Trust Established Before Commencement of Act Can Make Provisions for Payment of Honorarium to Trustees: HC

Case Details: Commissioner of Income-tax vs. Indian Institute of Engineering Technology - [2024] 167 taxmann.com 257 (Madras)[10-09-2024]

Judiciary and Counsel Details

• R. Suresh Kumar & C. Saravanan, JJ.
• Mrs V. Pushpa, Sr. Standing Counsel for the Appellant.
• R. Veniatanarayanan, Adv. for the Respondent.

Facts of the Case

The assessee-trust was established in 1961, before the commencement of the Income Tax Act of 1961. As per the Memorandum of Association of the Trust, provisions were available to pay an honorarium to trust members or their family members. During the relevant assessment year, the assessee claimed total exemption under section 11.

The Assessing Officer (AO) rejected the assessee’s claim for exemption under section 11, contending that the trust had spent a certain amount on the wife of the trust’s founder. By virtue of said amount having been spent on the individual, it was considered a violation of section 13(1)(c).

On appeal, the CIT(A) confirmed the AO’s order. On further appeal, the Tribunal reversed the order and allowed the assessee’s claim of exemption under section 11. The matter then reached the Madras High Court.

High Court Held

The High Court confirmed the decision of the Tribunal wherein it was held that the payment made to the said individual could not be construed as a violation of section 13(1)(c) because the trust was established well before the Act came into force, that is, on 1-2-1961 and the Memorandum of Association of the trust had paved the way for making this amount of honorarium to the trustees. When that being so, it is strictly in consonance with the Memorandum of Association, and therefore, it cannot be construed as a violation of section 13(1)(c).

This aspect was also considered within the meaning of sections 13(1)(c), 13(2) and 13(3) and concluded that the assessee was entitled to claim exemption under section 11. Therefore, the assessment order passed by ITAT was to be upheld.

List of Cases Reviewed

• ITA No.318/Mds/2014 dated 27.05.2014 (para 12) followed.