THE COMMISSIONER OF INCOME TAX vs. CMR JNANADHARA TRUST

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ITA/415/2009HC KarnatakaKAHC01057612200920 January 2015Bench: B.VEERAPPA,N.KUMAR5 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal held that the payments made to the trustees were not excessive and were justified by the services rendered and the growth of the institution. Therefore, there was no violation of Section 13(1)(c) and the exemption under Section 11 was rightly granted.

What were the facts?

The assessee, a trust running educational institutions, claimed exemption under Section 11 of the Income Tax Act. The Assessing Officer denied this exemption, alleging violation of Section 13(1)(c) due to payments made to trustees for their services.

What were the issues?

Whether payments made to trustees for services rendered constitute a violation of Section 13(1)(c), thereby disentitling the trust from exemption under Section 11.

Which sections of the Income-tax Act were involved?

Section 11,Section 13(1)(c),Section 12A

AI-generated summary — verify with the full judgment below

- 1 - IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 20TH DAY OF JANUARY 2015 PRESENT

THE HON’BLE MR.JUSTICE N. KUMAR

AND

THE HON’BLE MR. JUSTICE B. VEERAPPA

I.T.A. NO. 415 OF 2009

BETWEEN:

1.

THE COMMISSIONER OF INCOME-TAX

EXEMPTIONS

C.R.BUILDING, QUEENS ROAD BANGALORE

2.

THE JOINT DIRECTOR OF INCOME-TAX

CIRCLE-17

C.R.BUILDING, QUEENS ROAD

BANGALORE ... APPELLANTS

(BY SRI. K.V.ARAVIND, ADV.)

AND:

CMR JNANADHARA TRUST CA NO.2, 3RD C CROSS 6TH A MAIN ROAD, 2ND BLOCK HRBR LAYOUT BANGALORE - 560043

… RESPONDENT

(BY SRI. S.PARTHASARATHI, V.K.GURUNATHAN AND JEVITHA CHATARJEE, ADVS.)

- 2 - THIS ITA IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961, ARISING OUT OF ORDER DATED 31/3/2009 PASSED IN ITA NO. 644/BANG/2008, FOR THE ASSESSMENT YEAR 2005-06, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW; ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT IN ITA NO. 644/BANG/2008 DATED 31/3/2009 AND CONFIRM THE ORDER PASSED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX (EXMP.), RANGE-17, BANGALORE; AND ETC.

THIS ITA COMING ON FOR FINAL HEARING THIS DAY, N. KUMAR J. DELIVERED THE FOLLOWING:

JUDGMENT

The Revenue has preferred this appeal challenging the order passed by the Tribunal, holding that there is no violation of provisions of Sec.13(1)(c) of the Income Tax Act, 1961, and also the relevant provision for grant of exemption under Section 11.

2.

The assessee is a Trust registered under Section 12A of the Income Tax Act, 1961 (for short hereinafter referred to as the ‘Act’). It is running several educational institutions. It filed return of income for the assessment year 2005-06 declaring ‘nil’ income, after availing the benefit of Section 11 of the Act. In the assessment proceedings, the Assessing Authority noticed that the

- 3 - trustees Mr. K.R.Lakshmeesh is paid Rs.9,10,000/-, Dr. Sabita Ramamurthy is paid Rs.8,41,950/- and Mr. K.R.Jayadeep is paid Rs.1,75,000/-. On account of the aforesaid payments made to the trustees, the Assessing Officer was of the view that it violated the provision of Section 13(1)(c) of the Act and therefore it denied exemption under Section 11 of the Act. In the appeal preferred by the assessee against the said order, the Commissioner of Income Tax (Appeals), held there is no violation of the provisions of Section 13(1)(c) of the Act and therefore it set aside the order of the Assessing Authority. The Revenue preferred an appeal to the Tribunal. The Tribunal, on consideration of the material on record, held that the payments made to the trustees for the services rendered by them for the Trust, is not excessive. The increase in the remuneration is in proportion to growth of the institution. It is justified, when a person getting the benefit should pay and there is nothing on record to show that there is any tax planning or colorable device in the

- 4 - above payments. Therefore it affirmed the finding of the First Appellate Authority and dismissed the appeal. Aggrieved by the said order, the Revenue has preferred this appeal.

3.

The appeal is admitted to consider the following substantial question of law: Whether the Appellate Authorities were correct in holding that the payments made to the trustees Mr. K.R.Lakshmeesh of Rs.9,10,000/-, to Dr. Sabita Ramamurthy of Rs.8,41,950/- and Mr. K.R.Jayadeep of Rs.1,75,000/- was in violation of Section 13(1)(c) of the Act and therefore the assessee would be entitled to exemption u/s. 11 of the Act?

4.

We have heard the learned counsel for the parties.

5.

The payments of the aforesaid amounts 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

- 5 - conclusion that the said amount paid, are reasonable and not excessive. When the Trust is availing the services of these trustees and on account of the services rendered by them, there is a substantial growth in the Trust and its activities, when the payments are made for such services rendered, it cannot be said that it contravenes Section 13(1)(c) of the Act. Consequently there is no justification for denying the benefit under Section 11 of the Act.

6.

In that view of the matter, we do not see any merit in this appeal. The substantial question of law is answered in favour of the assessee and against the Revenue.

Appeal is dismissed

SD/- JUDGE

SD/- JUDGE d Rd/-

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