1 week Ago By Jasna
Sign In Sign Up Top Stories The Delhi High Court held that no income tax is payable on the reasonable salary paid to the Chairperson of a Charitable Educational Trust, ruling that such payment does not violate provisions under Section 13(1)(c) of the Income Tax Act, 1961. The assessee, IILM Foundation (formerly known as Ram Krishna Kulwant Rai Charitable Trust), is registered under Section 12A of the Income Tax Act and operates several educational institutions, including Banyan Tree World School (Gurgaon) and IILM Undergraduate Business School (Lodhi Road). During the assessment year (AY) 2009-10, the trust paid an annual salary of Rs.
16,20,000 to Ms. Malvika Rai, its Chairperson, for services rendered in managing the trust’s educational activities. Read More: GST: Govt notifies GSTAT Tribunal Procedure Rules, 2025 [Read Notification] Complete Ready to Use PDFs of 200+ Agreements! Click here The Assessing Officer (AO) alleged that the salary paid was excessive and not commensurate with the Chairperson’s qualifications and experience.
The AO disallowed 30% of the remuneration (Rs. 4,86,000) under Section 40A(2)(a) of the Income Tax Act, treated the assessee as an Association of Persons (AOP), and denied exemption under Sections 11 and 12 by invoking Section 13(1)(c), arguing that the payment was for the benefit of a related person. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance, finding the remuneration reasonable considering the Chairperson’s active involvement in the trust’s educational activities and consistent with the approach taken in previous years.
The Revenue challenged this decision before the ITAT, which upheld the CIT(A)’s findings after considering additional evidence, including documents demonstrating the Chairperson’s contribution to institutional events, academic activities, and administrative leadership. The ITAT ruled that the salary was not excessive and did not constitute any undue benefit. Read More: Madras HC Fines ₹75,000 on Taxpayer for Abusing PIL to Resist Kodaikanal Property Tax Increase [Read Order] Know the complete aspects of tax implications of succession! Click here On further appeal to the High Court, the Revenue argued that any payment to a related party, irrespective of its reasonableness, would lead to forfeiture of the entire tax exemption under Section 13(1)(c), relying on the precedent of Director of Income Tax (Exemption) v.
Charanjiv Charitable Trust. The bench comprising Justice Vibhu Bakhru and Justice Tejas Karia ruled that reasonable salary payments for actual services rendered do not violate Section 13(1)(c). The court clarified that Section 13(2)(c) applies only when remuneration is excessive, and not when it is justified and reasonable.
The court explained that the exemption under Sections 11 and 12 cannot be denied solely because the Chairperson is a related party, provided the remuneration is fair and corresponds to the services rendered. The appeals were dismissed. Support our journalism by subscribing to Taxscan premium .
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