DCIT, EXEMPTION CIRCLE, PATNA vs. BIJENDRA MEMORIAL SOCIETY, PATNA

order : March 29, 2023 आदेश / ORDER संजय गग�, �या�यक सद�य �वारा / Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the Revenue against the order dated 28.08.2020 of the Commissioner of Income Tax (Appeals)-1, Patna [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’). 2. The Revenue in this appeal has taken the following grounds of appeal: “1. The Ld.CIT(A) has erred in law as well as facts of the case in deleting the additions of disallowances towards the salary/remuneration of Rs. 17,40,000/- and Rs.12,60,000/- paid to Treasurer and Secretary of the Trust and Rs.3,00,000/- to Shri Kala Choudhary for hiring of bus and Rs.8,40,000/- for hostel Building Rent to M/s Aadya Bhasker Enterprises Private Limited from the income of Trust which were found excessive and unreasonable under sub-section (3) of Section 13 of the Assessment Year: 2015-16 Bijendra Memorial Society Income Tax Act, 1961 during the course of assessment proceedings and were added by the A.O. in the assessment order passed u/s 143(3) of the Income Tax Act, 1961 on 17/11/2017.

2. Any other ground will be taken at the time of hearing.”

3. The brief facts of the case are that the assessee-trust is registered u/s 12A of the Act. The assessee-trust runs a school in the name of Bijendra Public School at Purnea. During the assessment proceedings, the Assessing Officer noted that the salary paid to Shir Bhanu Bhaskar, Secretary of the Trust, of Rs.17,40,000/- and Shri Shani Kumar, Treasurer of the Trust, of Rs.12,60,000/- was excessive. Since the above named persons were covered under the provisions of section 13(3) of the Act and the amount of salary paid was in excess of what may be reasonably paid for their services, therefore, he disallowed the payment of salary to the aforesaid persons and did not treat the aforesaid payment as application of income and thereby denied the exemption to the assessee-trust in respect of salary paid to the aforesaid persons. The ld. Assessing Officer further disallowed the bus hiring charges of Rs.3,00,000/- paid to Shri Kala Kiran Chaudhary and hostel building rend of Rs.8,40,000/- paid to M/s Aadya Bhaskar Enterprises Pvt. Ltd. observing that the assessee could not justify the said payment.

4. In appeal, the ld. CIT(A), however, deleted the disallowance so made by the Assessing Officer in respect of salary paid to the specified persons namely Shir Bhanu Bhaskar, Secretary of the Trust and Shri Shani Kumar, Treasurer of the Trust. The ld. CIT(A) observed that the aforesaid amount was not excessive and that the Assessing Officer has failed to demonstrate that the aforesaid amount of salary was not reasonable. Even he has observed that the aforesaid persons were rendering full time services to the trust, earlier they were rendering Assessment Year: 2015-16 Bijendra Memorial Society service without taking any compensation for a number of years. Thereafter, during the financial year 2010-11, the trust resolved to start payment of salary to the aforesaid two persons who were rendering full time services to the trust. Further, in respect of disallowance of expenditure of bus hiring charges and hostel building rend, the ld. CIT(A) has observed that the bus hiring charges and hostel building rent were essential for travelling and accommodation facility provided to the students by the school. He observed that these activities were fundamental to the fulfilment of the objects of the assessee-trust. The relevant part of the observations of the CIT(A) are reproduced as under:

“It is found that the appellant trust has paid salary amounting to Rs.17,40,000/- to Secretary and Rs.12,60,000/- on which the appellant submitted that these salary payments were made to Mr. Bhanu Bhaskar, Secretary of the trust and Mr. Shani Kumar, Treasurer of the trust. Mr. Bhanu Bhaskar and Mr. Shani Kumar were engaged in the school in the year 2002-03 and rendered their fulltime service without taking any compensation for a number of years. Thereafter during financial year 2010-11, the trust resolved to start payment a salary the two of them in order to compensate them for their contribution which in effect was in lieu of two full time regular employees, who otherwise would have to be engaged at prevailing rates of compensations based on qualifications, experience merits as well as other professional factors. The A.O. has not found the explanation satisfactory and the conclusion of the A.O. is that the salary appears to be excessive and unreasonable in view of the fact that the persons to whom this salary has been paid are covered by the definition of 'interested person" as per section 13(3). This however is more in the nature of conjecture as the assessment order is silent on any reasonable basis, discussion or result of any enquiry made on the complete documentation available to the A.O. Instead the A.O. after discussing the procedure and facts has merely concluded by stating that he has not found the explanation of the appellant satisfactory. On the other hand, the appellant has submitted complete details of the manner and reason for which it was decided to pay the salary to these persons. Further there is a basic logic to the appellant contention that the salary / remuneration paid is in line with what would have been paid to newly employed professionals having similar experience and Assessment Year: 2015-16 Bijendra Memorial Society qualification. Even otherwise the salary paid to these persons is permissible as per the provisions of the Act. Accordingly, I am inclined to accept the contention of the appellant that remuneration / salary paid to the persons by the society is reasonable and thus the disallowance is deleted. Further on the disallowance of expenditure of Rs.3,00,000/- for hiring of bus and Rs.8,40,000/- hostel building rent, I find that the appellant society has hiring bus and hostel building for the purposes of travelling and accommodation provided to the students. These activities are fundamental to the fulfilment of the objects of the appellant trust and various courts have upheld the same principle. In view of the above, the disallowance of Rs.3,00,000/- for hiring of bus and Rs.8,40,000/- for hostel building rent made by the A.O. on these counts are hereby deleted. In the result, the appeal is allowed.”