M/S HERITAGE EDUCATIONAL SOCIETY,CHANDIGARH vs. DCIT, C-1, (E), CHANDIGARH

आदेश/Order

PER BENCH:

These three appeals by the assessee are directed against the separate orders each dated 18.6.2019 for the assessment years 2010-11, 2014-15 and 2015-16 of the Ld. CIT(A) 2, Chandigarh. Since the issues involved are common and the appeals were heard together so these are being disposed off by this common order for the sake of convenience and brevity.

ITA Nos 1069 to 1071-chd-2019- M/s Heritage Educational Society, Chandigarh

ITA Nos 1069 to 1071-chd-2019- M/s Heritage Educational Society, Chandigarh

Officer noticed that the assessee was paying salary / honorarium to S/Shri Anup Soni, Amit Kumar Bansal and Mukeh Bansal @ Rs. 18 lacs per annum each. These persons were related as per the provisions of section 13(3) of the Act. The Assessing Officer observed that during the assessment proceedings for the assessment year 2015-16, the local enquiries had been made by the then Assessing Officer u/s 131 of the Act and it was found that these payments were not genuine and reasonable and then it was asked that the payments made to specific persons under section13(3) of the Act towards salary were excessive and not reasonable and were in violation of provisions of section13(1)(c) of the Act. So, as to why those payments be not disallowed and taxed on maximum marginal rate u/s 164(2) of the I.T. Act.

4.1 In response, the assessee submitted as under:-

“As regards to query regarding applicability of section 11(1) read with section 13(l)(c) of the Act, we want to state that the assessee society had paid an amount of Rs. 54,00,000/- as salary/ honorarium to the trustees for professional and expert services provided by such persons. No direct or indirect benefit had been given to them and only salary had been paid to them for services provided by them on which section 13(1)(c) of the Act does not apply.

Section 13(1)(c) has been reproduced below: Section 13..... (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)

The contention of the legislature is to restrict any undue benefit which was derived by any persons (covered under section 13(3) of the Act) must be excluded from exemption provided in section 11 of the Act.

So the thrust of the complete section is basically lies on "any direct or indirect benefit"

Act does not define the word "benefit", but it is a general clause and as per oxford dictionary the "benefit" means "An advantage or profit gained from something"

ITA Nos 1069 to 1071-chd-2019- M/s Heritage Educational Society, Chandigarh

Specified persons must got some advantage or profit to attract section 13 (3) of Act. But in our case the assessee had paid Honorarium to such persons against services received, it is purely a normal contract without any undue benefit/profit or advantage to such persons.

It is Heritage Educational Society not such specified persons who is benefited from this contract, as the specified persons are providing various specialized & Expert services to trust at concessional price, (a complete detail of services offered by such persons are attached with this letter_ if such services are availed by society from outside (third party), society has to shed more cost than current cost. So no benefit (direct or indirect) was transferred to specified persons by society.

Benefit must be a case where there is one way flow of advantages/profit means from trust to specified persons. But in our case the assessee trust had full value its consideration paid in shape of professional/specialized expertise of such persons.

Reliance is placed on various judicial pronouncements as below:

CIT V Bharat Sewa Sansthan (2013) 217 Taxman 337 (All): "Therefore, the term "benefit" would cover a case of one way flow of privilege and advantage to the persons of prohibited category, our of the funds, property or income of the trust"

CIT Vs. Shreeram Memorial Foundation 269 ITR 35, the Delhi High Court held that as the Trust had given loan without adequate security but the loan was not large and interest was adequate, exemption was granted. The

The Gujarat High Court in CIT Vs. Sarladevi Sarabhai Trust No. 2 172 ITR 698 has held that where a charitable trust donates an amount to the corpus of another charitable trust, which had been created by the same group of persons, 13 (2) (h) would not apply.

In Shree Poongalia Jain Shwetamber MandirVs. CIT 1685 ITR 516 (Raj), amounts were lent to a firm in which Trustees were Partners, the firm had created Equitable Mortgage of immovable properties belonging to it and the rate of interest was equal to that charged by banks on deposits. It was held that withdrawals of exemption was not justified.

So, in the light of above submi8ssion, we humbly want to state that the honorarium/salary paid to persons covered u/s 13(3) of the Indian Income Tax Act, 1961 did not attract section 13 (1) (c), hence allowable expenses.

Further in case your goodself is not satisfied with the above submission, without surrendering our right to avail all legal remedies in case of any addition, we want to articulate proviso of section 164 (2) of the Indian Income Tax Act 1961 (reproduced below), which speaks to tax the relevant part (income) at maximum marginal rate, without attracting any other limb of trust (either exemption status or surplus of receipt over income) As per Section 164(2) of the Act,

In the case of relevant income which is derived from property held under trust wholly for charitable or religious purposes, or which is of the nature referred to in sub-clause (iia) of clause (24) of section 2, or which is of the nature referred to in

ITA Nos 1069 to 1071-chd-2019- M/s Heritage Educational Society, Chandigarh

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) of 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. Reliance is also placed on2015 (9) TMI1447- SUPREME COURT: DIRECTOR OF INCOME TAX CHENNAI VS. M/S. WORKING WOMENS FORUM: wherein SPL was dismissed by Hon 'ble S.C. and states the Exemption to be granted as provided u/s 13 (1) (d) or total denial u/s 11- held that: HC order confirmed [2014 (8) TMI 681- MADRAS HIGH COURT} the income other than dividend income has to be taxed only to the extent to which the violation was found by the AO- there is a vital difference between eligibility for exemption and withdrawal of exemption/forfeiture for exemption for contravention of the provisions of law- Decided against Revenue."

“4.1 Assessee has made payments to their members regarding Salary. These amounts are not reasonable because assessee has only submitted that trust is paying charges to them against the services provided by them and they are well qualified persons. The reply of assessee duly considered but not accepted on this ground, because members or trustees are well qualified cannot be a ground for the payments of high Salary. The salary paid to members is not reasonable and undue benefit to these related persons u/s 13(3) of I.T. Act. Assessee has failed to produce or submit any documentary evidences regarding the services provided by these persons. Only run a charitable institution can not be a ground to pay the salary or other allowance to them.

4.2 It is also seen from the personal ITR of these persons that they are also doing some other work along with getting salary /honorarium from the Heritage Educational society. The nature of this work is run a business and getting interest / remuneration from some other business concerns. On perusal of the above, it is clear that these persons are not concentrate on their job and doing other works along with the services provided to the assessee. The reply in this regard is not accepted. The reply of assessee is not on real ground, it's a fact that business is a 24 hours job and it is difficult to manage business with any other job. It is also a fact that salary / honorarium paid to the members of the trust is higher compared to other salaried employees. So reply in this regard is not accepted and payments made to these persons are not reasonable and liable for disallowance u/s 13 (l)(c) r.w. 13(3) of I. T. Act, 1961 and taxed u/s 164 (2) of I. T. Act.

ITA Nos 1069 to 1071-chd-2019- M/s Heritage Educational Society, Chandigarh

ITA Nos 1069 to 1071-chd-2019- M/s Heritage Educational Society, Chandigarh

member/office bearer of the society, therefore it is clear cut violation of section 13 of the Income Tax Act, 1961. Therefore, you are requested reopen the cases of the society u/s 147 of the Act, for the A. Y. 2008-09 to 2015-16 to disallow the salary/remuneration made to Sh. Amit Bansal, Anoop Soni and Mukesh Bansal. 6. The next issue is that vide reply dated 15.12.2015 submitted by the counsel of the assessee during assessment proceedings A.Y. 2014-15, as per the balance sheet as on 31.03.2011 shown the loss of Rs. 12.40 crores and stated the society is maintaining separate books of accounts of MJs Heritage Educational Society & M/s Delhi Public School. After the consolidated balance sheet of M/s Heritage society is prepared the reserve and surplus of M/s Heritage Educational Society & M/s Delhi Public School comes to Rs. 12,60,83,332/- as on 31.03.2011 mainly due to claim of depreciation, interest and salary as there is no corresponding income receipt. The income generated through school has been reflected in the books of Delhi Public School. The consolidated result of the society and the School is excess of income over expenditure. This is regular practice of the society, therefore, you are requested reopen the cases of the society u/s 147 of the Act, for the A.Y. 2008-09 to 2015-16 to disallow since the society is misusing the exemption for benefit of the office bearer/member of the trust On perusal of the balance sheet of the society it is also seen that the society has received unsecured loan of Rs. 40,22,68,419/- till 31.03.2015 from various persons, name of the persons is also mentioned in the balance sheets. This unsecured loan includes amount of Rs. 34,97,68,419/-rom Delhi Public School till. 31.03.2015. This society has not submitted any detail of such unsecured loans received; therefore, the matter is referred to the AO of the society for further verification for relevant A.Yrs. The above information is passed to you for reopening the cases u/s 147 of IT. Act. Kindly find enclosed herewith the TEP report in the case for further verifications and necessary action at your end."

8 ITA Nos 1069 to 1071-chd-2019- M/s Heritage Educational Society, Chandigarh

ITA Nos 1069 to 1071-chd-2019- M/s Heritage Educational Society, Chandigarh

relied by the assessee were on different facts than the facts of the assessee. He made the addition of Rs. 54 lacs by observing in para 4.8 and 4.9 of the assessment order asunder:- “4.8 Assessee is providing special treatment to trustees & their relatives. The above facts, show that these members have taken advantage of being relatives & trustees of the assessee. As is clear from the above table that salary/honorium is paid only to the persons covered u/s 13(3). Rather the members are managing the society for charitable purposes and claiming exemption from tax, they should all the more be doing a selfless service or at least should not be siphoning off the funds of the society under the garb of honorium/salary payments to their own self & family members. On top of it assessee is projecting as if huge favour is done to the society by the members by services provided to it. Trustees are the persons managing the society & they decide for themselves what benefits are to be extracted from the society for themselves & the family members. This is blatant misuse and manipulation of the society by its own members & such transactions are covered u/s 13(3) r.w.s 13(l)(c) r.w.s 164(2) and section 11.

4.9 However, Case laws regarding the taxability of the amount u/s 13(l)(c) is concerned, these case laws are duly considered and according the case laws and section 164 (2) of I.T.Act,1961 taxability is applicable limited to violation of amount of 54,00,000/- under the provisions of section 13 (l)(c) r.w. 13 (3) of I.T.Act,1961.”

"The assessee society had paid an amount of Rs. 63,00,000/- as salary/honorarium to the trustees for professional and expert services provided by such persons. No direct or indirect benefit had been given to them and only salary had been paid to them for services provided by them. The contention of the legislature is to restrict any undue benefit which was derived by any persons (covered under section 13(3) of the Act) must be excluded from exemption provided in section 11 of the Act. So the thrust of the complete section is basically lies on "any direct or indirect benefit. Act does not define the word "benefit", but it is a general clause and as per oxford dictionary the "benefit" means "An Advantage or profit gained from something" Specified persons must got some advantage or profit to attract section 13 (3) of Act. But in our case the assessee had paid Honorarium to such persons against services received, it is purely a normal contract without any undue benefit/profit or advantage to such persons.lt is Heritage Educational Society not such specified persons who is benefited from this contract, as the specified persons are providing various specialized & Expert services to trust at concessional price. The work of these persons involves selection of teachers, interaction with parents, management of capital expenditure, providing resources to schools including its

ITA Nos 1069 to 1071-chd-2019- M/s Heritage Educational Society, Chandigarh

funding, managing fees, collection, administrative control, interaction with the main DPS society, laisoning with it, implementing its policies, interaction with CBSE and other day to day affairs of the school, which also includes budgeting, financing and even interaction with parents and teacher associations etc, which involves a lot of time and efforts for which otherwise society would have to engage outside persons otherwise and due to the fact that such talent was within the home circle i.e. the wards of the trustees. Even the provisions of Income Tax Act under section 11 to 13 do not put any bar on such persons having adequate qualifications and capabilities working for the achievements of goals of the trust. It is further stated that in all there are 9 members in the society and salary was paid to only three members, who take active participation in the day to day function of the school. Benefit must be a case where there is one way flow of advantages/profit means from trust to specified persons. But in our case the assessee trust had full value its consideration paid in shape of professional/specialized expertise of such persons. The intention of assessee to run the trust for charitable purpose only. The assessee had made application of income even more than the receipts of the trust therefore, if the salary paid to specified persons were ignored than also the assessee had made 85% of the receipts as application of income for the purpose of society. Also it was covered under proviso to section 13(l)(c) of the Act that "in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution"

So we have paid honorarium for the services provided to society which was also covered under trust deed. It was also mentioned in the MOA under Power and Duties of Governing body Clause 8 para xi that governing body shall have authority to recompense members for all the expenditures incurred for the society and to provide for other services required for the discharge of functions of the society. If the intentions of society were to provide direct or indirect benefit to specified persons than they will provide salary/honorarium to all the specified persons covered under section 13(3) of the Act. Reliance is placed on the following case laws/judgement in support to the contention of the assessee:

• Hon'ble Bench of ITAT Ahmedabad in the case of PNR SOCIETY FOR RELIEF & REHABILITATION OF THE DISABLED TRUST VERSUS THE DDIT (EXEMPTION) BHAVNAGAR [2014] 34 ITR (Trib) 465 (ITAT [Ahm]) • Hon'ble Gujarat High Court (upheld by Hon'ble Supreme Court) in the case of COMMISSIONER OF INCOME TAX VERSUS BHOLARAM EDUCATION SOCIETY R/ Tax Appeal No. 306 of 2018 • Jurisdictional court in the case of Commissioner of Income Tax Versus M/s. Idicula Trust Society, Faridabad 2014 (4) TMI 535 - PUNJAB & HARYANA HIGH Court • Hon'ble bench of ITAT, Chandigarh in the case of Young Scholars Educational Society Versus ITO [2011] 12 ITR

ITA Nos 1069 to 1071-chd-2019- M/s Heritage Educational Society, Chandigarh

Further assessment proceedings for the AY 2010-11 was completed under section 143(3) and no disallowance of salary paid to above trustees was made. AO had asked for justification of salary paid to members and had accepted the same without drawing any wrong inference on the same. It is well settled law that the doctrine of res judicata is not applicable to the fiscal statutes. However, the doctrine of consistency prevails over the doctrine of res judicata where the facts and circumstances of the case are identical and the Revenue has granted allowance of salary for the assessment year 2010-11. The same point had already been discussed during the assessment proceedings of AY 2010-11. The department had accepted the assessee's submission of salary without drawing any wrong inference. The Assessment orders for A.Y. 2010-11 had been passed without making any addition. Therefore, it would be harassment to the assessee for re-opening the case for the same issue which had already been discussed by the department during the assessment proceedings of previous assessment years. So this is only a mere change of opinion regarding salary paid to trustees for which Id. AO had already accepted the assessee submissions. Reliance is placed on the following case laws/ judicial pronouncements:

• Commissioner of Income Tax, Delhi Versus M/s Kelvinator of India Limited [2010] 320 ITR 561 (SC) • Commissioner of Income Tax, Faridabad Versus M/s ITW India Ltd 2015] 377ITR 195 (PSnH) • Commissioner of Income Tax, Delhi Vs. Kelvinator of India Ltd. [2010 (1) TM 11 ■ SUPREME COURT OF INDIA] • Mitsubishi Electric Automotive India Pvt. Ltd. Versus Union of India And Others 2015] 377 ITR 266 (P&H) • jurisdictional High Court in the case of State Bank of Patiala Versus Commissioner of Income Tax 86 another [20151 375 ITR 109 (P&H)

Also the amount paid to members includes travelling expenses also incurred by them for works of society. Also the school was managed by the principal but all the decision were taken by the members in the back. The principal consult with them on day to day basis. The amount paid top them includes all the expenses for travelling from Chandigarh to Delhi for the work of school for three times in a week. So how can the department assume that the amount paid to them was higher than other employees. Further the addition made by Id. AO was totally on the basis of report of DDITflnv.), Chandigarh where they have mentioned that the members have no fixed schedule or time table to come to the school. No register was maintained of their presence in the school but Id. AO had ignored the facts that the services they perform for the society not require their presence in the school on routine basis. They all are qualified persons and providing services for selection of teachers, interaction with parents, management of capital expenditure, providing resources to schools including its funding, managing fees, collection, administrative controls and interaction with main DPS society, implementing its policies, interaction with CBSE and other day to day affairs of the school. The members are more convenient and manageable as compared to outside hired resources. All these services were provided by them by visiting school at Chandigarh on time to time basis and the remaining work was done by them electronic & telephonic media. Therefore it cannot be presumed that they are not performing any duties at all and salaries provided to them was in violation of section 13(l)(c)of the Act.

ITA Nos 1069 to 1071-chd-2019- M/s Heritage Educational Society, Chandigarh

The Id. AO had ignored the fact that the members who had received salary/honorarium from assessee had paid taxes @ 30% on the same in their return of income i.e. at maximum marginal rate of taxes and in the case of assessee the income of trust was exempted u/s 11 even if the expenditure of salary to members was ignored as the expenditure was higher than 85% of the receipts. The same income cannot be taxed twice in the hands of members and in the hands of trust. The members had paid taxes at maximum marginal rate and the tax is to be paid by one entity only and by relying upon circular no. 157 (F.No.228/8/73-IT (A-II) dated 26.12.1974 making clarification for section 164/166 of the Act contended that all the income are to be charged to tax only once and it is not open to the Income-tax Officer to assess the same income for that assessment year in the hands of other persons i.e. assessee trust. For ready perusal, operative part of the circular no. 157 (F.No.228/8/ 73-IT (A-II) dated 26.12.1974 is reproduced as under :- "1. Attention is invited to Board's Instruction No. 45/78/66/ITJ(5), dated 24-2-1967 [printed here as Clarification 2] on the subject of assessment made under section 41 (2) of the 1922 Act/section 166 of the 1961 Act. In spite of the clear instructions to the effect that neither section 41 which give an option to the department to tax either the representative assessee or the beneficial owner of the income nor the parallel provisions of the 1961 Act contemplated assessment of the same income both in the hands of the trustees and the beneficiaries, instances have come to the notice of the Board of such double assessment According to the Scheme of the 1961 Act, even as it was under the 1922 Act, the general principle is to charge all income only once. The Board desire to reiterate the earlier instructions in this regard. In order that there is no loss of revenue, the Income-tax Officer should keep this point in view at the time of raising the initial assessment either of the trust or the beneficiaries and adopt a course beneficial to the revenue. Having exercised his option once, it will not be open to the Income-tax Officer to assess the same income for that assessment year in the hands of the other person (i.e. the assessee trust)."

In our case also the members had paid taxes on the amount paid to them (a 30% and the same would not be taxed again in the hands of assessee trust. Even if the expenditure of salary booked by the trust in their books had been ignored than also the income of trust was exempted u/s 11 of the Act as their expenditure was more than 85% of the receipts."

During the course of assessment proceedings no documentary evidences, w.r.t. the services claimed to be provided to the assessee society, were adduced either. Mere claims that they are well qualified does not entitle them to claim unrequited payments. No evidence of the exact work being done and the expenditure incurred (which is claimed to be recompensed) were provided during the appellate proceedings either. The reasons contained in the written submissions are clearly untenable. It has been claimed that even as the school was managed by the principal all the decisions were taken by the members in the back. This clearly is not sound reasoning. It connotes subversion of the roles of a principal who alone is responsible and accountable for all decisions w.r.t

ITA Nos 1069 to 1071-chd-2019- M/s Heritage Educational Society, Chandigarh

running of an institute and no one else. The written submissions also claim that the members were reimbursed for their travels from Chandigarh to Delhi and back three times a week. The purposes of such frequent travel have not been provided. Even if one presumes that such visits were undertaken for interaction with CBSE and DPS Society (as contained in subsequent submissions) the frequency of the claimed travels by itself is not borne by the requirements per se. The assessee further does not elucidate whether CBSE acknowledges the member of the governing body as the representatives of the school. It is another matter that the claims of travel are mere statements which have not been corroborated by evidence suggesting any benefit to the assessee society. Additionally, persons who come together wearing the badge of altruism on their collars and flaunt that as the guiding force while seeking exemption are not expected to bleed the assessee society of the public money meant to be utilized for the public benefit on the basis of which exemption from taxation is granted to such entities. Trusts and societies can not be allowed to act as firms / business where members of the governing body assume that they are partners / directors and take out substantial chunks from the public funds meant, in the present case, to be spent for education.

In that light the alternate claim that the amounts received from the society have been duly disclosed in the individual return of income and taxes have been paid also does not hold water. Infractions arising from misuse of exemption provisions can not be absolved on account of payment of taxes on the relevant amounts. Moreover, such conclusions, about a part of claimed utilization not being for charitable purposes, may also bring the assessee within the fold of entities that failed to utilize 85% of their income for charitable purposes. In this case, however this issue may not be relevant because of absence of any finding by the AO on this count as also the claims of the assessee that the utilization has been substantially as per the threshold of 85% (The AO needs to examine this aspect whether the threshold of 85% utilization is met after the disallowance of claimed utilization). Reference to Board's Circular of 1967 by the assessee is also misplaced. The provisions of Section 11, 12 and 13 have undergone substantive changes in the 52 years subsequent to the circular including powers assigned to the competent authority to withdraw registration on the basis of evidences to the effect prevalent in the case. Several recent judicial decisions have emphasized on the need to view exemption provisions in the most stringent manner. If the same is not done there could be many scenarios where public funds of a public charitable trust/society are utilized for purposes that are not charitable and the assessee trusts/societies keep on infringing on the rights of the beneficiaries by claiming that taxes have been paid on amounts extricated from the trust/society. The assessee claims that the memorandum of association provides for recompensing members for all the expenditures incurred by them for the society. The clauses specifically means reimbursing of small amounts ( as is in vogue in the case of all other societies and also in sync with the MOAs approved by the Registrar of societies apart from the conditions inherent in the Society's Registration Act, 1860) in lieu of any expenditures that may have been incurred for the Society. In the instant case there is no evidence of any expenditure being reimbursed. The claims that the assessee was covered by the proviso to section 13(l)(c) have to be negated. No evidence about the mandatory terms of the society and the rules governing the institution has been filed, to corroborate the claims, either. The other claim that honorarium (salaries) were paid only to three and not to all specified persons, in fact, would go against the assessee as an

ITA Nos 1069 to 1071-chd-2019- M/s Heritage Educational Society, Chandigarh

acknowledgement that it was meant for aggrandizing specified persons and possibly invite withdrawal of registration in the case. Further, the contribution of the persons that were cited as rationale for giving them pecuniary benefits all pertain to the headmaster or principal, the bursar, the administrative officer etc of the school under the society who are being paid handsome amounts as salaries separately. It cannot be that the credit for works assigned to and falling within the domain of professionals and other officials (duly recognized by the Board of Education regulating the affairs of the society's school) could be usurped by a few of the members of the society who subsequently would go on to claim pecuniary benefits. This claim towards ostensible assumption of roles (which in fact remains uncorroborated and unevidenced) can not be accepted to accord any benefit to the assessee society.

He further observed as under:

Further the facts brought out in the assessment order lead to a fair conclusion that the members of the governing body of the society have been made unreasonable payments. Additionally, it is held that the AO was perfectly justified in holding the amount of Rs. 54,00,000/- as the amount paid unreasonably to the members of the governing body and the infraction was duly covered under section 13(l)(c) rws 13(3) & 164(2) of the Income Tax. These grounds of appeal are dismissed. 12. Now the assessee is in appeal.

ITA Nos 1069 to 1071-chd-2019- M/s Heritage Educational Society, Chandigarh

failure on the part of the assessee to disclose all material facts necessary for completion of the assessment. The reference was made to page no. 3 of the assessee’s paper book. It was further contended that the A.O. in the order sheet dt. 11/12/2012 (copy of which is placed at page no 21 of the paper book) clearly mentioned that the reply relating to the salary to the specified persons had been given and other details were also furnished. The reference was made to page no. 70 to 71 of the assessee’s paper book which is the copy of original assessment order dt. 11/12/2012 passed under section 143(3) of the Act. It was reiterated that the salary to the specified persons had been paid in the earlier years also and no adverse view had been taken and that in the A.Y’s 2008-09, 2009-10 and 2010-11 the salary / honorarium to specified persons was at Rs. 36 lacs, Rs. 45 lacs and Rs. 54 Lacs respectively which have been accepted by the Department.

13.1 Ld. Counsel for the Assessee also furnished the written submission running into page no. 1 to 14 copy of which is placed on record and on the issue relating to disallowance of salary / honorarium paid to specified persons wherein, it has been submitted as under: “ i. It has been accepted by the Assessing Officer/CIT(A) that the Members possess the requisite qualification. ii. The Assessing Officer was satisfied during the course of original assessment proceedings with regard to the justification of salary/honorarium to the 'specified persons' and also the same issue was examined in Asstt. Years 2008-09, 2009-10 and 2010-11. iii. The detail of work/services as rendered by the 'specified persons' had been explained in detail at pages 45 to 45A of the Paper Book, which is being relied upon and reference be made to specific replies for Asstt. Years 2008-09, 2009-10 and 2010-11 at pages 72 to 88 of the Paper Book-ll.

iv. The salary has been paid for the past many years earlier to Asstt. Year 2008- 09 as well and accepted by the department in the orders passed u/s 143(3)/143(1) and the issues have attained finality.”

13.2 The reliance was placed on the following case laws:

• CIT Vs. Idicula Trust Society reported in 104 DTR 0009 (P&H) • CIT Exemptions Vs. CMR Jnanadhara Trust reported in 55 taxmann.com 516 (Karnataka HC)

ITA Nos 1069 to 1071-chd-2019- M/s Heritage Educational Society, Chandigarh

• Dr. D.Y. Patil Pratisthan Vs. DCIT reported in 39 taxmann.com 138 ITAT Pune Bench • Young Scholars Educational Society Vs. ITO reported in 25 taxmann.com 422 ITAT Chandigarh Bench • Pinegroave International Charitable Trust Vs. DCIT reported in ITA No. 567/CHD/2019 (Chd Trib)

13.3 It was further submitted that in the earlier years on the basis of similar facts payment to salary had been accepted. Therefore in view of the principles of consistency the disallowance made by the A.O. and sustained by the Ld. CIT(A) was not justified. Reliance was placed on the following case laws :

• Prasad Multi Services Pvt. Ltd. Vs. DCIT reported in 423 ITR 542 (Guj) • CIT Vs. Dalmia Dadri Cement Ltd. [1970] 77 ITR 410 (P&H) • Berger Paints India Ltd. Vs. CIT [2004] 266 ITR 99 (SC) • Prasad Multi Services Pvt. Ltd. Vs. DCIT [2020] 423 ITR 542 (Guj) • DCIT Vs. United Vanaspati Ltd. (2005) 275 ITR 124 (AT)(TM) • Radhasoami Satsang Vs. CIT (1992) 193 ITR 321 (SC) • CIT Vs. Arthur Andersen & Co. (2009) 318 ITR 229 (Bom) • CIT Vs. Leader Valves Ltd. (2007) 295 ITR 273 (P&H)

13.4 Ld. Counsel for the Assessee also furnished the written submission to rebut the findings of the Ld. CIT(A) and the A.O. relating to the disallowance of salary which read as under:

a. The finding of CIT(A) in para 7.3 that no additional services have been provided is absolutely incorrect in view of the clear cut submissions of the assessee about the services being rendered, which are there at pages 45 to 45A of the Paper Book and at pages 72 to 88 of the Paper Book. b. Both the CIT(A) and Assessing Officer has not doubted the qualification, but then has held that the qualification is not enough, but has totally ignored the services rendered by them and which services have been rendered not only from this year, but from the past ten years.

c. The finding of the CIT(A) that it is only the Principal, who is only capable for running the school is again misconceived, because ultimately, it is only under his guidance and support of the management that, the institution is run, which involves devoting of time to manage the school, selection of teachers, management of capital expenditure, interaction with the members of DPS society, liasoning with it, implementing its policies, interaction with CBSC and other day to day affairs of the school, which also includes budgeting, financing and even interaction with parents and teacher associations etc. All these works

ITA Nos 1069 to 1071-chd-2019- M/s Heritage Educational Society, Chandigarh

involve lot of time and efforts for which otherwise society would have to engage outside persons otherwise and due to the fact that such talent was within the home circle i.e. the wards of the trustees and thus, their services were taken.

d. The reliance by the CIT(A) on general presumption in para-1 of the order at page 8 is again on presumption/assumption without any substantive material on record. There is no misuse of exemption provisions. e. The CIT(A) has totally ignored all such factual facts and circumstances and has only presumed certain things and it is a settled law that no presumption can be made in justifying the addition as per the judgment of Hon'ble Supreme Court in the case of Omar Salay Mohamed Sait Vs CIT 37 ITR 151. f. The memorandum of association clearly stipulates about the payment to the members of the society, it is as per clause (xi) of the memorandum of association as per page 21 K of the Paper Book., which is being reproduced as under:-

“xi). To recompense members for all bonafide expenditure incurred for the Society and to provide for other services required for the discharge of functions of the Society. However, no member of the Governing body shall be appointed to any salaried officer." g. From the above, it is very clear that the for the services rendered by the members, the society has paid certain amount as salary/honorarium as per past practice and even the justification is there viz salary paid to staff of the school and for which, no doubt has been raised. The total amount ofsalary during the year under consideration is to the tune of Rs. 4,73,08,743 and out of which, the salary/ honorarium paid to the members is only 36 lacs, which is quite justified and no comparable case as to how much salary can be justified, has not been cited. The finding of the Assessing Officer and reliance on the report of 'Investigation Wing' that there is no 'attendance register' for the members is again misconceived, because of the nature of duties, there cannot be any attendance required of the members to come to the school premises on day to day basis and it has rightly been stated that there cannot be a fixed schedule and time table for coming to the school to the members, but then it has categorically been stated that they come to the school to attend the meeting and the nature of the duty itself suffice that these duties which they are rendering, i.e. maintenance of capital assets and other day to day activities and if any other person employed at their place, would have demanded more honorarium/salary. No comparative instance has been quoted as to what could be reasonable of salary/honorarium. All these services demand experienced person and consume lot of time and efforts. The proof of the services is a smooth and efficient conduct of the School functions and its continuous growth which is more than documentary evidence. h. The Assessing Officer and CIT(A) has taken a very narrow view and they have compared the members of the society with the teaching staff, which is wholly misconceived as per para 7 of the order of the Assessing Officer and they have ignored the present day circumstances as to how the school are being run. i. In view of the above said facts and circumstances and case laws, the salary/honorarium as allowed in earlier years, may, please, be allowed and the order of Ld. CIT(A) sustaining the addition deserves to be deleted.

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13.5 It was also stated that the A.O. while invoking the provisions of Section 13(3) of the Act had not cited any comparable case, therefore, the disallowance made by the A.O. and sustained by the Ld. CIT(A) was not justified. 14. In his rival submissions the Ld. Sr. DR strongly supported the impugned order passed by the Ld. CIT(A) and reiterated the observations made by the A.O. and the Ld. CIT(A) in their orders. It was further stated that since the specified persons were not providing any service and they were not attending the office regularly therefore the salary paid to them was not justified and disallowance made by the AO was rightly sustained by the Ld. CIT(A). 15. We have considered the submissions of both the parties and perused the material available on the record. In the present case the A.O. disallowed the remuneration/salary amounting to Rs. 54 Lac paid by the assessee to the members of the society for the reason that no service was provided by them and that having the qualification is not a criteria to make the payment of salary/remuneration to the members of the society. Ld. CIT(A) sustained the disallowance made by the A.O. In the instant case it is noticed that the A.O. on the one hand said that the persons were not doing any service on the contrary in para 4.2 of the assessment order he mentioned that those persons apart from doing services were also doing some other work alongwith getting salary / honorarium from the assessee. Therefore, the stand taken by the A.O. is contradictory because on the one hand the remuneration / salary paid to the members of the society was disallowed on the basis of no services provided by them on the other hand he himself admitted in para 4.2 of the assessment order that those persons were doing other works alongwith services provided to the assessee. It is also noticed that the A.O. on the basis of report of one of the Inspector of Investigation Wing disallowed the salary / remuneration. The said Inspector in his report has stated that those persons namely Mr. Amit, Mr. Anoop and Mr. Mukesh Bansal did not came daily to the school premises, they had no fixed schedule or time table to come to the

19 ITA Nos 1069 to 1071-chd-2019- M/s Heritage Educational Society, Chandigarh

school and that they came to the school premises only to attend the meetings which were not conducted on regular or routine basis. From the aforesaid report also it is clear that those persons although did not come daily to the school but they were coming whenever the meetings were fixed.

15.1 As regards to the services provided by those persons, the contention of the assessee was that the specified persons to whom salary/honorarium was paid were possessing the requisite qualification and they were providing guidance and support to the management for selection of Teachers, management of capital expenditure, interaction with members of DPS society, liasoning with it, implementing its policies, interaction with CBSE and Teachers Association etc. which involved lot of time and efforts for which otherwise assessee society would have to engage outside persons. The said explanation of the assessee was not rebutted at any stage.

15.2 On a similar issue the Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Indicula Trust Society (supra)held as under: “ 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.” 15.3 In the present case also the payments made to the specified persons was reported by the Tax Auditor and thus said payment was not in dispute and no comparable case has been cited by the AO to substantiate that how and in what manner the payment made to the members of the society was excessive while invoking the provisions of Section 13(1)(c) of the Act.

15.4 Similarly the Hon’ble Karnataka High Court in the case of CIT (Exemption) Vs. CMR Jnanadhara Trust(supra) held as under: “ The payment of the amounts in question to the trustees, out of the trust amount, is not in dispute. The Tribunal has clearly set out the services rendered by these trustees for the trust and thereafter it has come to the conclusion that the said amounts paid, are reasonable and not excessive. When the trust is availing the services of these trustees and on account of the series rendered by them, there is a substantial growth in the Trust and its activities, when the payments are made

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for such services rendered, it cannot be said that it contravenes section 13(1)(c). Consequently, there is no justification for denying the benefit under section 11.” 15.5 In the present case also when the assessee society was availing the services of the members of the society and if they have not provided those services to assessee society, it would have engaged the person from outside to whom salary was required to be paid. Therefore, the disallowance made by the AO and sustained by the Ld. CIT(A) was not justified particularly when nothing is brought on record to substantiate that the salary paid to them was excessive.

15.6 Similarly in the case of Young Scholars Educational Society Vs. ITO (supra) ITAT Chandigarh Bench “B” held as under: “that the qualification of ‘S’ was indicated as M.A. B.Ed, besides other degrees and diplomas, e.g., Sangeet Visharad (Sitar), Sangeet Bhushan (Vocal), Sangeet Bhushan (Sitar)senior diploma (Vocal), Sangeet Parvewshika (Vocal) and she also held NCC ‘J’ certificate. A number of certificates and distinctions had also been mentioned having regard to professional qualifications of the principal ‘S’. Though the payment of salary fell under the bar placed by section 13, however, having regard to her qualifications and services rendered to the assessee, the case of the assessee fell under section 13(2)(c) as the salary paid was not unreasonable. In view of this, the assessee went out of the bar placed by the provisions of section 13. 15.7 In the present case also the AO himself admitted that the specified persons were having the higher qualification and no comparable case was brought on record to substantiate that the salary / remuneration paid to them was excessive. Therefore, the disallowance made by the AO and sustained by the Ld. CIT(A) was not justified.

15.8 In the present case it is also noticed that the remuneration / salary paid to the same persons in the earlier years had been accepted while framing the assessment orders under section 143(3) of the Act. Therefore, by keeping in view the principles of consistency no disallowance is to be made for the year under consideration if the facts are identical in the preceding years wherein the similar payments have been accepted by the Department.

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15.9 On a similar issue the Hon’ble Apex Court in the case of Radhasoami Satsang Vs. CIT (supra) held as under: “"Strictly speaking, res judicata does not apply to income tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year". 15.10 Similarly the Hon’ble Jurisdictional High Court in the case of CIT Vs. Leader Valves Ltd. (supra)held as under:

Held, that keeping in view the principle of consistency, the Revenue could not be permitted to raise an issue in isolation only for one year in the case of one assessee, while accepting the findings on the same issue in the case of other assesses and for other years in the case of assessee."

15.11 A similar view has been taken by the Hon’ble Jurisdictional High Court in the case of CIT Vs. Dalmia Dadri Cement Ltd. wherein it has been held as under: "Held also, that though as a general rule the principle of res judicata is not applicable to decisions of income tax authorities and an assessment for a particular year is final and conclusive between the parties only in relation to the assessment for that year and the decisions given in an assessment for an earlier year are not binding either on the assessee or the department in a subsequent year, this rule is subject to limitations, for there should be finality and certainty in all litigations including litigation arising out of the Income Tax Act and an earlier decision on the same question cannot be reopened."

15.12 Similarly the Hon’ble Gujarat High Court in the case of Prasad Multi Services Pvt. Ltd. Vs. DCIT (supra) held as under: "Although the doctrine of res judicata does not strictly apply to income-tax proceedings, yet in order to maintain consistency, the revenue cannot be permitted to rake up stale issues again merely because the scope of appeal is wider than the scope of reference."

15.13 In the present case also as we have already pointed out that similar claim for making the payment on account of salary / remuneration to the same specified persons had been accepted by the Department in the preceding years therefore keeping in view the principles of consistency the

22 ITA Nos 1069 to 1071-chd-2019- M/s Heritage Educational Society, Chandigarh

disallowance made by the AO and sustained by the Ld. CIT(A) for the year under consideration was not justified. 16. As we have directed to delete the disallowance made by the AO and sustained by the Ld. CIT(A) in the former part of this order, therefore no findings are being given on the legal issue raised by the assessee vide ground nos. 1 to 3 vide which the assessee has challenged the issue of reopening under section 147 of the Act of the concluded assessment under section 143(3) of the Act.

(Order pronounced in the open Court on 03/12/2020 ) Sd/- Sd/- संजयगग� एन.के.सैनी, (SANJAY GARG ) ( N.K. SAINI) �या�यकसद�य/ Judicial Member उपा�य� / VICE PRESIDENT Date: 03/12/2020 AG

आदेशक���त�ल�पअ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकरआयु�त/ CIT 4. आयकरआयु�त (अपील)/ The CIT(A) 5. �वभागीय��त�न�ध, आयकरअपील�यआ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड�फाईल/ Guard File