Case Law Details
IILM Foundation Vs Asst. Director of Income Tax (Exemption) (ITAT Delhi)
Conclusion: Where there was violation of the provision of section 13, the entire exemption under section 11 would not be denied instead expenditure which could not be treated as application of income and in violation under section 13, same should alone be disallowed.
Held: Assessee was a charitable trust duly registered under section 12A. It was running certain educational institutions. AO in his order had alleged the following issues firstly, remuneration paid to Mrs. Malavika Rai in violation of section 13(1)(C) read with section 13(3); secondly, scholarship payment to Mrs. Aarti Rai in violation to section 13(1)(C) read with section 13(3); thirdly, computation of income consequent to denial of exemption under section 11/ 12. Therefore, he held that assessee was not a charitable institution on account of infringement of provisions of sec. 13(1)(b); assessee violated provisions of sec. 13(1)(v) r.w.s. 13(3); assessee diverted fund within the meaning of sec. 13(2)(g) r.w.s13(3); the institutions were operated by the assessee with a clear profit motive, and as business organization instead of a charitable one; the founders and controlling members had appropriated certain part of surplus fund for furtherance of their own need. On the aforementioned grounds the activities of the assessee were held to be not charitable within the meaning of sec. 2(15) and as such assessee was not entitled for exemption u/s. 11 and 12. Accordingly, the undersigned proceed to assess his income as a business entity having a status of an AOP. It was held that on a conjoint reading of section 13(1) and section 164, it could be seen that taxability of the income of an organization forfeiting exemption under section 13(1)(c) or 13(1)(d), should be charged at maximum marginal rates of tax only on that part of income which had forfeited exemption. Thus, where the trust contravened the provisions of section 13(1)(c) or (d) of the Act, the maximum marginal rate would apply only to that part of the income which had forfeited exemption. The onus was on the Revenue to prove that payment made to the person specified in section 13(3) was excessive or unreasonable by placing material on record and the services rendered were not in commensurate with the payments made. In so far as the payment of remuneration of Rs. 16,20,000 per annum made to Mrs. Malvika Rai was not excessive and does not violate the provision of section 13(1)(c) and accordingly the entire payment made to her was treated as application of income. To the extent of Rs. 13.36 lakhs towards the scholarship payment for Ms. Aarti Rai, the same cannot be treated as application of income, and therefore, AO and CIT(A) were justified in disallowing the payment as non application of income. Only to the extent of expenditure incurred on scholarship of Rs. 13.36 lakhs for which there was a violation under section 13, same should alone be disallowed and entire exemption under section 11 cannot be denied. In the event of any violation of provision of section 13, the entire exemption under section 11 could not be denied and would be restricted only to this extent of income misused by the Trust. Accordingly, AO was not justified in completing denying exemption under section 11. As per the income expenditure account, the total amount actually spent came to 92.83% which was far less than a statutory limit of 85%. It was no longer res integra that capital expenditure was tantamount to application of income for charitable purposes.
FULL TEXT OF THE ORDER OF ITAT DELHI
The appeals for the assessment year 2007-08 is a recalled matter in pursuance of consolidated order dated 28.02.2019 passed by the Tribunal in MA Nos. 729 to 732/Del/2017. The appeal for the assessment year 2007-08 has been filed by the Assessee whereas the appeals for the assessment years 2008-09 to 2011-12 have been filed by the Revenue against impugned order for the quantum of assessment passed u/s. 143(3) by the CIT (A)-40.
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