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Expenses paid by a charitable trust for business support services to a sister concern at arm’s length, could not be disallowed under section 13: ITAT

Citation-Shri Balaji Human Resources Development Trust v ITO

ITAT: Delhi

ITA No: 4218 of 2017

Assessment Year: 2012-13

Date of Order- May 20, 2024

Brief Facts:

  • The assessee was registered u/s 12A and was engaged in the field of education and running a Business School

  • The assessee had entered into a memorandum of understanding dated 11-7-2011 with one, Fostima Integrated Learning Resources Private Limited (FILR), which was an entity covered u/s 13(3) 

  • The assessee filed its return of income for the AY 2012-13 declaring income as NIL and availed exemption of its income u/s 11 by complying with stipulated conditions under section 12AA read with section 11 and 13

  • The Assessing Officer (“AO”) disallowed a sum under head of Business Support Services paid to FILR on a solitary basis that FILR was a specified party u/s 13(3)

Observations of the Tribunal

The AO had nowhere demonstrated as to how the business support expenses incurred by the assessee was not commensurate with the market value of the services availed from FILR.

Hence, the disallowance under section 13(3) read with section 13(2)(g) was unjustified.

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