudice to above it is further submitted that the appellant society by running various education institution duly affiliated to universities or other regular bodies is engaged in the philanthropic & charitable objects, it is not engaged in carrying on a business like a coaching classes. The income if any of that appellant society is not be computed under the head "Income from Business or profession". If any income has to be computed, it would be computed under the head of "Income from other sources". And in the computation of income under the head of other sources section 58 titled as 'Amount not deductible' does not stipulated that provision of section 40(a)(ia) would be applicable. In other words where TDS is not made on professional fess in India (u/s 194 J) while computing the income of a charitable institution under the head "Other Sources, no disallowance of the professional fess or legal charges can be made."
6.1 The ld. CIT(A) considering the explanation of the assessee deleted the addition. His findings in para 4.2 of the appellate order are reproduced as under :
"4.2 Appellant's submissions has been considered carefully & are found acceptable. Since the appellant's society claim of exemption u/s 11 has been found sustainable as per preceding paras of this order, such disallowance made u/s 40(a)(ia) becomes only of academic importance only as the only criteria to examine is to see application/utilization of funds of the society towards its objects. Appellant's income is to be assessed as per provisions of section 19 ITA No. 301/Agra/2012 11/13 of the IT Act in place of regular business income. It has been categorically held by Hon'ble ITAT, Mumbai in case of S.B. Builders & Developers vs. ITO (2011) 136 TTJ (Mumbai) 420 in ITA No. 1245/Mum/2009 that where AO makes additions to income of assessee u/s 40(a)(ia) for non compliance of TDS provision, such additional income also should be considered for the purpose of allowing deduction u/s 80-IB(10), as per section 80-AB r/w section 29. On the same analogy, amount of Rs. 7,00,000/- is to be considered as application of income & only fulfillment of requirements of section 11 needs to be seen which the appellant society is found to be satisfying. Accordingly, addition of Rs. 7,00,000/- is not found sustainable & hereby deleted."
6.2 On consideration of the rival submissions, we are of the view that the addition has been rightly deleted by the ld. CIT(A). It is not in dispute that the assessee has utilized more than 85% of its income for achieving the objects of the Society. Even if addition was made for non-deduction of TDS, the same cannot be treated as additional income, for which benefit of section 11 have to be granted to the assessee. This issue was also considered in the preceding assessment year 2007-08 and the departmental appeal has been dismissed. The ld. counsel for the assessee also submitted that the provisions of section 40(a)(ia) are meant for business income only and since in the case of the assessee it is doing charitable activities by providing education, therefore, such a provision would not be attracted in the case of assessee. Further, we find that this issue has not been decided by the authorities below and since we are dismissing the departmental appeal on this ground as well, we do not find it appropriate to give any finding on 20 ITA No. 301/Agra/2012 the submissions of the ld. counsel for the assessee. In view of the above, the departmental appeal on ground No. 2 is also dismissed.
7. In the result, the departmental appeal is dismissed.
Order pronounced in the open court.
Sd/- Sd/-
(A.L. GEHLOT) (BHAVNESH SAINI)
Accountant Member Judicial Member
*aks/-
Copy of the order forwarded to :
1. Appellant
2. Respondent
3. CIT(A), concerned By order
4. CIT, concerned
5. DR, ITAT, Agra
6. Guard file Sr. Private Secretary
True copy