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11. The CIT is not justified in attributing contumacious conduct on the Assessing Officer framing the assessment as to non-application of mind when the subject matter of payment of remuneration to trustees was adumbrated during assessment proceedings and prohibition in clause 20 of the trust deed was not considered fatal to the allowance of such remuneration.

12. The CIT is not justified in presuming the then Assessing Officer framing the assessment was not aware of the doctrine of cy-pres to favourably interpret clause 20 of the trust deed on payment to trustees.

2.4 Apparently, Ld. AO was satisfied with aforesaid explanation of the assessee and accordingly, chose not to disturb the returned income of the assessee.

3. Revisionary Proceedings

3.1 Subsequently, Ld. Pr. CIT, upon perusal of case records, sought revision of the order and issued a show cause notice on 21-03-2024 on the ground that the assessee paid remuneration to three trustees. However, Clause 19 and Clause 20 of the Trust Deed dated 10-10-1996 prohibits payment of remuneration to the trustees. The aforesaid clauses were never amended. Therefore, if there was violation in terms of provisions of Sec.13 i.e., any part of the income of the trust is applied directly or indirectly for the benefit of specified persons including trustees, then the exemption of Sec.11 and 12 would not apply. Despite clear prohibition in the trust deed, the assessee had paid remuneration. The Ld. AO ought to have computed income as applicable in the case of an AOP and taxed accordingly. However, the exemption was allowed without taking cognizance of the relevant clauses in the trust deed and there was no proper application of mind which justify revision of the order.

3.2 The assessee refuted the allegation of Ld. Pr. CIT on legal ground as well as on merits. It was submitted that as per Sec.13(1), exemption u/s 11 could not be denied to the entire income of the trust but only with respect to that part which has violated the provisions of Sec.13. Further, the provisions of Sec.13(1)(c) read with Sec.13(2)(c) deems the circumstances to indicate the payment to the trustees to be violative to the extent of excessive remuneration paid to specified persons in terms of Sec.13(3) and not the entire payment be subjected to taxation. Sec.13(2)(c) provide for allowance of reasonable payment by way of salary etc. even to specified persons who sacrificed his time and efforts to render services to the trust. The prohibition to pay remuneration to trustees vide Clause 20 of the Trust Deed was only in respect of discharge of their functions as trustees per-se dehors their role as management executives which is allowable to the assessee. Further, all the trustees offered the said income to tax in their respective returns of income. On legal submissions, it was stated that requisite details, in this regard, was already furnished to Ld. AO. The Ld. AO had enquired into the aforesaid issue and formed an opinion on allowability of the same. The assessee had also submitted an extract of resolution of the trust dated 24-03-2011 which provide that the trustees who were engaged in the management activities of the institutions, in addition to their role as trustees, would be entitled for reasonable salary as any other management employees.

4. From the facts, it emerges that the only issue as flagged in the revisionary order is the allegation of Ld. Pr. CIT that the assessee has paid remuneration to Trustees which is in violation of Trust Deed of the assessee. Clause 19 of the Trust Deed provides that no part of the income of the trust shall be applied for the benefits of specified persons including trustees. The said prohibition, in fact, is the prohibition provided under the statute to prevent misuse of trust income / property. The Clause 20 provide that the trustee shall not be entitled to draw any remuneration from the trust. However, the assessee's case hinges on the point that the three trustees are performing managerial functions and engaged in management activities of the trust. In other words, the remuneration is being given for their time and efforts towards trust activities. As a matter of fact, this remuneration has been authorized by the Board of Trustees in their meeting held on 24-03-2011 which read as under: -