DEPUTY COMMISSIONER OF INCOME TAX, MUMBAI vs. CATHOLIC EDUCATION SOCIETY, MUMBAI

The brief facts of the case, as emanating from the record, are: The assessee is registered as a Charitable Trust with DIT(Exemption), Mumbai u/s 12A of the Act. Accordingly, the assessee claimed exemption u/s 11 of the Act and filed its return of income, for the year under consideration, on 31/10/2017 declaring a total income of Rs. Nil. The return filed by the assessee was selected for limited scrutiny to examine large payment of salary, rent, interest and other expenses made to specified persons u/s 13(3) of the Act. During the assessment proceedings, notice u/s 142(1) of the Act was issued to the assessee to furnish specific details in respect of aforesaid payments to specified persons. In response thereto, the assessee furnished the details regarding the name of persons/designation and amount of salary and rent paid to them. The assessee submitted that these expenses are genuine in nature and are justified by the respective clauses of the trust deed. It was further submitted that the specified persons are in occupation with the Educational Page | 2

The Assessing Officer (“AO”) vide order dated 29/10/2019 passed u/s 143(3) of the Act did not agree with the submission of the assessee and held that the assessee trust has made huge payments to the specified persons which are not justifiable as compared to the payments made to the other persons who have rendered same services and are more qualified. Accordingly, the AO made disallowance of Rs.41,59,236/- on account of excessive salary paid to the specified persons u/s 13(3) of the Act. Further, the AO, after pointing out various discrepancies in the valuation report submitted by the assessee to support rent paid to the specified persons u/s 13(3) of the Act, held that the Market Rental Report is a self-serving document and is not an acceptable basis for ascertaining the fair rental value of the property. Accordingly, the AO considered it fair and reasonable to allow monthly rent of Rs.60,000/-, which comes to Rs.7,20,000/- for the entire year and made the addition of the balance rent of Rs.9,12,000/- paid by the assessee to the specified persons u/s 13(3) of the Act. Since the assessee was found to have made unreasonable payments in the form of salary and rent to the specified persons u/s 13(3) of the Act, the AO by invoking the provisions u/s 13(3)(c), 13(2)(c) r.w.s. 13(2)(g) of the Act rejected the claim of exemption u/s 11 of the Act.

The learned CIT(A), vide impugned order, after taking into consideration the experience of the persons, their role in the institution and the services rendered by them, found the salaries paid to the specified persons as reasonable and deleted the disallowance made by the AO. Further, the learned CIT(A) also deleted the disallowance on account of rent paid by the assessee to the specified persons u/s 13(3) of the Act. Accordingly, the learned CIT(A) directed the AO to allow the exemption claimed by the assessee u/s 11 of the Act. Being aggrieved, the Revenue is in appeal before us.

During the hearing, the learned Authorised Representative (“learned AR”) by reiterating the submissions made before the lower authorities submitted that the salary was paid to the specified persons u/s 13(3) of the Act after considering their education qualification, years of experience and their role in the institution. The learned AR further submitted that the rent paid by the assessee to the specified persons u/s 13(3) of the Act is duly supported by the Market Rental Report obtained by the assessee, while there is no basis in the figure of monthly rent of Rs.60,000/- considered reasonable by the AO. By referring to the assessment order for the assessment years 2015-16 and 2016-17, the learned AR submitted that no addition on account of payment of salary and rent was made. The learned AR further submitted that even in the assessment year 2020-21, no addition on aforesaid aspects were made in the scrutiny assessment concluded u/s 143(3) r.w.s. 144B of the Act.

On the other hand, the learned Departmental Representative vehemently relied upon the assessment order.

We have considered the submissions of both sides and perused the

Accordingly, the AO asked the assessee to explain and justify the

As per the assessee, Mr. Moses M Gomes is designated as Secretary, and is assigned the duty of Head-Clerk. The assessee further submitted that Mr. Moses M Gomes is having Educational Qualification of B.Sc. and having total experience of 29 years in the service. Accordingly, he was paid a salary of Rs.14,93,022/- during the year under consideration. We find that the AO compared Mr. Moses M Gomes with other staff members who are simple graduates and found that their salary is less than Rs.5 lakh for the year under consideration. Accordingly, the AO considered it fair and reasonable to allow monthly salary of Rs.50,000/-, which comes to Rs.6 lakh for the year under consideration, and disallowed the remaining amount of Rs.8,93,022/- paid to Mr. Moses M Gomes. From the perusal of the details of members and other staff with their experience and educational qualification filed by the assessee, we find that Mr. Moses M Gomes is having the highest experience, i.e. 29 years in service, as compared to the other staff members having similar educational qualification. Accordingly, we find no infirmity in the findings of the learned CIT(A) in deleting the addition made by the AO in respect of salary paid to the aforesaid member.

As per the assessee, Mrs. Jean M Gomes is designated as President, and is assigned the duty of Head- Mistress (Principal). The assessee further submitted that Mrs. Jean M Gomes is having educational qualification of B.A., M.A., B.Ed., M.Ed., P.G. Dipl. Mgmt., and having experience of 29 years in service. Accordingly, she was paid the salary of Rs.20,32,594/- during the year under consideration. We find that the AO noted that she is the highest paid Page | 6

As per the assessee, Mrs. Tereasa Gomes is designated as Treasurer and is assigned the duty of Deputy Head Mistress. The assessee further submitted that Mrs. Tereasa Gomes is having educational qualification of B.A., B.Ed and having experience of 21 years in service. Accordingly, she was paid the salary of Rs.14,77,482/- during the year under consideration. We find that the AO compared Mrs. Tereasa Gomes with other staff member, Mr Nazrath Gomes, having educational qualification of B.Com and MBA, who has paid salary of Rs.6,78,760/- during the year under consideration. Accordingly, the AO considered it fair and reasonable to allow monthly salary of Rs.50,000/- which comes to Rs.6 lakh for the year under consideration and disallowed the remaining amount of Rs.8,77,482/- paid to Mrs. Tereasa Gomes. From the perusal of the details of members and other staff with their experience and educational qualification, we find that Mr Nazrath Gomes is a Senior Accountant, while Mrs. Tereasa Gomes is assigned the duty of Deputy Head

As per the assessee, Ms. Savvy M. Mendonca is designated as Joint Treasurer and is assigned the duty of Supervisor (Asst. Manager). The assessee further submitted that Ms. Savvy M. Mendonca is having educational qualification of B.Sc., B.Ed., M.Ed., P.G.Dipl.M.E., P.G. Dipl. H.R.M. and having experience of 9 years in service. Accordingly, she was paid the salary of Rs.11,16,954/- during the year under consideration. We find that the AO noted that the other members who have been assigned non-teaching duties like supervisor, head-clerk, Sr. Accountant, are being paid within the range of Rs.5-6 lakh per year. Accordingly, the AO considered it fair and reasonable to allow monthly salary of Rs.50,000/- which comes to Rs.6 lakh for the year under consideration and disallowed the remaining amount of 5,16,954/- paid to Ms. Savvy M. Mendonca. From the perusal of the details of members and other staff with their experience and educational qualification, we find that Ms. Savvy M. Mendonca is not only having good educational qualification but also has experience of 9 years in service. Accordingly, we find no infirmity in the findings of the learned CIT(A) in deleting the addition made by the AO in respect of salary paid to the aforesaid member.

As per the assessee, Mr. Elton I. Gomes is designated as member and is assigned the duty of Clerk. The assessee further submitted that Mr Elton I. Gomes is having educational qualification of B.Com and having experience of 19 years in service. Accordingly, he was paid the salary of Rs.8,05,716/- Page | 8

As per the assessee, Mr. Allwyn Gomes is designated as member and is assigned the duty of clerk. The assessee further submitted Mr. Allwyn Gomes is having educational qualification of B.Com and having experience of 17 years in service. Accordingly, he was paid the salary of Rs.8,93,468/- during the year under consideration. We find that the AO by considering other employees at the position of clerk and having similar educational qualification noted that they are being paid within the range of Rs.3-5 lakh per year. Accordingly, the AO considered it fair and reasonable to allow monthly salary of Rs.40,000/- which comes to Rs.4,80,000/- for the year under consideration and disallowed the remaining amount of Rs.4,13,468/- paid to Mr. Allwyn Gomes. We find that Mr Allwyn Gomes is having the experience of 17 years in service, as compared to the other staff member at the position of clerk and having similar educational qualification. Accordingly, we find no infirmity in the findings of the

We find that the learned CIT(A) deleted the disallowance of on account of rent paid to the specified persons u/s 13(3) of the Act was observing as under:-

It is evident from the record, in order to justify that the payment of rent paid total amounting to Rs.16,32,084/-, the assessee furnished Market Rental Report prepared by M/s. Powle P. N. & Associates, Government Approved Registered Valuer, who computed the market rent of Rs.14,80,024/-. However, the AO merely on ad hoc basis considered Rs. 60,000/- as the monthly rent and disallowed the balance rental payments of Rs.9,12,000/- paid by the assessee. Therefore, we agree with the finding of the learned CIT(A) that the AO made the impugned addition on account of rental payment to specified persons u/s 13(3) of the Act without any basis. Accordingly, we find no infirmity in the findings of the learned CIT(A) on this issue and therefore, the same are upheld. Since the payment made by the assessee on

In the result, the appeal by the Revenue is dismissed. Order pronounced in the open Court on 04/06/2024