DY. COMMISSIONER OF INCOME TAX (EXMP), GHAZIABAD vs. PARDADA PARDADI EDUCATIONAL SOCIETY, BULANDSHAHR

Briefly stated, the facts of the case are that the assessee was incorporated on July 12, 2002 as a Society, and was registered under Section 12AA and 80G of the Income-tax Act, 1961, ('the Act'). During the year under consideration, the assessee filed its return of income on October 31, 2018 declaring 'NIL' taxable income. In the ROI, the assessee claimed exemption under Section 11 of the Act for eligible amount and refund of credit of tax deducted/collected at source aggregating to Rs. 1,97,370/-. The return was selected for limited scrutiny assessment and statutory notices were issued and served upon the assessee.

Thereafter, assessment order was passed by the Assessing Officer wherein, the Assessing Officer denied the exemption claimed by the assessee under Section 11 of the Act and made the additions totaling to Rs.6,22,62,017 by invoking the provisions of Section 13(1)(c)(ii) read with Section 13(2)(c) by stating that the remuneration paid to Mrs. Renuka Gupta, a specified person, was unreasonable and excessive in the facts of the present case.

When the aggrieved assessee went in appeal before the ld. CIT(A), the ld. CIT(A) deleted the addition.

Now the Revenue is aggrieved and has come in appeal before us.

The ld. DR relied upon the order of the Assessing Officer.

Before us, the ld. counsel for the assessee vehemently supporting the order of the ld. CIT(A) stated that during the subject year under consideration, the assessee had paid to Mrs. Renuka Gupta, a salary of Rs.25,37,496/- and made reimbursement of expenses amounting to Rs.3,02,563/- against various expenses incurred by her for the assessee such as travelling, food expenses, etc. The ld. counsel for the assessee submitted that the provision of Section 13(3) of the Act covers payment inter-alia to "managers (by whatever name called) of the institution", and presuming CEO are by enlarge a kind of manager of the institution, salaries paid to Mrs. Renuka Gupta were included in the category of specified person as she was the CEO of the assessee.

The ld. counsel for the assessee further submitted that the salary payments to Mrs. Renuka Gupta duly justify the role and responsibility undertaken by her in the assessee and are reasonable and genuine given the nature and scale of operations of the assessee. In view of the above, the ld. counsel for the assessee submitted that the assessee has fully discharged its onus by producing all the documentary evidences before the learned Assessing Officer to prove the genuineness and reasonableness of the salary payment. Hence, the action of Assessing Officer to deny the exemption u/s 11 of the Act by invoking provisions of Section 13(1)(c)(ii) read with Section 13(2)(c) is incorrect.

We have heard the rival submissions and have perused the relevant material on record. We find that the assessee has relied upon the decision of Hon'ble Apex Court in the case of CIT (Exemptions) vs Bholaram Educational Society [2019] 101 taxmann.com 193 (SC), wherein it was held that where rent paid by assessee-trust to a trustee for using land and building was not found to be excessive, the exemption could not be denied to assessee under Section 11 by invoking provisions of Section 13(1)(c).

In the decision of Hon'ble Delhi High Court in the case of CIT (Exemptions), Delhi vs. IILM Foundation (ITA 179/2023), the Hon'ble Delhi High court dismissed the appeal filed by the revenue by stating that if the amount paid for services is such as is reasonably payable for such service, the same cannot be construed as applied for the benefit of a prohibited person notwithstanding that it is paid to such a person.

We find that the Assessing Officer has invoked the provisions of section 13(3)(cc) r.w.s. 13(2)(c) of the Act without making any enquiry regarding the payments being made to the members were in excess of what may be reasonably paid for such service. When the Specified Person is having relevant qualification for the job and when there is no material brought on record to substantiate that the salary or remuneration paid to the members was excessive, the provisions of Section 13(1)(c) cannot be invoked to deny the exemption under Section 11 of the Act. We are of the considered view that the Assessing Officer had failed to establish as to why salary paid by the assessee to the specified person, Mrs. Renuka Gupta is considered by him excessive to invoke the provisions of Section 13(1)(c) of the Act. The decision of the CIT(A) to allow the exemption under Section 11 of the Act to the assessee is justified.

Further, the onus to prove that salary payments made to specified persons are excessive and unreasonable lies on the Revenue department. We find the salary payments made by the assessee to Mrs. Renuka were genuine and reasonable given the nature and scale of operations of the assessee.

In that view of the matter, we find no plausible reason to interfere with the well-reasoned findings of the ld. CIT(A) and dismiss the grounds raised by the Revenue. dismissed.