ITO(E), Ward-2(3) , New Delhi V. The Inclen Trust International, New Delhi

ITA 7445/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9788 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2013-2014
• Appeal Filed On: 11-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P RAKASH DUBEY SENIOR
• Keywords: Charitable institution; Set aside
• Section: 12A; 10B; 13; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G : NEW DELHI) BEFORE SHRI O.P. KANT, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER (THROUGH VIDEO CONFERENCE) ITA NO.7445/DEL./2017 (ASSESSMENT YEAR : 2013-14) ITO (E), WARD 2 (3), VS. THE INCLEN TRUST INTERNAT IONAL, NEW DELHI. F-1/5, 2 ND FLOOR, OKHLA INDL. AREA, PHASE 1, NEW DELHI 110 020. (PAN : AABTT1814A) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.V.S.R. KRISHNA, ADVOCATE REVENUE BY : SHRI PRAKASH DUBEY, SENIOR DR DATE OF HEARING : 08.07.2021 DATE OF ORDER : 28.07.2021 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, ITO (E), WARD 2 (3), NEW DELHI (HEREINAF TER REFERRED TO AS THE REVENUE) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 06.09.2017 PASSE D BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-40, DELHI QUA THE ASSESSMENT YEAR 2013-14 ON THE GROUNDS INTER ALIA T HAT :- ITA NO.7445/DEL./2017 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE WHETHER THE LD. CIT (A) HAS ERRED IN HOLDING THAT S H. N.K. ARORA, THE EXECUTIVE DIRECTOR WAS NOT A MANAGER OR A DE FACTO TRUSTEE AND THEREFORE A SPECIFIED PERSON WITHIN THE MEANING OF SECTION 13 (3) OF THE INCOME TAX ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E WHETHER THE LD. CIT (A) HAS ERRED IN HOLDING THAT S H. N.K. ARORA WAS NOT A SPECIFIED PERSON DESPITE THE FACT T HAT THE ASSESSEE ITSELF IN AUDIT REPORT IN FORM 10B FOR AY 2013-14 HAD SHOWN HIM AS SPECIFIED PERSON AND REPORTED THE TRAN SACTION WITH HIM. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : ASSESSEE, M/S. INCLEN TRU ST INTERNATIONAL, BEING A TRUST REGISTERED UNDER SECTION 12A OF THE I NCOME-TAX ACT, 1961 (FOR SHORT THE ACT) HAVING CHARITABLE AIMS A ND OBJECTIVE FILED RETURN OF INCOME DECLARING NIL INCOME. DURIN G SCRUTINY PROCEEDINGS, ASSESSING OFFICER (AO) FOUND THE ACTIV ITIES OF THE ASSESSEE TRUST COVERED U/S 2 (15) OF THE ACT PERTAI NING TO THE CHARITABLE PURPOSE OTHERWISE HAVING BEEN COMPLIED W ITH THE PROVISIONS CONTAINED U/S 11/12 OF THE ACT. AO SOUG HT JUSTIFICATION OF SALARY OF RS.90,00,000/- PAID BY THE ASSESSEE TR UST TO DR. N.K. ARORA, EXECUTIVE DIRECTOR. HOWEVER, FINDING THE JU STIFICATION FILED BY THE ASSESSEE NOT TENABLE, ASSESSING OFFICER PROC EEDED TO OBSERVE THAT DR. N.K. ARORA, EXECUTIVE DIRECTOR OF THE TRUST IS COVERED U/S 13(3) OF THE ACT AS A MANAGER ON THE GR OUND THAT A TRUST RUNNING FOR THE CAUSE OF PUBLIC GOOD HAS TO B E JUDGED FROM THE SACRIFICES MADE BY THE PERSONS RUNNING THE TRUST AN D IF THE MANAGER ITA NO.7445/DEL./2017 3 OR HEAD OF THE TRUST AS CLAIMED IS DRAWING SALARY M ORE THAN TWICE HIS IMMEDIATE JUNIOR, THEN IT FORFEITS THE BASIC PU RPOSE OF A TRUST. AO THEREBY APPLIED THE PROVISIONS CONTAINED U/S 13( 1)(C)(II) AND DENIED THE BENEFITS OF SECTION 11 OF THE ACT TO THE ASSESSEE AND ASSESSED THE TOTAL INCOME AT RS.4,80,20,070/-. 3. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) BY WAY OF FILING AN APPEAL WHO HAS PARTLY ALLOWED THE APPEAL. FEELING AGGRIEVED BY THE ORDER PASSED BY THE LD. CIT (A), T HE REVENUE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PR ESENT APPEAL. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. LD. DR FOR THE REVENUE CHALLENGING THE IMPUGNED ORDER CONTENDED THAT DR. N.K. ARORA BEING MANAGER OF TH E TRUST WAS A DE FACTO TRUSTEE AND HAS BEEN RIGHTLY CONSIDERED AS A SPECIFIED PERSON BY THE AO U/S 13(3) OF THE ACT. LD. CIT DR REFERRED TO ITEM 3 IN PART 2 OF AUDIT REPORT WHEREIN PAYMENT OF RS.90,00,000/- AS REMUNERATION HAS BEEN PAID TO DR. N.K. ARORA, EXECUTIVE DIRECTOR FOR THE SERVICES RENDERED BY HIM DURING THE YEAR AND AS SUCH, HE IS A SPECIFIED PERSON U/S 13(3) OF THE ACT. LD. DR ALSO FILED WRITTEN SUBMISSIONS WHICH ARE MADE PART OF THE JUDI CIAL RECORD. ITA NO.7445/DEL./2017 4 6. ON THE OTHER HAND, LD. AR FOR THE ASSESSEE TO RE PEL THE ARGUMENTS ADDRESSED BY THE LD. DR FOR THE REVENUE R ELIED UPON THE ORDER PASSED BY THE LD. CIT (A) WHICH IS BASED UPON THE DECISIONS RENDERED BY HONBLE APEX COURT IN CASE OF ACIT VS. THANTI TRUST (2001) 247 ITR 785 (SC) AND HONBLE CALCUTTA HIGH COURT IN CASE OF CIT VS. RAI BHADUR BISESWARLAL MOT ILAL HALWASIYA TRUST 252 ITR 84 AND CONTENDED THAT THERE IS NO CATEGORY OF DE FACTO TRUSTEE UNDER SECTION 13(3) OF THE ACT AND THAT ASSESSEE TRUST CANNOT BE TERMED AS INSTITUTION . 7. LD. CIT (A) HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE ALLOWING THE EXEMPTION U/S 11 OF THE ACT WITH ALL C ONSEQUENTIAL BENEFITS BY RETURNING FOLLOWING FINDINGS :- 4.1.4 IT IS EVIDENT FROM THE CONTRACT(S) FOR APPOI NTMENT OF DR. ARORA AND THE TRUST DEED, COPIES OF WHICH HAVE BEEN FILED DURING THE APPELLATE PROCEEDINGS, THAT HE IS NOT A TRUSTEE OF THE TRUST BUT HE HAS BEEN APPOINTED AS THE EXECUTIVE DI RECTOR WITH A SPECIFIC TERM AND SUBJECT TO CERTAIN CONDITIONS T HIS EMOLUMENTS HAVE ALSO BEEN DECIDED BY THE BOARD OF T RUSTEES AND MENTIONED IN THE CONTRACTS OF APPOINTMENT. SECT ION 13(3)(CC) PROVIDES THAT ANY TRUSTEE OF THE TRUST OR MANAGER (BY WHATEVER NAME CALLED) OF THE INSTITUTION COMES WITH IN THE MEANING OF THE PERSONS REFERRED TO IN CLAUSE (C) OF SUB-SECTIONS (1) AND (2) OF SECTION 13. THE LANGUAGE USED IN THE SAID CLAUSE IS MANAGER (BY WHATEVER NAME CALLED) OF THE INSTITUTIO N OR TRUSTEES OF THE TRUST. THE ISSUE FOR CONSIDERATION IS WHETHER A MANAGER OF THE INSTITUTION CAN BE READ AS THE MANAG ER OF THE TRUST ALSO. IN THE CASE OF ASSTT. CIT VS. THANTHI T RUST [(2001) 247 ITR 785 (SC)] IT HAS BEEN HELD THAT BOTH EXPRES SIONS ARE DIFFERENT IN THE CONTEXT OF SECTION 13(3). THE OBSE RVATION OF THE HON'BLE COURT IS AS FOLLOWS: 'TRUSTS AND INSTITUTIONS ARE SEPARATELY DEALT WITHI N THE ACT (SECTION 11 ITSELF AND SECTIONS 12, 12A AND 13, FOR EXAMPLE). THE EXPRESSIONS REFERRED TO ENTITIES DIFFERENTLY CO NSTITUTED.' ITA NO.7445/DEL./2017 5 4.1.5 THIS FINDING HAS ALSO BEEN GIVEN BY THE HON'B LE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. RAI BAHA DUR BISESWARLAL MOTILAL HALWASIYA TRUST (SUPRA), ALSO R ELIED UPON BY THE APPELLANT, IN WHICH CASE THE HON'BLE CALCUTT A HIGH COURT HAVE FOLLOWED THE DECISION OF THE HON'BLE SUP REME COURT IN THE CASE OF THANTHI TRUST AND HAVE HELD AS UNDER: 'WHEN THE TRUST AND INSTITUTION REFERRED TO IN SECT ION 13 ARE NOT ONE AND THE SAME THING AND THEY ARE DIFFERENT E NTITIES CLAUSE (CC) OF SUB-SECTION (3) OF SECTION 13 REFERS TO THE MANAGER OF THE INSTITUTION AND NOT THE MANAGER OF THE TRUST AND IN THE CASE IN HAND THE ADVANCE HAS BEEN GIVEN TO THE MANA GER OF THE TRUST AND NOT THE MANAGER OF THE INSTITUTION. IN VI EW OF THESE ADMITTED FACTS, NO INTERFERENCE IS CALLED FOR IN TH E ORDER OF THE TRIBUNAL.' 4.1.6 IN VIEW OF THE DECISIONS OF THE HON'BLE SUPRE ME COURT IN THANTHI TRUST AND HON'BLE CALCUTTA HIGH COURT, I SEE NO JUSTIFICATION TO ACCEPT THE CONCLUSION DRAWN BY THE ASSESSING OFFICER WI REG D TO THE APPLICABILITY OF SECTION 13 (3) IN THE CASE OF DR. ARORA. HE IS NOT A PERSON WHO IS COVERED WIT HIN THE MEANING OF THE DEFINITION OF 'SPECIFIED PERSON' AS GIVEN IN SECTION 13(3) SINCE HE IS THE EXECUTIVE DIRECTOR OF THE TRUST WHICH IS APPARENT FROM HIS CONTRACTS OF EMPLOYMENT. HE IS NOT A TRUSTEE WHICH IS EVIDENT FROM THE COPY OF THE TRU ST DEED. AS SEEN FROM THE PROVISIONS OF SECTION 1.3, THERE IS N O CONCEPT OF DE FACTO TRUSTEE, WHICH IS WHAT THE ASSESSING OFFICER HAS HELD WITH RESPECT TO DR. ARORA AND INVOKED THE PROVISIONS OF SECTION 13. 4.1.7 SINCE PROVISIONS OF 'SECTION 13 ARE NOT APPLI CABLE IN THE CASE OF DR. ARORA, THERE IS NO CASE FOR INVOKING T HE PROVISIONS OF SECTION 13(1)(C}(II) AND CONSEQUENTLY DENYING EX EMPTION TO THE ASSESSEE. AS REGARDS THE OTHER CONTENTIONS OF T HE ASSESSING OFFICER, IT IS CLEAR THAT THE EXECUTIVE DIRECTOR IS A PROFESSIONAL WHO HAS BEEN HIRED BY THE APPELLANT TO MANAGE THE A FFAIRS OF THE TRUST. HE IS AN EMPLOYEE OF THE TRUST AND NOT A TRUSTEE. HIS PREVIOUS CREDENTIALS ARE IMPECCABLE AND NO ADVERSE INFERENCE HAS BEEN DRAWN BY THE ASSESSING OFFICER WITH REGARD TO HIS CREDENTIALS. THEREFORE, THE OBJECTION OF THE ASSESS ING OFFICER THAT THE SALARY PAID TO HIM IS IN EXCESS OF THE NOR MAL SALARY PAID TO HIS JUNIORS IS NOT FACTUALLY AND LEGALLY SU STAINABLE. FURTHER, IT IS ONLY IN THE CONTEXT OF SECTION 13 TH AT THE ASSESSING OFFICER HAS HELD THAT THE SALARY PAID IS NOT REASON ABLE AND AS DISCUSSED ABOVE, SECTION 13 HAS NO APPLICABILITY IN THE CASE SINCE DR. ARORA IS NOT A SPECIFIED PERSON. 4.1.8 SINCE EXEMPTION WAS DENIED BY INVOKING THE PR OVISIONS OF SECTION 13(L)(C)(II) WHICH HAS BEEN HELD TO BE N OT APPLICABLE IN THE CASE OF THE APPELLANT, EXEMPTION UNDER SECTI ON 11 IS ITA NO.7445/DEL./2017 6 ALLOWED TO THE ASSESSEE WITH ALL CONSEQUENTIAL BENE FITS. GROUNDS OF APPEAL NOS. 1 TO 6 ARE ALLOWED. 8. TO EXAMINE THE ISSUE AS TO WHO IS A SPECIFIED PE RSON, WE WOULD LIKE TO EXTRACT THE PROVISIONS CONTAINED U/S 13(3) OF THE ACT AS UNDER :- 13. (3) THE PERSONS REFERRED TO IN CLAUSE ( C ) OF SUB-SECTION (1) AND SUB-SECTION (2) ARE THE FOLLOWING, NAMELY : ( A ) THE AUTHOR OF THE TRUST OR THE FOUNDER OF THE IN STITUTION; ( B ) ANY PERSON WHO HAS MADE A SUBSTANTIAL CONTRIBUTI ON TO THE TRUST OR INSTITUTION, THAT IS TO SAY, ANY PERSO N WHOSE TOTAL CONTRIBUTION UP TO THE END OF THE RELEVANT PREVIOUS YEAR EXCEEDS FIFTY THOUSAND RUPEES; ( C ) WHERE SUCH AUTHOR, FOUNDER OR PERSON IS A HINDU UNDIVIDED FAMILY, A MEMBER OF THE FAMILY; ( CC ) ANY TRUSTEE OF THE TRUST OR MANAGER (BY WHATEVER NAME CALLED) OF THE INSTITUTION; ( D ) ANY RELATIVE OF ANY SUCH AUTHOR, FOUNDER, PERSON , MEMBER, TRUSTEE OR MANAGER AS AFORESAID; (E) ANY CONCERN IN WHICH ANY OF THE PERSONS REFERRE D TO IN CLAUSES (A), (B), (C) [(CC)] AND (D) HAS A SUBSTANT IAL INTEREST. 9. BARE PERUSAL OF THE DEFINITION OF THE SPECIFIED PERSON, EXTRACTED ABOVE, GOES TO PROVE THAT DR. N.K. ARORA, EXECUTIVE DIRECTOR OF THE TRUST DOES NOT FALL UNDER ANY HEAD OF THE SPECIFIED PERSON. AO HAS USED THE WORD THAT DR. N.K. ARORA I S A DE FACTO TRUSTEE AND THERE IS NO SUCH CATEGORY IN THE NAME O F DE FACTO TRUSTEE UNDER SECTION 13(3) OF THE ACT. WHEN WE EXAMINE TR UST DEED OF ITA NO.7445/DEL./2017 7 THE ASSESSEE TRUST, AVAILABLE AT PAGES 1 TO 47 OF T HE PAPER BOOK, IT SHOWS AT PAGE 7 THAT THE TRUST SHALL HAVE THE FOLLO WING BODIES :- (I) THE GOVERNING BODY (II) THE BOARD OF TRUSTEES (III) THE MANAGEMENT COMMITTEE 10. AGAIN, DR. N.K. ARORA IS NEITHER A TRUSTEE NOR IN THE GOVERNING BODY NOR IN THE MANAGING COMMITTEE OF THE ASSESSEE TRUST, RATHER HE HAS BEEN PERFORMING DUTIES AS PER DIRECTIONS OF THE TRUSTEES AND BOARD OF TRUSTEES OF THE TRUST. MEREL Y FROM THE DESIGNATION, WE CANNOT REACH TO THE CONCLUSION THAT ASSESSEE TRUST IS OPERATING ONLY THROUGH DR. N.K. ARORA WHO HAS BEEN RENDERING SERVICES AS PER DUTIES ASSIGNED TO HIM ON THE BASIS OF REMUNERATION DECIDED BY THE ASSESSEE TRUST. 11. AO MADE AN ADDITION OF RS.37,19,000/- BEING THE EXCESSIVE REMUNERATION PAID TO DR. N.K. ARORA. ON THE ONE HA ND, HE IS BEING CONSIDERED A SPECIFIED PERSON AS A DE FACTO TRUSTEE AND ON THE OTHER HAND, HE IS BEING ADMITTED AS WORKING UNDER THE TRU ST AND HIS REMUNERATION FOUND TO BE EXCESSIVE. GIVEN THE PROF ILE OF DR. N.K. ARORA WHO IS ASSOCIATED WITH VARIOUS SEARCH PROJECT S BEING CARRIED OUT BY THE INDIAN COUNCIL OF MEDICINE RESEARCH (ICM R), MEMBER OF NATIONAL ADVISORY GROUP ON IMMUNIZATION (NTAGI) - MINISTRY OF HEALTH & FAMILY WELFARE, SOUTH-EAST ASIA REGIONA L ITA NO.7445/DEL./2017 8 IMMUNIZATION TECHNICAL ADVISORY GROUP (SEAR ITAG) A ND HE IS ALSO MEMBER OF THE COVID 19 GROUP, IS MADE TO WORK UNDER THE ASSESSEE TRUST AS PER DIRECTIONS OF THE 16 TRUSTEES OF THE BOARD OF TRUST. WHEN UNDOUBTEDLY DR. N.K. ARORA IS NOT AN A UTHOR OF THE TRUST NOR TRUSTEE NOR HAS MADE SUBSTANTIAL CONTRIBU TION TO THE TRUST HE CANNOT BE TREATED AS A SPECIFIED PERSON. 12. HONBLE SUPREME COURT IN CASE OF ACIT VS. THANTHI TRUST (SUPRA) HELD THAT, TRUSTS AND INSTITUTIONS ARE SEPARATELY DEALT WITHIN THE ACT (SECTION 11 ITSELF AND SECTIONS 12, 12A & 13, FOR EXAMPLE). THE EXPRESSIONS REFERRED TO ENTITIES DIF FERENTLY CONSTITUTED. 13. HONBLE CALCUTTA HIGH COURT IN CASE OF CIT VS. RAI BAHADUR BISESWARLAL MOTILAL HALWASIYA TRUST (SUPRA) ALSO HELD THAT, WHEN TRUSTS AND INSTITUTIONS ARE TWO DIFFERENT ENT ITIES CLAUSE (CC) OF SUB-SECTION (3) OF SECTION 13 REFERS TO THE MANAGER OF THE INSTITUTION AND NOT MANAGER OF THE TRUST. 14. WE ARE OF THE CONSIDERED VIEW THAT WHEN CHARITA BLE NATURE OF THE TRUST IS NOT IN DISPUTE AND DR. N.K. ARORA HAS BEEN WORKING AS PER DIRECTIONS ISSUED BY THE BOARD OF TRUSTEES TO C ARRY OUT VARIOUS RESEARCH PROJECTS AS AN EXECUTIVE DIRECTOR AND BEIN G PAID REMUNERATION BY THE TRUSTEE STATED TO BE COMMENSURA TE TO HIS FUNCTIONAL PROFILE, THERE IS NO QUESTION OF TREATIN G HIM AS A ITA NO.7445/DEL./2017 9 SPECIFIED PERSON UNDER THE GARB OF SELF CREAT ED PRINCIPLE OF DE FACTO TRUSTEE MERELY ON THE GROUND THAT HE IS SUPERVISING THE SUBSTANTIAL ACTIVITIES OF THE TRUST. 14. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT LD. CIT (A) HAS RIGHTLY REACHE D THE CONCLUSION THAT PROVISIONS CONTAINED U/S 13(1)(CC)(II) OF THE ACT ARE NOT APPLICABLE TO THE CASE OF THE ASSESSEE TRUST. SO, FINDING NO ILLEGALITY OR PERVERSITY IN THE IMPUGNED ORDER, APPEAL FILED B Y THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 28 TH DAY OF JULY , 2021. SD/- SD/- (O.P. KANT) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 28 TH DAY OF JULY, 2021 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-40, DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.