ASSISSTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, EXEMPTION, CHANDIGARH, CHANDIGARH vs. HERITAGE EDUCATIONAL SOCIETY, C/O DELHI PUBLIC SCHOOL

PER A.D.JAIN, VICE PRESIDENT

These are Department’s appeals for assessment years

2011-12, 2012-13, 2013-14 and 2017-18. As common issues

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are involved in all these appeals, these were heard together

and are being disposed of by this common order.

No.2/CHD/2024, for assessment year 2011-12. The common

grounds taken by the Department are as follows :

“1. That the Ld. CIT(A) has erred in law in not appreciating that the order of ITAT Chandigarh Bench "A" ITA Nos.1069 to 1071/Chd/201 9 for A.Y 2010-11,2014-15 and 2015-16 in the appellant’s own case is not applicable as the facts and observation made by the AO in this case are different.

u/s12AA of the Act, and is running a school named 'Delhi

Public School' at Chandigarh. During the relevant year, the

assessee had made payment of salary/honorarium to three

specified persons u/s 13(3) of the Act, namely (i) Anup Soni,

(ii) Sh. Mukesh Bansal (iii) Sh. Amit Bansal. The Assessing

Officer noted that the amount paid to these three persons,

totaling to Rs.57,60,000/- was beyond the objects of the

society and also the payment was unreasonable and

excessive. The assessee claimed before the Assessing officer

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that the specified persons had not benefited from the

contract, but they were qualified persons and the salary

being paid to them was in accordance with the services

provided by them. The Assessing Officer disallowed the

amount paid to the specified persons by invoking the

provision of section 13(1)(c) of the Act, and also denied the

benefit of exemption u/s 11 and 12 of the Act. The Assessing

Officer held as follows:

“6. I have gone through the submission of the assessee, however, the same is not acceptable and is discussed in the following paras. Point 3 (xviii) on-page No. 3 alongwith clause 8 para (xi) of point 9 of the Memorandum of Association deal with the issue under consideration. These are reproduced hereunder:- "xviii) No member of the Governing Body of the Society shall be appointed to any salaried office of the Society" "....the Governing Body shall have the authority to ....xi) to recompense members for all bonafide expenditure incurred for the Society and to provide for other services required for the discharge of functions of the Society. However, no member of the Governing Body shall be appointed to any salaried office." 7. The above paras are very clear and unambiguous. The intent of the memorandum is not to pay the members regular salary/payments but to reimburse them for any expense incurred for the society. However, the assessee has attempted to derive a convoluted meaning out of a straight forward clause which is common for charitable trusts. According to the assessee, the members were being provided salary/honorarium for the services they perform for the society which includes expenditures they incur for the purpose of the society such as travel for attending meetings with CBSE Board, DPS society, etc. This interpretation is misplaced and cannot be accepted. What was allowed as per the Memorandum was reimbursement of travel and other bonafide expenses if they were incurred for attending meetings on behalf of the assessee or for engaging in other activities for the benefit of the

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assessee in order to ensure that the funds of the assessee were used for the objects of the assessee. By paying regular salary/honorarium, the assessee has diverted the funds of the society to its members even before any expenditure is incurred for the society and there is no way to ensure/check if the expenditure is bonafide and if it is actually incurred for the society. 8. Vide notice u/s 142(1) dated 23.08.2018, the assessee was asked to furnish details of the meetings held with DPS society and CBSE Board during the year under consideration alongwith documentary proof. The assessee was also asked to submit proof of travel expenses and other expenses actually incurred by the members for the purpose of the assessee. In response, vide letter received on 24.08.2018, the assessee submitted that it did not have any proof of the expenses incurred by the members for the society. This buttresses the fact that the assessee has only tried to misinterpret the clauses of the Memorandum in order to justify the diversion of funds to its members and that there is no basis on which it can justify the salary/honorarium paid to the members beyond the scope of the Memorandum. 9. It is also noted that although Sh. Anup Soni, Amit Kumar Bansal and Mukesh Bansal are office bearers of the society, they are not regularly coming to school and they attend the meeting of the society only occasionally. This fact has already been verified earlier by the then inspector of the investigation wing, Sh. Joti Parkash, as well by the then inspector of circle 1 (exemptions), Chandigarh, Sh. Anurag Lakra as can be seen from the assessment order for the A.Y. 2010-11 dated 28.12.2017. The assessee too accepts this fact and has tried justifying it by stating that nowhere in CBSE norms it is written that they have to be present all the time in the school and have to maintain any attendance record of the trustees. The assessee further added that they have to travel a lot to Delhi. In this regard, it is brought on record that assessee has not submitted any proof, whatsoever, regarding the specific works done by the members for the society, despite being given numerous opportunities to do so. 10. Further, a perusal of the ITRs of the three "specified persons" brings out some material facts. From the ITRs, it is seen that these persons are engaged in other businesses, are looking after house properties, have invested in mutual funds and have sold properties. All these activities demand time and commitment and when this fact is seem alongwith the fact that the members are not available in school for most of the time, it can safely be concluded that the members have not been giving the time and commitment to the society for which they are being paid and have rather been busy doing other commercial activities.

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and cannot be taxed in the hands of the assessee. It is noted that it is not a case of taxation of salary in wrong hands or double taxation. It is a case where unreasonable and undue benefit has been given to persons specified u/s 13(3) of the Act. There is no question of double taxation. 15. Further, the assessee is not right in stating that it is the responsibility of the department to prove the reasonableness of salary paid to "specified persons". On the contrary, it is for the assessee to prove the same in order to be eligible for claiming exemption u/s 11 and 12 of the Act. This stand has been confirmed by the very recent judgement of the Hon'ble Supreme Court in the case of M / s Dilip Kumar & Company dated 30.07.2018, wherein the Hon'ble Apex Court has stated that the exemption clauses are to be strictly interpreted in favour of the Revenue. It held that when there is ambiguity in tax exemption notification/clause, the benefit of such uncertainty must be interpreted in favour of the State. Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. Through this decision, the Hon'ble Supreme Court has overruled its own judgement in the case of Sun Export [2002-TIOL-118-SC-CX-LB] and all the decisions which took similar view as in Sun Export Case wherein it was held that if two views are possible in interpreting the tax exemption notification, the one favourable to the assessee in the matter of taxation has to be preferred. The case laws cited by the assessee stand countered by this recent judgement of the Hon'ble Supreme Court referred to above. Nonetheless, it is stated that detailed discussion has already been made in the previous paras to prove that the salary being paid was not only unreasonable but also beyond the scope of the memorandum. 16. ………………… ………………… concluded that the assessee has given undue and 17. unreasonable benefit to its members who are "specified persons" u/s 13(3) of the Act. The assessee is providing special treatment to members and their relatives. The members are the persons managing the society and they have decided for themselves what benefits are to be extracted from the society for themselves and the family members by manipulating the meaning of the clause of the Memorandum. This is blatant misuse and manipulation of the society by its own members and such transactions are covered u/s 13(l)(c)(ii) r.w.s. 13(2)(c)r.w.sl3(3) of the Act.

Thus, the AO disallowed the salary/honorarium paid to 4.

Trustees, under Section 13(1)(c) of the Income Tax Act, read

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with Sections 13(3) and 164(2) thereof invoking the provisions

of Section 40A(2)(b), holding such payment to be

unreasonable. For this, the AO held that what was allowed

as per the Memorandum of Association of the assessee

Society was reimbursement of travel and other bonafide

expenses, if they were incurred for attending meetings on

behalf of the assessee or for engaging in other activities for

the benefit of the assessee in order to ensure that the assessee's

funds were used for the objects of the assessee; that by paying

regular salary/honorarium, the funds of the assessee were

diverted to the members even before incurrence of the

expenditure for the Society without there being any check as to

whether the expenditure was bonafide and as to whether it had

actually been incurred for the Society; that the assessee did

not have any proof of the expenses incurred by the Members

in the Society; that nor had any proof been submitted

regarding the specific works done by the Members for the

Society; that from the Income Tax Returns of the three

specified persons, it was seen that they were engaged in

other businesses, were looking after house properties, had

invested in mutual funds and had sold properties; that thus,

the Members had not been giving time and commitment to

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the Society; that the assessee had submitted that the

payment was reasonable, as all the three Members were

Graduate/Post Graduate and belonged to the Home Circle,

i.e., the wards of the Trustees and that so, it was convenient

for the Society, as an inside person would work with more

dedication and devotion than hired outside persons; that

however, the assessee had not submitted any justification

with proof of the work done by these Members; that the

assessee had failed to show the qualifications and experience

possessed by these three Members, so as to justify the salary

paid to them; that it was in no way justified that the salaries

paid to these Members were more than the pay of the

Principal of the school run by the Society; that the assessee

had further tried to justify the salary, stating it to be only

4% of the receipts of the assessee; that however, the

quantum of payment was not commensurate with the time

and effort devoted to the assessee and so, the payment was

unreasonable; and that though the assessee had argued that

the tax on the salary had already been paid by the Members

and that an income could only be taxed once and so, it could

not be taxed in the hands of the assessee, it was noted that

it was not a case of taxation of salary in wrong hands or a

ITA-2,10,11 &12/CHD/2024 9

case of double taxation, but, it was a case of unreasonable

and undue benefit having been given to persons specified

under Section 13(3) of the Act.

the assessee's appeal, relying on the Tribunal decision in

assessee's case for assessment years 2010-11, 2014-15 and

2015-16, wherein, the Tribunal held as follows :

"15.3 In the present case also the payments made to the specified persons was reported by the Tax Auditor and thus said payment was not in dispute and no comparable case has been cited by the AO to substantiate that how and in what manner the payment made to the members of the society was excessive while invoking the provisions of Section 13(1)(c) of the Act. 15.5 In the present case also when the assessee society was availing the services of the members of the society and if they have not provided those services to assessee society, it would have engaged the person from outside to whom salary was required to be paid. Therefore, the disallowance made by the AO and sustained by the Ld. CIT(A) was not justified particularly when nothing is brought on record to substantiate that the salary paid to them was excessive. 15.7 In the present case also the-AO himself admitted that the specified persons were having the higher qualification and no comparable case was brought on record to substantiate that the salary / remuneration paid to them was excessive. Therefore, the disallowance made by the AO and sustained by the Ld. CIT(A) was not justified. 15.8 In the present case it is also noticed that the remuneration / salary paid to the same persons in the earlier years had been accepted while framing the assessment orders under section 143(3) of the Act. Therefore, by keeping in view the principles of consistency no disallowance is to be made for the year under consideration if the facts are identical in the preceding years wherein the similar payments have been accepted by the Department.

ITA-2,10,11 &12/CHD/2024 10

15.13 In the present case also as we have already pointed out that similar claim for making the payment on account of salary / remuneration to the same specified persons had been accepted by the Department in the preceding years therefore keeping in view the principles of consistency the disallowance made by the AO and sustained by the Ld. CIT(A) for the year under consideration was not justified. 17. The facts in the remaining A.Y's 2014-15 and 2015-16 in ITA No. 1070 & 1071/Chd/2019 are similar to the facts involved in ITA No. 1069/Chd/2019 for the A.Y. 2010-11, therefore, our findings given in the former part of this order shall apply mutatis mutandis for the A. Y's 2014-15 and 2015-16 also.”

in law in not appreciating that the order of ITAT Chandigarh

Bench "A" ITA Nos.1069 to 1071/CHD/201 9 for A.Y.

2010-11, 2014-15 and 2015-16 in the assessee's own case is

not applicable as the facts and the observation made by the

AO in this case are different and that the Ld. CIT(A) has

erred in law in allowing relief to the assessee as the assessee

society has made payments to specified persons which are

covered under Section 13(l)(c)(ii) r.w.s I3(2)(c) r.w.s 13(3) of

the Income Tax Act.

placed strong reliance on the impugned order. It has been

stated that the order passed by the Tribunal correctly

ITA-2,10,11 &12/CHD/2024 11

followed by the CIT(A), is well versed and the issue has been

dealt with therein elaborately. It has been stated that for

the years under consideration, there is no change in the

facts and circumstances of the case and the specified

persons are also the same; that once the similar salaries/

honorarium had been allowed in the earlier years under

similar facts and circumstances, there is no reason for the

Department to take a divergent view in the years under

consideration, as taken into consideration by the ITAT for

assessment years 2010-11, 2014-15 and 2016-17; that

therefore, the ld. CIT(A) has correctly followed the Tribunal

order for assessment years 2010-11, 2014-15 and 2015-16;

and that therefore, there being no error in the orders passed

by the ld. CIT(A), the same be upheld and the appeals,

carrying no merit whatsoever, be ordered to be dismissed.

material on record. The ld. CIT(A), for all the years under

consideration, has followed the Tribunal order for

assessment years 2010-11, 2014-15 and 2015-16, wherein it

has been held that the assessee society was availing the

services of the members of the society and if they had not

provided those services to the assessee society, it would have

ITA-2,10,11 &12/CHD/2024 12

engaged persons from outside, to whom, salary was required

to be paid. The AO himself admitted that the specified

persons were having the higher qualification and no

comparable case was brought on record to substantiate that

the salary / remuneration paid to them was excessive. The

remuneration/ salary paid to the same persons in the earlier

years had been accepted while framing the assessment

orders under section 143(3) of the Act.

rightly submitted on behalf of the assessee and not disputed

on behalf of the Department, the facts have not undergone

any change whatsoever. The specified persons also remain

the same. The Department has not been able to show as to

how, as contended in Ground No.1, the observations of the

AO in the years under consideration, are effectively any

different from those made by the AO for assessment years

2010-11, 2014-15 and 2015-16, the years decided by the

Tribunal in favour of the assessee. Therefore, we do not find

any merit in the appeals filed by the Department, which

appeals are liable to be dismissed. They are ordered to be

dismissed.

ITA-2,10,11 &12/CHD/2024 13

are dismissed.

Order pronounced on 07th August,2024.

Sd/- Sd/-

(KRINWANT SAHAY) (A.D.JAIN ) VICE PRESIDENT ACCOUNTANT MEMBER “Poonam” आदेश क� �ितिलिप अ�ेिषत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�/ CIT 4. िवभागीय �ितिनिध, आयकर अपीलीय आिधकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड� फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar