Bantval Sulochana Madhava Shenoi Trust Vs CIT (Exemptions) (ITAT Bangalore)
Bengaluru ITAT: Payment to Trustees Does Not Automatically Violate Section 13(1)(c); Reasonableness Must Be Examined
The Bengaluru ITAT held that payment of remuneration or honorarium to trustees is not, by itself, a violation of section 13(1)(c). The real issue is whether the remuneration paid to specified persons is excessive or unreasonable having regard to the services actually rendered. In this case, a charitable trust running Kamakshi Hospital, Mysuru, paid ₹20.50 lakh as honorarium to its Managing Trustee, Joint Managing Trustee and Trustee Administrator for managing the hospital’s administration, finance, statutory compliances and expansion activities. The Assessing Officer disallowed the entire amount, holding that any payment to specified persons constituted a violation of section 13(1)(c), and the CIT(A) confirmed the addition on the ground that the trust had not produced independent market benchmarks to establish the reasonableness of the remuneration.
The Tribunal observed that section 13(1)(c) is attracted only to the extent the remuneration exceeds what may reasonably be paid for the services rendered. It held that determining the reasonableness of remuneration is a fact-intensive exercise, requiring the assessee to demonstrate the nature of duties performed, qualifications and expertise of the trustees, and comparable market remuneration through internal or external benchmarks. Since neither the assessee nor the Assessing Officer had undertaken this exercise, the Tribunal restored the matter to the Assessing Officer with directions to objectively examine whether the honorarium was excessive after considering the trustees’ qualifications, responsibilities, experience and comparable remuneration for similar services. The appeal was allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. ITA No. 1324/Bang/2026 is filed by Bantval Sulochana Madhava Shenoi Trust[ the Assessee/ Appellant/ Trust] for the assessment year 2018-19 against the appellate order dated 28 March 2026 passed by the Commissioner of income Tax (Appeals), National Faceless Appeal Centre, whereby the assessee’s appeal against the assessment order passed under section 143(3) read with section144B of the Income-tax Act, 1961, [ The Act ] by the National e-Assessment Centre [learned Assessing Officer] dated 31/03/2021 was dismissed.
