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Facts
The assessee, a trust running a women's university, filed its return of income declaring 'Nil' income. The Assessing Officer (AO) disallowed Rs. 22,21,074/- on account of excess salary paid to trustees. The CIT(A) restricted this disallowance to Rs. 14,86,000/-, considering previous assessment years' decisions.
Held
The Tribunal held that the CIT(A) was justified in restricting the disallowance of excessive salary paid to trustees. The department's appeal was dismissed, and the assessee's cross-objections were also dismissed.
Key Issues
Whether the disallowance of entire salary paid to trustees is justified or only the excessive part should be disallowed. The issue of reasonableness of salary paid to trustees for AY 2017-18.
Sections Cited
12AA of the Act, 143(3) of the Income Tax Act, 1961, 164(2) of the Act, 11 of the Act, 13(3) of the Act, 13(1)(c)(ii), 13(2)(c)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCHES,” B”-Bench” JAIPUR
Before: SHRI RATHOD KAMLESH JAYANTBHAI, AM & SHRI NARINDER KUMAR, JM vk;dj vihy la-@ITA. No. 707/JPR/2023
vkns'k@ORDER CO No. 10/JPR/2023 M/s Jyoti Vidyapeeth Trust PER BENCH:
This common judgment is to dispose of above captioned appeal- Cross-objection No.10/JPR/2023 filed by the assessee named above, as the same arise out of same impugned order i.e. dated 05.10.2023 passed by Learned CIT(A)/NFAC, as regards assessment pertaining to assessment year 2017- 18, and these involve the same issues. Vide impugned order, Learned CIT(A) has disposed of appeal filed by the assessee-Jyoti Vidyapeeth Trust, while partly allowing the same, in the manner indicated therein.
The assessee is a trust. It was before Learned CIT(A) having felt aggrieved by the assessment order dated 16.12.2019 passed U/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”), in relation to the aforesaid assessment order.
The assessee trust is admittedly registered u/s 12AA of the Act as per certificate of registration issued by Learned CIT(A)-I, jaipur on 13.02.2004. It has been running and managing a women’s university under the name and style Jyoti Vidyapeeth University, for imparting education to women and improving the level of girl education in India.
CO No. 10/JPR/2023 M/s Jyoti Vidyapeeth Trust 4. When the assessee filed return of income, declaring its total income as “Nil”, the above said assessment order came to be passed. Thereby, Learned Assessing Officer disallowed Rs. 22,21,074/-. Disallowance was made while observing as under:- “ 9. Subject to the above remarks the total income of the assessee is computed as under- Surplus Rs. 3,23,90,972/- Add: addition on account of Rs. 22,21,074/- excess salary paid to specified persons as mentioned in para4 Total income Rs. 3,46,12,046/- Rounded off Rs. 3,46,12,050/- Learned Assessing Officer, after hearing Ld. AR for the assessee, and going through the material available with him, held that five trustees of the assessee trust had taken excess salary, which was not reasonable. Following table, extracted from the assessment order, depicts the actual salary was paid to each trustee and the amount of disallowance on the basis of percentage mentioned therein :- Name of the specified Actual salary paid Amount disallowed person (Amount in Rupees.) (Amount in Rupees.) Dr. Pankaj Garg 26,25,000/- 787500/- @ 30% Smt. Vidhushi Garg 40,50,000/- 1215000/- @30% Ms. Hema Choudhary 7,33,741/- 73374/- @ 10% Mr. Deepti Rastogi 7,36,000/- 73600/- @ 10% CO No. 10/JPR/2023 M/s Jyoti Vidyapeeth Trust Ms. Meghna Singhal 7,16,000/- 71600/- @ 10% Total 88,60,741/- 22,21,074/-
That is how, the matter came up before Learned CIT(A), by way of appeal. Vide impugned, Learned CIT(A), after hearing Ld. AR for the assessee-appellant, and going through the material available, restricted the disallowance on account of excess salaries paid to Dr. Pankaj Garg and Smt. Vidushi Garg, to Rs. 14,86,000/-. He restricted the disallowance while observing that reasonable amount of salary for the assessment year 2017-18 in case of Dr. Pankaj Garg was Rs. 20,68,000/-, and in case of Smt. Vidushi Garg reasonable amount of her salary for the said assessment year, was Rs. 31,46,000/-. In other words, salary of Rs. 5,82,000/- in case of Dr. Pankaj Garg was found to be excessive. As regards Smt. Vidushi Garg, her salary to the tune of Rs. 9,04,000/-, was held to be excessive. In arriving at abovesaid conclusion, Learned CIT(A) took into consideration that the issue of “reasonableness of salary” paid to Dr. Pankaj Garg and Smt. Vidushi Garg stood already decided in appeals, pertaining to the assessment years 2014-15, 2015-16 and 2016-17.
CO No. 10/JPR/2023 M/s Jyoti Vidyapeeth Trust 6. It may be mentioned here that in the course of arguments, it was suggested before Learned CIT(A), on behalf of the assessee-appellant that disallowance in the alternative might be restricted, while applying 14% increment to salary held allowable by Learned CIT(A) in relation to the assessment year 2016-17, concerning the said two trustees. In this regard, Learned CIT(A) observed in para 5.4 of the impugned order that 10% increase over salary, which had already been found to be reasonable by Learned CIT(A) in relation to assessment year 2016-17 would be in order. Accordingly, it was noticed that salary of Rs. 18,80,000/- in case of Dr. Pankaj Garg and that of Rs. 28,60,000/- in case of Smt. Vidushi Garg was considered to be reasonable salary, in relation to the assessment year 2016-17. Making said amounts as the basis , the aforesaid disallowance came to be restricted to Rs. 14,86,000/-.
The contention raised by the assessee before Learned CIT(A) was that Learned AO erred in levying tax on the assessee on surplus i.e. a sum of Rs. 3,46,12,050/- and denying exemption u/s 11 of the Act. The ground raised
by the assessee-appellant in this regard was that in view of provisions of Section 164(2) of the Act, the amount of salary, to the extent it CO No. 10/JPR/2023 M/s Jyoti Vidyapeeth Trust was considered excess, should have been subjected to tax. In other words, the assessee challenged levy of tax on the entire claim u/s 11 of the Act.
8. Learned CIT(A), while dealing with the above contention, referred to the observations already made by the Appellate Tribunal as regards AYs 2014-15 to 2016-17, and was of the view that the Appellate Tribunal had already recorded clear findings in respect of the amount to be disallowed i.e. the entire claim u/s 11 of the Act could not be disallowed. In other words, disallowance was restricted only as to the income applied for the benefit of persons specified u/s 13(3) of the Act, and only excessive payment of salary could be subjected to disallowance. Consequently, Learned CIT(A) directed the Learned Assessing Officer to levy tax only as regards the amount of excess salary paid to the specified persons at MMR rate.
9. Learned DR has submitted that having regard to the object of the charitable trust, like the assessee-appellant, it can safely be said that the trust came to be constituted and got registered for the purpose of imparting of education to the women i.e. for the benefit of said section of public at large, but, this is a case where that two trustees, named above, were paid excessive salaries, i.e. for the benefit of the said two trustees , and not for the benefit of said section of public at large, and as such Learned CO No. 10/JPR/2023 M/s Jyoti Vidyapeeth Trust Assessing officer was justified in applying the provisions of section 13(1)(c)(ii) and section 13(2)(c) of the Act as in force during the relevant period, and thereby disallowing the claim in entirety, and not to the extent the same were found to be excessive. In support of his contention, Ld. DR has relied on decision in case of M/s Nabadigant Education Trust vs. ITO, in decided on 17.05.2022; in the case of Director of Income Tax (Exemption vs. Charanjiv Charitable Trust, (2014) 43 taxmann.com 300, a decision by Hon’ble Delhi High Court ; and the decision in case of Agappa Child Centre vs. CIT, (1997) 92 taxman 327, by Hon’ble Kerala High Court. Learned DR for the department has referred to the provisions of Section 11, Section 13(1)(c)(ii) and Section 13(2)(c) of the Act. He has also referred to the amendment made by the legislature to sub- clause (2) of clause (c) of sub-section (1) of Section 13 of the Act inserted by the Finance Act, 2022 with effect from 01.04.2023, whereby the following words came to be inserted therein: “such part of income as referred to in sub-clause (i) and (ii)”.
CO No. 10/JPR/2023 M/s Jyoti Vidyapeeth Trust 10. On the other hand, Ld. AR for the assessee has contended that the Assessing Officer did not compare salaries of the trustees in a just and proper manner. While referring to the provisions of Section 164(2) of the Act, and its proviso, Ld. AR for the assessee has contended that the tax is to be charged on the relevant income or part of relevant income at MMR in a case where the whole or any part of the relevant income is not exempt u/s 11 of the Act by virtue of provisions contained in clause (c) of sub- section (1) of Section 13 of the Act, and as such, the appeal filed by the department deserves to be dismissed.
In response, Ld. DR for the departments as contended that this is a case where the authorities below have attracted the provisions of section 13(1)(c)(ii) and also the provisions of Section 13(2(c) of the Act, and further that in section 164(2) of the Act, there is no reference to the provisions of Section 13(2)(c) of the Act, and as such, the assessee is not entitled to any benefit of the proviso to section 164(2) of the Act.
Admittedly, the issue regarding payment of excessive payment of salary and its reasonableness, as regards the said two trustees was also on issue in the assessment orders pertaining to the assessment years 2014-15 to 2016-17.
CO No. 10/JPR/2023 M/s Jyoti Vidyapeeth Trust The very issue again cropped up before Learned Assessing Officer relating to the assessment year 2017-18. As noticed above, vide impugned assessment pertaining to these matters, the assessee was held liable to pay tax on the surplus as well as on the addition on account of excess salary paid to the said trustee. When the matter pertaining to the assessment year 2017-18 came up before Learned CIT(A), as finds mention in the impugned order, it was taken into consideration that increase of 10% in their salaries had been held to be justifiable as regards assessment year 2015-16. Accordingly, Learned CIT(A), observed that having regard to substantial increase in respects of the two trustees during assessment year 2016-17, increment by 14% was held justifiable as regards the salaries of the two trustees. As regards the present assessment year 2017-18, Learned CIT(A) has observed in the impugned order that no such case was made out, and accordingly, held that in case of Dr. Pankaj Garg salary of Rs. 18,80,000/- would be reasonable and in case of Smt. Vidushi Garg salary of Rs. 28,06,000/-would be reasonable , by way of increment of 14% considered reasonable in the previous AY too.
CO No. 10/JPR/2023 M/s Jyoti Vidyapeeth Trust It may be mentioned here that vide common judgment of even date, this Appellate Tribunal has also disposed of two appeals i.e. & 329/JPR/2023 filed by the assessee, as regards the assessment years 2015-2016 & 2016-17, thereby upholding the order passed by Learned CIT(A) whereby 10% increase as regards the assessment year 2015-16 and 14% increase as regards the assessment year 2016-17 has been upheld as regards the salaries of said two trustees. Learned DR for the department has submitted in the course of arguments that as regards the said two assessment years, no appeal was preferred by the department against the order passed by Learned CIT(A), in view of the circular pertaining to low tax effect directions issued by CBDT. Learned DR for the department has further submitted that the department is in appeal before the Hon’ble High Court, as regards the assessment year 2014-15. But, the fact remains that Learned CIT(A) has already adopted the findings recorded by Learned CIT(A) as regards the assessment year 2016-17, for the reasons recorded therein. We find that the impugned order passed by the Learned CIT(A) is a reasoned order passed after taking into consideration the decisions on the CO No. 10/JPR/2023 M/s Jyoti Vidyapeeth Trust issue cited there on behalf of the assessee, and applying the same to the given facts of the case. Learned CIT(A) has observed in the impugned order that the increment @ 14% was accepted for assessment year 2016-17 due to substantial increase in receipts of the assessee trust, but, no such case was made out as regards the concerned assessment year 2017-18. No material has been brought on record on behalf of the assessee-Cross Objector to assail said findings recorded in the impugned order. Accordingly, Learned CIT(A) was justified in considering the salaries of the said two trustees i.e. Dr. Pankaj Garg and Smt. Vidushi Garg at an increment of 14%.
As regards the other finding recorded by Learned CIT(A) that only excessive payment of salary disallowance in a case of grant of benefit to the specified persons, as described u/s 13(3) of the Act, Learned CIT(A) has clearly held that the entire claim u/s 11 of the Act cannot be disallowed. As is available from the impugned order, to arrive at this conclusion, Learned CIT(A) relied on previous decision by this Appellate Tribunal in the case of the assessee, as regards the assessment year 2014-15. Those findings of the Appellate Tribunal recorded in the earlier appeal decided on 18.07.2018 have been reproduced in para 4.2 of the impugned order.
CO No. 10/JPR/2023 M/s Jyoti Vidyapeeth Trust Admittedly, the department has challenged the said decision by this Appellate Tribunal, as regards the assessment year 2014-15, but, admittedly, operation of said judgment by this Appellate Tribunal has not been stayed.
Even otherwise, having regard to the provisions of Section 13(1)(c)(ii), 13(2)(c) and 164(2) of the Act, and the decisions relied on behalf of the assessee before Learned CIT(A), there is merit in the contention raised on behalf of the assessee-appellant that only excessive payment of salaries deserves to be disallowed and would be subject to levy of tax.
As regards the decisions cited by Ld. DR for the department, same are not on the issue i.e. as to whether only excessive payment of salary deserves to be disallowed or the entire claim of the assessee is liable to be rejected, in case of violation of the relevant provisions pertaining to salary of the trustees of a charitable trust. So, these decisions do not come to the aid of the department so as to reject the entire claim of the assessee instead of only the amount of the salaries which has been held to be excessive and unreasonable or against the benefit of the public at large.
CO No. 10/JPR/2023 M/s Jyoti Vidyapeeth Trust Result 16. As a result, finding no merit in the appeal filed by the department, the same is hereby dismissed. As regards, the Cross Objections filed by the assessee, for the reasons recorded by Learned CIT(A) in the impugned order, and the findings recorded above, we hold that Learned CIT(A) was justified in restricting the disallowance as regards the salaries of the two trustees, on account of excessive and unreasonable salary paid to them in the assessment year 2017-18. In this regard, the cross-objections pressed before this Appellate Tribunal are hereby dismissed. Copy of the common order be also placed in the file pertaining to Cross-Objections filed by the assessee. Files be consigned to the record room, after the needful is done by the office. Order pronounced in the open court on 20 /06/2024. Sd/- Sd/- ¼jkBkSM+ deys'k t;UrHkkbZ ½ ¼ujsUnz dqekj½ (RATHOD KAMLESH JAYANTBHAI) (NARINDER KUMAR) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 20/06/2024 *Santosh आदेश की प्रतिलिपिअग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू The Appellant- Circle (Exemption), Jaipur. 1.