Appeal details
Counselvise Citation
[2011] 134 COUNSELVISE.COM (IT) 3478 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 month(s) 17 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
29-07-2011
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
B
Next Hearing Date
28-07-2011
Assessment Year
2006-2007
Appeal Filed On
11-02-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `B: NEW DELHI BEFORE SHRI C.L.SETHI, JUDICIAL MEMBER AND SHRI B.K. HALDAR, ACCOUNTANT MEMBER I.T. A. NO. 27/DEL/2011 ASSESSMENT YEAR : 2006-07 CONFRERE EDUCATIONAL SOCIETY, ADDL. COMMISSI ONER OF INCOME-TAX, C-56A/28, SECTOR-62, VS. NOIDA RANGE, NOIDA. NOIDA. PAN: AAATC4508K I.T. A. NO. 833/DEL/2011 ASSESSMENT YEAR : 2006-07 ADDL. COMMISSIONER OF INCOME-TAX, CONFRERE EDUCATIO NAL SOCIETY, NOIDA RANGE, NOIDA. VS. C-56A/28, SECTOR-62, NOIDA. (APPELLANTS) (RESPONDENTS) ASSESSEE BY: SHRI RANJAN CHOPRA, CA. DEPARTMENT BY: SHRI ROHIT GARG . O R D E R PER C.L. SETHI, JUDICIAL MEMBER: THESE ARE CROSS APPEALS, FILED BY THE ASSESSEE AS W ELL BY THE REVENUE, DIRECTED AGAINST THE ORDER DATED 19.11.2010 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IN THE MATTER OF AN ASSESSMENT MADE BY THE ASSESSING OFFICER UNDER SEC. 143(3) OF THE I NCOME-TAX ACT, 1961 (THE ACT), FOR THE ASSESSMENT YEAR 2006-07. 2 2. IN THE COURSE OF HEARING OF THE ASSESSEES APPEA L, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE REGAR DING ASSESSEES CLAIM OF EXEMPTION UNDER SEC. 10(23)(IIIAD)/(VI) OF THE INCO ME-TAX ACT, 1961, MAY KINDLY BE TREATED TO BE WITHDRAWN AND AS SUCH, THE GROUND NOS.1 TO 3 RAISED BY THE ASSESSEE MAY BE DISMISSED AS NOT PRESSED FOR . 3. IN THE LIGHT OF THE CATEGORICAL SUBMISSION MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE, GROUNDS NO.1 TO 3 RAISED BY THE A SSESSEE ARE DISMISSED AS NOT PRESSED FOR. 4. GROUND NOS. 4 & 5 ARE DIRECTED AGAINST THE LEARN ED CIT(A)S ORDER IN ONLY PARTIALLY ALLOWING THE PAYMENT OUT OF RS.28,46 ,950/- MADE TO M/S. I.T. BREAK.COM PVT. LTD. AND SILICON ARGO RESEARCH PVT. LTD. BY THE ASSESSEE FOR DEVELOPING COURSE STUDY MATERIAL FOR ITS VARIOUS ST UDENTS ENROLLED WITH THE SOCIETY. 5. IN THE DEPARTMENT APPEAL, THE REVENUE HAS TAKEN A GROUND THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALL OWING PROPORTIONATE AMOUNT OF EXPENSES PAID TO M/S. I.T. BREAK.COM PVT . LTD. AND SILICON ARGO RESEARCH PVT. LTD. 6. THUS, GROUND NOS.4 & 5 RAISED BY THE ASSESSEE AN D GROUND NOS.1 & 2 RAISED BY THE REVENUE ARE INTER-CONNECTED. HENCE, THEY ARE TAKEN TOGETHER FOR OUR DECISION. 3 7. THE ASSESSEE SOCIETY IS REGISTERED UNDER SEC. 12 A VIDE ORDER DATED 15.03.2004 OF THE LEARNED CIT. THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR UNDER CONSIDERATION ON 30.10.2006 D ECLARING TOTAL INCOME AT RS. NIL. THE ASSESSEE AS AN EDUCATIONAL SOCIETY CLAIMED EXEMPTION U/S 10(23C(VI)ON ITS TOTAL INCOME OF RS.7,90,815/- AND FILED RETURN DECLARING TOTAL INCOME AT RS. NIL. THE ASSESSEE FILED AUDIT REPORT UNDER SEC. 12A(B) ALONG WITH THE RETURN OF INCOME. IN THE INCOME AND EXPENDITURE ACCOUNT, THE ASSESSEE HAD SHOWN GROSS RECEIPTS OF RS.2,46,77,668 /-. SINCE THE GROSS RECEIPTS EXCEED RS.1,00,00,000/- AND THE ASSESSEE S OCIETY WAS NOT NOTIFIED UNDER SEC. 10(23C)(VI), THE ASSESSEES CLAIM OF EXE MPTION UNDER SEC. 10(23C)(VI) WAS DISALLOWED BY THE AO. THE AO FURTH ER STATED THAT THE ASSESSEES IDENTICAL CLAIM UNDER SEC. 10(23C) WAS A LSO DISALLOWED IN THE ASSESSMENT YEAR 2004-05. THE AO FURTHER STATED THA T IN THE ASSESSMENT YEAR 2004-05, EXPENDITURE UNDER THE HEAD COURSE MA TERIAL COLLECTION AND DEVELOPMENT AMOUNTING TO RS.18,13,780/- WAS ALSO D ISALLOWED BEING THE PAYMENT MADE TO THE COMPANY IN WHICH MEMBERS OF THE SOCIETY WERE DIRECTORS. THE AO FURTHER STATED THAT APPEAL BY TH E ASSESSEE AGAINST THE AFORESAID DISALLOWANCE WAS PENDING AT THE TIME WHEN THIS RETURN OF INCOME FOR ASSESSMENT YEAR 2006-07 WAS SELECTED FOR SCRUTI NY. THE AO THEN ISSUED NOTICE U/S 143(2) OF THE ACT, WHICH WAS DULY SERVED UPON THE ASSESSEE. IN 4 REPLY THERETO, THE ASSESSEES AUTHORIZED REPRESENTA TIVE APPEARED BEFORE THE AO AND FURNISHED DETAILS AND REPLIES AS CALLED FOR. BOOKS OF ACCOUNT WERE ALSO PRODUCED AND TEST CHECKED. THE AO THEN DISCUS SED THE MATTER WITH THE ASSESSEES AUTHORIZED REPRESENTATIVE AND COMPLETED THE ASSESSMENT UNDER SEC. 143(3) OF THE ACT VIDE ORDER DATED 30.12.2008. 8. IN THE ASSESSMENT ORDER, THE AO STATED THAT DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY HIM THAT TH E ASSESSEE SOCIETY HAD MADE PAYMENT OF RS.28,46,950/- AS COURSE MATERIAL C OLLECTION AND DEVELOPMENT CHARGES TO THE FOLLOWING PARTIES:- 1. M/S. I.T. BREAK.COM PVT. LTD. RS.15,08,750/- 2. M/S. SILICON AGRO RESEARCH PVT. LTD. RS.13,38 ,200/- TOTAL RS.28,46,950/- 9. THE AO THEN ASKED THE ASSESSEE TO FILE THE COPIE S OF THE INCOME-TAX RETURN ALONG WITH BALANCE-SHEET AND PROFIT & LOSS A CCOUNT OF THE ABOVE SAID COMPANIES WHICH WERE FURNISHED VIDE REPLY DATED 25. 11.2008. ON PERUSAL OF THE RETURNS OF INCOME, IT WAS FOUND THAT SHRI PUNIT MALHOTRA AND SHRI PRASHAN KANSAL WERE DIRECTORS OF THE COMPANY IN M/S . I.T. BREAK.COM PVT. LTD. AND MRS. SHARWANI SHUKLA, SMT. BHARTI GUPTA AN D MRS. ARCHANA MALHOTRA WHO ARE WIVES AND RELATIVES, ARE DIRECTORS IN M/S. SILICON AGRO RESEARCH PVT. LTD. THE AO FURTHER FOUND THAT SHRI PUNIT MALHOTRA, SHRI 5 VIJAY SHANKAR SHUKLA AND SHRI PRASHAN KANSAL ARE TH E CHAIRMAN, VICE- CHAIRMAN & SECRETARY, AND SECRETARY & TREASURER RES PECTIVELY. FROM THESE DETAILS, IT WAS NOTED BY THE AO THAT EITHER THE EXE CUTIVE MEMBERS OF THE SOCIETY OR THEIR RELATIVES OR WIVES ARE THE DIRECTO RS IN THE AFORESAID TWO COMPANIES. THE AO THEN REFERRED TO SEC. 13(1)(C)(I I) ALONG WITH SEC.13(2)(C) AND 13(3)(CC) OF THE ACT . THE AO THE REFORE HAS TAKEN A VIEW THAT PAYMENT MADE FOR THE PURPOSE OF COURSE MATERIA L AND DEVELOPMENT CHARGES TO THE AFORESAID TWO COMPANIES WAS IN VIOLA TION OF SEC. 13 OF THE ACT BY GIVING FOLLOWING REASONS:- (A) THE PAYMENT FOR COURSE MATERIAL COLLECTION & DEVELOPMENT CHARGES HAS NOT BEEN MADE TO INDEPENDEN T ENTITIES, SINCE EXECUTIVE MEMBERS/MEMBERS OF THE TR UST ARE EITHER THE DIRECTORS OF THE ABOVE COMPANY OR THEIR RELATIVES ARE DIRECTORS OF THE COMPANIES. (B) PERUSAL OF PROFIT & LOSS ACCOUNT OF M/S. I.T. B REAK.COM PVT. LTD. I.E. THE CONCERN TO WHICH THE PAYMENT OF RS.15,08,750/- HAS BEEN MADE SHOWS THAT PAYMENT OF RS.12,28,800 (OUT OF GROSS RECEIPTS OF RS.15,12,740 /-) HAS BEEN MADE TO ITS DIRECTORS. SIMILARLY IN THE CASE OF M/ S. SILICON AGRO RESEARCH PVT. LTD. (TO WHOM PAYMENT OF RS.13,3 8,200/- HAS BEEN MADE FOR COURSE MATERIAL COLLECTION & DEVE LOPMENT CHARGES) HAS MADE PAYMENT OF SALARY OF RS.10,80,000 /- (OUT OF GROSS EXPENSES OF RS.16,23,914) TO ITS DIRECTORS. THIS TRANSACTION CLEARLY SHOWS THAT THESE COMPANIES HAVE BEEN USED ONLY AS A CONDUIT TO SIPHON OFF THE FUNDS OF THE SO CIETY TO THE ACCOUNT OF EXECUTIVE MEMBERS/MEMBERS OF THE TRUST O R THEIR RELATIVES UNDER GUISE OF PAYMENT FOR COURSE MATERIA L COLLECTION & DEVELOPMENT CHARGES. 6 10. THE AO FURTHER STATED THAT IT WAS TRUE THAT SOM E EXPENDITURE MIGHT HAVE BEEN REQUIRED TO PREPARE COURSE MATERIAL BY TH E SOCIETY, BUT THE NATURE OF EXPENSES SHOWN IN THE PROFIT & LOSS ACCOUNT OF T HE AFORESAID TWO COMPANIES WAS MOSTLY IN THE NATURE OF SALARY, TRAVE LLING, CONVEYANCE, BUSINESS PROMOTION AND STAFF WELFARE AND SALARY TO THE DIRECTORS. THE AO THEN ASKED THE ASSESSEE TO EXPLAIN THE MATTER VIDE ORDER SHEET ENTRY DATED 23.10.2008. THE ASSESSEE THEN SUBMITTED ITS REPLY VIDE LETTER DATED 10.11.2008 AS UNDER:- THE SOCIETY PROVIDES SPECIALIZED COURSE MATERIAL TO ITS EVERY STUDENT FOR ENHANCEMENT OF THEIR KNOWLEDGE AN D CARRIER. THESE COURSE MATERIALS ARE AN INTEGRAL PART OF THEI R COURSE CURRICULUM. THESE COURSE MATERIALS ARE ON SPECIALI ZED TOPICS IN THE AREA LIKE BIO INFORMATICS, CLINICAL TRIALS, DRU G DESIGN AND DISCOVERY ETC. THESE COURSE MATERIALS ARE IN SHAPE OF BOUND PRINTED BOOKS AND ELECTRONICS CDS. MORE THAN 40 C OURSE BOOKS MATERIAL AND SEVERAL CDS MATERIAL HAS BEEN D EVELOPED BY THESE COMPANIES FOR CONFRERE EDUCATION SOCIETY. SOCIETY HAS MADE PAYMENT FOR COURSE MATERIAL AND DEVELOPMEN T CHARGES FOR CONTENT PREPARATION. MOST OF THESE BOO KS/COURSE MATERIAL ARE NOT EASILY AVAILABLE AND IF AVAILABLE THEN ON VERY HIGH COST. THE SOCIETY HAS TAKE HELP OF TWO COMPAN IES FOR DEVELOPMENT OF SUCH COURSE MATERIAL, SO THAT QUALIT Y CAN BE MAINTAINED AND COST CAN BE REDUCED SO THAT STUDENT CAN AFFORD IT. THIS WORK IS CARRIED OUT BY TWO COMPANIES NAMELY S ILICON AGRO RESEARCH PVT. LIMITED & I.T. BREAK.COM PVT. LT D., IN WHICH RELATIVES OF TRUSTEE ARE INTERESTED. THIS WO RK HAS BEEN ENTRUSTED TO THESE TWO COMPANIES DUE TO PECULIAR NA TURE OF THE WORK. THE COURSE CONTENT DEVELOPMENT WORK IS HIGHL Y INTELLECTUAL AND CONFIDENTIAL WORK. THIS WORK IS A INTELLECTUAL PROPERTY RIGHT WORK. COURSE MATERIAL CONTENT DEVEL OPMENT IS A 7 INTELLECTUAL AND CAPITAL INTENSIVE EXERCISE, WHICH CAN BE TAKEN UP BY THE QUALIFIED INDIVIDUALS. BECAUSE THE MATERI AL UNDER DEVELOPMENT CAN EASILY BE COPIES, REPLICATED OR PUB LISHED ELSE WHERE. THEREFORE IT BECOMES NECESSARY TO OUTSOURCE THIS WORK TO PARTIES OF CONFIDENCE. FURTHER THE DIRECTORS OF THESE TWO COMPANIES ARE HIGHLY QUALIFIED AND EXPERIENCED INDI VIDUALS AND WELL EQUIPPED TO COMPLETE THIS TASK. THAT IS THE O NLY REASON TO GIVE THIS WORK TO RELATED PARTIES. 11. THE AO THEN CONSIDERED THE ASSESSEES EXPLANATI ON AND STATED THAT THE REPLY OF THE ASSESSEE WAS NOT ACCEPTABLE. THE AO O BSERVED THAT THE ASSESSEE SOCIETY HAD MADE PAYMENT OF RS.28,46,950/- TOWARDS COURSE MATERIAL AND DEVELOPMENT CHARGES OUT OF GROSS RECEIPT OF RS.2,46 ,77,668/- TO THE AFORESAID COMPANIES, WHICH COMES TO 11.50% OF TOTAL RECEIPTS. THE AO THEN STATED THAT THESE BOGUS COMPANIES WERE CREATED AND THE ENT IRE TRANSACTION WAS IN THE NATURE OF COLOURABLE TRANSACTIONS CREATED FOR T HE PURPOSE OF DISBURSEMENT/DIVERSION OF INCOME TO THE MEMBERS. TH E AO THEN OPINED THAT ENTIRE TRANSACTION WAS NOT IN THE SPIRIT OF SEC. 12 A AND WAS IN VIOLATION OF SEC. 13 OF THE ACT. THE AO THEN HELD THAT THE ASSE SSEE HAD APPLIED RS.28,46,950/- INDIRECTLY FOR THE PURPOSE OF SALARY AND OTHER BENEFITS OF THE MEMBERS AND THEIR RELATIVES AND EXEMPTION UNDER SEC TIONS 11 & 12 WILL NOT BE OPERATIVE IN THAT REGARD. THE AO FURTHER STATED THAT IDENTICAL DISALLOWANCE OF EXPENSES WERE MADE IN ASSESSMENT YE AR 2004-05 AND ON AN APPEAL FILED BEFORE THE LEARNED CIT(A), THE LEARNED CIT(A) PARTIALLY ALLOWED RELIEF TO THE ASSESSEE BUT THE ORDER OF THE LEARNED CIT(A) HAS NOT BEEN 8 ACCEPTED BY THE DEPARTMENT AND SECOND APPEAL HAS BE EN FILED BEFORE THE TRIBUNAL. THE AO, THEREFORE, DISALLOWED THE PAYMEN T OF RS.28,46,950/- AND BENEFIT UNDER SEC. 11 WAS DENIED. 12. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPE AL BEFORE THE LEARNED CIT(A). 13. AFTER CONSIDERING THE AOS ORDER AND THE ASSESS EES SUBMISSION AND IN THE LIGHT OF THE CIT(A)S ORDER PASSED IN THE ASSES SMENT YEAR 2004-05, THE LEARNED CIT(A) ALLOWED A RELIEF OF RS.23,70,715/- O UT OF THE TOTAL ADDITION OF RS.28,46,950/- MADE BY THE ASSESSING OFFICER. THE REVENUE IS IN APPEAL AGAINST THE CIT(A)S ORDER IN GRANTING A RELIEF OF RS.23,70,715/- AND THE ASSESSEE IS IN APPEAL AGAINST SUSTAINING THE ADDITI ON ONLY BY GRANTING OF RS.23,70,715/- AGAINST TOTAL ADDITION OF RS.28,46,9 50/-. 14. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMIT TED THAT IDENTICAL ISSUE HAD COME FOR CONSIDERATION BEFORE ITAT, DELHI BENCH `B, DELHI IN THE ASSESSEES CASE PERTAINING TO THE ASSESSMENT YEAR 2 004-05, WHERE RELIEF GRANTED BY THE LEARNED CIT(A) IN THAT YEAR WAS UPHE LD AND THE PART OF THE ADDITION SUSTAINED BY THE LEARNED CIT(A) HAS BEEN D ELETED VIDE ORDER DATED 28 TH JANUARY, 2011 IN ITA NOS.95(DEL)/2009 AND 118(DEL) /2009. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE AO HAS NOT BEEN ABLE TO ESTABLISH AND PROVE THAT THE AFORESAID TWO COMPANIES ARE BOGUS AND 9 THE PAYMENT MADE TO THEM TOWARDS COURSE MATERIAL AN D DEVELOPMENT CHARGES WAS NOT MADE AT ARMS LENGTH OR ANY EXCESSIVE PAYME NT HAS BEEN MADE HAVING REGARD TO THE MARKET VALUE OF THE ITEM. HE PLACED RELIANCE UPON THE AFORESAID TRIBUNALS ORDER PASSED IN THE ASSESSEES CASE FOR THE ASSESSMENT YEAR 2004-05. 15. THE LEARNED DR ON THE OTHER HAND, REITERATED TH E VARIOUS POINTS AND REASONS GIVEN BY THE AO IN HIS ORDER WHILE DISALLOW ING THE DEDUCTION OF EXPENSES AMOUNTING TO RS.28,46,950/-. HE FURTHER S UBMITTED THAT THE AO HAS CATEGORICALLY STATED IN HIS ORDER THAT THESE AR E BOGUS COMPANIES AND ENTIRE TRANSACTION WAS MADE FOR THE PURPOSE OF DIVE RSION OF INCOME TO ITS MEMBERS. HE THEREFORE, SUBMITTED THAT ENTIRE TRANS ACTION WAS IN VIOLATION TO SEC. 13 OF THE ACT. 16. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFUL LY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. 17. ON PERUSAL OF THE AOS ORDER, WE FIND NO MATERI AL OR BASIS TO HOLD THAT THE AFORESAID TWO COMPANIES NAMELY M/S. I.T. BREAK. COM PVT. LTD. AND M/S. SILICON AGRO RESEARCH PVT. LTD. ARE BOGUS COMPANIES . IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE PRODUCED THE I NCOME-TAX RETURN ALONG WITH BALANCE-SHEET AND PROFIT AND LOSS ACCOUNT OF T HE ABOVE SAID COMPANIES. IT IS NOT IN DISPUTE THAT THE MEMBERS OF THE ASSESS EE SOCIETY ARE DIRECTORS IN M/S. I.T. BREAK.COM PVT. LTD. BUT THE AO HAS NOT B ROUGHT ANY MATERIAL ON RECORD OR ANY COMPARABLE CASES TO SHOW THAT THE PAY MENT HAS NOT BEEN MADE 10 AT ARMS LENGTH OR ANY EXCESSIVE PAYMENT HAS BEEN M ADE TO THESE PARTIES. THE AO HAS ALSO NOT BEEN ABLE TO DISPUTE THE ASSESS EES CLAIM THAT THE ASSESSEE HAS PURCHASED COURSE MATERIALS IN THE SHAP E OF BOUND PRINTED BOOKS AND ELECTRONIC CDS FROM THE SAID TWO COMPANIES. TH E IDENTICAL DISALLOWANCE HAS BEEN MADE BY THE AO IN THE ASSESSM ENT YEAR 2004-05 AS SO STATED BY THE AO IN THE ASSESSMENT ORDER ITSELF. THE AO FURTHER STATED IN THE ASSESSMENT ORDER THAT IN ASSESSMENT YEAR 2004-0 5, THE LEARNED CIT(A) HAS ALLOWED PARTIAL RELIEF TO THE ASSESSEE BUT THE ORDER OF THE LEARNED CIT(A) HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND A SECON D APPEAL HAS BEEN FILED BEFORE THE TRIBUNAL. IN THE ASSESSMENT YEAR 2004-0 5 BOTH THE ASSESSEE AND REVENUE WERE IN APPEAL AND AFTER HEARING BOTH THE P ARTIES, THE TRIBUNAL DISMISSED THE REVENUES APPEAL AND ALLOWED THE APPE AL FILED BY THE ASSESSEE. THE TRIBUNAL IN ASSESSMENT YEAR 2004-05 HAS HELD AN D OBSERVED AS UNDER:- 5. THE SECOND QUESTION IS WHETHER THE ASSESSEE IS ENTITLED TO FULLY DEDUCT THE AMOUNT OF RS. 18,13,780/- PA ID TO IT BVREAK.COM PVT. LTD. FOR DEVELOPING ITS COURSE S TUDY MATERIAL, WHICH IS USED FOR THE PURPOSE OF IMPAR TING EDUCATION. THE AO HAS DISALLOWED THIS AMOUNT B Y INVOKING THE PROVISION CONTAINED IN SECTION 13(1)(C)(II) BY HOLDING THAT A PART OF INCOME OR PROPERTY OF THE INSTITUTION HAS BEEN USED OR APPLIED IN THIS YEAR DIRECTLY OR INDIRECTLY F OR THE BENEFIT OF THE PERSONS REFERRED TO IN SECTION 13(3). IN THE CASE OF LUCKNOW DIOCESAN TRUST ASSOCIATION (SUPRA), THE QUESTION BEFORE THE HONBLE ALLAHABAD HIGH COURT WAS-WHET HER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS CORRECT IN ALLOWING THE PAYMENT OF RS.10,000/- MADE BY THE TRUST TO ITS TRUSTEES AS AN ADMISSIBLE D EDUCTION? THE 11 TRIBUNAL HAD GIVEN A FINDING OF FACT THAT THE TR UST WAS GOVERNED BY CHARITABLE AND RELIGIOUS TRUSTS ACT, 1922 AND NOT BY THE INDIAN TRUSTS ACT, 1882. IT COULD NOT BE SHOWN THAT THERE IS ANY RESTRICTION PLACED IN THE CHARITA BLE AND RELIGIOUS TRUSTS ACT, 1922, IN THE MATTER OF PAY MENT OF REMUNERATION BY THE TRUST TO THE TRUSTEES. IT W AS HELD THAT ON THESE FACTS THE TRIBUNAL WAS RIGHT IN HOLDING TH AT THE AMOUNT OF RS.10,000/- WAS AN ADMISSIBLE DEDUCTION. H AVING CONSIDERED THIS CASE, WE ARE OF THE VIEW THAT ISSUE INVOLVED IN OUR CASE IS SOMEWHAT DIFFERENT, NAMELY, AS TO WHETHER ANY BENEFIT HAS BEEN PASSED TO THE MEMBERS OF THE SOCIETY INDIRECTLY SO AS TO ATTRACT THE PROVISION CONTAIN ED IN SECTION 13(1)(C)(II) READ WITH SECTION 13(2) OF THE IN COME-TAX ACT, 1961. HOWEVER, THIS DECISION DOES LEAD TO THE INFERENCE THAT REMUNERATION PAID TO DIRECTORS MAY BE AD MISSIBLE. THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BEL OW:- AS NOTED ABOVE, THE FACTS, FOUND BY THE TRIBUNAL WERE THAT THE ASSESSEE IS A CHARITABL E AND RELIGIOUS TRUST AND IS GOVERNED BY THE CHARITABLE AND RELIGIOUS TRUST ACT, 1922, AND NOT BY THE INDIAN TRUSTS ACT, 1882. IT COULD NOT B E SHOWN TO US THAT THERE IS ANY RESTRICTION PLACE D IN THE CHARITABLE AND RELIGIOUS TRUSTS ACT, 1922, IN THE MATTER OF PAYMENT OF REMUNERATION BY THE TRUST TO THE TRUSTEES. IT WAS FURTHER FOUND A ND IT IS NOT DISPUTED THAT THE LUCKNOW DIOCESAN TRUST ASSOCIATION MANAGES THE AFFAIRS OF THE ASSESSEE AND THIS PAYMENT WAS MADE TO THEM FOR THE SERVICES RENDERED AND THAT IT WAS CLEARLY FOR THE PURPOSE OF THE TRUST. ON THESE FACTS, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THIS AMOUNT OF RS. 10,000/- WAS AN ADMISSIBLE DEDUCTION. 5.1 IN THE CASE OF PARIWAR SEWA SANSTHAN (SUPRA), THE QUESTION BEFORE THE HONBLE DELHI HIGH COURT WA S-WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE TRIBUNAL WAS CORRECT IN ALLOWING THE BENEFIT U/S 11 OF THE INCOME-TAX ACT, 1961, WITHOUT APPRECIATING THAT THE ASSESSEE HAD VIOLATED THE PROVISIONS OF SECTIONS 13(1)(C) AND 13(1)(D) 12 OF THE ACT? THE HONBLE COURT MENTIONED THAT T YAGI FOUNDATION WAS A SEPARATE REGISTERED SOCIETY ENGA GED IN SIMILAR CHARITABLE ACTIVITIES AND THE ALLEGATI ON OF THE AO ABOUT THIS SOCIETY BEING CONTROLLED BY MRS. SUD HA TEWARI WAS WRONG AND IRRELEVANT. NO MATERIAL WAS BR OUGHT TO SHOW THAT TYAGI FOUNDATION WAS NOT A GENUINE RE GISTERED SOCIETY ENGAGED IN SIMILAR CHARITABLE ACTIVITIES. THE LOAN WAS GIVEN BY THE ASSESSEE TO TYAGI FOUNDATION IN PURS UANCE OF ITS OBJECTS TO PROMOTE CHARITABLE ACTIVITIES. IT WAS NOT THE CASE THAT TYAGI FOUNDATION HAS MISUSED THE AMOUNT OF LOAN AND UTILIZED IT FOR NON-CHARITABLE PURPOSES. THE L OAN WAS FULLY SECURED BY MORTGAGE DEED AND IN SUBSEQUENT Y EAR ON NON- PAYMENT OF THE LOAN, THE PROPERTY REVERTED TO TH E ASSESSEE- SOCIETY. THEREFORE, IT WAS HELD THAT THE LD. CIT (A) WAS JUSTIFIED IN REJECTING THE CASE OF THE AO. WE F IND THAT THE FACTS OF THIS CASE ARE SOMEWHAT DIFFERENT. THE CASE DEALT WITH A LOAN OF TYAGI FOUNDATION SECURED BY MOR TGAGE. ON NON-PAYMENT OF THE LOAN, THE PROPERTY REVERTED TO THE ASSESSEE-SANSTHAN. IN THE CASE AT HAND, THE A SSESSEE HAD PAID CERTAIN AMOUNTS TO IT BREAK.COM PVT. LTD. IT IS NOT A LOAN. FURTHER, THERE IS NOTHING ON RECORD TO SH OW THAT IT BREAK.COM PVT. LTD. IS AN EDUCATIONAL INSTITUTIO N. THEREFORE, THE RATIO OF THIS CASE IS NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE. HOWEVER, FOR READY REFERENCE, THE RELEVANT PARAGRAPH FROM THE JUDGMENT IS REPRODUCED BELOW: - AGAIN, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE ASSESSING OFFICER AND THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) FOR THE ASSESSMENT YEARS 1995-96 AND 1996-97 ON THE ISSUE OF LOAN TO TYAGI FOUNDATION AND CONSIDERED THE SUBMISSIONS AND CONTENTIONS MADE BY THE LEARNED AUTHORISED REPRESENTATIVES OF BOTH THE SIDES. WE ARE OF THE VIEW THAT THE LD . COMMISSIONER OF INCOME-TAX (APPEALS) WAS JUSTIFIED IN HOLDING THAT THERE WAS NO VIOLAT ION OF THE PROVISIONS OF SECTION 13(5) IN GIVING THE LOAN TO TYAGI FOUNDATION. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) FOUND THAT TYAGI FOUNDATION WAS A SEPARATE REGISTERED SOCIETY 13 ENGAGED IN SIMILAR CHARITABLE ACTIVITIES AND TH E ALLEGATION OF THE ASSESSING OFFICER OF THIS SOCI ETY BEING CONTROLLED BY MRS. SUDHA TEWARI AND OTHERS WAS WRONG AND IRRELEVANT. NO MATERIAL WAS BROUGHT TO SHOW THAT TYAGI FOUNDATION WAS NOT A GENUINE REGISTERED SOCIETY ENGAGED IN SIMILAR CHARITABLE ACTIVITIES. THE LOAN GIVEN BY THE ASSESSEE TO TYAGI FOUNDATION WAS OUT OF THE OBJECT OF THE ASSESSEE-SOCIETY TO PROMOTE ITS CHARITABLE ACTIVITIES. IT WAS NOT A CASE THAT TYAGI FOUNDATION HAD MISUSED THE AMOUNT OF LOAN AND UTILIZED IT FOR NON-CHARITABLE PURPOSES . NO MATERIAL WAS PLACED TO SHOW THAT THE PURCHASE OF THE PROPERTY AND UTILIZATION OF THE PROPERTY BY TYAGI FOUNDATION WAS FOR PURPOSES OTHER THAN ITS CHARITABLE PURPOSES. MOREOVER, THE LOAN GIVEN WAS FULLY SECURED BY MORTGAGE DEED AND IN FACT IN THE SUBSEQUENT YEAR ON NON-PAYMENT OF THE LOAN THE PROPERTY WAS REVERTED TO THE ASSESSEE-SOCIETY. NO MATERIAL WAS PLACED TO SHOW THAT THERE WAS ANY NON- CHARITABLE ACTIVITIES CONNECTED WITH THE PROPERTY IN QUESTION. ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE, THEREFORE, WE HOLD THA T THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) WAS JUSTIFIED IN REJECTING THIS GROU ND AS WELL AS FOR THE REJECTION OF THE CLAIM OF EXEMPTION UNDER SECTION 11 OF THE ACT BY THE ASSESSING OFFICER. 5.2 IN THE CASE OF SURAT CITY GYMKHANA (SUPRA), THE QUESTION BEFORE HONBLE GUJARAT HIGH COURT WAS REGARDING THE ONUS FOR INVOKING THE PROVISION CONTAINED IN SECTION 13(1)(C). IT IS MENTIONED THAT THE REVENUE MAKE S AVERMENT ABOUT THE APPLICABILITY OF THIS PROVISION AND HENCE THE ONUS IS ON IT TO ESTABLISH THE FAILURE, IF ANY. THE RELEVANT PORTION OF THE JUDGMENT AT PAGE NO. 743 OF THE REPORT RE ADS AS UNDER:- 14 EVEN OTHERWISE, THE PROVISIONS OF SECTION 13 OPEN WITH A NON OBSTANTE CLAUSE AND HENCE BY VIRTUE OF THE SAID PROVISIONS EXCEPTION TO THE EXEMPTION PROVIDED BY SECTION 11 IS CARVED OUT AND AN ASSESSEE IS DENIED THE EXEMPTION UNDER SECTION 11 OF THE ACT IN A CASE WHERE THE INCOME OR PROPERTY OF THE TRUST IS USED OR APPLIED O R ENURES FOR THE BENEFIT OFF ANY PERSON REFERRED TO I N SECTION 13(3) OF THE ACT. IN THE PRESENT CASE, IT IS THE RESPONDENT WHO AVERS APPLICABILITY OF PROVISION OF SECTION 13(1)(C) AND HENCE THE ONU S IS ON HIM TO ESTABLISH THE FAILURE, IF ANY. FROM THE REASONS RECORDED IT IS APPARENT THAT HE IS OF THE OPINION THAT THE TRIBUNAL HAS SPECIFICALLY DIRECTED THE RESPONDENT TO INITIATE ACTION AS THERE IS FAILURE OF THE PRESCRIBED CONDITION OR THAT SOME PORTION OF THE PROPERTY OR INCOME OF THE PETITIONER-TRUST ENURES FOR THE BENEFIT OF THE PROHIBITED CATEGORY OF PERSONS OR SOME PORTION OF THE PROPERTY OR INCOME IS APPLIED OR USED FOR TH E BENEFIT OF THE PROHIBITED CATEGORY OF PERSONS SPECIFIED IN SECTION 13(3) OF THE ACT. THE LAW I S WELL SETTLED, A PERSON WHO MAKES A POSITIVE AVERMENT IS REQUIRED TO ESTABLISH THE SAME. IT IS NOT FOR THE PERSON AGAINST WHOM THE AVERMENT IS MADE TO ESTABLISH NEGATIVELY THAT THE STATE OF AFFAIRS AVERRED BY THE OTHER PERSON DOES NOT EXIST. FURTHERMORE, THE TRIBUNAL NOWHERE STATE S THAT THE PROVISIONS OF SECTION 13 OF THE ACT AR E APPLICABLE. ALL THAT IS STATED IS TO GRANT EXEMPTION UNDER SECTION 11 OF THE ACT SUBJECT TO THE OTHER CONDITIONS BEING FULFILLED. 5.3 IT IS SEEN THAT THE PAYMENT HAS BEEN MADE IN RE SPECT OF DEVELOPMENT OF STUDY MATERIAL, WHICH IS USED BY T HE ASSESSEE- SOCIETY FOR IMPARTING EDUCATION. THEREFORE, THERE IS A QUID PRO QUO IN THE PAYMENT AND IT IS NOT A GRATIS PAYMENT. IN OTHER WORDS, THE PAYMENT HAS BEEN MADE FOR THE WORK DONE BY THAT COMPANY FOR THE ASSESSEE-SOCIETY. NO C OMPARABLE INSTANCE HAS BEEN BROUGHT ON RECORD TO SHOW THAT T HE PAYMENT 15 HAS NOT BEEN MADE AT ARMS LENGTH OR ANY EXCESSI VE PAYMENT HAS BEEN MADE. WHILE THE AO HAS ADDED THE WH OLE AMOUNT, THE LD. CIT(APPEALS) HAS DONE SOME HYPOTHETICAL CALCULATION FOR MAKING DISALLOWANCE. THE DECISION IN THE C ASE OF SURAT CITY GYMKHANA (SUPRA) IS TO THE EFFECT THAT THE PROVISION CONTAINED IN SECTION 13(1)(C) CAN BE APPLIED WH EN THE INCOME OR PROPERTY OF THE TRUST IS USED OR APPLIED OR ENURES FOR THE BENEFIT OF ANY PERSON REFERRED TO IN SECTION 13(3). A PAYMENT MADE FOR THE WORK DONE CANN OT BE EQUATED WITH USE OR APPLICATION OF FUNDS FOR THE BENEFIT OF THE PAYEE. FURTHER, THERE IS NO OBJECTIVE EVIDENCE O N RECORD BY WAY OF COMPARABLE CASES THAT THE PAYMENT IS MO RE THAN ARMS LENGTH PAYMENT. THEREFORE, WE ARE OF T HE VIEW THAT THE LD. CIT(APPEALS) ERRED IN PARTLY DISALLOWI NG A SUM OF RS. 4,76,583/- FROM THE OVERALL PAYMENT OF RS. 18 ,13,780/- TO IT BREAK.COM PVT. LTD. FOR DEVELOPMENT OF COU RSE STUDY MATERIAL. IN THIS VIEW OF THE MATTER, THERE COUL D HAVE ALSO BEEN NO QUESTION REGARDING DISALLOWANCE OF THE W HOLE OF THE AMOUNT OF RS. 18,13,780/-. 18. RESPECTFULLY FOLLOWING THE TRIBUNALS ORDER IN THE ASSESSMENT YEAR 2004-05, WE HOLD THAT THERE COULD HAVE ALSO BEEN NO QUESTION REGARDING PART DISALLOWANCE OUT OF THE WHOLE AMOUNT OF RS.28,46,95 0/-. THEREFORE, THE WHOLE DISALLOWANCE MADE BY THE ASSESSING OFFICER TO THE EXTENT OF RS.28,46,950/- STANDS DELETED. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND THAT OF THE REVENUE IS DISMISSED. 20. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 29 TH JULY, 2011. SD/- SD/- (B.K. HALDAR) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29 TH JULY, 2011. 16 ITA NOS.27 & 833/DEL/2011 COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.
