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Facts
The assessee, a charitable trust, had payments outstanding to Dr. Shailendra Singh (Rs. 26,30,000) and Dr. Sunita Yadav (Rs. 7,40,000). These were stated to be advances for land purchase and salaries reversed due to non-compliance with CCIM norms. The Assessing Officer (AO) alleged violation of Section 13(3) and denied exemption under Section 11.
Held
The Tribunal held that the violation of Section 13(1) by extending benefits to specified persons cannot be a reason to deny the whole exemptions under Section 11/12. The denial should be restricted to the extent of the violation. The CIT(A)'s order to restrict the disallowance was upheld.
Key Issues
Whether the entire exemption under Section 11/12 of the Income Tax Act can be denied for a partial violation of Section 13, and if the payments to doctors were indeed for services rendered or a diversion of income to specified persons.
Sections Cited
12AA, 142(1), 13(3), 13(1)(c), 13(2)(c), 11, 12, 13
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘C’: NEW DELHI
(Assessment Year: 2018-19) DCIT, Exemption Circle, vs. Jay Singh Shikshan Sanstan, Ghaziabad. Bhaupur, Bewar Road, Fatehgarh, Farrukhabad-209 601 (U.P.) (PAN : AABAJ5680M) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Abhinav Mehrotra, Advocate Shri Kalrav Mehrotra, Advocate REVENUE BY : Shri Om Prakash, Sr. DR Date of Hearing : 05.06.2025 Date of Order : 29.08.2025 O R D E R
PER S.RIFAUR RAHMAN, ACCOUNTANT MEMBER :
This appeal is filed by the assessee against the order of ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT (A)] dated 22.04.2024 for Assessment Year 2018-19 2. Brief facts of the case are, the case was selected for limited scrutiny through E-Assessment Scheme 2019 in order to verify the transaction with specified persons. The assessee is a charitable Trust registered under section 12AA of the Income-tax Act, 1961 (for short ‘the Act’). During assessment proceedings, on perusal of Form 10B, the Assessing Officer observed that the assessee had lent or continued to lent in the previous year to the following persons who were referred under section 13(3) of the Act i.e. specified as persons, namely, Dr. Sunita Yadav and Dr. Shailendra Yadav for a lent of Rs.7,40,000 and Rs.26,30,000/- respectively. In order to verify the same, a notice u/s 142(1) was issued to the assessee. In response, assessee has submitted as under :- “The following amounts were outstanding as on 31.03.2018 against the specified persons : (i) Dr. Shailendra Singh Rs.26,30,000/- (ii) Dr. Sunita Yadav Rs.7,40,000/- With the aforesaid amount as paid against their appointment as Doctor in the hospital of the society, however due to some technical reasons their appointment was not accepted by CCIM, New Delhi, hence the amount paid for their services rendered, as advance recoverable from above persons which was not received back till 31.03.2018. As regards details of security taken and interest charged from these persons, it is submitted that the payment was made as salary, hence there is no question of any security or interest payment.”
3. Further assessee was asked to authenticate and justify with the documentary evidences for the claim of appointment of Sunita Yadav and Shailendra Yadav for such payment which are outstanding at the end of the next year. Further details were asked like PAN and non-acceptance of the payment. In response, assessee submitted as under :-
“1. That as regards justification of payment to Dr. Shailendra Singh and Dr. Sunita Yadav we would like to submit as under: (i) The outstanding against Dr. Shailendra Singh comprises of two amounts: (a) Advance against purchase of land in terms of Sale Agreement dated 15.07.2014 amounting to Rs. 20,00,000/-. This amount is lying as advance due to non execution of sale deed because the land is jointly owned with other co-owners and partition have not taken place yet with the co-owners. The copy of Agreement is attached as Annexure-A. (b) Rs. 630000/- being amount paid as salary reversed later on because his appointment did not met the CCIM norms. The salary was for the period from 01.04.2016 to 31.12.2016 @ Rs. 70000/- per month. The copy of the appointment letter and his qualification certificates alongwith the copy of ledger account are attached as ANEXURE-B. At this juncture we would like to mention that in our earlier reply it was mentioned that amount of Rs. 2630000/- was as salary paid but reversed later on. The mistake occurred due to oversight and in deeply regretted. On detailed scrutiny of accounts this mistake was (ii) The outstanding amount of Rs. 630000/- against Dr. Sunita Yadav relates to salary paid for the period from 18.03.2017 to 31.10.2017 @ Rs. 1,00,000/- per month. She was appointed as Gyaeni in the department of Sri & Prasuti Rog but his appointment also not could not meet the requirement of CCIM hence her salary was reversed. Her appointment letter, copy of qualification certificate and ledger account is attached as ANNEXURE-C. In this connection it is necessary to mention that though the salary of both the above persons had been reversed but both are actively involved in the managing day to day affairs of the Hospital, colleges and society. The salary has been stopped to reduce the financial burden of the society because their appointment may not be counted by CCIM in faculty list but they can be paid salary for services provided by them in Hospital, College as well as in day to day management of the society but since they are members of the society the salary was stopped and salary already paid as reversed and debited to their accounts to recover from them. However due to financial constraints they could not repay the outstanding amount.
That as regards justification and documentary evidences of non-acceptance the appointment by CCIM it is respectfully submitted that any written communication of non acceptance has not been given by CCIM inspection team. Since their qualification/experience did not met the requirement as per the CCIM their acceptance as denied by the inspection team.”
After considering the above submissions, the Assessing Officer rejected the same with the following observations :-
With the above observation, the Assessing Officer proceeded to rework the income of the assessee and found that assessee has contravened the provisions of section 13(3) and denied the benefit of section 11 to the assessee and he reworked the income of the assessee as under : Particulars Amount Amount Income from Other Sources Donation 17,30,000 Other Income 9,59,23,300 Interest Income 9,81,660 9,86,34,960 Less : Exemption u/s. 11 (Para 2.7) Nil Total Income 9,86,34,960
Aggrieved with the above order, assessee preferred an appeal before the ld. NFAC, Delhi and filed detailed submissions which are reproduced at the impugned order. After considering the above submissions, ld. CTI (A), ld. CIT(A) found that the findings of the Assessing Officer to the extent of provisions of section 13(3) is found to be correct. However, he directed the Assessing Officer to restrict the disallowance to the above violations and direct the Assessing Officer to recalculate the taxable income of the assessee as per section 11 of the Act and restrict the disallowance to the extent of Rs.36.70 lakhs with the following observation :- “Further, the Ld. Assessing Officer has erred in law and on facts in arriving at an erroneous conclusion that the provisions of section 13 were violated by assessee. There is no violation of any of the provision of section 13 particularly section 13(1 )(c) and section13(3)(c) of the Income Tax Act, as has been invoked in the case and alleged in the body of the Assessment Order. The inferences drawn by the Ld. Assessing officer are patently erroneous and are not based out of material available on record. Further the Ld. Assessing Officer has erroneously invoked the provisions of Section 13(1)(c) & 13(3)(c) of the Act, which categorically covers persons mentioned therein i.e. TRUST/HUF. These provisions are NOT applicable in the instant case. The instant SOCIETY is NOT a Trust and NOT some Hindu Undivided Family [HUFJ; accordingly the provisions cited in the Show Cause Notice/Assessment Order are not applicable in the facts and circumstances of the present case and the inferences drawn on such basis is erroneous. The inference drawn by the Ld. Assessing Officer concerning conferment of benefits to specified persons is fallacious since as per the provisions of section 13(2)(c), in case of salary payment; if the disputed salary paid is commensurate with the industry standards and comparable/reasonable then there shall not be any violation of the provisions of Section 13. In this regard it is submitted that the salary paid to Dr. Sunita Yadav was commensurate with the market standards and in fact this amount was lower that the market standards; similarly in the case of Dr. Shailendra Singh the provisions are not invokeable as he has not been paid any sum of money during the current year however an opening balance appears in his account. Dr. Shailendra Singh as also Dr. Sunita Yadav are qualified doctors by profession and it has not been shown by the Assessing Officer that money paid to them is not commensurate with the market standards, there is no evidence on record to prove such assertion. The onus to establish conferment of benefit lay on Assessing Officer as per law and not on the assessee. This onus has not been discharged by AO before invoking the disqualification provision. In any view the payment of salary is less than industry standards and the persons are also actively managing the affairs of the society. No exorbitant payment is made to them. Further, the observations of the Ld. Assessing Officer concerning transactions relating to conveyance of immovable property, are manifestly fallacious and erroneous as the same is strictly regulated by the provisions of Indian Contract Act/Specific Relief Act and it is settled that the Ld. Assessing Officer has no jurisdiction or domain to read into something in an agreement that is not the intendment of the transiting parties, without ascertaining its views; accordingly any suo-motto inference drawn, on the own understanding of the Assessing officer, is void and cannot be taken cognizance-of for any purposes. It is a matter of fact that the advance paid by assessee, compared to the present market value of the immovable property is clearly beneficial to the interest of the assessee.
I have gone through the facts of the case. While the AO has taken the correct stance that the expenditure of Rs. 33.70 lakhs paid to the two doctors is in violation of the provisions of section 13 of the Act, the disallowance of exemption u/s 11 of the Act does not seem to be correct. In doing so, the AO has overlooked the provisions of the CBOT instructions, where it has been clarified vide Circular No. 387 dt. 06.07.1984 that any disallowance made under Section 13 shall be confined to the extent of expenditure found made/incurred in violation of provisions Section 13. Hence, in the facts and circumstances of the instant case, the benefit of Section 11 could at best be denied only to the extent of Rs. 33.70 Lacs. I have hence no hesitation in directing the AO to recalculate the taxable income, after denying the benefit of section 11 to the extent of RS.33.70 lakhs.”
Aggrieved with the above order, Revenue is in appeal before us raising the following grounds of appeal :-
1. The Ld. CIT (A) has erred in law and facts in deleting addition of Rs.9,86,34,960/- without appreciating the provisions of section 13(1)(c), which clearly states that exemption u/s 11 and 12 cannot be allowed to the assessee if there is any violation under the said provisions of section 13(1)(c).
2. The Ld. CIT (A) has erred in law and facts by not following the ratio laid down by Hon’ble Bombay High Court in its decision in the case of CIT vs. Jamuna Lal Bajaj Sewa Trust (1988) 171 ITR 568.”
8. At the time of hearing, ld. DR of the Revenue brought to our notice pages 7 & 8 of the impugned order wherein ld. CIT (A) has accepted the findings of the Assessing Officer with regard to violation of section 13(2) of the Act by the persons specified u/s 13(3) of the Act. Since the violation was as such that benefit was transferred to the specified persons, therefore, the assessee loses the benefit u/s 11 of the Act. He objected to the findings of the ld. CIT(A) and relied on the decision of CIT vs. Jamnalal Bajaj Sewa Trust 171 ITR 568 (Bombay), 43 taxman 300 (Delhi and ITA No.4692/Del/2012.
On the other hand, ld. AR of the assessee heavily relied on the findings of the ld. CIT (A) and he submitted that ld. CIT (A) has rightly restricted the amount of violation and relied on the Circular No.387 dated 06.07.1984 and also the following case laws :- (i) Hon’ble Delhi High Court in the case of CIT Exemption, Delhi vs. IILM Foundation ITA 179/2023; (ii) Hon’ble Bombay High Court in the case of CIT (E), Pune vs. Audyogik Shikshan Mandal (2019) 101 taxmann.com 247 (Bombay); (iii) Hon’ble Supreme Court in the case of CIT vs. Fr. Mullers Charitable Institutions (2014) 51 taxmann.com 378 (SC); (iv) Hon’ble Karnataka High Court in the case of CIT vs. Fr. Mullers Charitable Institutions (2014) 44 taxmann.com 275 (Karnataka).
Considered the rival submissions and material placed on record. We observe that the Assessing Officer has found certain payment to the specified persons as mentioned u/s 13(3) of the Act, namely, Dr. Sunita Yadav and Dr. Shailendra Yadav to the extent of Rs.33.70 lakhs. We observe that with the above finding that the assessee has violated by paying the abovesaid amount to the specified persons in the form of salary and other payments which they have not returned to the assessee. It is fact on record that abovesaid payments were in violation of section 13(1). After observing the above violations, the Assessing Officer has denied the exemption u/s 11/12 of the Act totally. After careful consideration, we observe that ld. CIT (A) restricted the above violation and granted exemption u/s 11 for the rest of the charitable activities carried on by the assessee. Aggrieved with the above, Revenue is in appeal before us. After considering the facts on record, we observe that Hon’ble Delhi High Court in the case of CIT vs. IILM Foundation (supra) considered the similar factual matrix on record and held as under :- “21. A plain reading of sub-section (1) of Section 13 of the Act indicates that exemptions under Section 11/12 of the Act would not operate so as to exclude from the total income of the previous year any income, which is directly or indirectly, for the benefit of the person referred to in sub-section (3) of Section 13 of the Act. It is, thus, clear that if any part of the income of a trust for charitable or religious purposes is diverted for the direct or indirect benefit of a person referred to in sub-section (3) of that Act, that part of the income would not be excluded from the total income of the Assessee by virtue of Section 11/12 of the Act. In other words, the exemption under those Sections would not be available to the extent that the said income of a charitable or religious purposes is applied for the benefit of a person specified in sub-section (3) of Section 13.”
From the above, it is clear that for the violation of section 13(1), any benefit was extended to the persons referred u/s 13(3) of the Act cannot be reason to deny the whole exemptions u/s 11/12 of the Act. It should be restricted to the extent of violation. The case law relied by ld. DR is distinguishable to the facts on record. Therefore, after considering the findings of the ld. CIT(A), we do not see any reason to disturb the same, accordingly, the grounds are dismissed.