2014-VIL-670--DT

PUNJAB & HARYANA HIGH COURT

I.T.A. No.1 of 2011 (O&M), I.T.A. No.3 of 2011 (O&M), I.T.A. No.4 of 2011 (O&M), I.T.A. No.2 of 2011 (O&M), I.T.A. No.53 of 2011 (O&M), I.T.A. No.54 of 2011 (O&M), I.T.A. No.55 of 2011 (O&M), I.T.A. No.290 of 2012 (O&M), I.T.A. No.249 of 2012 (O&M)

Date: 11.04.2014

COMMISSIONER OF INCOME TAX

Vs

M/s . IDICULA TRUST SOCIETY, FARIDABAD

For the Petitioner : Mr. Tajinder K. Joshi, Advocate
For the Respondent : Mr. Aman Bansal, Advocate

BENCH

Rajive Bhalla And Dr. Bharat Bhushan Parsoon,JJ.  

JUDGMENT

Dr. Bharat Bhushan Parsoon, J.

First four appeals by the revenue pertaining to the assessment years 2003-04, 2004-05, 2005-06 and 2006-07 and next three appeals by the assessee pertaining to the assessment years 2003-04, 2004-05 and 2005-06 are directed against a common order dated 21.5.2010 (Annexure A-III) passed by the Income Tax Appellate Tribunal, Delhi Bench “C”, New Delhi (hereinafter referred to as, the Tribunal) in ITA Nos.1769, 2620, 2621/Del/08 and ITA No.4484/Del/09. Next two appeals pertaining to the assessment years 2007-08 and 2008-09 have been preferred by the revenue against the orders of the Tribunal dated 13.7.2012 and 30.4.2012 in ITA Nos.2116/Del/2011 and 4514/Del/2011 respectively.

2. Since issues to be adjudicated are common and inter-connected, for convenience, clarity and effective adjudication, all these appeals have been taken up together and are being decided by this common order.

3. For clarity and better comprehension of the matter in dispute, facts of ITA No.1 of 2011 out of the appeals of the revenue and ITA No.53 of 2011 out of the appeals of the assessee are being referred to.

4. The assessee-trust is registered under Section 12A of the Income Tax Act, 1961 (hereinafter referred to as, the Act) since 6.7.1971. It is doing charitable work of imparting education through five schools. The assessee carries on charitable work of education through its President, Secretary, Member and Manager, who work in a dual capacity i.e. as whole time administrators as also regular time teachers and are being paid salaries from earning of these schools.

5. Under Section 12A of the Act, the assessee was availing the benefit of exemption of its income under Sections 11 and 12 of the Act. Its accounts and returns submitted regularly were being accepted by the revenue authorities without any objections.

6. The assessee had filed return on 31.10.2003 for the Assessment Year 2003-04 with reference to Section 10 (23C)(vi). Excess of income over expenditure amounting to Rs.9,10,225/- was claimed, though return was filed declaring nil income. The assessee had made payments to certain persons which included salary to its members and employees. The Assessing Officer (hereinafter referred to as the AO) was not satisfied with the quantum of payments made by the assessee and thus had asked the assessee to justify the 'reasonableness' of those payments.

7. Having found no response from the assessee, the AO came to the conclusion that the assessee had become ineligible for the benefits of exemption under Sections 11 and 12 of the Act. Consequently, he had completed the assessment by treating the assessee as a normal business entity. However, presuming that those office bearers and salaried persons had rendered some service towards functioning of the assessee, allowing 1/3rd of the amount (shown as having been paid) as spent, rest of the stated amount was disallowed in terms of Section 40(A)(2b). The same course of action was followed for the subsequent assessment years.

8. Taking clue from the earlier assessment years and making comparison with the present remuneration paid, the AO had concluded that such payments were not reasonable keeping in view the provisions of Section 40(A)(2b) of the Act. Consequently, only 1/3rd expenditure was taken to be permissible, whereas 2/3rd of the expenditure amounting to Rs.15,10,000/- incurred on making payment of remuneration to the management personnel etc. was disallowed under Section 40(A)(2b) of the Act. For furnishing inaccurate particulars, penalty proceedings under Section 271(1)(c) were also ordered to be initiated separately.

9. When the matter was taken in appeal before the Commissioner of Income Tax (Appeals) [hereinafter referred to as, the CIT(A)], the disallowance made by the AO was found to be wrong and without merit. Rejecting the claim of the revenue, plea of the assessee was accepted. The revenue then had brought these appeals before the Tribunal, which upheld the decision of the CIT(A) only with regard to two of its trustees viz. the President and Secretary, but with regard to the other two, comparing their salaries with other teachers, had modified the order of the CIT(A) and thus had upheld part of the disallowance made by the AO qua the said two trustees.

10. Aggrieved with order of the Tribunal, the revenue claims that order of the AO refusing to treat the assessee as a charitable organization and taking it to be an ordinary association of persons, had rightly rejected amount allegedly paid as salaries to its trustees as it was unreasonable and thus, had rightly disallowed the exemption from income sought by the assessee.

11. So far as the assessee is concerned, it claimed that once the assessee was registered as a charitable organization and its accounts were being accepted since the very beginning, it was entitled to the benefits of exemption in terms of Sections 12A and 10(23C)(vi) as also under Sections 11 and 12 of the Act.

12. In ITA No.1 of 2011 filed by the revenue is concerned, following substantial questions of law had been formulated by the revenue, for adjudication by this court:

I “Whether, on the facts and in the circumstances of the case, the Ld. ITAT was right in law in allowing the benefit of exemption to the assessee u/s 11 of the Income Tax Act, 1961 ignoring its own finding that excessive remuneration was paid to specified persons, in violation of section 13(1)(c)(ii) read with section 13(2)(c) of the Income Tax Act, 1961?”

II “Whether, on the facts and in the circumstances of the case, the Ld. ITAT was right in law in not answering the question of not adjudicating on applicability of section 11 of the Income Tax Act, 1961 in light of its own findings that excessive remuneration was indeed paid to specified persons leading to violation of the provisions of section 13(1)(c)(ii) read with section 13(2)(c) of the Income Tax Act, 1961?”

13. So far as ITA No.53 of 2011 filed by the assessee is concerned, following substantial questions of law had been put forth by the assessee, for adjudication by this Court:

A Whether the ITAT can treat as a basic issue the computation of the salaries of the members of a trust running a charitable educational institution as one of computation under the Head Business or Profession when a charitable institution under the Income Tax Act, 1961 is neither a business nor a profession?

B Whether the ITAT can treat as a basic issue the computation of the salaries of the members of a trust running a charitable educational institution as one of computation under the Head Business or Profession when the appeal before it is from a decision of the CIT(A) which has held that the approach has to be that of a charitable institution while reversing the Assessing Officer's Business or Profession approach?

C Whether an ITAT can simply assume away the legal issue of applying to an assessee the income tax provisions of a charitable institution to a duly registered charitable educational trust as done by the CIT(A) instead of the Business or Profession provisions as done by the A.O. and reversed by the CIT(A)?

D Whether an ITAT even while wrongly applying the Business or Profession approach in taxing a duly registered charitable institution, ignore the standard in Section 40(2)(a) of the Act, or the fair market value of the administration and teaching services of the Secretary and manager trustees, and instead apply the standard of the salaries of the teaching staff viz the Principal and vice Principal in the non-market charitable institution's own schools?

E Whether the ITAT can arbitrarily adopt a fiftyfifty approach towards the issue of the tax treatment of the salaries of the Founder, Secretary and two Managers of the duly registered charitable educational trust, by treating the salary of the Founder and one Manager under Section 40(2)(a) in one manner and that of the Secretary and another Manager in another manner, without applying to any of them the legal standard of the fair market value of their services to assess whether the salaries are reasonable or not excessive vis a vis this legal standard?

F Whether the ITAT was right in substituting the salaries paid to the Secretary and to the Manager as teacher-cum-administrator/s solely on basis of scales applicable to the teaching staff, without any material to support the same?

14. Since the questions of law in ITA No.1 of 2011 of the revenue and ITA No.53 of 2011 of the assessee primarily cover the field of controversy in all the appeals of the revenue as also of the assessee, entire adjudication is being made keeping those in view.

15. We have heard counsel for the parties while going through the paper books.

16. The revenue contends that the assessee had not only failed to furnish details with regard to services rendered by the named persons but had also nowhere mentioned about 'reasonableness' of the amount paid to them with reference to the services rendered in terms of Section 13(2)(c) of the Act. It is thus canvassed that the assessee has become ineligible for the benefit of exemption of income under Sections 11 and 12 of the Act. It is also claimed that neither Memorandum of Association of the assessee nor the Rules made thereunder contains any provision for payment of the stated amount to these persons.

17. Plea of the assessee, on the other hand, is that the stated persons have not only huge teaching experience to their credit but are also whole time employees of the assessee and thus are closely associated with management as also in running of the schools of the assessee. It is claimed that completion of assessment against the assessee as a normal business entity was also wrong and misfounded on facts of the case.

18. The assessee is engaged in imparting of education through five schools, four of which are located and run at Faridabad, whereas one is in the State of Kerala. The assessee is registered under Section 12A of the Act and claims that its income is exempted under Sections 11 and/or 12 of the Act. Payment made to the specified persons is as under:

“Salary to T.I.John, President of Governing Body.

Rs.06,84,000/-

Salary to Joseph John, Secretary of Governing Body.

Rs.04,94,500/-

Salary to Mrs. A.John, Member of Governing Body.

Rs.05,88,000/-

In addition, Salary to Mrs. S.Joseph (relative of Member) has also been given.

Rs.03,29,760/-

Total:-

Rs.20,96,260/-”

19. The AO was dissatisfied with the details of the services rendered by these persons to the assessee and had also found that the payments made to them were 'unreasonable'. However, presuming that they had rendered at least some services for the functioning of the petitionersociety, had allowed Rs.6,98,753/- i.e. 1/3rd of the total Rs.20,96,260/- and the balance payment was disallowed under Section 40A(2)(b) of the Act. Recording his satisfaction that the assessee had furnished inaccurate particulars of income, penalty proceedings had also been separately initiated under Section 271(1)(c) of the Act.

20. Keeping in view the totality of facts and circumstances, the CIT(A) had found no merit in the appeal of the revenue. Findings of the CIT(A) on this count contained in para 3.4 of the order (Annexure A-II) dated 28.2.2008, are to the following effect:

“I have enquired into the genuineness of the remuneration paid to the above trustee members from Sr. 1 to 3 and 1 family member at Sr. No.4. From the data supplied by the Ld. AR in his written submissions for the Financial year 2000- 01, 2001-02 and 2002-03 from which it is quite evident that compared to the earlier years, the remuneration has been more or less the same and if there is any increase in the remuneration of Mrs. S. Joseph, it is due to the services rendered to the Institution in the dual capacity of a full time teacher and administrator, the responsibilities of which are increasing dayby- day. Moreover, the AO has pointed out only a needle of suspicion towards the managerial remuneration to the above persons specified u/s 13(3) of the I.T.Act which has been confirmed by the auditors in the audit report in form 3CD dated 15.3.2003, but the AO has not given a proper basis or validity of remuneration for restricting it to the extent of Rs.6,98,753/- being 1/3rd allowable worked out by him out of total of Rs.20,96,260/- only and disallowing the balance at Rs.13,97,506/- u/s 40A(2)(b) of the I.T. Act, as is evident from para-4 of the assessment order which is patently merely on the presumption that the above persons had rendered some services for the functioning of the society. The disallowance has been purely on an arbitrary basis without bringing rationale or findings by consulting the previous assessment records of the appellant, which he was required to, in order to make an assessment on the basis of material available on records. He has just resorted to the Explanatory stands of the section 13(1)(3) and 13(1)(c) and bringing the above persons under the Clauses (cc) & (d) of section 13(3) without consulting rules and regulations of the appellant society already available on the assessment records, the terms and rules of payments of the above mentioned personas being already available on the assessment records which in the year under consideration, have not been confronted with the appellant by the AO, before making disallowance u/s 13(2)(c) of the I.T.Act, 1961.”

21. The Tribunal disagreeing with the AO had partially endorsed the view of the CIT(A). In case of Mr. T.I. John and his wife Mrs. A. John, the Tribunal completely agreed with the CIT(A) whereas in case of Mr. Joseph John and his wife Mrs. Sonia Joseph, the Tribunal, on facts and circumstances, restricted payment of monthly salary to Mr. Joseph John to Rs.30,000/- and to his wife Mrs. Sonia Joseph to Rs.20,000/- per month.

22. Before further discussion is made, it would be appropriate to refer to certain facts about which, there is no dispute.

Admitted facts:

The assessee, a charitable organization is registered as such under Section 12A of the Act since 6.7.1971. It is engaged in charitable work of imparting education through various schools run by it. Accounts maintained by the assessee as also returns of income filed by it regularly year after year have always been accepted by the revenue since then. The four trustee members are not only engaged in regular teaching to the students as is done by their other teachers but in addition to such assignment of teaching, those are engaged in managing the affairs of the schools run by the assessee as well and are not being paid separately for such managerial work done by them. These trustee members are also furnishing their income tax returns regularly as individuals and are duly showing their income received as salaries from the assessee and their said returns had also been continuously accepted by the revenue. They do not have any other income except as salaries received from the assessee.

Relevant provisions of law

At this stage, it would be appropriate to refer to few provisions of the Act. These are as under:

Section 2(15)-”Charitable purpose” includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility.

Section 11-Income from property held for charitable or religious purpose:-

(1) Subject to the provisions of Section 60 to 63, the following income shall not be included in the total income of the previous year of persons in receipt of the income (A) 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.

Section 13 (2)(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.

Section 13(3)- The persons referred to in clause (c) of subsection (1) and sub-section (2) are the following, namely,:

(a) the author of the trust or the founder of the institution;

(b) any person who had made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds fifty thousand rupees;

(c) where such author, founder or person is a Hindu undivided family, a member of the family;

(cc) any trust of the trust or manager (by whatever name called) of the institution;

(d) any relative of any such action, founder, person (member trustee or manger) as aforesaid; and,

(e) any concern in which any of the persons referred to a clause (1), (b), (c), (cc) and (d) has a substantial interest.

23. Notwithstanding the fact that employees of the assessee have not been placed under the specified clauses enumerated in the provisions referred to above but none of the authorities of the revenue has ever disputed the fact that the four persons to whom salaries have been paid during the year under appeal either happen to be members of the governing body performing function of management and administration and in addition to that, they are full time teachers of the schools run by the assessee. In short, they have also been assigned functions of management of the said schools and are paid their salaries out of the income of the schools and not from funds of the trust. On this account, payment of salaries to them have protection provided under Section 13(2)(c) of the Act which clearly stipulates that salaries etc. may be made to the persons covered under Section 13(3) of the Act.

24. The AO without disputing these facts and details clearly fell in error prominently on the following counts:

(i) Without mentioning as to what was already on record before it and without specifying as to what were the documents and details required by him which had not been supplied by the assessee despite demand, had drawn a conclusion that the assessee was not a charitable organization as it had not furnished vital details and documents.

Before coming to this conclusion, the AO did not take into account the fact that the revenue had been assessing the assessee as a charitable organization since its very inception.

Though the sole question before the AO was allowance or disallowance of the salaries paid to the trustee members and to a manager of the assesseetrustee and there was no question as to whether the trust is a charitable trust or not, the AO wrongly held that it was not a charitable organization;

(ii) Despite availability of complete documentary details with him revealing the services rendered by the members of the trust, without disputing the fact that such members were engaged in full time teaching as also in whole time management of the schools assigned to them, digressing from the legal test under Section 13(2)(c) of the Act went on to question reasonableness of the quantum of payment made as salary to the members.

Even when he came to a conclusion that payments were 'unreasonable', the test to determine reasonableness of such services was to make reference to sums paid for similar administrative and teaching work in an institution of similar students strength.

But, the AO neither made reference to Section 13(2)(c) of the Act nor to any similar institution with same students strength. Thus, without going into the aspect of payments made to administrators-cum-teachers in an institution of similar students strength, the AO simply assessed the assessee as an association of persons as a business entity under Section 40A read with Section 28 of the Act, even though the assessee is neither a 'business' in terms of Section 2(13) nor is a profession notified by the Board under Section 44AA of the Act.

(iii) Even if impugned order of the AO is evaluated in its legal merit, when he took the assessee a charitable trust as a business or profession, he did not make compliance with Section 40A(2)(a) for determining 'reasonableness' of the payments. The test enshrined in Section 40A(2)(a) is the “fair market value services” which qua trustee members-cumemployees of the assessee was then to be assessed. Though reference was made to Section 40A(2)(a) but the test of 'fair market value' was given a go bye and the AO on flat basis without any reasonable parameters, disallowed 2/3rd of the total salaries paid to all the four members and even proceeded to impose penalty.

25. When we move a little further, it is found that though the mistake committed by the AO in its order of 17.3.2006 (Annexure A1) was rectified by the CIT(A) in its order of 28.2.2008 (Annexure A2) holding that the documents were available on record and that the disallowance by the AO was arbitrary and had also ignored the previous assessment records of the assessee and further that the AO had not rebutted the comparative details furnished by the assessee. The CIT(A) rather held that the appellant-trust is a charitable institution and disallowance made by the AO under Section 40A(2) was arbitrary. Consequently, CIT(A) had set aside the order of the AO. The Tribunal in its order of 21.5.2010 (Annexure A3), in partially affirming the salaries paid to two of the trustee members had rejected the claim of the assessee with regard to two others. The Tribunal thus had faulted like the AO, when it arbitrarily fixed the quantum of salaries taking them only as teachers. The Tribunal, in our considered opinion, had no jurisdiction to adopt such a course.

26. When order of the Tribunal impugned in these appeals is tested on legal pedestal, it also is found to be flawed on the following counts:

(i) From the tabular presentation, as given below, it transpires that there had hardly been any substantial variation in the salaries paid to the named four teachers-cum-administrators of the assessee over the years. Expenditure on payment of salaries made by the assessee-trust had regularly been accepted when there was no substantial variation.

Financial year

Mr. T.I. John

Mr. A. John

Mr. Joseph John

Mrs. SoniaJoseph

2001-02

6,24,000/-

5,40,000/-

4,80,000/-

2,70,518/-

2001-02

6,24,000/-

5,40,000/-

4,80,000/-

2,86,740/-

2002-03

6,84,000/-

5,88,000/-

4,94,500/-

3,21,552/-

2003-04

6,84,000/-

5,88,000/-

5,16,000/-

3,63,662/-

2004-05

7,56,000/-

6,60,000/-

6,00,000/-

4,48,794/-

2005-06

8,16,000/-

7,20,000/-

6,60,000/-

5,40,000/-
This position is continuing since assessment year 2001-02. The Tribunal has accepted even quantum of salaries paid to Mr. Joseph John and Mrs. Sonia Joseph.

(ii) Attention of the Tribunal was wrongly focussed on Section 40A of the Act when it has mentioned that “basic issue before us is the disallowance under Section 40A”. Concededly, the assessee is registered as a 'charitable trust' under Section 12A of the Act and had been furnishing its returns in terms of Section 10(23C) of the Act and had been availing benefits under Sections 11 and 12 of the Act.

Sequelly, making disallowance under Section 40A to be the 'basic issue for adjudication' by it, the Tribunal went entirely on a wrong path. Needless to state that Section 40A relates to computation of income under the Head Business gains and profession whereas status of the assessee as a charitable institution duly registered under the Act, was nowhere in question.

(iii) The Tribunal also completely ignored the provisions of Section 13(2)(c) of the Act as also issue of burden of proof regarding reasonableness of payment of services of the trustee in a similar institution. The Tribunal clearly fell in error when it compared the salaries of the Secretary and the Manager of the assessee/trust with teachers of the school run by this Trust completely ignoring the fact that in addition to regular teaching at par with other teachers, the said two teachers were also engaged as Secretary and Manager of Trust and of the schools and were thus, completely engrossed for all 365 days of the year in rendering their services to the schools run by the assessee as also in running of the Trust and in performance of their duties with that regard management and administration assigned to them.

(iv) Even when tested on the line of thinking of the Tribunal, the rational criteria of services and salaries paid in a similar institution of similar strength for the same type of services rendered by the members was not even referred to.

(v) Even taken on its own merit, when the Tribunal reversed the order of CIT(A) concerning salaries paid to the Secretary and the Manager while upholding the order of CIT(A) concerning the President and Member of the assessee Trust, it did not follow a coherent approach. Application of different standards to the same issue giving different treatment to the salaries of the paid members of the trust, was clearly a flawed approach; and,

(vi) Making reference to Section 40A(2)(a) of the Act without invoking the test of “fair market value of the services” enshrined in this provision for determining as to whether expenditure of salaries was 'reasonable or unreasonable', the Tribunal simply compared salaries of the Secretary and the Manager with other teachers, ignoring the fact that in addition to whole time teaching, they were also whole time Secretary and Manager of the schools and were performing whole time duties assigned to them.

27. Though there is no clear finding of the Tribunal regarding 'charitable status' of the assessee, since the CIT(A) had restored it to the assessee reversing order of the AO, it is to be taken that to that extent, the findings of the CIT(A) have not been interfered with by the Tribunal.

28. Plea of the revenue is that neither the assessee is entitled to status of a charitable trust nor benefits of provisions of Sections 11 and 12 of the Act regarding exemption of income from taxation are to follow for it. It is claimed that exorbitant salaries paid to its members could not be approved and thus, order of the AO should be restored. The assessee, on the other hand, seeks complete restoration of the order of the CIT(A), denouncing the order of the AO as also of the Tribunal to the extent it had modified the order of the CIT(A) against the assessee.

29. Evaluation of the entire issue on this aspect requires some more discussion which thus follows:

30. The very fact that 1/3rd of the total expenditure made on payment of salaries to these stated persons had been allowed by the AO, is clearly indicative that engagement of the stated persons by the petitioner for rendering services to it, is neither disputed nor disbelieved by the revenue. However, the AO has not explained any formula or the parameters vide which he allowed 1/3rd of the total expenditure, whereas rest of the payment was disallowed. No basis much less objective, transparent and verifiable have been spelled out. Merely because Form No.10-B (giving complete details of the expenditure incurred on payment of managerial remuneration to persons specified under Section 40A(2)(b) and in terms of Section 13(3) of the Act) instead of being filed alongwith the return was furnished afterwards, was not a circumstance to reject the claim of the assessee.

31. Payment was made to the stated persons and was confirmed by the tax-auditors as well, is not in dispute. The payments have been made and the expenditure is actually incurred by the assessee (which is a charitable society existing solely for the purpose of education). There is nothing to show that the payments made to the persons mentioned in the return as also in tax audit reports, were excessive.

32. Conclusion drawn by the AO that the petitioner-society is not a charitable society but exists for the benefit of persons specified in Section 13(3) of the Act, is misfounded. It is, rather, to be noticed that the appellant trust/society is pursuing an object of general public utility. Even the AO has not given any finding that the activities of the assessee had ceased to be in the nature of general public utility. It remains a fact that the petitioner is also catering to poor or economically weaker sections by imparting education to their children either without any fee or at concessional rates.

33. It is noteworthy that four persons to whom the payments have been made are full time employees of the four schools being run by the petitioner at Faridabad and they were being paid their salaries from the income of the schools. When we examine the matter a little further on the facts becoming available in the paper book, it transpires that Mr. T.I.John, Manager of Saint John School, Faridabad and of Kerala schools has 40 years of teaching experience. He is himself an individual income tax payee. His remuneration turns out to be only Rs.57,000/- per month which is quite justifiable and reasonable for the services rendered by him as a full-time employee managing the entire show. He has also shown this income as 'salary receipt' in his individual income tax return which has been duly accepted and assessed by the Income Tax Department, Faridabad.

34. So far as Mrs. A. John, Manager of Saint John School, Sector 23, Faridabad is concerned, she has 35 years of teaching experience. Her remuneration comes only to Rs.49,000/- per month which is just and reasonable. She is also an individual income tax assessee and has submitted her return of income showing salary receipts of Rs.5,88,000/- for the year in question which have been accepted and attested by the Income Tax Department, Faridabad.

35. It is, thus, to be seen that the Tribunal though agreed with the CIT(A) in deletion of 2/3rd disallowance made by the AO in respect of Mr. T.I.John and that of Mrs. A.John but with respect to the remuneration paid to Mr. Joseph John and Mrs. Sonia Joseph, the Tribunal disagreeing with the CIT(A) wrongly tended to considerably side with the AO when it made a comparison of their salaries with the salaries paid to other teachers, came to an opinion that their remunation has to be at the same level as was being given to other teachers of the schools. Observations of the Tribunal on this count are as below:

“Now we come to the remuneration paid to Mr. Joseph John and Mrs. Sonia Joseph. The assessee had only submitted the job profile and experience of Shri Joseph John. He has been said to be a Joint Manager. He is said to have 10 years experience in teaching and administration line. As regards Mrs. Sonia Joseph it has been claimed that she is wife of Shri Joseph John, is a postgraduate and is working full time teacher cum administrator. Now in the case of the above two persons, we find that yardsticks as applicable to TI John and Mrs. A. John cannot apply. Shri Joseph John did his graduation in 1997 and Mrs. Sonia Joseph did her graduation in 1998. In our considered opinion, their remuneration has to be of the same level as that being given to senior teachers/Principals of the schools.

19. For the assessment year 2004-05, the staff salary and senior teachers salary is as under:

i) Shri Davinder Sethi, Principal :

Rs.29,927/- p.m.

ii) Shri S.K. Young, Principal :

Rs.29,000/- p.m.

iii) Shri R. Mattoo, Vice Principal :

Rs.19,765/- p.m.

iv) Smt. Sadhana Sharma, Principal :

Rs.20,358/- p.m.

Hence in our considered opinion the salary paid to Mr. Joseph John should not exceed Rs.30,000/-. Keeping in mind the difference in salary maintained by the assessee, the salary of Mrs. Sonia Joseph should not exceed Rs.20,000/- per month. Hence, we restore the disallowance to the extent as indicated in this regard.”

36. Though the Tribunal has tried to draw distinction on facts in case of Mr. Joseph John and his wife Mrs. Sonia Joseph but the same is not resting on sound pedestal against the assessee.

37. It is to be noticed that Mr. Joseph John has 10 years of teaching and administrative experience and his remuneration comes only to Rs.41,200/- per month which is not only justifiable but also reasonable in the terms of quantum of services rendered by him to the school as full time teacher as also as Secretary of the assessee-trust. He is also an individual income tax assessee and has shown salary receipt of Rs.4,94,500/- and return of income submitted by him for the year in question, has been accepted by the Income Tax Department.

38. Similarly, in case of Ms. Sonia Joseph, she is a post graduate teacher and is working as full time teacher-cum-administrator. Her salary comes to only Rs.27,480/- per month. She is an existing income tax assessee and return of income submitted by her for the year in question has been accepted and assessed by the Income Tax Department, Faridabad.

39. It is, thus, clear that the Tribunal had clearly faultered in taking Mr. Joseph John and his wife Mrs. Sonia Joseph merely as teachers when it has fixed their salaries Rs.30,000/- and Rs.20,000/- respectively comparable with other teachers of the school, completely ignoring the fact that Mr. Joseph John was also engaged in whole time management activities of the Trust and also was rendereing administrative functions qua running of the schools for which he was not being paid any extra salary. Similarly, Mrs. Sonia Joseph in addition to whole time teaching as was being done by other teachers had also been assigned the duties of administrator of the school which she was doing over and above her duties as a teacher for which she was not being paid any extra salary or remuneration and before and after the regular teaching.

40. Resultantly, order of the Tribunal fixing salary of Mr. Joseph John to Rs.30,000/- per month and of his wife Mrs. Sonia Joseph to Rs.20,000/- per month being neither correct on facts nor in law would not hold good. When finding of the Tribunal to the effect that excessive remuneration was paid to these two specified persons, being bad on facts and in law, is set aside and order of CIT(A) is restored, allowing benefit of exemption to the assessee under Section 11 of the Act, being legally sustainable. Consequently, questions of law framed in ITA No.1 of 2011 as depicted in para No.12 of this judgment in this light are answered against the revenue.

41. Consequently, reversing the order dated 21.5.2010 passed by the Tribunal to the extent it had modified the order of the CIT(A) against the assessee, order dated 28.2.2008 passed by the CIT(A) is restored.

42. So far as questions of law framed in ITA No.53 of 2011 by the assessee are concerned, computation of salaries of members of the trust in question could not have been done under the head “business or profession”. To this extent, order of the AO as also partially of ITAT are wrong and untenable in law. Order of CIT(A) is restored in toto. All these questions of law are answered in favour of the assessee and against the revenue.

43. So far as ITA Nos.290 and 249 of 2012 filed by the revenue for the assessment year 2007-08 and 2008-09 are concerned, the AO vide orders dated 17.3.2006 and 30.11.2010 respectively, had found that percentage of profit earned by the assessee was more than 85% and most of the amount had been put in fixed assets. It was also found that the assessee had purchased cars including Toyota Corolla. Denying the charitable status to the assessee, the AO had also refused to grant benefit under Section 11 of the Act.

44. The CIT(A) in order dated 28.2.2008 disagreeing with the AO had come to a firm finding that there was no diversion of profits of the assessee for the benefit of an individual and rather, profits had been utilised for the purpose of education. It is further concluded by the CIT(A) that the surplus over and above 85% of profits, could be retained by the assessee and the assessee could apply its receipt to the extent of 85% for the fulfilment of its objects in the field of education. It was held that the excess over expenditure is within the limit of 15% and thus, it was held that the assessee could not be denied the benefit of Section 11 of the Act. No violation of provisions of Section 13(2)(c) of the Act were found. Consequently, the CIT(A) had deleted the additions made by the AO holding that benefits of Sections 11, 12 and 13 of the Act could not be denied and rather would be available to the assessee.

45. The Tribunal had affirmed findings of CIT(A) and had dismissed the appeal of the revenue. The revenue has not been able to show that 85% receipt of the assessee was not being utilised for fulfilment of its objects. Similarly, expenses on account of salary have not been shown to be excessive. Since there is no violation of stipulations made in memorandum of association of the trust, for the reasons mentioned earlier, there is no merit in the pleas of the revenue.

46. Consequently, the appeals filed by the revenue are dismissed while the appeals of the assessee are allowed.  

 

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