The Income Tax Appellate Tribunal ( ITAT ), Mumbai upheld the exemptions under Section 11 of Income Tax Act and questioned the validity of the Assessing Officer’s findings in a recent appeal filed by Revenue on grounds of excessive payments made to specific persons under the charitable trust on account of salary and rent. The Revenue was represented by Shri H. M. Bhatt.
The assessee was a Registered Charitable Trust with the Directorate of Income Tax under Section 12A of the Income Tax Act represented by Shri K. Gopal and Ms. Neha Paranjpe, against whom an appeal was initiated by the Revenue on the issue of Allowance of benefits of Exemptions under Section 11 of the Income Tax Act.
The assessee filed a return of Income claiming exemptions under Section 11 of the Income Tax Act declaring the total income to be Nil. Following which a notice under Section 142(1) of the Income Tax Act was issued against assessee to examine the large payments on rent, salary, interest and other expenses to specified persons under Section 13(3) of the Income Tax Act .
Responding to the notice assessee furnished the details regarding the name of persons/designation and amount of salary and rent paid to them. Further the assessee submitted the expenses to be genuine and also stated that the specified persons are in occupation with the Educational Institutes run by the trust and are paid competitive salaries as required. Assessee also claimed the rent amount paid to be genuine as per rent in the localities of the trust.
The Assessing Officer ran a scrutiny assessment by way of Section 143(3) of the Income Tax Act and did not agree with the assessee’s submissions and claimed that the assessee had made huge unjustifiable payments to certain persons as compared to persons rendering the same service with more qualification.
The Two Member Bench constituted by Prashant Maharishi ( Accountant Member ) and Sandeep Singh Karhail ( Judicial Member ) observed the AO’s findings to be erroneous and baseless, and discovered the payments paid by assessee on salary and rent was not excessive of what may be reasonably paid to specified persons under Section 13(3) of the Income Tax Act.
Therefore the Assessee has rightly claimed exemptions under Section 11 of the Income Tax Act. Consequently the appeal by Revenue was dismissed.
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