INCOME TAX OFFICER (EXEMPTIONS)-2(1), MUMBAI, MUMBAI vs. MMTIS EDUCATIONS AND RESEARCH TRUST, ANDHERI WEST

All these were heard together and are disposed off by this common order for the sake of convenience and brevity.

The common grievance in revenue’s appeals relate to the payments on account of salary and rent to the persons specified u/s 13(3) of the Act which the AO treated as excessive payments for denying the claim of exemption u/s 11 of the Act and which was dismissed by the ld. CIT(A).

Representatives of both the sides were heard at length. Case records carefully perused and the relevant documentary evidences considered in the light of Rule 18(6) of the ITAT Rules, 1963.

During the course of scrutiny assessment proceedings, the AO noticed that the assessee is registered with the Directorate of Income Tax (Exemption), Mumbai u/s 12A of the Act and is also registered with the Charity Commissioner, Mumbai. The trust claims to be engaged in charitable activities in the field of Education and conducting marine courses. The AO found that the assessee has claimed exemption u/s 11 of the Act. While scrutinizing the return of income, the AO noticed that the assessee has paid total rent of Rs. 51,00,000/- and fees of Rs. 60,88,400/- for modular courses to specified persons covered u/s 13(3) of the Act. The assessee was asked to showcause, why the total rent paid I.T.A. No. 2393 & 2386 /Mum/2024 C.O. No. 118 & 117 /Mum/2024 3 of Rs.51,00,000/- and fees of Rs. 60,88,400/- for modular courses to specified persons covered u/s 13(3) of the Act, should not be disallowed and added to the total income. 5.1. In its reply, the assessee explained that the payment of rent is made for premises owned by the Trust at village Kalote, NH-04, Old Mumbai-Pune Highway, Taluka, Khalapur, Dist: Raigad, Maharashtra 410202 and to Tara Meera education trust for the office at New Excel house, 2nd Floor, 41-B, Azad Nagar Road no. 2, Off. Veera Desai Road, Andheri(W), Mumbai. It was further explained that the modular course fees is for certain courses for which the trust does not have facilities at its premise and has to send its student to Andheri at Tara Meera education trust. 5.1.1. The reply of the assessee did not find favour with the AO who was of the opinion that the income of the trust is applied for the benefit of certain specified interested persons. The belief of the AO was that the income should be applied for charitable purposes rather than for the benefit of the creators of the Trust. Taking a leaf out of the order of the ld. CIT(A) for AY 2011-12, the AO denied the claim of exemption u/s 11 of the Act and taxed the entire income of the assessee. 5.2. The assessee agitated the matter before the ld. CIT(A) and reiterated its claim of exemption. After considering the facts and the submissions, the ld. CIT(A) found that the AO has simply proceeded to disallow the payments made to specified persons but did not try to assess the reasonability of the expenses incurred. The ld. CIT(A) was of the opinion that the AO has simply disallowed the said expenses without assigning the reason for the same and has blindly followed the & 2386 /Mum/2024 C.O. No. 118 & 117 /Mum/2024 4 findings given by the ld. CIT(A) in AY 2011-12. The ld. CIT(A) further observed that, the AO did not consider the provisions of Section 40A(2)(b) of the Act while making the impugned disallowance u/s 13(3) of the Act completely ignoring the fact that, the disallowance has to be made where payment is made to related party if such expenditure is excessive and unreasonable, having regard to the fair market value of the goods, service or facilities. After properly appreciating the facts and referring to certain judicial decisions, the ld. CIT(A) was convinced with the claim of exemption u/s 11 of the Act and accordingly allowed the same.