ITO (E), New Delhi V. M/s. IILM Foundation, New Delhi

ITA 1131/DEL/2016

• Counselvise Citation: [2020] 109 COUNSELVISE.COM (IT) 8505 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-12-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 03-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROHIT JAIN ADV MS TEJASVI JAIN
• Keywords: Charitable institution; Opportunity of being heard; Maximum Marginal Rate; Additional evidence; Question of law; Benefit of exemption; Capital expenditure; TDS
• Section: 143(3); 234B; 260A; 80G; 12A; 201; 43; 73; 13(2); 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI G.S. PANNU, VICE PRESIDENT AND SHRI AMIT SHUKLA, JUDICIAL MEMBER (THROUGH VIDEO CONFERENCING) IT A NO. 1142 /DEL/20 11 ASSESSMENT YEAR: 2007-08 IILM FOUNDATION, RAI SCHOOL COMPLEX, 3, LODHI INSTITUTIONAL AREA, LODHI ROAD, NEW DELHI. V. ASST. DIRECTOR OF INCOME TAX (EXEMPTION), TRUST CIRCLE-II, LAXMI NAGAR, NEW DELHI. TAN/PAN: AAATR8309M (APPELLANT) (RESPONDENT) ITAS NO. 2675/DEL/2013, 2871/DEL/2014, 2872/DEL/201 4 & 1131/DEL/2016 ASSESSMENT YEARS: 2008-09, 2009-10, 2010-11 & 2011- 12 ASST. DIRECTOR OF INCOME TAX (EXEMPTION), TRUST CIRCLE-II, LAXMI NAGAR, NEW DELHI. V. IILM FOUNDATION, RAI SCHOOL COMPLEX, 3, LODHI INSTITUTIONAL AREA, LODHI ROAD, NEW DELHI. TAN/PAN: AAATR8309M (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ROHIT JAIN, ADV., MS. TEJASVI JAIN, CA & MS. SOMYA JAIN, CA RESPONDENT BY: MS. SUNITA SINGH, CIT-D.R. DATE OF HEARING: 02 12 2020 DATE OF PRONOUNCEMENT: 24 12 2020 O R D E R PER AMIT SHUKLA, JUDICIAL MEMBER: THE APPEALS FOR THE ASSESSMENT YEAR 2007-08 IS A RECALLED MATTER IN PURSUANCE OF CONSOLIDATED ORDER DATED 28.02.2019 PASSED BY THE TRIBUNAL IN MA NOS. 729 TO ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 2 732/DEL/2017. THE APPEAL FOR THE ASSESSMENT YEAR 20 07-08 HAS BEEN FILED BY THE ASSESSEE WHEREAS THE APPEALS FOR THE ASSESSMENT YEARS 2008-09 TO 2011-12 HAVE BEEN FILED BY THE REVENUE AGAINST IMPUGNED ORDER FOR THE QUANTUM OF ASSESSMENT PASSED U/S. 143(3) BY THE CIT (A)-40. 2. THE BRIEF FACTS AND BACKGROUND OF THE CASE AS CU LLED OUT FROM THE IMPUGNED ORDERS AS WELL AS SUBMISSIONS MAD E BY THE PARTIES ARE THAT, THE ASSESSEE IS A CHARITABLE TRUST SETTLED VIDE TRUST DEED DATED 01.04.2001 FOR THE PREDOMINAN T CHARITABLE OBJECT OF IMPARTING EDUCATION. THE ASSES SEE-TRUST WAS INITIALLY DECLARED/ SETUP IN THE NAME OF `RAM K RISHAN KULWANT RAI CHARITABLE TRUST AND SUBSEQUENTLY, THE NAME OF THE TRUST WAS CHANGED TO IILM FOUNDATION VIDE AME NDMENT DEED DATED 26TH JULY, 2007. THE ASSESSEE WAS DULY REGISTERED UNDER SECTION 12A OF THE INCOME TAX ACT, 1961 (THE ACT) VIDE REGISTRATION GRANTED ON 01.02.2001 READ WITH MODIFICATION DATED 02.06.2008. IN FURTHERANCE OF IT S PREDOMINANT OBJECT OF IMPARTING EDUCATION, DURING T HE YEAR UNDER CONSIDERATION, THE ASSESSEE WAS RUNNING THE F OLLOWING EDUCATIONAL INSTITUTIONS: BANYAN TREE WORLD SCHOOL AT GURGAON. IILM UNDER GRADUATE BUSINESS SCHOOL AT LODHI ROAD. IILM EARLY COLLEGE AT LODHI ROAD. 3. WE WILL NOW TAKE UP THE APPEAL FOR THE ASSESSMEN T YEAR 2007-08, WHEREIN THE ASSESSEE HAS CHALLENGED THE IM PUGNED ORDER OF CIT(A)-XII, NEW DELHI VIDE ORDER DATED 31. 12.2010 ON THE FOLLOWING GROUNDS OF APPEAL: ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 3 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE ORDER, DATED 31.12.2010, HAVING BEEN PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) WITHOUT AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE APPELLANT, IS VIOLATIVE OF THE PRINCIPLES OF NA TURAL JUSTICE AND IS, THEREFORE, ILLEGAL AND BAD IN LAW. 2. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED ON FACTS AND LAW IN UPHOLDING THE ACTION OF THE ASSESSING OFFICE R IN DENYING THE BENEFIT OF EXEMPTION U/S. 11 AND 12 OF THE INCOME T AX ACT, 1961 (THE ACT) ON THE GROUND THAT THE APPELLANT HAD MADE PAY MENT TO SPECIFIED PERSONS WITHIN THE MEANING OF SEC. 13(3) IN VIOLATI ON OF SEC. 13(1)(C) OF THE ACT. 2.1 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) E RRED ON FACTS AND LAW IN UPHOLDING THE FINDING OF THE ASSESSING OFFIC ER THAT PAYMENT OF SALARY OF RS. 16,20,000/- TO MRS. MALVIKA RAI TANTA MOUNTS TO PAYMENT TO SPECIFIED PERSONS WITHIN THE MEANING OF SEC. 13(3) IN VIOLATION OF SEC. 13(L)(C) OF THE ACT, DESPITE THE FACT THAT THE PAYMENT MADE TO HER WAS TOWARDS HE SERVICES RENDERED. 2.2 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) E RRED ON FACTS AND IN LAW IN OBSERVING THAT THE APPELLANT HAD FAILED T O JUSTIFY THAT THE SALARY PAYMENT TO MRS. MALVIKA RAI WAS COMMENSURATE WITH HER EDUCATIONAL QUALIFICATIONS WITHOUT CONSIDERING THE SUBMISSIONS MADE BY THE APPELLANT AND THE SERVICES RENDERED BY HER. 3. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF THE ASSESSING OFF ICER IN TREATING THE SCHOLARSHIP GIVEN TO MS. AARTI RAI, AS BEING IN VIO LATION OF PROVISIONS OF SEC. 13(L)(C) OF THE ACT. 3.1 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN ALLEGING THAT THE APPELLANT HAD NOT MENTIONED THE NAME OF PERSONS WHO HAD BEEN EXTENDED SIMILAR SCHOL ARSHIP FACILITIES. 3.2 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN HOLDING THAT THE SCHOLARSHIP AM OUNT INCURRED BY MS. AARTI RAI IN UK, WAS IN VIOLATION OF SECTION 11 (1)(A) OF THE ACT ON THE GROUND THAT EXEMPTION IS ALLOWED ONLY FOR CHARI TABLE PURPOSES IN INDIA. 4. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED O N FACTS AND IN LAW IN UPHOLDING THE FINDING OF THE ASSESSING OFFIC ER THAT THE APPELLANT EXISTS FOR THE SOLE PURPOSE OF PROFIT MAKING AND NO T FOR THE PURPOSE OF CHARITY. ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 4 4.1 THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE APPELLANT H AD APPLIED 92.83% OF ITS INCOME FOR CHARITABLE PURPOSES, INCLUDING AC QUISITION OF FIXED ASSETS FOR CHARITABLE PURPOSES. 4.2 THAT THE COMMISSIONER OF INCOME TAX(APPEALS) E RRED ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF THE ASS ESSING OFFICER IN ASSESSING THE INCOME OF THE APPELLANT AS A BUSINESS ENTITY, AFTER HOLDING THE ACTIVITIES OF THE APPELLANT TO BE NON-C HARITABLE UNDER SECTION 2(15) OF THE ACT. 5. THAT THE COMMISSIONER OF INCOME TAX(APPEALS) ERR ED ON FACTS AND IN LAW IN NOT ADJUDICATING THE ALTERNATIVE GROUND R AISED BY THE APPELLANT THAT, ASSUMING WITHOUT ADMITTING, THERE W ERE VIOLATION(S) OF SECTION 13, STILL EXEMPTION UNDER SECTION 11/12 OF THE ACT SHOULD NOT HAVE BEEN DENIED WITH RESPECT TO THE ENTIRE INCOME. 6. WHILE COMPUTING INCOME OF THE APPELLANT AS A BUSINE SS ENTITY AFTER DENYING EXEMPTION UNDER SECTIONS 11/12 OF THE ACT, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN: (A) AFFIRMING THE ACTION OF THE ASSESSING OFFICER IN MAKING ADDITION OF RS.34,41,987 OUT OF REFUNDABLE SECURITY DEPOSIT OF THE STUDENTS. (B) OBSERVING THAT ALTHOUGH APPELLANTS OBLIGATION TO REFUND THE ABOVE SECURITY DEPOSITS EXISTED, BUT SINCE THE APPELLANT DID NOT REFUND THE SAME, SUO MOTO, THE APPELLANT WAS RUNNING ON COMMER CIAL PRINCIPLES. 7. WHILE COMPUTING INCOME OF THE APPELLANT AS A BUS INESS ENTITY AFTER DENYING EXEMPTION UNDER SECTIONS 11/12 OF THE ACT, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN: (A ) AFFIRMING THE ACTION OF THE ASSESSING OFFICER IN MAKING AD-HOC ADDITION OF 50% OF REPAIRS AND CAR MAINTENANCE EXPE NSES AMOUNTING TO RS.7,09,468, ON THE GROUND THAT NO LOG BOOK WAS MAINTAINED BY THE APPELLANT. (B) FAILING TO APPRECIATE THAT SIMPLY BECAUSE NO L OG BOOK WAS MAINTAINED BY THE APPELLANT, COULD NOT LEAD TO THE CONCLUSION THAT THE CARS WERE NOT USED FOR CHARITABLE PURPOSES. 8. WHILE COMPUTING INCOME OF THE APPELLANT AS A BUS INESS ENTITY AFTER DENYING EXEMPTION UNDER SECTIONS 11/12 OF THE ACT, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN: (A) AFFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING SCHOLARSHIP EXPENSES OF RS. 1335J905/R4IAID TO MS. AARTI RAI. (B) AFFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING SALARY OF ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 5 PAID TO MRS. MALVIKA RAI. 9. WHILE COMPUTING INCOME OF THE APPELLANT AS A BUS INESS ENTITY AFTER DENYING EXEMPTION UNDER SECTIONS 11/12 OF THE ACT, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN CONFIRMING DISALLOWANCE OF DONATION PAID OF RS.37,9 00/-. 10. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) E RRED ON FACTS AND IN LAW IN CONFIRMING IMPOSITION OF INTERE ST UNDER SECTION 234B AND 234C OF THE ACT. 4. BEFORE US, THE LEARNED COUNSEL FOR THE APPELLAN T, MR. ROHIT JAIN SUBMITTED THAT THE ASSESSING OFFICER IN HIS ORDER HAS ALLEGED THAT APPELLANT HAS VIOLATED THE PROVISI ON OF SECTION 13(1)(C) ON ACCOUNT OF PAYMENT OF REMUNERAT ION TO MRS. MALVIKA RAI WITHOUT AFFORDING ANY OPPORTUNITY OF BEING HEARD TO THE APPELLANT ON VARIOUS ISSUES. EVEN THE LD. CIT (A) HAS NOT TAKEN INTO CONSIDERATION VARIOUS DOCUMENTS FILED DURING THE COURSE OF APPELLATE PROCEEDINGS. THEREFO RE, ASSESSEE HAS FILED AN APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCES BEFORE THE TRIBUNAL VIDE LETTER DATED 2 ND MARCH 2017. APART FROM THE ALLEGATION OF REMUNERATION PAI D TO MRS. MALVIKA RAI IN VIOLATION OF SECTION 13(1)(C), THE A O HAS ALSO MADE AN ADVERSE INFERENCE ON ACCOUNT OF PAYMENT OF REMUNERATION AND SCHOLARSHIP TO MS. AARTI RAI WHICH AGAIN WAS MADE WITHOUT GIVING ANY PROPER OPPORTUNITY OF B EING HEARD. APART FROM THAT, ASSESSING OFFICER WHILE MAK ING THE ADDITION ON ACCOUNT OF REFUNDABLE SECURITY DEPOSIT PROCEEDED TO DRAW ADVERSE INFERENCE ON THE BASIS OF DETAILS A VAILABLE ON RECORD WHICH AGAIN WAS WITHOUT OFFERING ANY OPPORTU NITY OF HEARING. THUS, HE SUBMITTED THE ADDITIONAL EVIDENCE S FILED BY THE ASSESSEE IS CRITICAL FOR SUBSTITUTING THE SALAR Y PAYMENT TO ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 6 MRS. MALVIKA RAI, BEING THE CHAIRPERSON OF IILM UND ER- GRADUATE BUSINESS SCHOOL (IN SHORT `IILM UBS) AND THE SAME SHOULD BE ADMITTED IN TERMS OF RULE 29 OF ITAT RULE S,1963. 5. THE ASSESSING OFFICER ON PERUSAL OF THE BANK BOO K MAINTAINED BY THE BANYAN TREE SCHOOL WHICH FALLS UN DER IILM FOUNDATION, NOTED THAT FOLLOWING PAYMENTS HAVE BEEN MADE TO SMT. MALVIKA RAI AND SMT. AARTI RAI, WHO FALLS W ITHIN THE CATEGORY OF A SPECIFIED PERSON WITHIN THE MEANING O F SECTION 13(3):- BANK BOOK PAGE NO. DATE NARRATION AS PER BANK BOOK 834 29.05.2006 SALARY TDS AARTI RAI 30,000/ - DR. 835 29.06.2006 SALARY TDS MALVIKA RAI 1,01,250/ - DR. SALARY TDS AARTI RAI 30,000/- DR. 836 29.07.2006 SALARY TDS MALVIKA RAI 48,7 50/ - DR. 839 29.09.2006 SALARY TDS MALVIKA RAI 37,750/ - DR. 841 28.11.2006 SALARY TDS MALVIKA RAI 37,750/ - DR. 833 26.04.2006 SALARY TDS AARTI RAI 29,750/ - DR. 6. FROM THE ABOVE DETAILS, ASSESSING OFFICER INFERR ED THAT THESE PAYMENTS ARE IN VIOLATION OF SECTION 13(1)(C) READ WITH SECTION 13(3) AND ON THESE ACCOUNT THE ASSESSEE IS LIABLE TO LOSE ITS EXEMPTION. HE FURTHER NOTED THE NAME OF TH ESE TWO PERSONS DOES NOT APPEAR AS EMPLOYEE OF THE BANYAN T REE SCHOOL. ACCORDINGLY, HE DISALLOWED THE FOLLOWING PA YMENTS MADE TO BOTH THE PERSONS. MRS. MALVIKA RAI RS.225,500/- MRS. AARTI RAI RS. 89,750/- TOTAL RS.315,250/- 7. THE ASSESSEE EXPLANATION WAS THAT THE TRUST HAS GRANTED ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 7 SCHOLARSHIP OF RS.13.36 LAKHS DURING THE RELEVANT P REVIOUS YEAR WHICH WAS ON ACCOUNT OF PAYMENT OF FEES FOR DO ING HIGHER EDUCATION FROM LONDON SCHOOL OF ECONOMICS AN D STUDY CHARGES OF SMT. AARTI RAI IN LONDON. THE ASSE SSING OFFICER HELD THAT THE DETAILS AND SUPPORTIVE DOCUME NTS OF SUCH EXPENDITURE HAS NOT BEEN FILED. HE ALSO OBSERV ED THAT THE APPELLANT TRUST HAS FAILED TO PROVE ANY EVIDENC E THAT IT HAS GRANTED SIMILAR SCHOLARSHIP TO OTHER STUDENTS O F WEAKER SECTION OR OFFERED ANY OTHER STUDENTS BELONGING TO EWS. HE ALSO NOTED THAT THE PROFITABILITY PERCENTAGE OF THE GROSS INCOME FOR THE ASSESSMENT YEAR 2006-07 AND 2007-08 WAS 4.46% AND 48.43% RESPECTIVELY. THUS, THERE IS NO CH ARITABLE INTENTION IN ACTION AND OPERATION OF SURPLUS FUNDS. ON THIS BACKGROUND HE CONCLUDED AS UNDER. I. THE ASSESSEE IN NOT A CHARITABLE INSTITUTION ON ACCOUNT OF INFRINGEMENT OF PROVISIONS OF SEC. 13(1)(B) OF THE IT ACT, 1961. II. THE ASSESSEE VIOLATED PROVISIONS OF SEC. 13(1)(V) R .W.S. 13(3) OF THE IT ACT, 1961. III. THE ASSESSEE DIVERTED FUND WITHIN THE MEANING OF SEC. 13(2)(G) R.W.S13(3) OF THE IT ACT, IV. THE INSTITUTIONS WERE OPERATED BY THE ASSESSEE WITH A CLEAR PROFIT MOTIVE, AND AS BUSINESS ORGANIZATION INSTEAD OF A CHARITABLE ONE. V. THE FOUNDERS AND CONTROLLING MEMBERS HAVE APPROPRIAT ED CERTAIN PART OF SURPLUS FUND FOR FURTHERANCE OF THEIR O WN NEED. ON THE AFOREMENTIONED GROUNDS THE ACTIVITIES OF THE ASSE SSEE ARE HELD TO BE NOT CHARITABLE WITHIN THE MEANING OF SEC . 2(15) OF THE IT ACT 1961 FROM THE NATURE OF ACTUAL ACTIVITIES, ACCOUNTS AND TRANSACTIONS AND AS SUCH THE ASSESSEE NO T ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 8 ENTITLED FOR EXEMPTION U/S. 11 AND 12 OF THE IT ACT, 19 61. ACCORDINGLY, THE UNDERSIGNED PROCEED TO ASSESS HIS I NCOME AS A BUSINESS ENTITY HAVING A STATUS OF AN AOP. 8. APART FROM THAT, ASSESSING OFFICER HAS NOTED THA T THERE IS A MISCELLANEOUS INCOME ON ACCOUNT OF STUDENT SEC URITY WHICH HE NOTED FOR VARIOUS YEARS IN THE FOLLOWING M ANNER:- STUDENTS SECURITY OPENING BALANCE CLOSING BALANCE REFUND MISC. INCOME 2000-03 6,05,226/- NIL NIL 6,05,226/- 2001-04 8,67,734/- 8,65,734/- 10,000/- 1,10,000/- 2002-05 790000 716075 20000 110000 2003-06 2810000 1607175 210000 1030000 2004-07 3700000 3449625 - 270000 2005-08 3390000 3180000 - 240000 1999-2002 439564 419564 - 20000 TOTAL 240000 2275226/- 9. THE AO OBSERVED THAT THE APPELLANT HAS SHOWN ONL Y RS.1,18,537/- AS MISCELLANEOUS INCOME, WHEREAS INCO ME AND AMOUNT NARRATED IN THE HDFC BANK EXPENSES WITHOUT T HE NAME OF THE RELEVANT STUDENT COMES TO RS.22,75,226/ -. HE ALSO NOTED THAT PERHAPS THE STUDENTS WHO HAVE GRADU ATED DURING THIS PERIOD HAVE NOT CLAIMED ANY REFUND. THE REFORE, HE HAS WORKED OUT UNDERSTATEMENT OF INCOME OF RS.34,41 ,987/- IN THE FOLLOWING MANNER. AS PER TABLE RS. 22,75,226/- STUDENTS SECURITY 1999-2002 RS.4,19,564/- (CLOSING BALANCE) STUDENTS SECURITY 2001-04 (CLOSING BALANCE) RS.8,65,734/- ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 9 TOTAL RS.35,60,524/- LESS MISC. INCOME AS PER SCHEDULE A/C RS.1,18,537/ - UNDERSTATEMENT OF INCOME RS.34,41,987/- 10. FURTHER, ASSESSING OFFICER HAS ALSO MADE AD HOC DISALLOWANCE OF RS.7,09,468/- BEING MAINTENANCE AND FUEL EXPENSES ON CAR AMOUNTING TO RS.14,18,936/- ON THE GROUND THAT LOG BOOKS WERE NOT MAINTAINED BY THE APPELLANT . LASTLY, HE HAS ALSO DISALLOWED DONATION OF RS.37,900/- FOR PAYMENT OF CERTAIN EXPENDITURE OF SOME OTHER INSTITUTIONS. ACCORDINGLY, THE ASSESSING OFFICER AFTER DENYING THE BENEFIT OF EXEMPTION U/S 11 AND 12 ASSESSED THE INCOME ON A TOTAL OF RS.5,96,90,550/- TREATING THE ASSESSEE AS AOP, AND COMPUTING THE INCOME AS BUSINESS ENTITY. 11. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT (A) HAS PROCEEDED ON WRONG F ACTS WITHOUT CONSIDERING THE SUBMISSINS MADE BY THE ASSE SSEE. HE HIGHLIGHTED THE FOLLOWING FACTS RELATING TO REMUNER ATION PAID TO MRS. MALVIKA RAI ON THE SERVICES RENDERED FROM T HE DOCUMENTS PLACED IN THE PAPER BOOK AT PAGES 86 AND 87. MRS. MALVIKA RAI HAD EXPERIENCE OF MORE THAN 2 DECAD ES INASMUCH AS AFTER COMPLETING HER GRADUATION FROM JESUS & MARRY COLLEGE, DELHI UNIVERSITY, SHE WAS ACTIVELY IN VOLVED IN THE FIELD OF EDUCATION. MRS. MALVIKA RAI IS AMONGST THE FEW INDIAN WOMEN, WHO PIONEERED THE CAUSE OF EDUCATION IN THE COUNTRY. MRS. MALVIKA RAI ALSO LAUNCHED A PRIMARY SCHOOL AND ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 10 VOCATIONAL TRAINING CENTER, NAMELY, ROSHNI, FOR TH E SOCIALLY & ECONOMICALLY BACKWARD SECTION OF THE SOCIETY IN LOD HI INSTITUTIONAL AREA, NEW DELHI. MRS. MALVIKA RAI WAS AWARDED THE INDIRA GANDHI PRIYADARSHINI AWARD FOR THE YEAR 1996 AS ACKNOWLEDG MENT OF HER SERVICES TO THE NATION AND THE SOCIETY. MRS. MALVIKA RAI WAS CHAIRPERSON OF THE `IILM UNDER - GRADUATE BUSINESS SCHOOL (IN SHORT `IILM UBS), RUN B Y THE APPELLANT AT LODHI ROAD, OFFERING VARIOUS MANAGEMENT PROGRAMS IN COLLABORATION WITH THE UNIVERSITY OF BRAD FORD, U.K. MRS. MALVIKA RAI WAS ALSO CHAIRPERSON OF THE ACADEMI C COUNCIL OF IILM-UBS. MRS. MALVIKA RAI WAS REGULARLY GETS INVOLVED IN INTER ACTION WITH VARIOUS ACADEMICIANS, EDUCATIONISTS, VICE CHANCE LLORS AND FACULTIES OF SEVERAL UNIVERSITIES AND MANAGEMENT INSTITUTES OF USA , UK AND OTHER COUNTRIES, WITH A VIEW TO UPGRADE THE LEVEL OF PROVIDING EDUCATION IN THE VARI OUS EDUCATIONS INSTITUTIONS OF WHICH SHE IS A PART. MRS. MALVIKA RAI WAS ON THE EDITORIAL BOARD OF THE QU ARTERLY MANAGEMENT MAGAZINE OF THE APPELLANT, NAMELY THE EDG E. MRS. MALVIKA RAI WAS A MEMBER OF THE ADVISORY BOARD OF THE SCHOOL OF MANAGEMENT, UNIVERSITY OF BRADFORD, U.K. MRS. MALVIKA RAI WAS VICE PRESIDENT OF FICCI LADIES ORGANIZATION. 12. BEFORE THE CIT(A), THE APPELLANT, NOT ONLY EXPL AINED THE PROFILE ALONGWITH JUSTIFICATION FOR PAYING SALARY TO MRS. MALVIKA RAI, BUT ALSO PRODUCED SALARY SHEETS OF THE APPELLANT ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 11 FOR VARIOUS MONTHS FOR VERIFICATION BY THE CIT(A). THE APPELLANT, ALSO SUBMITTED DETAILS OF SALARY PAID TO VARIOUS OTHER SENIOR FACULTIES, ETC., OF THE APPELLANT, ON SAMPLE BASIS AS FOLLOWS: MR. B. BHATTACHARYA DIRECTOR 90,000 JUNE, 2007 1,20,000 DECEMBER, 2008 1,20,000 FEBRUARY, 2009 MRS. SAPNA POPLI ASSISTANT DIRECTOR 1,01,166 OCTOBER, 2007 1,35,331 JANUARY, 2007 1,31,786 FEBRUARY, 2009 1,01,166 OCTOBER, 2007 85,670 OCTOBER, 2007 13. LEARNED COUNSEL FURTHER SUBMITTED THAT MRS. MAL VIKA RAI BEING CHAIRPERSON OF IILMF WAS RESPONSIBLE FOR ALL THE INSTITUTIONS RUN BY THE APPELLANT AND WAS IN RELATI ON TO DIVERSE NATURE OF SERVICES PERFORMED BY HER WHICH W AS AT PAR WITH SALARY PAID TO OTHER FACULTY MEMBERS, AND THER EFORE, IT CANNOT BE HELD SALARY WAS EXCESSIVE/ UNREASONABLE T O TAX THE PROVISION OF SECTION 13(1)(C) READ WITH SECTION 13( 3). LEARNED CIT (A) HAS DECIDED THIS ISSUE AGAINST THE APPELLAN T AFTER OBSERVING AND HOLDING AS UNDER: 9.2 THE SUBMISSION GIVEN BY THE APPELLANT AND THE OBJECTIONS OF THE ASSESSING OFFICER HAS BEEN PERUSED. IT IS SEEN THAT MRS. MALVIKA RAI IS RELATED TO THE TRUSTEE AND IS BEING GIVEN A HEFTY SALARY OF RS.16,20,000 P.M. DESPITE THE FACT THAT S HE IS JUST A GRADUATE AND THE APPELLANT HAD NOT FURNISHED ANY DE TAILS AS TO HOW THE EDUCATIONAL QUALIFICATION OF MRS. MALVIKA R AI IS COMMENSURATE WITH THE SALARY WHICH SHE IS DRAWING. THUS THE ASSESSING OFFICER WAS CORRECT IN INVOKING THE PROVI SION OF SECTION 13 AND DENYING THE BENEFIT OF EXEMPTION UNDER SECTI ON 11 AND ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 12 12. THIS GROUND IS DECIDED AGAINST THE APPELLANT. 14. LEARNED COUNSEL REBUTTED THE AFORESAID OBSERVAT ION AND THE CONCLUSION OF THE LEARNED CIT (A) IN THE FOLLOW ING REASONS. (A) FIRST AND FOREMOST, THE CIT(A) ERRONEOUSLY CONSIDE RED REMUNERATION OF MS. MALVIKA RAI AS RS.16,20,000 P.M ., WHEREAS ACTUAL REMUNERATION PAID WAS RS.16,20,000 FOR THE ENTIRE YEAR AND NOT RS.16,20,000 P.M. THIS FUNDAMENTAL MISTAKE, IT IS SUBMITTED, VITIATES THE ENTIRE CONCLUSION O F THE CIT(A) ON THE AFORESAID ISSUE; (B) SECONDLY, THE CIT(A) PROCEEDED ON A FLAWED PREM ISE THAT THE APPELLANT DID NOT JUSTIFY HOW THE EDUCATIONAL QUALIFICATION OF MRS. MALVIKA RAI IS COMMENSURATE WITH THE SALARY WHICH SHE IS DRAWING WHEREAS THE LEGAL REQUI REMENT IS TO EXAMINE THE REMUNERATION BASED ON THE SERVICES BEIN G RENDERED. THE ONLY REQUIREMENT IN LAW IS THAT THE SAL ARY PAID SHOULD NOT BE EXCESSIVE OR UNREASONABLE HAVING REGAR D TO SERVICES RENDERED. THE SERVICES RENDERED HAVE TO BE BENCHMARKED NOT ONLY WITH REFERENCE TO THE EDUCATIONA L QUALIFICATION OF THE PERSON(S) SPECIFIED IN SECTION 13 OF THE ACT BUT ALSO THE REQUISITE EXPERIENCE; (C) THIRDLY, NONE OF THE COMPARATIVE MATERIAL/ INSTA NCES PLACED ON RECORD AND VITAL FOR ADJUDICATION OF THE ISS UE HAVE BEEN CONSIDERED BY THE CIT(A); (D) FOURTHLY, NOTHING HAS BEEN BROUGHT ON RECORD TO CONTROVERT ANY OF THE FACTUAL SUBMISSIONS OF THE APPELLA NT; (E) FIFTHLY, NONE OF THE AUTHORITIES (THE ASSESSING OFFI CER IN SUBSEQUENT YEARS AND ALSO THE CIT(A) IN THE YEAR UNDE R CONSIDERATION) HAVE BROUGHT ANY EVIDENCE ON RECORD TO SHOW ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 13 THAT THE SALARY PAID WAS EXCESSIVE HAVING REGARD TO THE LEGITIMATE NEEDS OF THE APPELLANT TRUST IN CARRYING OUT EDUCATIONAL ACTIVITIES; (F) SIXTHLY, THE CIT(A), IT APPEARS, WAS INFLUENCED B Y THE FACT THAT MRS. MALVIKA RAI WAS ONLY A GRADUATE, WHICH CANNO T BE THE BASIS TO HOLD THAT SERVICES RENDERED WERE NOT COMMENSURATE WITH THE SALARY PAID. IT HAS NOT BEEN APPRECIATED THAT MRS. RAI HAD EXPERIENCE OF OVER TWO DECADES IN THE EDUCATIONAL FIELD. THE CIT(A) HAS CONVENIENTLY IGNORED ALL OTHER FACTORS, MORE PARTICULARLY HER DIVERSE EXPE RIENCE IN THE FIELD OF EDUCATION, WHICH ADDS TO HER EDUCATIONAL QUALIFICATION. 15. APART FROM THAT. APPELLANT HAS ALSO PLACED ON R ECORD FOLLOWING ADDITIONAL EVIDENCES UNDER RULE 29 OF ITA T RULES, 1963. COPIES OF EXTRACTS FROM THE BROCHURE OF IILM -UBS ( REFER PAGE NOS. 1-4 @ 2); COMPILATION OF VARIOUS EDITIONS OF QUARTERLY JOURNA L OF THE APPLICANT INSTITUTE, NAMELY THE EDGE (PAGE NOS. 5 -193); DOCUMENTARY EVIDENCES OF VARIOUS EVENTS OF THE APPL ICANT BEING ORGANIZED UNDER THE GUIDANCE OF MRS. MALVIKA RAI (PAGE NOS.194-229 @ 208, 210, 212, 213, 215, 216, 217, 21 8, 219) 16. ON A PERUSAL OF THE AFORESAID ADDITIONAL EVIDE NCE PLACED ON RECORD, IT WAS SUBMITTED THAT BEING CHAIRPERSON OF IILM AS A WHOLE, MRS. MALVIKA RAI HAS BEEN ACTIVELY ENGA GED IN THE WORKING OF THE INSTITUTES AND MANAGING THE DAY TO D AY AFFAIRS OF THE SCHOOLS AND COLLEGES RUN BY THE APPELLANT. S HE WAS A PART OF THE EVENTS ORGANIZED BY THE SCHOOLS AND HAS ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 14 REPRESENTED IILM BEFORE DISTINGUISHED GUESTS ON NUM EROUS OCCASIONS. TO FURTHER SUBSTANTIATE THE ACTIVITIES U NDERTAKEN BY MRS. MALVIKA RAI, THE ASSESSEE HAS GIVEN THE FOL LOWING GIST OF ACTIVITIES FOR VARIOUS EVENTS ORGANIZED BY THE A SSESSEE IN THE UNDER THE GUIDANCE OF MRS. MALVIKA RAI, AS SUBM ITTED BEFORE THE CIT(A) FOR ASSESSMENT YEAR 2008-09: S.NO. PARTICULARS OF EVENT PAGE NOS OF ADD. EVIDENCE APPLICATION 1 CONVOCATION CEREMONY WHEREIN MRS. MALVIKA RAI IS SEEN MEETING WITH PROF CHRIS TAYLOR VICE-CHANCELLOR, UNIVERSITY OF BRADFORD 210-211 2 FUNCTION AT BANYAN TREE WORLD SCHOOL (FORMERLY K NOWN AS IILM WORD SCHOOL) WHEREIN MRS. MALVIKA RAI IS SE EN MEETING WITH MR. PATRICH RITTEE FROM INTERNATIONAL BACCALAUREATE ORGANISATION 212-213 3 ALUMNI ASSOCIATION GET-TOGETHER MEETING. 214-21 5 4 ORIENTATION PROGRAMME AT IILM UNDERGRADUATE SCHO OL 216 5 3 DAYS FESTIVAL MOSAIC FOR IILM STUDENTS. MOSA IC, A PLATFORM FOR EXCHANGE OF TALENT RANGING FROM CREATI VITY OF WORDS TO EXPRESSION IN WRITING ATTENDED BY FINEST B USINESS SCHOOLS FROM INDIA 217 7 CONVOCATION CEREMONY WHEREIN MRS. MALVIKA RAI IS SEEN WITH KUMARI SELJA, UNION MINISTER OF STATE, MINISTR Y OF URBAN EMPLOYMENT AND PROF. BADAL MUKHERJI, EX DIRECTOR, DELHI SCHOOL OF ECONOMICS 218 9 GRADUATION CEREMONY OF STUDENTS OF IILM UBS 219 -222 11 LECTURE TO STUDENTS BY DR E. SREEDHARAN BEING G UIDED BY MRS MALVIKA RAI. 223 12 SPIRITUAL LECTURE TO STUDENTS BY SANT SHRI MURA RI BAPUJI, BEING GUIDED BY MRS MALVIKA RAI 224 13 MRS MALVIKA RAI WITH HIS HOLINESS THE DALAI LAM A FOR GUEST LECTURE TO IILM STUDENTS 228 17. TAKING NOTE OF THE AFORESAID FACTUAL POSITION, IN THE APPELLANTS OWN CASE FOR SUBSEQUENT ASSESSMENT YEAR S 2008- 09 TO 2011-12, THE CIT(A) HELD THAT THERE IS NO VIO LATION OF SECTION 13(1)(C) OF THE ACT, AFTER TAKING INTO CONS IDERATION THE ENTIRE MATERIAL/ EVIDENCES PLACED ON RECORD. OUR AT TENTION ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 15 WAS PARTICULARLY INVITED TO THE FOLLOWING EVENTS RE LATING TO A.Y. 2008-09. IN A.Y. 2008-09, WHEN THE ERRORS IN THE OR DER OF THE CIT(A) FOR ASSESSMENT YEAR 2007-08 WERE HIGHLIGHTED , THE CIT(A) FORWARDED THE ADDITIONAL EVIDENCE(S) AND THE SUBMISSIONS TO THE ASSESSING OFFICER FOR HIS COMMEN TS; IN REMAND REPORT DATED 08.08.2011 FILED IN A.Y. 2008-0 9, COPY OF WHICH HAS BEEN PLACED AT PGS. 332-333/ PB FOR A. Y. 08-09. THE ASSESSING OFFICER MAINLY RELIED UPON THE CIT (A ) ORDER FOR A.Y 2007-08 THAT REMUNERATION IS NOT COMMENSURATE W ITH EDUCATIONAL QUALIFICATION AND FURTHER STATED THAT T HE ADDITIONAL EVIDENCE PERTAINS TO MAGAZINE EDGE PUB LISHED BY IILM INSTITUTE OF HIGHER EDUCATION, WITHOUT REALIZI NG THAT THE SAID EDUCATIONAL INSTITUTE IS ALSO PART OF THE APPE LLANT. 18. IMPORTANTLY, THE ASSESSING OFFICER IN NONE OF T HE SUBSEQUENT YEARS HAS PLACED ON RECORD ANY MATERIAL/ EVIDENCE TO CONTROVERT ANY OF THE SUBMISSIONS OF TH E APPELLANT. IN FACT, IN THE SUBSEQUENT YEARS, THE AS SESSING OFFICER MADE AD-HOC DISALLOWANCE AS TABULATED HEREU NDER: 19. IN VIEW OF THE AFORESAID PROFILE/ ROLES AND RES PONSIBILITIES AND CONTRIBUTIONS/ SERVICES OF MRS. MALVIKA RAI, IT HAS BEEN SUBMITTED THAT THE AFORESAID SALARY PAID TO HER WAS VERY MUCH JUSTIFIED AND NOT AT ALL UNREASONABLE/ EXCESSIV E AND A.Y. REMUNERATION PAID DISALLOWED BY AO REMARKS 2007-08 16,20,000 2,25,000 SUBJECT MATTER OF PRESENT APPEAL 2008-09 16,63,200 16,63,200 DELETED BY CIT(A) 2009-10 16,20,000 4,86,000 DELETED BY CIT(A) 2010-11 19,08,646 5,72,594 DELETED BY CIT(A) 2011-12 16,20,000 NIL NO DISALLOWANCE BY AO. ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 16 CANNOT, IN ANY MANNER, BE CONSIDERED AS GIVING OF A NY UNDUE BENEFIT BY THE APPELLANT. IT WAS FURTHER SUBMITTED THAT UNDER SECTION 13(1)(C) READ WITH SECTION13(2)(C) THERE IS NO BAR ON PAYMENT OF SALARY, ETC., TO THE PERSONS MENTIONED I N SECTION 13(3) OF THE ACT FOR THE SERVICES RENDERED BY SUCH PERSONS. THE LAW ONLY PROVIDES THAT IF PAYMENT IS MADE TO PE RSONS MENTIONED IN SECTION 13(3) OF THE ACT IN RESPECT OF SERVICES RENDERED BY SUCH PERSONS, THE SAME SHOULD NOT BE UNREASONABLE. 20. EMPHATIC RELIANCE IN THIS REGARD WAS PLACED O N THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF PARIWAR SEVA SANSTHAN: 254 ITR 268 (DEL) . IN THAT CASE, THE REVENUE FILED APPEAL AGAINST THE DECISION OF THE TR IBUNAL HOLDING THAT SINCE PAYMENTS MADE TO PARTIES SPECIFI ED UNDER SECTION 13(3) WAS REASONABLE AND NOT EXCESSIVE, THE RE WAS NO VIOLATION OF SECTION 13(1)(C) OF THE ACT. AFFIRMING THE DECISION OF THE TRIBUNAL AS NOT GIVEN RISE TO ANY QUESTION O F LAW, THE HONBLE COURT HELD AS UNDER: HEARD. THIS IS AN APPEAL UNDER SECTION 260A OF THE INCOME-TAX ACT, 1961 (THE ACT). THE APPEAL RELATE S TO THE ASSESSMENT YEARS 1995-96 AND 1996-97. THE FOLLOWING QUESTION HAS BEEN POSED: 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL WAS CORRECT IN ALLOWING TH E BENEFIT UNDER SECTION 11 OF THE INCOME-TAX ACT, 1961 WITHOU T APPRECIATING THAT THE ASSESSEE HAD VIOLATED THE PRO VISIONS OF SECTION 13(1)(C) AND 13(1)(D) OF THE ACT ?' 23. WE FIND THAT THE COMMISSIONER (APPEALS) DECIDED IN ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 17 FAVOUR OF THE ASSESSEE ON ALL ASPECTS IN THE REVENU ES APPEAL FOR THE ASSESSMENT YEAR 1995-96. THE TRIBUNA L AFFIRMED CONCLUSION OF THE COMMISSIONER (APPEALS) W ITH THE FOLLOWING OBSERVATIONS: 'WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE M ATERIALS ON THE FILE. WE ARE OF THE VIEW THAT ON THE FACTS A ND IN THE CIRCUMSTANCES OF THE CASE AND FOR THE DETAILED REAS ONS GIVEN IN THE IMPUGNED APPELLATE ORDER, THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE WAS ENTITLED TO EXEMPTION UNDER SECTION 11 OF THE ACT FOR THE ASSESSMENT YEAR 1995- 96. AS NOTED ABOVE, THE ASSESSEE IS A REGISTERED SOCIETY U NDER SECTION 12A(A) OF THE ACT. IT IS PROVIDING SERVICES IN THE FIELD OF FAMILY PLANNING, FAMILY WELFARE, BIRTH CONTROL, ETC . IT WAS IN EXISTENCE SINCE 1981 AND IT WAS ALLOWED EXEMPTION U NDER SECTION 11 OF THE ACT IN EARLIER YEARS. THE REASONS GIVEN FOR REFUSING EXEMPTION UNDER SECTION 11 BY THE ASSESSIN G OFFICER FOR THE ASSESSMENT YEAR IN QUESTION HAVE BEEN GIVEN HEREINBEFORE. THESE REASONS WERE PAYMENT OF SALARY, RENT, ETC., TO MRS. SUDHA TEWARI, CHIEF EXECUTIVE OFFICER AND PROJECT COORDINATOR, RENT OF THE HOUSE TO MR. G.K. TEWARI, HUSBAND OF MRS. SUDHA TEWARI, LOAN TO TYAGI FOUNDATION AND EXP ENDITURE INCURRED ON CONFERENCES AND CLINICS. THE LD. CIT(A) HAS DISCUSSED ALL THE ITEMS IN HIS IMPUGNED APPELLATE O RDER AT LENGTH AND HELD THAT SALARY, RENT, ETC., PAID TO MR S. SUDHA TEWARI WAS REASONABLE AND FOR VALUABLE SERVICES REN DERED BY HER AS CHIEF EXECUTIVE OFFICER AND PROJECT COORDINA TOR AND THAT THE RENT OF THE HOUSE PAID TO MR. G.K. TEWARI WAS ALSO REASONABLE CONSIDERING THE LOCATION OF THE HOUSE IN GREEN PARK, NEW DELHI. NO MATERIAL HAS BEEN BROUGHT BEFOR E US TO REBUT THE FACTUAL FINDINGS OF THE LD. CIT(A). ON CO NSIDERATION OF ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 18 THE MATERIALS ON THE FILE, THE PAST RECORD OF THE S OCIETY, THE YEAR TO YEAR SERVICES RENDERED BY MRS. SUDHA TEWARI FROM ITS INCEPTION, WE ARE SATISFIED THAT THE SALARY, RENT, ETC., PAID TO HER WAS REASONABLE AND WAS NOT EXCESSIVE AND THE LD . CIT(A) WAS JUSTIFIED IN REJECTING THESE AS NOT VALID GROUN DS FOR REJECTING THE CLAIM OF EXEMPTION UNDER SECTION 11 O F THE ACT. . .' 3. FOR THE ASSESSMENT YEAR 1996-97, THE ASSESSEE PR IMARILY CHALLENGED THE QUESTION AS TO THE REASONABLENESS OF SALARY. THAT PLEA WAS ACCEPTED IN VIEW OF THE CONCLUSIONS F OR 1995- 96. THE EXTRACTED PORTION OF THE ORDER PASSED BY TH E TRIBUNAL GOES TO SHOW THAT THE CONCLUSIONS ARE ESSENTIALLY F ACTUAL GIVING RISE TO NO QUESTION OF LAW. ACCORDINGLY, WE DO NOT ENTERTAIN THIS APPEAL. DISMISSED. 21. LEARNED COUNSEL FURTHER SUBMITTED THAT AS PER T HE JUDICIAL PRECEDENTS THE ONUS IS ON THE REVENUE TO PR OVE THAT PAYMENT TO THE PERSON SPECIFIED IN SECTION 13(3) IS UNREASONABLE BY PLACING ON RECORD THE MATTER TO SHO W THE MARKET VALUE OF THE SERVICES RENDERED AND HOW THE P AYMENT IS EXCESSIVE AND UNREASONABLE. 22. COMING TO THE FOLLOWING PAYMENTS MADE TO MRS. A ARTI RAI IN RESPECT OF SERVICES RENDERED BY THE INSTITUT ION; SALARY OF RS.2,57,000, OUT OF WHICH ADDITION OF RS.89,750 MADE BY AO; AND SCHOLARSHIP OF RS.13.36 LACS FOR PURSUING H IGHER EDUCATION, THE RELEVANT FACTS AS CULLED OUT FROM TH E ORDER OF THE CIT(A) REGARDING PAYMENTS TO MRS. AARTI RAI ARE AS UNDER. AARTI DID HER SCHOOLING IN THE YEAR 2000 FROM THE ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 19 PRESTIGIOUS ST. COLUMBUS SCHOOL, NEW DELHI AND WAS AWARDED THE DEGREE IN B.SC BUSINESS AND MANAGEMENT STUDIES BY BRADFORD UNIVERSITY SCHOOL OF MANAGEMENT IN 2003. MS. ARTI RAI WAS FIRST APPOINTED IN JULY, 2003 IN IIL M-UBS. MS. AARTI RAI CONCEPTUALIZED AND WORKED IN IILM WORLD SCHOOL, GURGAON (NOW KNOWN AS BANYAN TREE SCHOOL) OF THE APPELLANT FROM JANUARY, 2006 TO AUGUST, 2006, THE APPELLANT HAS SYSTEM OF PROVIDING SCHOLARSHIPS TO THE STUDENTS/EMPLOYEES BASED ON THE FOLLOWING PATTERN: SCHOLARSHIPS TO STUDENTS SCHOLARSHIPS ARE GIVEN TO THE MERIT HOLDER STUDENTS AND ALSO TO OTHER STUDENTS WHO AFTER PASSING OUT FROM THE COLLEGE INTENDS TO PURSUE HIGHER STUDIES FROM ABROAD. SUCH SCHOLARSHIPS ARE PROVIDED SUBJECT TO THE CONDITION THA T THESE STUDENTS WOULD SERVE THE INSTITUTION, FOR A MINIMUM PERI OD OF 5 YEARS AFTER COMPLETION OF THEIR STUDIES ABROAD, AT REDUCED SALARY WHICH WOULD BE DECIDED BY THE DIRECTOR OF THE INSTITUTE. SCHOLARSHIPS TO EMPLOYEES/FACULTIES FOR HIGHER STUDIES SCHOLARSHIPS ARE GIVEN TO THE EMPLOYEES OF THE APPELLA NT WHO INTENDS TO PURSUE HIGHER STUDIES FROM ABROAD. SUCH SCHOLARSHIPS ARE PROVIDED SUBJECT TO THE CONDITION THA T THESE EMPLOYEES WOULD SERVE THE INSTITUTION, AFTER COMPLETION OF THEIR STUDIES ABROAD, UNDER EITHER OF THE FOLLOWING TW O ALTERNATIVES: ALTERNATIVE-I: TO SERVE THE INSTITUTION FOR A MINIMUM P ERIOD OF 5 YEARS AT 50% SALARY AS COMPARED TO THE MARKET NORM S ALTERNATIVE-II: TO SERVE THE INSTITUTION AT AN HONORARIUM OF ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 20 RS.10,000 PER MONTH FOR ATLEAST 3 YEARS. IN THE PRESENT CASE, MS. AARTI RAI WAS GIVEN SCHOLARSH IP FOR PURSUING HIGHER EDUCATION IN MANAGEMENT COURSE FROM LONDON SCHOOL OF ECONMOCS, UNDER ALTERNATIVE-II (SUPR A). TOTAL FEES OF THE PROGRAMME WAS RS.10.95 LAKHS AND HO STEL EXPENSES WERE RS.2,40,863, WHICH WERE PAID BY THE APPELLANT AS PART OF THE SCHOLARSHIP PROGRAMME. MS. AA RTI RAI INCURRED EXPENSES OF AROUND RS.1 TO 1.25 LAKH OU T OF HER OWN RESOURCES. PURSUANT TO THE AFORESAID, AFTER COMPLETING HER MANAGEM ENT PROGRAMME OF AROUND 9 MONTHS, SHE RENDERED SERVICES TO THE APPELLANT SINCE 1ST JULY, 2007. SHE WORKED WITH BANYAN TREE SCHOOL OF THE APPELLANT. 23. LD. COUNSEL SUBMITTED THAT THE CIT(A) WHILE UPH OLDING THE ORDER OF THE AO HAS HELD THAT APPELLANT HAS FAI LED TO MENTION THE NAME OF THE PERSON WHO HAS EXTENDED SIM ILAR SCHOLARSHIP; AND ALSO THAT SCHOLARSHIP AMOUNT WAS I NCURRED BY MRS. AARTI RAI IN UK AND SAME WAS IN VIOLATION O F SECTION 13(1)(C) OF THE ACT. HE SUBMITTED THAT IT WAS SPECI FICALLY POINTED OUT TO THE CIT (A) IN THE WRITTEN SUBMISSIO N THAT SIMILAR SPONSORSHIP HAS ALSO PROVIDED TO OTHER FACU LTIES MS. MEENU BHATIA AND MS. SANGEETA YADAV FOR THE PURPOSE OF UPGRADING THE SKILLS WHICH GOES TO SUPPORT SCHOLARS HIP WAS ALSO GIVEN TO OTHER FACULTY MEMBERS. HE FURTHER SUB MITTED THAT SCHOLARSHIP WAS GRANTED IN INDIA AND THE EXPEN DITURE WAS INCURRED IN INDIA AND NOT OUTSIDE INDIA. SIMPLY BECAUSE THE SCHOLARSHIP WAS UTILISED BY MS. AARTI RAI FOR E DUCATION OUTSIDE INDIA, IT DOES NOT MEAN THAT EXPENDITURE WA S INCURRED ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 21 OUTSIDE INDIA. REGARDING ALLEGATION OF THE ASSESSIN G OFFICER THAT PAYMENT TO MRS. AARTI RAI WAS NOT MENTIONED, I S FACTUALLY INCORRECT IN AS MUCH AS THE SCHOLARSHIP E XPENDITURE WAS CLEARLY DECLARED AS LINE ITEM IN THE INCOME EXP ENDITURE ACCOUNT WHICH IS EVIDENT FROM PAGE 50 OF THE PAPER BOOK. THUS, THERE WAS NO VIOLATION OF SECTION 13(1)(C) ON ACCOUNT OF PAYMENT OF REMUNERATION AS SCHOLARSHIP TO MRS. AART I RAI. 24. REGARDING ASSESSING OFFICERS OBSERVATION THAT DURING THE YEAR UNDER CONSIDERATION THE NET PROFIT AS PER INCOME EXPENDITURE ACCOUNT WAS RS.4,75,83,039 AND GROSS IN COME OF RS.9,82,41,290/-, MEANING THEREBY THAT NET PROFIT W AS 48.43% OF THE GROSS INCOME, LD. COUNSEL CLARIFIED T HAT THE ASSESSING OFFICER HAS FAILED TO TAKE NOTE OF THE FA CT THAT THE APPELLANT HAS APPLIED 92.83% OF ITS INCOME FOR CHAR ITABLE PURPOSES DURING THE YEAR UNDER CONSIDERATION. IN SU PPORT, HE INVITED OUR ATTENTION TO THE TABLE REPRODUCED IN TH E ORDER OF THE CIT (A) FOR THE ASSESSMENT YEAR 2008-09 WHICH I S AS UNDER. A.Y. TOTAL INCOME APPLICATION TOWARDS REVENUE PURPOSES APPLICATION TOWARDS CAPITAL PURPOSES TOTAL APPLICATION OF INCOME % OF TOTAL AMOUNT ACTUALLY SPENT 2006-07 86,043,803 39,240,739 58,856,879 98,097,618 114.01% 2007-08 92,798,002 41,556,750 44,586,357 86,143,107 92.83% 2008-09 153,883,440 91,946,213 35,307,637 127,253,851 82.69% 25. THUS, HE SUBMITTED THAT BOTH THE AUTHORITIES HA VE FAILED TO CONSIDER THE ACQUISITION OF FIXED ASSETS AND ANO THER CAPITAL EXPENDITURE WHICH WERE SHOWN IN THE STATEMENT OF UT ILISATION FILED ALONG WITH RETURN OF INCOME AS APPLICATION OF INCOME FOR ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 22 CHARITABLE PURPOSES. HE SUBMITTED THAT IT IS A WELL SETTLED LAW THAT CAPITAL EXPENDITURE TANTAMOUNT TO APPLICATION OF INCOME FOR CHARITABLE PURPOSES AS HELD IN THE FOLLOWING DE CISION. SRMMCTM TIRUPPANI TRUST VS. CIT: 230 ITR 637 (SC) [ PG. 240-243 OF CASE LAW PB] 18 ST. LAWRENCE EDUCATIONAL SOCIETY (REGD). VS. CIT: 197 TAXMAN 504 (DEL) [PG. 244-247 OF CASE LAW PB] PINEGROVE INTERNATIONAL CHARITABLE TRUST VS. UOI: 327 ITR 73 (P&H) THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF UNITED EDUCATION SOCIETY VS. JCIT: 178 ITD 716 (DEL TRIB) CATEGORICALLY BEEN HELD THAT CAPITAL EXPENDITURE IN CURRED DURING THE YEAR HAS TO BE CONSIDERED AS APPLICATION OF INCOME FOR THAT YEAR. RELEVANT FINDING OF THE TRIBUNAL AT PARA 46 OF THE SAID DECISION ARE REPRODUCED UNDER: 46. GROUND NO.21 IS REGARDING NOT CONSIDERING CAPI TAL EXPENDITURE INCURRED DURING THE YEAR AS APPLICATION OF INCOME T OWARDS CHARITABLE PURPOSES WHILE COMPUTING INCOME OF THE ASSESSEE SOC IETY. AS PER SECTION 11 INCOME OF A ELIGIBLE INSTITUTION TO THE EXTENT OF WHICH SUCH INCOME IS APPLIED TO CHARITABLE PURPOSES IN INDIA I S NOT BE INCLUDED IN THE TOTAL INCOME. THE APPLICATION OF THE INCOME TOWARDS CHARITABLE PURPOSES INCLUDE APPLICATION TOWARDS ACQUISITION OF ASSETS I.E. CAPITAL EXPENDITURE. AS WE HAVE ALREADY HELD HEREIN ABOVE THAT INCOME OF THE SOCIETY IS TO BE COMPUTED IN ACCORDAN CE WITH THE PROVISION OF SECTION 11 AND 12 OF THE ACT, WE DIREC T THE AO TO CONSIDER CAPITAL EXPENDITURE INCURRED DURING THE YE AR AS APPLICATION OF INCOME TOWARDS CHARITABLE PURPOSES WHILE COMPUTI NG INCOME UNDER SECTION 11 OF THE ACT. GROUND NO.21 IS ACCORD INGLY ALLOWED. (EMPHASIS SUPPLIED) ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 23 26. ACCORDINGLY, HE SUBMITTED THAT IN THE EARLIER A SSESSMENT YEAR, I.E., 2006-07, THERE HAS BEEN OVER APPLICATIO N OF INCOME AND IN THIS YEAR ALMOST 92.8% OF THE INCOME WAS APP LIED TO CHARITABLE ACTIVITIES, WHICH IS MORE THAN 85%. IN S O FAR AS THE ALLEGATION OF THE ASSESSING OFFICER THAT THERE IS N O EVIDENCE OF CHARITABLE INTENT CARRIED OUT BY THE ASSESSEE AS TR UST HAS NOT GIVEN ANY EVIDENCE TO SHOW THAT POOR/ EWS CATEGORY OF STUDENTS WERE GIVEN EDUCATION. IN THIS REGARD, HE S UBMITTED THAT EDUCATION PER SE IS TREATED AS CHARITABLE UN DER SECTION 2(15) AND THERE IS NO LAW THAT THE EDUCATION WAS MU ST IMPARTED TO THE POOR ONLY WHAT IS REQUIRED IS EDUCA TION SHOULD BE GIVEN TO A SECTION OF PEOPLE AS DISTINGUI SHED FROM SPECIFIED INDIVIDUALS. 27. THE CIT(A) HAS CONFIRMED THE FINDING OF THE ASS ESSING OFFICER AFTER OBSERVING AS UNDER. 11.4 THE SUBMISSIONS GIVEN BY THE APPELLANT HAS BE EN PERUSED. IT IS TO BE SEEN THAT NET PROFIT RATE HAS TO BE CALCULATE D ACCORDING TO COMMON BUSINESS PARLANCE WHERE APPLICATION TOWARDS PROCUREMENT OF FIXED ASSETS ARE NOT TO BE CONSIDERED. IN THE CASE OF CIT VS. QUEEN EDUCATIONAL SOCIETY [2009] 177 TAXMAN 326 (UTTARAKH AND), IT WAS HELD THAT THE SOCIETY WAS NOT ENTITLED TO EXEMP TION UNDER SECTION 10(23)(IIIAD) AS THERE WAS SURPLUS IN ITS ACCOUNT B OOKS AFTER MEETING ALL EXPENSES INCURRED TOWARDS IMPARTING EDUCATION A ND IT HAD INVESTED SAID SURPLUS IN FIXED ASSETS LIKE FURNITUR E AND BUILDINGS WITH A VIEW TO EXPAND INSTITUTION AND TO EARN MORE INCOM E. 28. HE SUBMITTED THAT THE JUDGMENT OF HONBLE UTTARA KHAND HIGH COURT IN THE CASE OF CIT VERSUS QUEEN EDUCATIO NAL ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 24 SOCIETY [2009] 177 TAXMAN 326 (UTTARAKHAND), IS NO LONGER A GOOD LAW AND HAS BEEN REVERSED BY THE HONBLE SUPRE ME COURT IN THE CASE OF QUEENS EDUCATIONAL SOCIETY V. CIT: 372 ITR 699 WHEREIN THE HONBLE SUPREME COURT HELD AS U NDER. (A) HELD THAT WHERE AN EDUCATIONAL INSTITUTION CARR IES ON THE ACTIVITY OF EDUCATION PRIMARILY FOR EDUCATING PERSONS, THE FACT THAT IT MAKES SURPLUS DOES NOT LEAD TO THE CONCLUSION THAT IT CEA SES TO EXIST SOLELY FOR EDUCATIONAL PURPOSES AND BECOMES AN INSTITUTION FOR THE PURPOSE OF MAKING PROFIT [REFER PARA 11 ON PAGE 258]; (B) ELABORATELY DEALT WITH THE DECISION OF THE UTTA RAKHAND HC AND SPECIFICALLY REVERSED THE SAID DECISION [REFER PARA 19 & 20 ON PAGE 260]; (C) CONCURRED WITH THE DECISIONS OF THE DELHI HC IN THE CASE OF LAWRENCE EDUCATIONAL SOCIETY (REGD.) V. CIT 353 ITR 320 (DEL ) WHICH FOLLOWED THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF S URAT ART SILK CLOTH MFRS. ASSOCIATION: 121 ITR 1 (SC) [REFER PARA 24 ON PAGE 265]. 29. WITHOUT PREJUDICE TO SUBMISSIONS MADE ABOVE, HE ALTERNATIVELY SUBMITTED THAT EVEN ASSUMING THERE WA S A VIOLATION OF SECTION 13 THEN ENTIRE EXEMPTION UNDER SECTION 11 AND 12 CANNOT BE FORFEITED AND THE EXEMPTION SHOULD HAVE BEEN DENIED ONLY TO THIS EXTENT OF EXPENDITURE/ INC OME AMOUNT OF ALLEGED VIOLATION UNDER SECTION 13. HE AL SO REFERRED TO CBDT CIRCULAR NO. 387 DATED 6.7.1984, WHICH IS REPRODUCED HEREUNDER:- 28.6 IT MAY BE NOTED THAT NEW SUB-SECTION (1A) INS ERTED IN SECTION 161 OF THE INCOME-TAX ACT, WHICH PROVIDES FOR TAXAT ION OF THE ENTIRE INCOME RECEIVED BY TRUSTS AT THE MAXIMUM MARGINAL R ATE IS APPLICABLE ONLY IN THE CASE OF PRIVATE TRUSTS HAVING PROFITS A ND GAINS OF BUSINESS. ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 25 SO FAR AS THE PUBLIC CHARITABLE AND RELIGIOUS TRUST S ARE CONCERNED, THEIR BUSINESS PROFITS ARE NOT EXEMPT FROM TAX, EXC EPT IN THE CASES FALLING UNDER CLAUSE (A) OR CLAUSE (B) OF SECTION 1 1(4A) OF THE INCOME- TAX ACT. AS THE MAXIMUM MARGINAL RATE OF TAX UNDER THE NEW PROVISO TO SECTION 164(2) APPLIES TO THE WHOLE OR A PART OF THE RELEVANT INCOME OF A CHARITABLE OR RELIGIOUS TRUST WHICH FORFEITS E XEMPTION BY VIRTUE OF THE PROVISIONS OF THE INCOME-TAX ACT IN REGARD TO I NVESTMENT PATTERN OR USE OF THE TRUST PROPERTY FOR THE BENEFIT OF THE SE TTLOR, ETC., CONTAINED IN SECTION 13(1)(C) AND (D) OF THAT ACT, THE SAID RATE WILL NOT APPLY TO THE BUSINESS PROFITS OF SUCH TRUSTS WHICH ARE OTHERWISE CHARGEABLE TO TAX. IN OTHER WORDS, WHERE SUCH A TRUST CONTRAVENES THE PROVISIONS OF SECTION 13(1)(C) OR (D) OF THE ACT, THE MAXIMUM MARGINAL RATE OF INCOME-TAX WILL APPLY ONLY TO THAT PART OF THE I NCOME WHICH HAS FORFEITED EXEMPTION UNDER THE SAID PROVISIONS . 30. SIMILARLY, HE POINTED OUT THAT THE ITAT DELHI B ENCH IN THE CASE OF SPAN FOUNDATION VERSUS ITO, 2008-TIOL-1 08 HELD THAT IN CASE OF ALLEGED VIOLATION U/S.13, BENEFIT U NDER SECTION 11 WOULD NOT BE AVAILABLE ONLY TO THIS EXTENT OF AP PLICATION OF INCOME OF PROPERTY FOR THE BENEFIT OF PERSON REFERR ED TO IN SECTION 13(3). HE BROUGHT TO OUR NOTICE THAT THE SA ID DECISION HAS BEEN CONFIRMED BY THE HONBLE DELHI HIGH COURT NOW REPORTED IN 178 TAXMANN 436 . HE FURTHER RELIED UPON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CAS E OF CIT VS. FR. MULLERS CHARITABLE INSTITUTIONS: 363 ITR 23 0 (KARN.). HE FURTHER POINTED OUT THAT SLP FILED BY THE REVEN UE AGAINST THE AFORESAID JUDGMENT HAS BEEN DISMISSED B Y THE HONBLE SUPREME COURT IN SLP NO.2223 OF 2015. THUS, COMPLETE DENIAL OF EXEMPTION UNDER SECTION 11/ 12 C ANNOT BE MADE. ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 26 31. REGARDING ADDITION OF RS.34,41,987/- MADE BY TH E AO OUT OF SECURITY DEPOSIT REFUNDABLE TO THE STUDENTS. HE SUBMITTED THAT THE APPELLANT RECEIVED REFUNDABLE SE CURITY DEPOSIT FROM THE STUDENTS TAKING ADMISSION IN VARIO US INSTITUTES/ SCHOOLS RUN BY THE APPELLANT. AS AND WH EN THE STUDENT LEAVES THE INSTITUTE/ SCHOOL AND CLEARS ALL THE DUES AND ALSO COMPLETES ALL THE FORMALITIES, THE ENTIRE SECURITY DEPOSIT, AFTER ADJUSTING ANY PENDING DUES, IS REFUN DED TO THE STUDENT. AS ON 31ST MARCH, 2007, THE APPELLANT HAD REFUNDABLE SECURITY DEPOSIT OF RS.1,17,62,966, WHIC H WAS SHOWN AS LIABILITY IN THE BOOKS OF ACCOUNT AND THE AUDITED FINANCIAL STATEMENTS. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER MADE ADDITION OF RS.34,41,987, OUT OF THE S ECURITY DEPOSIT, WHICH WAS COMPUTED AS UNDER: PARTICULARS AMT. (RS.) REASON BY AO AMOUNT UNDER THE HEADING MISC. INCOME IN TABLE ON PG.14 OF AO 22,75,226 THIS IS MISC. INCOME BUT ONLY MISC. INCOME OF RS.1,18,537 SHOW IN P&L A/C. STUDENT SECURITY 1999-2002 4,19,564 SOURCE AND NA TURE UNEXPLAINED STUDENT SECURITY 2001-2004 8,65,734 TOTAL 35,60,524 LESS: MISC. INCOME SHOWN 1,18,537 UNDERSTATEMENT OF INCOME 34,41,987 32. HE SUBMITTED THAT, FIRSTLY, THE ASSESSING OFFIC ER FAILED TO APPRECIATE THAT RS.22,75,226 REPRESENTED REPAYMENT/ ADJUSTMENT OUT OF THE STUDENT SECURITY AMOUNT OF VA RIOUS YEARS AND THEREFORE, THE SAME COULD NOT HAVE BEEN T REATED AS INCOME [REFER EXTRACTS OF LEDGER ACCOUNT ATTACHED A S ANNEXURE ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 27 C TO THE ASSESSMENT ORDER]. SECONDLY, THE ASSESSING OFFICER FURTHER FAILED TO APPRECIATE THAT DEPOSITS FOR THE BATCHES 2001-04 AND 1999-2002 REPRESENTED REFUNDABLE SECURI TY DEPOSIT FROM VARIOUS STUDENTS AND GROSSLY ERRED IN HOLDING THAT THE APPELLANT FAILED TO EXPLAIN THE SOURCE OF SUCH DEPOSITS. SINCE THE ENTIRE AMOUNT IS REFUNDABLE BY THE APPELLANT, IN VIEW OF THE LEGAL OBLIGATION UPON THE APPELLANT, EVEN SECURITY DEPOSIT RELATING TO STUDENTS WHO HAVE LEFT THE SCHOOL CANNOT BE RECOGNIZED AS INCOME OF THE APPELL ANT AS SUCH STUDENTS COULD CLAIM THE SECURITY DEPOSIT AT A NY TIME AFTER LEAVING THE SCHOOL. THE CIT(A) HELD THAT ALTH OUGH THE APPELLANTS OBLIGATION TO REFUND THE ABOVE SECURITY DEPOSITS EXIST, BUT SINCE THE APPELLANT DID NOT REFUND THE S AME, SUO- MOTU, THE APPELLANT WAS RUNNING ON COMMERCIAL PRINC IPLES. THE AFORESAID OBSERVATIONS OF THE CIT (A) ARE CONTR ADICTORY AND WITHOUT JUDICIOUS APPRECIATION OF THE FACTS OF T HE CASE INASMUCH IT HAS NOT BEEN APPRECIATED THAT APPELLANT WAS UNDER AN OBLIGATION TO REFUND THE SECURITY DEPOSIT AS AND WHEN NECESSARY CLAIM IS MADE BY THE STUDENTS AND COMPLETING THE FORMALITIES. THE CIT (A) FURTHER FAI LED TO APPRECIATE THAT NO INSTANCE HAS BEEN BROUGHT ON REC ORD TO SUGGEST THAT CLAIM MADE BY THE STUDENTS, IF ANY, RE GARDING REFUND OF SECURITY DEPOSIT HAS ACTUALLY NOT BEEN HO NORED. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS WHERE IN REFUNDABLE SECURITY DEPOSIT, EVEN IF HELD FOR LONG PERIOD OF MORE THAN 25 YEARS, HAS BEEN HELD TO BE NOT LIABLE FOR TAXATION: PCIT V. GULMOHAR GREEN GOLF & COUNTRY CLUB LTD.: 39 2 ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 28 ITR 601 (GUJ.) CIT V. MANTRA TANTRA YANTRA VIGYAN: 300 ITR 140 (RA J) DALMIA CEMENT (BHARAT) LTD. VS CIT: 357 ITR 419 (DE L) BHARAT HOTELS LTD. V. DCIT: 53 ITD 450 (DEL) KABSONS GAS EQUIPMENT LTD. V. DCIT: 25 TAXMANN.COM 172 / 53 SOT 196 (HYD.) LANDBASE INDIA LTD . VS. DCIT: ITA 4536/DEL/2009 (D EL TRIB.) 33. REGARDING AD HOC DISALLOWANCE OF RS.7,09,468/- BEING 50% OF THE MAINTENANCE AND FUEL EXPENSES ON CARS, HE SUBMITTED THAT THIS EXPENSES INCURRED IN RESPECT OF THREE CARS WHICH HAS BEEN UTILISED BY THE OFFICIALS APPELLANT FOR DISCHARGING OFFICIAL DUTIES, NO EVIDENCE HAS BEEN B ROUGHT ON RECORD BY THE AO AND THE AFORESAID CARS WERE NOT UT ILISED BY THE ASSESSEE FOR PERSONAL PURPOSES, THEREFORE, AD H OC DISALLOWANCE HAS BEEN DELETED. 34. ON THE OTHER HAND, CIT-DR STRONGLY RELIED UPON THE ORDER OF THE AO AND CIT (A). SHE FURTHER SUBMITTED THAT IN SO FAR AS SCHOLARSHIP PAYMENT OF MRS. AARTI RAI IS CON CERNED, THE SAME WAS, FIRSTLY, PAYMENT OUTSIDE INDIA AS THIS SC HOLARSHIP HAS BEEN PAID FOR HER EDUCATION IN UK IN LONDON SCH OOL OF ECONOMICS; SECONDLY, SUCH A HUGE PAYMENT HAS BEEN M ADE FROM THE ACCOUNT OF THE TRUST WHICH IS PURELY A BEN EFIT GIVEN TO THE RELATIVE WHO IS A SPECIFIED PERSON IN TERMS OF SECTION 13. THUS, SUCH AN EXPENDITURE OR APPLICATION OF INC OME CANNOT BE HELD TO BE FOR CHARITABLE PURPOSES. REGAR DING ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 29 PAYMENT/ REMUNERATION MADE TO MRS. MALVIKA RAI, HE SUBMITTED THAT SAME HAS BEEN MADE FROM THE ACCOUNT OF BANYAN TREE SCHOOL WHERE SHE IS NOT AN EMPLOYEE, TH IS GOES TO SHOW THAT THE FUND FROM THE BANYAN TREE SCHOOL H AS BEEN UTILIZED FOR MAKING THE PAYMENT WITHOUT RENDERING A NY SERVICES TO THAT SCHOOL BECAUSE ADMITTEDLY SHE IS N OT AN EMPLOYEE OF THE SCHOOL NOR ON THE PAYROLLS OF THE S CHOOL. REGARDING OTHER ISSUES, SHE HAS REFERRED TO THE VAR IOUS OBSERVATIONS MADE BY THE ASSESSING OFFICER AND CIT (A) AND HAS STRONGLY RELIED UPON AND SUBMITTED THAT ALL THE SE DISCREPANCIES SHOWS THAT TRUST WAS MISUSED FOR PERS ONAL BENEFIT AND THEREFORE ASSESSING OFFICER AND CIT(A) WERE JUSTIFIED IN DENYING EXEMPTIONS TO THE ASSESSEE TRUS T. 35. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO P ERUSED THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDERS AS WELL AS MATERIAL REFERRED TO BEFORE US. THE MAIN ISSUES INV OLVED ARE; FIRSTLY , REMUNERATION PAID TO MRS. MALAVIKA RAI IN VIOLATI ON OF SECTION 13(1)(C) READ WITH SECTION 13(3); SECONDLY, SCHOLARSHIP PAYMENT TO MRS. AARTI RAI IN VIOLATION TO SECTION 13(1)(C) READ WITH SECTION 13(3); THIRDLY , COMPUTATION OF INCOME CONSEQUENT TO DENIAL OF EXEMPTION UNDER SECT ION 11/ 12 OF THE ACT; FOURTHLY, AD HOC DISALLOWANCE ON CAR AND FUEL EXPENSES. AS STATED ABOVE, THE ASSESSEE IS A TRUST INCORPORATED WITH THE PRE-DOMINANT OBJECT OF IMPART ING EDUCATION SINCE IMPARTING OF EDUCATION IS A CHARITA BLE ACTIVITY WITHIN THE MEANING AND SCOPE OF SECTION 2(15). LOOK ING TO ITS ACTIVITIES, IT WAS DULY GRANTED REGISTRATION UNDER SECTION 12A, ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 30 WAY BACK ON 25.06.2002. IT IS AN ADMITTED FACT THAT THE REGISTRATION GRANTED U/S 12A STILL SUBSISTS, AND TH EREFORE, THE INCOME AND EXPENDITURE OF THE ASSESSEE HAS TO BE CO MPUTED STRICTLY AND IN ACCORDANCE WITH SECTION 11 TO 13. T HE ASSESSEE WAS RUNNING VARIOUS EDUCATIONAL INSTITUTIONS: I) BA NYAN TREE WORLD SCHOOL AT GURGAON, II) IILM UNDER GRADUATE BU SINESS SCHOOL AT LODHI ROAD, AND III) IILM EARLY COLLEGE A T LODHI ROAD. 36. IN SO FAR AS THE ISSUE, WHETHER THE REMUNERA TION PAID FROM MRS. MALVIKA RAI FOR SUMS AMOUNTING TO RS.16,2 0,000/- IS HIT BY THE PROVISION OF SECTION 13(1)(C)/ 13(3) OR NOT, THE CHARGE OF THE AUTHORITIES BELOW ARE THAT, FIRSTLY ; SHE IS JUST A GRADUATE AND APPELLANT TRUST HAS NOT FURNISHED ANY DETAIL AS TO HOW THE EDUCATIONAL QUALIFICATION OF MRS. MALVIK A RAIS IS COMMENSURATE WITH THE SALARY WHICH SHE IS DRAWING A ND; SECONDLY , CERTAIN AMOUNT HAS BEEN PAID FROM THE ACCOUNT OF BANYAN TREE SCHOOL WHERE SHE WAS NOT AN EMPLOYEE. I N SUCH MATTERS WHAT IS REQUIRED TO BE SEEN IS, WHETHER THE REMUNERATION IS BASED ON SERVICES BEING RENDERED RA THER THAN EVALUATING ON EDUCATIONAL QUALIFICATION, I.E., PERS ON ATTAINING HIGHER DEGREE. THE ONLY REQUIREMENT OF THE LAW IS T HAT SALARY PAID SHOULD NOT BE EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE SERVICES RENDERED AND EDUCATIONAL QUALIFICAT ION CANNOT BE THE PARAMETER FOR BENCHMARKING OF THE SERVICES R ENDERED BY THE PERSONS SPECIFIED IN SECTION 13. REQUISITE E XPERIENCE AND SKILLS IS ONE OF THE KEY FACTORS COUPLED WITH T HE AMOUNT OF BEING SERVICES RENDERED. NOWHERE THE AO OR LD. C IT(A) HAVE ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 31 BROUGHT ANY MATERIAL ON RECORD OR ANY COMPARATIVE A NALYSES TO EVALUATE THAT THE SERVICES RENDERED BY HER IS NO T IN COMMENSURATE WITH THE MARKET VALUE OR IS AN EXCESS AS COMPARED TO ANY COMPARABLE THIRD-PARTY CASE. AS BRO UGHT ON RECORD, IN SUBSEQUENT ASSESSMENT YEARS, I.E., FROM 2008-09 ONWARDS AND ON THE BASIS OF SAME THE ADDITIONAL EVI DENCES WHICH WERE FILED IN THE SUBSEQUENT YEAR AND ALSO AN ALYSED BY THE ASSESSING OFFICER AND CIT (A) THE REMUNERATION PAID TO MALVIKA RAI FOR SAME SET OF SERVICES HAS BEEN BY AN D LARGE ACCEPTED. FURTHER FROM PERUSAL OF SUBSEQUENT YEARS RECORD, IT IS SEEN THAT SMT. MALVIKA RAI IS A CHAIRPERSON OF I LM GROUP AS A WHOLE AND HER ACTIVITY ENGAGED IN THE WORKING OF MANAGING THE DAY TO DAY AFFAIRS OF THE SCHOOL AND C OLLEGES RUN BY THE APPELLANT TRUST. SHE WAS PART OF VARIOUS EVE NTS ORGANISED BY SCHOOLS AND HAS REPRESENTED IILM BEFOR E VARIOUS FORUMS. THE GIST OF EVENTS AND ACTIVITIES CARRIED O UT HAS BEEN HIGHLIGHTED IN THE ADDITIONAL EVIDENCE OF PAPER BOO K AS INCORPORATED ABOVE. THUS, ENTIRE ACTIVITIES AND SER VICES HAVE BEEN DULY CONSIDERED BASED ON SAME VERY EVIDENCE IN THE SUBSEQUENT YEARS FROM 2008-09 TO 2011-12, WHEREIN L D. CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT THERE I S NO VIOLATION OF SECTION 13(1)(C) AFTER TAKING INTO CON SIDERATION THE SAME MATERIAL EVIDENCE PLACED BEFORE US. INTERESTIN GLY IN 2009-10 AND 2010-11 THE ASSESSING OFFICER HAS DISAL LOWED ONLY PART OF THE REMUNERATION AND EVEN IN THIS YEAR THE ASSESSING OFFICER HAS ONLY DISALLOWED RS.2,25,000/- OUT OF THE TOTAL REMUNERATION PAID OF RS.16,20,000/-. IN A .Y. 2011- 12, IN FACT, NO DISALLOWANCE HAS BEEN MADE BY THE A SSESSING ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 32 OFFICER HIMSELF. SUCH AN ADHOCISM WITHOUT ANY MATER IAL ON RECORD CANNOT JUSTIFY ALLEGED BENEFIT. THE ASSESSIN G OFFICER HAS TO BRING SOMETHING ON RECORD OR CARRY OUT ANY COMPARATIVE ANALYSIS TO SHOW THAT SERVICES RENDERED BY HER ARE NOT IN COMMENSURATE WITH THE PAYMENTS MADE. WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL WHICH IS WELL SUPPORTED BY THE VARIOUS JUDGMENTS THAT WHILE MAKIN G SUCH ALLEGATIONS, THE ONUS IS ON THE REVENUE TO PROVE TH AT PAYMENT MADE TO THE PERSON SPECIFIED IN SECTION 13(3) IS EX CESSIVE OR UNREASONABLE BY PLACING MATERIAL ON RECORD AND THE SERVICES RENDERED OR NOT IN COMMENSURATE WITH THE PAYMENTS M ADE. THUS, WE HOLD THAT IN SO FAR AS THE PAYMENT OF REMU NERATION OF RS.16,20,000/- PER ANNUM MADE TO MRS. MALVIKA RA I IS NOT EXCESSIVE AND DOES NOT VIOLATE THE PROVISION OF SEC TION 13(1)(C) AND ACCORDINGLY THE ENTIRE PAYMENT MADE TO HER IS T REATED AS APPLICATION OF INCOME. 37. NOW COMING TO THE PAYMENT OF SCHOLARSHIP AND SALARY TO MRS. AARTI RAI OF RS.89,750/- OUT OF TOTAL SALAR Y OF RS.2,57,000/-; AND SCHOLARSHIP OF RS.13.36 LAKHS FO R HIGHER EDUCATION, WE FIND THAT, IN SO FAR AS PAYMENT OF SA LARY IS CONCERN, THERE IS NO REASON FOR MAKING ANY PART DIS ALLOWANCE FOR THE REASON THAT, FIRSTLY; BECAUSE SHE HAS BEEN ACTIVELY INVOLVED IN SET UP OF BANYAN TREE SCHOOL AND HAS BE EN RENDERING SERVICES; AND SECONDLY NO ADVERSE MATERIA L HAS BEEN BROUGHT ON RECORD THAT HER SERVICES AND OTHER CONTRIBUTION IS NOT IN COMMENSURATE WITH THE PAYMEN T OF SALARY. ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 33 38. HOWEVER, INSOFAR AS PAYMENT OF SCHOLARSHIP I S CONCERN OF RS.13.36 LAKHS, IT IS AN UNDISPUTED FACT THAT SH E IS RELATED TO THE TRUSTEE AND IS COVERED UNDER THE DEFINITION OF SPECIFIED PERSON GIVEN IN SECTION 13. THE SCHOLARSHIP HAS BEE N PAID FOR PURSUING A COURSE IN LONDON SCHOOL OF ECONOMICS, U. K. AND THERE, APPEARS TO BE NO UNIFORM POLICY WHEREIN ANY OTHER FACULTY MEMBERS OR PERSONS WORKING FOR THE TRUST HA S BEEN SENT ABROAD ON SUCH A HIGH SCHOLARSHIP EXCEPT FOR S OME MINOR INCENTIVE GIVEN TO TWO FACULTY MEMBERS AS PO INTED OUT BY THE LEARNED COUNSEL. ANOTHER IMPORTANT FACT IS T HAT THE SCHOLARSHIP PAYMENT HAS BEEN UTILISED FOR STUDYING ABROAD AND THE PAYMENT HAS BEEN MADE FOR FEES AND OTHER EX PENSES INCURRED IN UK. THIS TANTAMOUNT TO APPLICATION OF T RUST FUND FOR THE PAYMENTS MADE OUTSIDE INDIA, BECAUSE IF IT IS RECKONED THAT THE APPELLANT TRUST HAS GIVEN THE SCH OLARSHIP IN INDIA BUT THE SAME HAS BEEN UTILIZED AND APPLIED OUTSIDE INDIA. EVEN THOUGH SHE MIGHT HAVE RENDERED SERVICES AFTER COMPLETING HER MANAGEMENT PROGRAM FROM LONDON SCHOO L OF ECONOMICS, THAT DOES NOT JUSTIFY A PAYMENT OF HUGE A MOUNT OF SCHOLARSHIP FOR GETTING THE EDUCATION ESPECIALLY TO A CATEGORY OF SPECIFIED PERSON. FOR RENDERING OF SERV ICES FOR ANY INSTITUTION OR SCHOOL AFFILIATED TO THE APPELLANT T RUST A PERSON IS COMPENSATED BY THE SALARY/REMUNERATION AND NOT B Y INCURRING ANY EXPENDITURE FOR SPONSORSHIP OF HIGHER EDUCATION FROM FOREIGN UNIVERSITY. THUS, TO THE EXT ENT OF RS.13.36 LAKHS TOWARDS THE SCHOLARSHIP PAYMENT FOR MS. AARTI RAI, THE SAME CANNOT BE TREATED AS APPLICATIO N OF INCOME, AND THEREFORE, ASSESSING OFFICER AND LD. CI T (A) ARE ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 34 JUSTIFIED IN DISALLOWING THE PAYMENT AS NON APPLICAT ION OF INCOME. 39. HOWEVER, WE AGREE WITH THE OTHER CONTENTION O F THE LEARNED COUNSEL THAT, ONLY TO THE EXTENT OF EXPENDI TURE INCURRED ON SCHOLARSHIP OF RS.13.36 LAKHS FOR WHICH THERE IS A VIOLATION UNDER SECTION 13, SAME SHOULD ALONE BE DI SALLOWED AND ENTIRE EXEMPTION UNDER SECTION 11 CANNOT BE DEN IED. SECTION 13 SPELLS OUT CERTAIN CIRCUMSTANCES IN WHIC H THE EXEMPTION PROVIDED UNDER SECTION 11/ 12 IS NOT APPL ICABLE. FURTHER, SECTION 164(2) AND 164(3) WHICH READS AS U NDER:- [(2) IN THE CASE OF RELEVANT INCOME WHICH IS DERIV ED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES, OR WHICH IS OF THE NATURE REFERRED TO IN SUB-CLAUSE (IIA) OF CLAUSE (24) OF SECTION 2, OR WHICH IS OF T HE NATURE REFERRED TO IN SUB-SECTION (4A) OF SECTION 11, TAX SHALL BE CHARGED ON SO MUCH OF THE RELEVANT INCOME AS IS NOT EXEMPT UNDER SECTION 11 OR SECTION 12, AS IF THE RELEVANT INCOME NOT SO EXE MPT WERE THE INCOME OF AN ASSOCIATION OF PERSONS : PROVIDED THAT IN A CASE WHERE THE WHOLE OR ANY PART OF THE RELEVANT INCOME IS NOT EXEMPT UNDER SECTION 11 OR S ECTION 12 BY VIRTUE OF THE PROVISIONS CONTAINED IN CLAUSE (C) OR CLAUSE (D) OF SUB-SECTION (1) OF SECTION 13, TAX SHALL BE CHARGED ON THE RELEVANT INCOME OR PART OF RELEVANT INCOME AT THE M AXIMUM MARGINAL RATE. (3) IN A CASE WHERE THE RELEVANT INCOME IS DERIVED FROM PROPERTY HELD UNDER TRUST IN PART ONLY FOR CHARITABLE OR REL IGIOUS PURPOSES OR IS OF THE NATURE REFERRED TO IN SUB-CLAUSE (IIA) OF CLAUSE (24) OF SECTION 2 OR IS OF THE NATURE REFERRED TO IN SUB-SE CTION (4A) OF ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 35 SECTION 11, AND EITHER THE RELEVANT INCOME APPLICAB LE TO PURPOSES OTHER THAN CHARITABLE OR RELIGIOUS PURPOSE S (OR ANY PART THEREOF) IS NOT SPECIFICALLY RECEIVABLE ON BEH ALF OR FOR THE BENEFIT OF ANY ONE PERSON OR THE INDIVIDUAL SHARES OF THE BENEFICIARIES IN THE INCOME SO APPLICABLE ARE INDET ERMINATE OR UNKNOWN, THE TAX CHARGEABLE ON THE RELEVANT INCOME SHALL BE THE AGGREGATE OF (A) THE TAX WHICH WOULD BE CHARGEABLE ON THAT PART OF THE RELEVANT INCOME WHICH IS APPLICABLE TO CHARITABLE O R RELIGIOUS PURPOSES (AS REDUCED BY THE INCOME, IF ANY, WHICH I S EXEMPT UNDER SECTION 11) AS IF SUCH PART (OR SUCH PART AS SO REDUCED) WERE THE TOTAL INCOME OF AN ASSOCIATION OF PERSONS; AND (B) THE TAX ON THAT PART OF THE RELEVANT INCOME WHI CH IS APPLICABLE TO PURPOSES OTHER THAN CHARITABLE OR REL IGIOUS PURPOSES, AND WHICH IS EITHER NOT SPECIFICALLY RECE IVABLE ON BEHALF OR FOR THE BENEFIT OF ANY ONE PERSON OR IN R ESPECT OF WHICH THE SHARES OF THE BENEFICIARIES ARE INDETERMI NATE OR UNKNOWN, AT THE MAXIMUM MARGINAL RATE 40. THE AFORESAID SECTIONS PROVIDE THAT INCOME OF T RUST WILL BE TAXABLE AT MAXIMUM MARGINAL RATE OF TAX ON FOLLOW ING EVENT: I. IF ANY FUND OF THE ORGANIZATION HAS BEEN INVESTED OR DEPOSITED, FOR ANY PART OF THE YEAR, AS PER SECTION 13( 1)(D) READ WITH SECTION 11(5) OF THE ACT; II. IF ANY PART OF INCOME HAS BEEN APPLIED DIRECTLY O R INDIRECTLY FOR THE BENEFIT OF ANY OF THE EXCLUDED PERSONS UNDER S ECTION 13(1)(C) R.W.S. 13(3) OF THE ACT. HOWEVER, THE SECTION CATEGORICALLY PROVIDES THAT TA X SHALL BE CHARGED ON THE RELEVANT INCOME OR PART OF RELEVA NT INCOME ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 36 WHICH HAS FORFEITED EXEMPTION AT THE MAXIMUM MARGIN AL RATE. 41. THUS, ON A CONJOINT READING OF SECTION 13(1) AND SECTION 164 OF THE ACT, IT CAN BE SEEN THAT TAXABILITY OF T HE INCOME OF AN ORGANIZATION FORFEITING EXEMPTION UNDER SECTION 13(1)(C) OR 13(1)(D), SHALL BE CHARGED AT MAXIMUM MARGINAL RATE S OF TAX ONLY ON THAT PART OF INCOME WHICH HAS FORFEITED EXE MPTION. THUS, WHERE THE TRUST CONTRAVENES THE PROVISIONS OF SECTION 13(1)(C) OR (D) OF THE ACT, THE MAXIMUM MARGINAL RA TE WILL APPLY ONLY TO THAT PART OF THE INCOME WHICH HAS FOR FEITED EXEMPTION. 42. FURTHER, THE LANGUAGE OF SECTION 13(1)(C) AND (D) ALSO SUPPORTS THIS VIEW WHICH PROVIDES TO EXCLUDE FROM T HE TOTAL INCOME, ANY INCOME THEREOF WHICH AS A WHOLE OR IN PART HAS FORFEITED EXEMPTION. THE WORD 'SUCH' USED IN THE SE CTION 13(1)(C)(II) IS IMPORTANT AND REFERS TO ONLY THAT P ART OF INCOME WHICH GOES TO THE BENEFIT OF SPECIFIED PERSONS. FUR THER, SIMILAR TREATMENT SHOULD BE GIVEN IN RESPECT OF CAS ES COVERED UNDER CLAUSE (D) OF SECTION 13(2) PROVIDING FOR DIS ALLOWANCE IN RESPECT OF SERVICES OF THE TRUST GIVEN TO SPECIFIED PERSONS. 43. AS RELIED UPON BY THE LEARNED COUNSEL, THE COOR DINATE BENCH DECISION IN THE CASE OF SPAN FOUNDATION VERSU S ITO (SUPRA) HAS ALSO UPHELD THE SAME PROPOSITION THAT I N CASE OF ANY ALLEGED VIOLATION UNDER SECTION 13, THE BENEFIT OF SECTION 11 WOULD NOT BE AVAILABLE TO THE EXTENT OF APPLICAT ION OF INCOME FOR THE BENEFIT OF PERSON REFERRED TO IN SEC TION 13(3) ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 37 THE ENTIRE EXEMPTION CANNOT BE FORFEITED. THIS DECI SION OF THE COORDINATE BENCH HAS ALSO BEEN AFFIRMED BY THE HON BLE DELHI HIGH COURT. FURTHER, HONBLE KARNATAKA HIGH COURT I N THE CASE OF CIT VS. FR. MULLERS CHARITABLE INSTITUTIONS : 363 ITR 230 (KARN.) HELD THAT FOR VIOLATION OF SECTION 13(1 )(D) ENTIRE EXEMPTION UNDER SECTION 11 CANNOT BE WITHDRAWN. SIM ILAR VIEW HAS BEEN TAKEN BY THE HONBLE MADRAS HIGH COUR T IN THE CASE OF CIT VERSUS WORKING WOMENS FORUM, 365 ITR 3 53 AND IN CATENA OF OTHER DECISION WHICH HAS BEEN PLACED O N RECORD BY THE LEARNED COUNSEL WHICH IS NOT BEING INCORPORA TED HERE. THUS, WE HOLD THAT IN THE EVENT OF ANY VIOLATION OF PROVISION OF SECTION 13, THE ENTIRE EXEMPTION UNDER SECTION 11 C ANNOT BE DENIED AND WOULD BE RESTRICTED ONLY TO THIS EXTENT OF INCOME MISUSED BY THE TRUST. ACCORDINGLY, WE HOLD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN COMPLETING DE NYING EXEMPTION UNDER SECTION 11. IF WE LOOK TO THE COMPU TATION OF INCOME AND EVEN IF THE ENTIRE ALLEGED ALLEGATION OF ASSESSING OFFICER OF CONTRAVENTION OF SECTION 13 IS TAKEN INT O CONSIDERATION THEN ALSO IT IS QUITE MEAGER WHICH IS EVIDENT FROM THE FOLLOWING:- TOTAL INCOME ELIGIBLE FOR EXEMPTION: - RS. 9,27,9 8,002/- TOTAL APPLICATION FOR CHARITABLE PURPOSES: - RS. 8,61,43,107/- ALLEGED EXPENDITURE HIT BY SEC 13 [RS.2,25,000 + RS.13,36,000] - RS.15,61,000/- THIS WORKS OUT TO BARELY 1.6% AND 1.8% OF TOTAL INC OME AND EXPENDITURE RESPECTIVELY. ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 38 44. THUS, IN VIEW OF OUR FINDING GIVEN ABOVE THE EX EMPTION OF SECTION 11 IN THE CASE OF THE APPELLANT TRUST SH ALL BE DENIED TO THE EXTENT OF RS.13.36 LAKHS ONLY. 45. COMING TO THE COMPUTATION OF INCOME AND TAXING OF SURPLUS BY THE ASSESSING OFFICER ASSUMING THAT NET PROFIT OF 44.4% OF THE GROSS INCOME IS WHOLLY ERRONEOUS AND I NCORRECT, BECAUSE BOTH ASSESSING OFFICER AND LD. CIT (A) HAS FAILED TO CONSIDER ACQUISITION OF FIXED ASSETS AND OTHER CAPI TAL EXPENDITURE SHOWN IN THE UTILISATION OF INCOME AS A PPLICATION OF INCOME FOR CHARITABLE PURPOSES. DURING THE YEAR, AS PER THE INCOME EXPENDITURE ACCOUNT, THE TOTAL AMOUNT ACTUAL LY SPENT COMES TO 92.83% WHICH IS FAR LESS THAN A STATUTORY LIMIT OF 85%. IT IS NO LONGER RES INTEGRA THAT CAPITAL EXPENDITURE IS TANTAMOUNT TO APPLICATION OF INCOME FOR CHARITABLE PURPOSES AS HELD BY THE HONBLE SUPREME COURT AND VARIOUS OT HER HIGH COURTS AS RELIED UPON BY THE LD. COUNSEL ABOVE. THU S, THE TAXING OF THE SURPLUS BY THE ASSESSING OFFICER IS N OT JUSTIFIED ON FACTS AND IN LAW. 46. IN SO FAR AS THE OBSERVATION OF THE ASSESSING OFFICER THAT THE ASSESSEE CANNOT BE HELD TO BE CARRYING OUT CHAR ITABLE ACTIVITY SIMPLY BECAUSE THE APPELLANT TRUST IS NOT GIVEN ANY CONCESSION TO THE POOR/ EWS CATEGORY STUDENTS, WE D O NOT SUBSCRIBE TO SUCH VIEW. THERE IS NO CONCEPT UNDER T HE SCHEME OF THE ACT THAT EDUCATION MUST BE GIVEN TO T HE POOR. ONLY TH EDUCATION PER SE HAS BEEN TREATED AS CHARITABLE IN SECTION 2(15); AND IF APPELLANT TRUST IS IMPARTING EDUCATION FOR WHICH IT HAS BEEN GRANTED REGISTRATION UNDER SE CTION 12A, ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 39 THEN ASSESSING OFFICER CANNOT DENY BENEFIT OF SECTI ON 11 AND TREAT THE APPELLANT TRUST AS A BUSINESS ENTITY ON T HIS GROUND ALONE. ACCORDINGLY, SUCH AN OBSERVATION AND FINDING OF THE ASSESSING OFFICER AND CIT (A) IS REVERSED. 47. COMING TO THE ADDITION OF RS.34,41,987 ON ACCO UNT OF SECURITY DEPOSIT REFUNDABLE TO THE STUDENTS, IT HAS ALREADY BEEN POINTED OUT BY THE LEARNED COUNSEL THAT AS ON 31 ST MARCH 2007 THE REFUNDABLE DEPOSIT WAS RS.1,17,62,96 6/- WHEREAS, THE ASSESSING OFFICER HAS ERRONEOUSLY TAKE N RS.22,75,226. AS POINTED OUT BY THE LEARNED COUNSEL AND IS ALSO EVIDENT FROM THE RECORD THAT RS.22,75,226/- RE PRESENTED REPAYMENT/ ADJUSTMENT OUT OF STUDENT SECURITY AMOUNT ON VARIOUS YEARS AND THE SAME COULD NOT HAVE BEEN TREA TED AS INCOME SINCE THE ENTIRE AMOUNT IS REFUNDABLE BY THE APPELLANT AS PER ITS MANDATE AND VERY NATURE OF SEC URITY. IT CANNOT BE TREATED AS INCOME BECAUSE THERE WAS AN OB LIGATION OF THE PART OF THE TRUST TO REFUND AS AND WHEN NECE SSARY CLAIM IS MADE BY THE STUDENT. THUS, SUCH AN ADDITION IS UNWARRANTED. 48. LASTLY, REGARDING AD HOC DISALLOWANCE OF RS.7 ,09,468/- BEING AD HOC DISALLOWANCE OF 50% OF MAINTENANCE AND FUEL EXPENSES, IT IS SEEN FROM THE RECORDS, THAT SAME PE RTAINS TO THE EXPENSES IN RESPECT OF THREE CARS OWNED BY THE APPELLANT TRUST. IT HAS BEEN CLEARLY STATED THAT THE CARS HAV E BEEN UTILISED PURELY FOR THE USE OF THE APPELLANT TRUST AND FOR VARIOUS HIGH POSITIONED FACULTY MEMBERS, THEN ADHOC DISALLOWANCE CANNOT BE MADE FOR PERSONAL USE OR IT CAN BE ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 40 INFERRED OR PRESUMED TO BE NOT UTILISED FOR THE ACT IVITIES OF THE TRUST. ONCE THE CAR IS USED FOR OFFICIALS, LIKE, DE AN, PROFESSORS AND OTHER FACULTY MEMBERS, THEN USAGE OF CAR FOR SU CH OFFICIALS OF THE TRUST CANNOT BE HELD TO BE FOR PER SONAL BENEFIT OR FOR NON-OFFICIAL PURPOSES. ACCORDINGLY, SUCH AN ADHOC DISALLOWANCES IS DIRECTED TO BE DELETED. 49. IN SO FAR AS DONATION OF RS.37,900/- WE FIND TH AT NO DETAILS HAVE BEEN PROVIDED AND THE PURPOSE FOR MAKI NG SUCH DONATION. THEREFORE, NO INTERFERENCE IS CALLED FOR IN THE FINDING OF THE ASSESSING OFFICER AND CIT(A) AS NOWHERE IT H AS BEEN EXPLAINED ABOUT THE NATURE OF DONATION AND ITS PURP OSE. THUS, THIS ISSUE IS DECIDED AGAINST. 50. CONSEQUENTLY, APPEAL FOR THE ASSESSMENT YEAR 2 007-08 IS PARTLY ALLOWED. A.Y. 2008-09 51. COMING TO THE THE APPEAL FOR THE ASSESSMENT YEA R 2008- 09 WHICH HAS BEEN FILED BY THE REVENUE, FOLLOWING I SSUES ARE INVOLVED. GR. NO. ISSUE INVOLVED REMARKS 1 AMENDMENT OF OBJECTS TO INCLUDE BUDDHISM SECTION 13(1)(B) AO ACCEPTED IN REGULAR ASSESSMENTS FOR A.Y.S 2005-06 AND 2006-07. ISSUE RAISED FOR FIRST TIME IN A.Y. 2007- 08 AND DECIDED IN FAVOUR OF ASSESSEE BY CIT(A); NO FURTHER GROUND RAISED BY REVENUE BEFORE ITAT. 2 REMUNERATION TO MRS. MALVIKA RAI [SECTION DECIDED IN FAVOUR BY CIT(A) IN AYS 2008-09 TO 2010-11. ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 41 13(1)(C)] 3 AD-HOC DISALLOWANCE ON MAINTENANCE AND FUEL EXPENSES COMPUTATION OF INCOME PURSUANT TO DENIAL OF EXEMPTION AO DENIED COMPLETE EXEMPTION AND RECOMPUTED THE INCOME BY TREATING THE ASSESSEE AS A BUSINESS ENTITY 52. IN SO FAR AS AMENDMENTS IN THE OBJECTS MADE THR OUGH SUPPLEMENTARY TRUST DEED DATED 19.04.2004, WHEREIN CERTAIN CLAUSES IN CLAUSE OF THE TRUST WAS INSERTED FOR ENA BLING THE ASSESSEE TO TEACH BUDDHISM AND BUDDHIST WAY OF LIVI NG, THE ASSESSING OFFICER HAS HELD THAT THE NEW CLAUSE INSE RTED IS IN VIOLATION OF SECTION 13(1)(B). IT HAS BEEN SUBMITTE D BY THE LD. COUNSEL THAT THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE IN ASSESSMENT YEAR 2007-08 AGAINST WHICH REVENUE DID N OT PREFER ANY APPEAL ON THIS ISSUE IN ITA NO.1142/DEL/ 2011 FOR THE ASSESSMENT YEAR 2007-08 WHEREIN OTHER ISSUES WE RE CHALLENGED. IT HAS BEEN POINTED OUT BY THE LD. COUN SEL THAT BY WAY OF SUPPLEMENTARY DEED FOLLOWING PROVISO TO CLAU SES WERE INSERTED AS UNDER: PROVIDED THAT NO PERSON ATTENDING THE SCHOOL SHALL BE REQUIRED TO TAKE PART IN WORSHIP/ PROFESSING OR ASCERTAINING TO BUDDHISM OR ANY PARTICULAR RELIGION WITHOUT HIS/ HE R CONSENT; PROVIDED FURTHER THAT NO PERSON/ STUDENT SHALL BE D ENIED ADMISSION ON THE SCHOOL/ INSTITUTE ON THE GROUND OF RELIGION, RACE, CASTE, LANGUAGE OR ANY OF THEM. 53. THIS WAS STATED TO BE EXPLAINED BEFORE THE ASSE SSING OFFICER VIDE LETTER DATED 10.11.2010 THAT BY INSERT ION OF SUCH ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 42 CLAUSE HAD NOT RESULTED INTO BENEFIT OF ANY RELIGIO US COMMUNITY WHICH CAN BE SAID TO BE BARRED U/S.13(1)( B). MOST IMPORTANT FACT WAS THAT THE SUPPLEMENTARY DEED WAS FILED BEFORE DIT (E) AND THE LD. DIT(E) AFTER REVIEWING T HE CASE OF THE APPELLANT TRUST HAS GRANTED FRESH REGISTRATION U/S.12A AND 80G AS PER DETAILS GIVEN HEREUNDER;- DATE PARTCULARS 01.02.2001 TRUST SETTLED - TRUST DEED 25.06.2002 REGISTRATION U/S 12A GRANTED 19.04.2004 SUPPLEMENTARY TRUST DEED 09.01.2008 APPLICATION FOR RENEWAL OF REGISTRATION U/S 80G ALONG WITH SUPPLEMENTARY TRUST DEED 02.06.2008 DIT(EXEMPTION) GRANTED FRESH CERTIFICAT E UNDER SECTION 12A OF THE ACT PURSUANT TO CHANGE IN NAME. 02.06.2008 DIT(EXEMPTION) ALSO GRANTED CERTIFICATE UNDER SECTION 80G FOR THE PERIOD FROM 01.04.2007 TO 31.03.2010 54. ONCE THE AMENDED SUPPLEMENTARY DEED DATED 29.04.2004 HAS BEEN BROUGHT ON RECORDS AND PLACED B EFORE THE DIT(E) AND LD. DIT AFTER CONSIDERING THE SAME H AS GRANTED FRESH REGISTRATION, THEN LD. ASSESSING OFFICER CANN OT QUESTIONING THE CHARITABLE CHARACTER OF THE ASSESSE E. ACCORDINGLY, THE ORDER OF THE LD. CIT (A) ON THIS C ORE IS UPHELD AND THE REVENUES APPEAL IS DISMISSED ON THIS CORE. 55. REGARDING SALARY PAYMENT TO MRS. MALVIKA RAI RE NDERING SERVICES FOR RUNNING OF EDUCATIONAL INSTITUTION OF THE APPELLANT TRUST, WE HAVE ALREADY GIVEN OUR DETAIL F INDING IN THE APPEAL FOR THE ASSESSMENT YEAR 2007-08 ABOVE, A ND THUS, OUR FINDING WILL MUTATIS MUTANDIS IN THIS YEAR ALSO. 56. SIMILARLY, THE OTHER GROUNDS THAT IN CASE THE ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 43 REMUNERATION PAID TO SMT. MALVIKA RAI IS TREATED AS A BENEFIT TO THE SPECIFIED PERSON THEN ONLY TO THIS EXTENT EX EMPTION SHOULD BE DENIED WILL BECOME INFRUCTUOUS, BECAUSE, WE HAVE ALREADY HELD THAT THE PAYMENT/REMUNERATION MADE TO SMT. MALVIKA RAI IS NOT IN VIOLATION OF SECTION 13(1)(C) . 57. SO FAR AS AD HOC DISALLOWANCE OF 50% OF THE MAINTENANCE AND FUEL EXPENSES OF RS.562194, IT IS SIMILAR TO TH E GROUND RAISED IN THE ASSESSMENT YEAR 2007-08 AND THE SAME IS THUS, DIRECTED TO BE DELETED. A.Y. 2009-10 & 2010-11 58. THE APPEALS FOR THE ASSESSMENT YEARS 2009-10 AN D 2010-11 HAVE BEEN FILED BY THE REVENUE AGAINST SEPA RATE IMPUGNED ORDERS OF EVEN DATE 24.02.2014, PASSED BY CIT(A) WHEREIN CIT(A) HAS UPHELD THE ASSESSEES CLAIM UND ER SECTION 11. THE GROUNDS FOR BOTH THE YEARS ARE REPR ODUCED HEREUNDER:- ASSESSMENT YEAR 2009-10 & ASSESSMENT YEAR 2010-11 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE/AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING VIOLATION OF PROVI SIONS OF SECTION 2(15) AND 13(1)(C) W.R.T. 13(3) OF THE INCOME TAX ACT 196 1 AND THEREBY AVAILING THE BENEFITS OF EXEMPTIONS U/S. 11 & 12 WI THOUT CONSIDERING THE FACTS AS STATED BY THE AO AND GIVING REASONS FO R THE SAME. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF SALARY PAID TO MS. MALVIKA RAI, WHICH IS EXCESSIVE IN NATURE AND NOT COMMENSURATE TO HER EDUCATION, EXPERIENCE AND DUTIE S AND HAS BEEN PAID TO THE RELATED PARTY AS SHE IS CHAIRPERSON OF THE TRUST. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 44 LD. CIT(A) HAS ERRED IN ALLOWING THE EXEMPTION U/S 13(3) OF THE INCOME TAX ACT, 1961 FOR USAGE OF VEHICLES AND OTHER ASSET S BY TRUSTEES OR SPECIFIED PERSONS U/S. 13(3) WITHOUT ASSESSEE PROVI DING ANY EVIDENCE IN THE FORM OF LOG BOOKS AS STATED IN THE ASSESSMEN T ORDER. 59. GROUNDS NO. 1 AND 2 IS SIMILAR TO THE APPEAL FO R THE ASSESSMENT YEARS 2007-08 AND 2008-09, AND THEREFORE , IN VIEW OF OUR FINDINGS GIVEN ABOVE, THE SAME ARE DISM ISSED. 60. SIMILARLY, GROUNDS OF APPEAL NO. 3 IS SIMILAR T O GROUND NO. 3 OF ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2007-08 AND GROUND NO.3 IN REVENUES APPEAL FOR THE ASSESSM ENT YEAR 2008-09. THEREFORE IN VIEW OF OUR FINDINGS GIVEN AB OVE THE GROUND NO. 3 IS TREATED AS DISMISSED. 61. IN THE RESULT, THE APPEAL FOR THE ASSESSMENT YE ARS 2009- 10 AND 2010-11 ARE DISMISSED. 62. IN THE APPEAL FOR THE ASSESSMENT YEAR 2011-12, THE FOLLOWING GROUNDS HAVE BEEN RAISED:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN LAW IGNORING TH E FACT THAT ASSESSEE HAS COMMITTED VIOLATION WITHIN THE MEANING OF PROVISIONS OF SECTION 13(1)(C) OF THE I.T. ACT, 196 1 BY PROVIDING BENEFITS TO PERSONS SPECIFIED U/S 13(3) OF THE I.T. ACT IN THE SHAPE OF PROVIDING CARS FOR PERSONAL USE AND PAYMEN T OF UNREASONABLE AND EXCESSIVE SALARY TO MS. MALVIKA RA I, CHAIRPERSON. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) HAS ERRED IN LAW IN IGNORING THE FA CT THAT LUXURY ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 45 SEDAN CARS WERE PROVIDED TO THE TRUSTEES AND CONTRO LLING PERSONS OF THE TRUST. ASSESSEE FAILED TO JUSTIFY TH AT MAINTENANCE AND FUEL EXPENSES OF CARS WERE EXCLUSIVELY INCURRED FOR THE AIMS AND OBJECTS OF THE ASSESSEE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) HAS ERRED IN LAW IN IGNORING THE FA CT THAT DUE TO THE FACT THAT ASSESSEE WAS DENIED BENEFITS OF EXEMP TIONS U/S.11 & 12 OF THE I.T. ACT FOR INFRINGEMENT OF SECTION 13 (1)(C) OF THE ACT, THEREFORE, AO HAS RIGHTLY DISALLOWED A SUM OF RS.10 ,08,25,000/- BEING 50% OF DONATION. 63. THE ASSESSING OFFICER HAS DENIED THE EXEMPTION UNDER SECTION 11 TO THE ASSESSEE ON THE GROUND THAT ASSES SEE RUNS AN INSTITUTION FOR ELITE CLASS OF THE SOCIETY HER S OLE PURPOSE IS TO MAKE PROFIT AND NO CHARITABLE INTENTION WHICH CO ULD BE SEEN ITS OPERATION AND APPLICATION OF FUND AND IN A DDITION TO THAT ALLEGED VIOLATION OF SECTION 13(3) AND WAS COM PUTED THE INCOME OF SMT. MALVIKA RAI AT RS.17,82,060 AS AGAIN ST THE NIL INCOME DISCLOSED TO THE ASSESSEE WHICH INCLUDED EST IMATED DISALLOWANCE OF 50% OF THE EXPENSE OF MAINTENANCE A ND FUEL EXPENSES AND 50% OF DONATION FROM TAX EXEMPTION. CI T (A) HELD THAT ONCE THE ASSESSEE IS CARRYING OUT EDUCATI ONAL ACTIVITIES WHICH IS CHARITABLE IN NATURE AND ALSO G RANTED RESTRICTION UNDER SECTION 12A, THEREFORE, THE ASSES SEE CANNOT BE TREATED AS INVOLVED IN ANY TRADING, COMMERCE OR BUSINESS. AS REGARDS ADHOC DISALLOWANCE OF 50% OF EXPENSES AN D REMUNERATION PAID TO SMT. MALVIKA RAI, HE HAS FOLLO WED THE APPELLATE ORDER FOR ASSESSMENT YEAR 2009-10 AND 201 0-11. ITA NO. 1142/DEL/2011, 2675/DEL/2013, 2871, 2872/DE L/2014 & 1131/DEL/2016 46 64. LASTLY ON THE ISSUE OF 50% OF DONATION RELYIN G UPON THE JUDGEMENT OF HONBLE SUPREME COURT IN QUEEN EDUCATIO NAL SOCIETY VS. CIT (SUPRA) HE HELD THAT THERE IS NO VI OLATION OF SECTION 11 OR 12. SINCE ALREADY THE ISSUE OF SMT. M ALVIKA RAI AND AD HOC DISALLOWANCE FUEL EXPENSES HAVE BEEN DEA LT BY US IN THE EARLIER APPEALS, THEREFORE, THESE GROUNDS RA ISED BY THE REVENUE ARE DISMISSED. 65. IN SO FAR AS DISALLOWANCE OF 50% OF DONATION IS CONCERN, WE AGREE WITH THE FINDING OF THE CIT (A) THAT THERE IS NO VIOLATION OF SECTION 11 OR 12. ACCORDINGLY, WE HOLD THE CIT ( A) HAS RIGHTLY ALLOWED THE EXEMPTION UNDER SECTION 11 OF THE ACT. 66. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED AND APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH DECEMBER, 2020 SD/- SD/- [G.S. PANNU] [AMIT SHUKLA] VICE PRESIDENT JUDICIAL MEMBER DATED: 24 TH DECEMBER, 2020 PKK