IT : Where President and Secretary of Trust rendered voluntary service and, therefore, premises owned by them was taken on rent which saved cost, exemption could not be denied on ground of giving them of personal benefit by way of rent
■■■
[2013] 37 taxmann.com 389 (Allahabad)
HIGH COURT OF ALLAHABAD
Commissioner of Income-tax -II
v.
Foundation For Social Care*
RAJIV SHARMA AND DR. SATISH CHANDRA, JJ.
IT APPEAL NO. 53 OF 2010†
AUGUST 23, 2013
Section 13, read with section 11 of the Income-tax Act, 1961 - Charitable or religious trust - Denial of exemption [Personal benefits] - Assessment year 2002-03 - Assessee was a charitable trust - It took office premises on rent in building owned by its President - Assessing Officer denied exemption on grounds that expenses of office rent and electricity bills paid by Trust was for personal benefit of President/Secretary of Trust - However, it was found that President and Secretary of Trust were providing voluntary services to trust for which they did not charge any fee/remuneration and office at same premises of resident saved expenditure on conveyance - Further, electricity charge was meagre - Furthermore, separate account had been maintained for paying genuine rent and electricity charges - Whether deduction was to be allowed on said expenditures and exemption was to be granted to trust - Held, yes [Para 12] [In favour of assessee]
FACTS
| ■ | The assessee was a registered trust. It filed return showing nil income after claiming exemption under section 11. | |
| ■ | The Assessing Officer disallowed office rent and electricity paid for the premises, which was partly occupied by the founder trustee and the Secretary respectively as the building was owned by the President and was partly used by the society for official purpose. Thus, the expenses incurred by the Trust were for the personal benefit of its President and secretary. | |
| ■ | The Tribunal allowed the rent and electricity claim. | |
| ■ | On appeal: |
HELD
| ■ | The trust is a registered trust since 1994. Its activities are not doubtful regarding charitable activities. For the purpose, the trust needs some office premises and also electricity, etc. In the instant case, the office premises of the president was taken by the assessee-trust on reasonable rent. Perhaps other premises might be more costly. So, the rent is allowable deduction. From the record, it also appears that the President and the Secretary of the trust are providing voluntarily services to the trust. They are not charging any fee/remuneration for their services. By keeping the office in the same building where they are residing, the activities can be looked after without making any expenditure on conveyance. As per the tenancy agreement, there is no provision for separate electricity meter. It is not explained whether there was an arrangement of sub meter or not. [Para 10] | |
| ■ | In the instant case, the President and Secretary are not charging any remuneration or conveyance allowance. They are available round the clock for the activities of the trust. Separate account has been maintained for paying the genuine rent and also the electricity charges. The amount in question is meagre one. [Para 11] | |
| ■ | Hence, there was no reason to interfere with the impugned order passed by the Tribunal and the same is hereby sustained along with the reasons mentioned therein. [Para 12] |
D.D. Chopra for the Appellant. Amit Shukla and S.K. Garg for the Respondent.
ORDER
Dr. Satish Chandra, J. - Present appeal has been filed by the department under Section 260 A of the Income Tax Act, against the judgment and order dated 29.01.2010 passed by the Income Tax Appellate Tribunal, Lucknow in I.T.A.No.6/Luc/10, for the assessment year 2002-2003.
2. On 01.09.2011, a coordinate Bench had admitted the appeal on the following substantial question of law:—
"Keeping in view the facts recorded by the Tribunal in favour of the assessee granting exemption under Section 11 of the Income Tax Act, 1961 is correct and not violative of provision contrary to sub Section (3) of Section 13 of the Act being fund alleged to used for personal benefit."
3. The brief facts of the case are that the assessee is a registered trust which was established on 16.07.1994. Sri Tariq Anwar Khan is the author and founder secretary of the trust, and Sri Zaheer Ahamd Siddiqui is the founder President/Life Member Trustee of the Trust. Since 2002, the assessee-trust is registered under Section 12A of the Act.
4. This case has a long history of the litigation. Originally, the assessee filed the return showing nil income after claiming exemption u/s 11 of the Income Tax Act, 1961. However, the assessment was completed under section 143 (3) of the Act on total income of Rs.65,56,933/- consisted of Rs.63,69,322/- as surplus and Rs.1,87,611/- disallowed as rent and electricity paid for the premises, partly occupied by the founder trustee of the trust and the Secretary of the trust. The appeal of the assessee was dismissed by the CIT(A) vide his order dated 13.01.2006. In second appeal, the Tribunal vide its order dated 23.11.2007 set aside the CIT(A)'s order and remanded the matter to the CIT(A) with certain directions.
5. In second round of the litigation, CIT(A) passed an order on 22.12.2009 and confirmed the order of the A.O., except for allowing disallowance of Rs.55,000/- towards payment of rent. The assessee has filed an appeal before the Tribunal who has passed the impugned order on 29.01.2010, where the claim of the assessee was allowed. Being aggrieved, the department has filed the present appeal.
6. With this backdrop, Sri D.D. Chopra, learned counsel for the department with the help of written note, submits that the assessee-trust has shown the receipt under various heads and the surplus has been shown to a sum of Rs.63,69,322/-. The assessee-trust claimed to be serving the mankind through its scheme known as "Qarz-e-Hasan Scheme" (in short QHS). It was explained by the assessee that this is a scheme where loans were distributed to needy and poor persons. The loans were provided on surety of ornaments or in some cases personal surety. While going through books of account pertaining to "Qarz-E-Hasan Scheme" it was noticed that a sum of Rs.40,000/- was claimed on account of electricity bill; and a sum of Rs.22,000/- for office rent. The electricity bill was paid by cheque on 31.03.2002 for the premises which was partly used by the society for official purpose. The building is owned by Sri Zaheer Ahmed Siddiqui.
7. Learned counsel further submits that the rent receipt of Rs.22,000/- was furnished before the lower authorities. The tenancy agreement was executed on 01.04.2001, between the owner i.e. President of the trust and the assessee trust. Initially, the agreement was for 11 months. He also submits that the tenant is liable to have a separate electricity connection within a period of two months from the date of agreement. The assessee-trust never took a separate electricity connection. The said premises is basically occupied by Sri Zaheer Ahmed Siddiqui, President of the trust who was conducting activities of the trust from its ground floor. On Iind floor, the premises was occupied by the President of the trust for his residential purpose. In a charitable trust, it was not expected that the office bearers will be claiming the rent and electricity expenses for their personal use. So, the expenses of Rs.1,87,611/- was incurred by the trust for the personal benefit of the President and Secretary of the trust. The A.O. has rightly denied the exemption u/s 11 of the Act by using provision u/s 13(1)(c) read with section 13(2)(g) of the Income Tax Act. Lastly, he made a request that the impugned order may kindly be set aside.
8. On the other hand, Sri K.R .Rastogi, learned counsel for the assessee has justified the impugned order. He further submits that the A.O. has made the addition only on the basis that the premises belonging to the President of the trust and no other reason has been cited. It is also a submission of the learned counsel that the A.O. as well as CIT(A) admitted the fact that activities were being conducted from the said premises situated at 448/6/2 Ka, Nagaria, Thakurganj, Lucknow and there was a tenancy agreement dated 01.04.2001. Accordingly, the assessee-trust was liable to pay rent for administrative office and "Qarz-E-Hasan Scheme" office. The rent of Rs.4000/- per month is reasonable.
9. With regard to the electricity expenses, learned counsel submits that incurring of the expenses had not been doubted and expenses were incurred for the premises which was used for conducting the charitable activities, so, it was an allowable expenditure. In the past assessment years, the department has allowed the said expenditure. The benefit of section 11 is given by the department in subsequent assessment years. But wrongly the same was denied for the assessment year under consideration.
10. After hearing both the parties and on perusal of the record, it appears that the trust is a registered trust since 1994. Its activities are not doubtful regarding charitable activities. For the purpose, the trust needs some office premises and also electricity etc. In the instant case, the office premises of the President was taken by the trust on reasonable rent. Perhaps other premises might be more costly. So, the rent is allowable deduction. From the record, it also appears that the President and the Secretary of the trust are providing voluntarily services to the trust. They are not charging any fee/remuneration for their services. By keeping the office in the same building where they are residing, the activities can be looked after without making any expenditure on conveyance. As per the tenancy agreement, there is no provision for separate electricity meter. It is not explained whether there was an arrangement of sub meter or not. Needless to mention that sometimes, perks are higher than salary/remuneration.
11. In the instant case, the President and Secretary are not charging any remuneration or conveyance allowance. They are available round the clock for the activities of the trust. Separate account has been maintained for paying the genuine rent and also the electricity charges. The amount in question is meagre one.
12. Hence, we find no reason to interfere with the impugned order passed by the Tribunal and the same is hereby sustained along with the reasons mentioned therein.
13. Answer to the substantial question of law is in favour of the assessee and against the department.
14. In the result, the appeal filed by the Department is dismissed.
Regards
Prarthana Jalan
__._,_.___
No comments:
Post a Comment