ITO (OSD), CHENNAI V. Madras Education & Research Integrated Trust, CHENNAI

ITA 2894/CHNY/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8554 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 17-08-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 24-11-2014
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: G BASKAR
• Keywords: Charitable institution; Maximum Marginal Rate; Benefit of exemption
• Section: 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI ., ! '#$ . # % & ! ' BEFORE SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.2894/MDS./2014 / ASSESSMENT YEAR :2011-12 INCOME TAX OFFICER(OSD), (EXEMPTIONS-III),AYAKAR BHAVAN, ANNEXE BUILDING-III FLOOR, 121, M.G.ROAD, NUNGAMBAKKAM, CHENNAI 600 034. VS. M/S.MADRAS EDUCATION & RESEARCH INTEGRATED TRUST, 16,BUDDHA STREET, KODAMBAKKAM, CHENNAI 600 024. . [PAN AAATM 0143 L ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : MR.A.V.SREEKANTH, JCIT, DR /RESPONDENT BY : MR.G.BASKAR,ADVOCATE / DATE OF HEARING : 17 - 0 8 - 201 6 / DATE OF PRONOUNCEMENT : 09 - 0 9 - 2016 , / O R D E R PER ABRAHAM P GEORGE, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST AN ORDER DATED 20.08.2014 OF COMMISSIONER OF INCOME TAX (APP EALS)-VII, CHENNAI FOR ASSESSMENT YEAR 2011-12. ITA NO.2894 /MDS./2014 :- 2 -: 2. I TS GRIEVANCE RAISED BY THE REVENUE IS THAT LD.CIT(A ) CHENNAI HELD THE REMUNERATION PAID BY THE ASSESSEE- TRUST TO ITS MANAGER TRUSTEE AND HIS WIFE, AND THE PAYMENT OF RE NT OF ` 12 LAKHS TO THE OFFICE OF TRUST AT NUNGAMBAKKAM AS REA SONABLE. 3. FACTS, APROPOS ARE THAT THE ASSESSEE TRUST RUNS FOUR EDUCATIONAL INSTITUTIONS, NAMELY, PDR VELLACHIAMMAL MATRICULATION HIGHER SECONDARY SCHOOL, PDR VELLACHIAMMAL COLLEGE OF EDUCATION, PDR COLLEGE OF EDUCATION, PADMAVATHI COLLEGE OF EDUCATI ON. THE ASSESSEE WAS REGISTERED U/S.12AA OF THE ACT VIDE ORDER OF TH E DIRECTOR OF INCOME-TAX(EXEMPTIONS),CHENNAI DATED 12.06.1995. FO R THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE TRUST HAD CL AIMED EXEMPTION U/S.11 & 12 OF THE ACT. DURING THE COURS E OF ASSESSMENT PROCEEDINGS, IT WAS FOUND BY THE AO THAT THE ASSESSEE HAD PAID A SUM OF ` 36 LAKHS AS REMUNERATION TO ITS TRUSTEES, AND A SUM OF ` 12 LAKHS AS RENT. AS PER THE AO, THESE PAYMENTS WERE UNREASONABLY EXCESSIVE AND THEREFORE, SEC.13(1)(C) OF THE ACT WAS ATTRACTED. EXPLANATION OF ASSESSEE WAS SOUGHT. REPLY OF ASSESSEE WAS THAT ` 24 LAKHS WAS PAID TO MR.R.TAMILMANI, ITS MANAGING TRUSTEE, WHO HAD ST ARTED HIS CAREER AS JUNIOR LAWYER, CLEARED HIS UPSC EXAMINAT ION & JOINED AS A DIRECT RECRUIT COMMERCIAL TAX OFFICER IN TAMIL NADU ITA NO.2894 /MDS./2014 :- 3 -: COMMERCIAL TAXES SERVICES SINCE 01.07.1967. THE CON TENTION OF ASSESSEE WAS THAT AT THE TIME OF RETIREMENT, HE WAS HOLDING A POST AS ADDITIONAL COMMISSIONER OF COMMERCIAL TAXES AND HAD ALSO SERVED AS A MEMBER, TAMILNADU SALES TAX APPELL ATE TRIBUNAL, MADRAS. AS PER ASSESSEE, AFTER RETIREMENT FROM SERVICES, MR.R.TAMILMANI WAS APPOINTED AS A MEMBER, TAMILNADU PUBLIC SERVICE COMMISSION AND NOMINATED A S A MEMBER SYNDICATE, TAMILNADU TEACHER EDUCATION UNIVE RSITY. AS PER ASSESSEE, HE WAS THE CHAIRMAN AND MANAGING TRUS TEE OF ASSESSEE TRUST AND WAS DEVOTING HIS ENTIRE TIME AND ENERGY FOR DEVELOPMENT OF EDUCATIONAL INSTITUTIONS RUN BY THE ASSESSEE TRUST. THUS, ACCORDING TO ASSESSEE, THE REMUNERATION OF ` 24 LAKHS PAID TO MR.R. TAMILMANI WAS REASONABLE. 4. WITH REGARD TO REMUNERATION PAID TO MRS.T.PADMA VATHI, ANOTHER TRUSTEE, THE REPLY OF THE ASSESSEE WAS THAT SHE WAS IN CHARGE OF HOSTEL FOR BOTH BOYS AND GIRLS AND TAS TA KING PATERNAL CARE OF THE INMATES OF THE HOSTEL. FURTHER, AS PER ASSESSEE, SHE WAS HELPING THE MANAGING TRUSTEE IN THE ADMINISTRAT ION OF THE SCHOOL AND COLLEGES. THUS, IT WAS ARGUED BY THE ASS ESSEE THAT REMUNERATION OF ` 12 LAKHS PER ANNUM PAID TO MRS.T.PADMAVATHI WAS ALSO REASONABLE. ITA NO.2894 /MDS./2014 :- 4 -: 5. HOWEVER, THE LD. ASSESSING OFFICER WAS NOT IMPR ESSED BY THE ABOVE ARGUMENT. ACCORDING TO AO, AS PER THE T RUST DEED, THE TRUSTEES SHOULD RUN AND MANAGE THE TRUST WITHOU T ANY PROFIT MOTIVE. AS PER THE AO, ITS MANAGING TRUSTEE MR.R.TA MILMANI, WHO HAD RETIRED FROM GOVERNMENT SERVICE, WAS PAID HUGE REMUNERATION OF ` 24 LAKHS AND THIS WAS UNREASONABLE. FURTHER, AS PER AO, THE PAYMENT TO THE OTHER TRUSTEE NAMELY MRS.T. PADMAVATHI WAS ALSO EXCESSIVE. LD. AO ALSO N OTED THAT THE TRUST HAD MADE PAYMENT OF RENT TO ONE OF THE TR USTEES. HE HELD THAT RIGORS OF SEC.13(1)(C) AND 13(2)(C) OF THE ACT STOOD ATTRACTED. LD. ASSESSING OFFICER REFUSED TO GIVE EXEMPTION CLA IMED BY THE ASSESSEE UNDER SECTIONS 11 & 12 OF THE ACT. INCOME OVER EXPENDITURE OF ` 50,96,279/- FOR THE IMPUGNED ASSESSMENT YEAR WAS TAXED BY THE AO AT THE MAXIMUM MARGINAL RATES. 6. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE MOVE D AN APPEAL BEFORE THE LD.CIT(A). ARGUMENT OF THE ASSES SEE WAS THE TRUSTEES, WHO WERE BEING PAID REMUNERATION, HAD DEV OTED THEIR SERVICES IN A FULL TIME MANNER TO THE ASSESSEE TRU ST. AS PER THE ASSESSEE, THE SCHOOL RUN BY THE TRUST WAS SITUATED IN A REMOTE VILLAGE CALLED SAKKAMPATTI, MOBRIPATTI PANCHAYAT, H ARUR ITA NO.2894 /MDS./2014 :- 5 -: TALUK IN DHARMAPURI DISTRICT AND MANAGED BY MANAGIN G TRUSTEE. THE WORK, AS PER THE ASSESSEE, INVOLVED SUPERVISION AND CONTROL OF NEARLY 200 TEACHING AND NON-TEACHING STAFF AND A DMINISTERING INSTITUTIONS HAVING STRENGTH OF 2,500 STUDENTS AND A FLEET OF AROUND 20 BUSES. AS PER ASSESSEE, THE SCHOOLS AND COLLEGE S WHICH WERE RUN BY THE ASSESSEE TRUST HAD ACHIEVED ACADEMIC DIS TINCTION IN ALL THE FIELDS. SUBMISSION OF THE ASSESSEE WAS THAT MRS.PADMAVATHI, THE TRUSTEE, WHO WAS PAID REMUNERAT ION OF ` 1 LAKH PER MONTH, WAS IN CHARGE OF BOYS AND GIRLS H OSTEL AND TOOK CARE OF THE STUDY OF STUDENTS IN THE HOSTEL. I NSOFAR AS RENT PAID WAS CONCERNED, ARGUMENT OF ASSESSEE WAS THAT T HE ADMINISTRATIVE OFFICE FOR WHICH SUCH RENT WAS PAID WAS LOCATED IN A PRIME LOCALITY OF CENTRAL CHENNAI AND MONTHLY RENT OF ` 1 LAKH WAS AT PAR WITH THE RENT RATES PREVALENT IN THE SAID LO CALITY. 7. LD.CIT(A) AFTER GOING THROUGH THE SUBMISSIONS OF ASSESSEE, HELD THAT THE REMUNERATION PAID TO THE MANAGING TRU STEE MR.R.TAMILMANI & TRUSTEE MRS.PADMAVATHI WAS REASONA BLE AND ASSESSEE HAD ALSO DEDUCTED TAX AT SOURCE AND PAID I T TO THE EXCHEQUER. IT WAS ALSO NOTED BY THE LD.CIT(A) THAT FOR RENTAL PAYMENT ALSO, ASSESSEE HAD DEDUCTED TAX. LD.CIT(A) NOTED THAT THE OFFICE OF THE TRUST WAS AT NO.12,JOSSIER STREET , ITA NO.2894 /MDS./2014 :- 6 -: NUNGAMBAKKAM,CHENNAI-34, WHICH WAS MENTIONED IN THE TRUST DEED ITSELF. THE ASSESSEE HAD ALSO GIVEN DETAILS O F THE RENT PAYMENT IN ITS LETTER DATED 06.11.2013 ADDRESSED TO THE AO. CONSIDERING THESE ASPECTS, LD.CIT(A) WAS OF THE OPI NION THAT THE PAYMENT OF REMUNERATION TO MANAGING TRUSTEE AND ANO THER TRUSTEE WAS NOT UNREASONABLE. HE HELD THAT SEC.13(1 )(C) OF THE ACT WAS NOT APPLICABLE ON THE FACTS AND CIRCUMSTANC ES OF THE CASE. THUS, IT WAS HELD THAT ASSESSEE WAS ELIGIBLE FOR CLAIMING EXEMPTION U/S.11 & 12 OF THE ACT. 8. NOW BEFORE US LD.D.R STRONGLY ASSAILING THE ORD ER OF CIT(A) SUBMITTED THAT ASSESSEE COULD NOT SHOW HOW THE PAYM ENT OF REMUNERATION TO THE MANAGING TRUSTEE MR.R.TAMILMANI AND TRUSTEE MRS.PADMAVATHI WERE REASONABLE. ACCORDING T O HIM, CIT(A) HAD WENT BY THE SUBMISSIONS OF ASSESSEE WIT HOUT PROPERLY APPRECIATING THE FACTS. INSOFAR AS RENTAL PAYMENT WAS CONCERNED, LD.D.R SUBMITTED THAT THE ASSESSEE DID N OT FURNISH THE DETAILS OF THE RENTED PREMISES TO THE AO. THUS, ACC ORDING TO LD.D.R, CIT(A) HAD ERRED IN HOLDING THAT ASSESSEE H AD NOT VIOLATED THE PROVISIONS OF THE SECTION 13(1)(C) OF THE ACT. ITA NO.2894 /MDS./2014 :- 7 -: 9. PER CONTRA, LD.A.R SUPPORTED THE ORDER OF LD.CI T(A). 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE REASONS WHY THE AO DENIED THE BENEFIT OF EXEMPTION CLAIMED BY ASSESSEE U/S.11 & 12 OF THE ACT ARE AS UNDER:- I) EXCESSIVE PAYMENT OF REMUNERATION TO MR.R.TAMILM ANI MANAGING TRUSTEE AND MRS.PADMAVATHI ONE TRUSTEE II) PAYMENT OF RENT TO ONE OF THE TRUSTEES FOR THE ADMINISTRATIVE BUILDING OF THE TRUST. 11. WHAT WAS PAID TO MR.R.TAMILMANI WAS ` 24 LAKHS PER ANNUM @ ` 2 LAKHS PER MONTH. MR.R.TAMILMANI WAS A MEMBER OF SALES TAX APPELLATE TRIBUNAL AND HAD HELD HIGH POST IN ST ATE CIVIL SERVICES. IT IS NOT DISPUTED THAT HE WAS MANAGING THE AFFAIRS OF THE FOUR EDUCATIONAL INSTITUTIONS RUN BY THE ASSESS EE. THAT THE EDUCATIONAL INSTITUTIONS RUN BY THE ASSESSEE TRUST HAD HUGE STRENGTH OF THE STUDENTS IS ALSO NOT DISPUTED. THE SCHOOL RUN BY THE ASSESSEE TRUST HAD 2,500 STUDENTS. THE INSTITU TIONS RUN BY THE ASSESSEE TRUST HAD ADMITTEDLY ACHIEVED ACADEMIC EXC ELLENCE. THIS WAS NOT DISPUTED BY THE REVENUE. ALL THESE, I N OUR OPINION, MEANT THAT CONSIDERABLE SERVICES AND EFFORT HAD BEE N PUT IN BY ITA NO.2894 /MDS./2014 :- 8 -: MANAGING TRUSTEE TO ACHIEVE THE ABOVE MILESTONES. I F THAT BE SO, PAYMENT OF REMUNERATION OF ` 2 LAKHS PER MONTH TO SUCH A MANAGING TRUSTEE, WHO HAD ACHIEVED MUCH FOR THE TRU ST CANNOT ,IN OUR OPINION, BE CONSIDERED AS UNREASONABLE. THE SAME IS THE CASE OF PAYMENT OF REMUNERATION OF ` 1 LAKHS PER MONTH TO MRS.PADMAVATHI, WHO WAS IN CHARGE OF BOYS AND GIRLS HOSTEL. INSOFAR AS RENTAL PAYMENT WAS CONCERNED, IT IS NOT DISPUTED BY THE REVENUE THAT THE ADMINISTRATIVE OFFICE FOR WHICH RE NT @ ` 1 LAKHS PER MONTH WAS SITUATED IN A PRIME LOCALITY OF CENTR AL CHENNAI. ADDRESS OF THE PREMISES IS DOOR NO.12,JOSSIER STREE T, NUNGAMBAKKAM,CHENNAI-34. 12. AT THIS JUNCTURE, IT WILL BE GOOD TO HAVE A LO OK AT RELEVANT SEC.13(1)(C) & SEC.13(2)(C) WHICH ARE REPRODUCED HE REUNDER:- S.13(1): NOTHING CONTAINED IN SECTION 11 OR SECTION 12 SHALL OPERATE SO AS TO EXCLUDE FROM THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT THEREOF- (A): ---- (B) ---- (C): IN THE CASE OF A TRUST FOR CHARITABLE OR RELI GIOUS PURPOSES OR A CHARITABLE OR RELIGIOUS INSTITUTION, ANY INCOME THEREOF- ITA NO.2894 /MDS./2014 :- 9 -: (I) IF SUCH TRUST OR INSTITUTION HAS BEEN CREATED O R ESTABLISHED AFTER THE COMMENCEMENT OF THIS ACT AND UNDER THE TERMS OF THE TRUST OR THE RULES GOVERNING THE INSTITUTION, ANY PART OF SU CH INCOME ENURES, OR (II) IF ANY PART OF SUCH INCOME OR ANY PROPERTY OF THE TRUST OR INSTITUTION (WHENEVER CREATED OR ESTABLISHED) IS DU RING THE PREVIOUS YEAR USED OR APPLIED, DIRECTLY OR INDIRECT LY FOR THE BENEFIT OF ANY PERSON REFERRED TO IN SUB-SECTION (3) : PROVIDED THAT IN THE CASE OF A TRUST OR INSTITUTION CREATED OR ESTABLISHED BEFORE THE COMMENCEMENT OF THIS ACT, TH E PROVISIONS OF SUB-CLAUSE (II) SHALL NOT APPLY TO ANY USE OR AP PLICATION, WHETHER DIRECTLY OR INDIRECTLY, OF ANY PART OF SUCH INCOME OR ANY PROPERTY OF THE TRUST OR INSTITUTION FOR THE BENEFI T OF ANY PERSON REFERRED TO IN SUB-SECTION (3), IF SUCH USE OR APPL ICATION IS BY WAY OF COMPLIANCE WITH A MANDATORY TERM OF THE TRUST OR A MANDATORY RULE GOVERNING THE INSTITUTION: PROVIDED FURTHER THAT IN THE CASE OF A TRUST FOR RELIGIOUS PURPOSES OR A RELIGIOUS INSTITUTION (WHENEVER CREATED OR EST ABLISHED) OR A TRUST FOR CHARITABLE PURPOSES OR A CHARITABLE INSTI TUTION CREATED OR ESTABLISHED BEFORE THE COMMENCEMENT OF THIS ACT, TH E PROVISIONS OF SUB-CLAUSE (II) SHALL NOT APPLY TO ANY USE OR AP PLICATION, WHETHER DIRECTLY OR INDIRECTLY, OF ANY PART OF SUCH INCOME OR ANY PROPERTY OF THE TRUST OR INSTITUTION FOR THE BENEFI T OF ANY PERSON REFERRED TO IN SUB-SECTION (3), IN SO FAR AS SUCH U SE OR APPLICATION RELATES TO ANY PERIOD BEFORE THE 1ST DAY OF JUNE, 1 970 ; ITA NO.2894 /MDS./2014 :- 10 - : S.13(2): WITHOUT PREJUDICE TO THE GENERALITY OF THE PROVISIO NS OF CLAUSE (C) AND CLAUSE (D) OF SUB-SECTION (1), THE INCOME OR TH E PROPERTY OF THE TRUST OR INSTITUTION OR ANY PART OF SUCH INCOME OR PROPERTY SHALL, FOR THE PURPOSES OF THAT CLAUSE, BE DEEMED TO HAVE BEEN USED OR APPLIED FOR THE BENEFIT OF A PERSON REFERRED TO IN SUB-SECTION (3),- (A): ---- (B) ---- (C) IF ANY AMOUNT IS PAID BY WAY OF SALARY, AL LOWANCE OR OTHERWISE DURING THE PREVIOUS YEAR TO ANY PERSON REFERRED TO IN SUB-SECT ION(3) OUT OF THE RESOURCES OF THE TRUST OR INSTITUTION FOR SERVICES RENDERED B Y THAT PERSON TO SUCH TRUST OR INSTITUTION AND THE AMOUNT SO PAID IS IN EXCESS OF WHAT MAY BE REASONABLE PAID FOR SUCH SERVICES; SUB-SECTION13(2)(C) COMES INTO PLAY WHERE SALARY O R ALLOWANCE PAID BY A TRUST IS IN EXCESS OF WHAT MIGHT BE REASO NABLY PAID FOR SUCH SERVICES. IN THE CASE BEFORE US, WE CANNOT SAY THAT THE REMUNERATION PAID TO THE MANAGING TRUSTEE AND THETR USTEE WERE EXCESSIVE AND UNREASONABLE. IT ALSO CANNOT BE SAID THAT THE RENTAL PAYMENT WAS EXCESSIVE FOR ATTRACTING SEC.13(1)(C) , CONSIDERING THE LOCALITY OF THE ADMINISTRATIVE OFFICE SITUATED FOR WHICH RENT WAS PAID. WE ARE THUS OF THE OPINION THAT THE LD.CIT(A) WAS JUSTIFIED IN TAKING A VIEW THAT SEC.13(1)(C) & SEC.13(2)(C) WER E NOT ATTRACTED. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORD ER OF LD.CIT(A). ITA NO.2894 /MDS./2014 :- 11 - : 13. IN THE RESULT, THE APPEAL OF THE REVENUE STAND S DISMISSED. ORDER PRONOUNCED ON 09 TH SEPTEMBER, 2016, AT CHENNAI. SD/ - SD/ - ( ! . ' ) ( G.PAVAN KUMAR ) & ! / JUDICIAL MEMBER ( #$%&' ' !(! ) ( ABRAHAM P GEORGE ) ! / ACCOUNTANT MEMBER )* / CHENNAI +, / DATED: 09 TH SEPTEMBER, 2016 K S SUNDARAM ,-$$ ./$0/ / COPY TO: $ 1 . / APPELLANT 3. $ 1$23 / CIT(A) 5. /45$ 6 / DR 2. / RESPONDENT 4. $ 1 / CIT 6. 57$8 / GF