Our trust pays a salary to its chairperson, who is a trustee. Does that cost us the s.11 exemption?
No, provided the salary is no more than what the services are reasonably worth. Section 13(2)(c) is not a bar on paying a specified person at all: it deems a salary to be application for that person's benefit only to the extent it is in excess of what may reasonably be paid for the services, so a payment that is reasonable for the service is not caught by s.13(1)(c) at all. The Delhi High Court answered both questions of law against the revenue and dismissed its appeals. Note what was not in issue: the reasonableness of the Rs 16,20,000 salary had been found below and was not contested before the High Court, which recorded that there was no cavil about it, so the decision is on the legal point and not a finding on the facts of this trust's remuneration.
Decided by the High Court (Delhi High Court — Vibhu Bakhru and Tejas Karia, JJ. (judgment delivered by Vibhu Bakhru, J.); IT Appeal Nos. 179, 181 and 182 of 2023) on 2025-04-21, reported as (2025) 480 ITR 1 / 174 taxmann.com 605 (Delhi)(HC); neutral citation 2025:DHC:2745-DB; IT Appeal Nos. 179, 181 and 182 of 2023. The further citation (2026) 349 CTR 792 appears on one digest index only and is not on the report's own citation line.. It bears on section 13(1)(c), section 13(2)(c), section 13(3), section 11, section 12, section 40A(2)(a) of the Income Tax Act 1961, in Charitable Trusts & Exemption and Capital Gains Exemptions matters.
Officers and Commissioners routinely read s.13(1)(c) as an absolute prohibition on payments to trustees and treat any such payment as a benefit conferred, then deny the whole exemption. This decision reads s.13(1)(c) with the qualification in s.13(2)(c) and holds that a payment commensurate with the services rendered is not an application of income for the benefit of a prohibited person at all, so the question of denial does not arise; and it holds that where the exemption is lost it is lost only to the extent of the application. The revenue's usual counter is Charanjiv Charitable Trust, and the Court dealt with that by confining it to its own facts. Two limits are worth carrying with the case. The reasonableness of this salary was found below and conceded before the High Court, so the decision settles the construction of s.13(2)(c) and not what a reasonable salary looks like; and the disallowance itself was made under s.40A(2)(a), with s.13 arriving only as the revenue's argument on appeal.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee, formerly Ram Krishna Kulwant Rai Charitable Trust, came into existence with effect from 1 April 2001 and was registered under s.12A by an order dated 1 February 2001; it was renamed IILM Foundation by a trust-deed amendment of 26 July 2007. It runs Banyan Tree World School at Gurgaon and the IILM Under Graduate Business School and IILM Early College at Lodhi Road, and claims exemption under ss.11 and 12. For assessment year 2009-10 it paid its chairperson, Ms Malvika Rai, a person falling within s.13(3), a salary of Rs 16,20,000. The Assessing Officer held the salary excessive and not commensurate with her education, experience and duties and, she being a related party, disallowed 30 per cent of it, Rs 4,86,000, expressly under s.40A(2)(a); he made other disallowances as well and assessed the trust as an association of persons. The Commissioner (Appeals) deleted the salary addition. The remuneration varied across the years in the batch — Rs 16,63,200 for 2008-09, Rs 16,20,000 for 2009-10 and 2011-12 and Rs 19,08,646 for 2010-11 — and the disallowances were ad hoc: Rs 2,25,000 for 2007-08, the whole of the salary for 2008-09, Rs 4,86,000 for 2009-10, Rs 5,72,594 for 2010-11 and nothing for 2011-12. Before the Tribunal the trust led additional evidence on what the chairperson actually did — the business school's brochure, editions of its journal and documentation of events run under her guidance. The chairperson is a graduate, and the trust's answer to the point made against her qualifications was that the statutory test is what the services rendered are worth.
The revenue's appeals were dismissed and both questions of law answered against it. On a plain reading of s.13(1), the exemption in ss.11 and 12 is lost only to the extent that income is applied for the benefit of a s.13(3) person, not at large. Section 13(2)(c) deems the payment of a salary to such a person to be application for that person's benefit, but its opening words must be read with its closing words, 'in excess of what may be reasonably paid for such services'; so where the person has rendered service and the amount is what is reasonably payable for it, the deeming does not operate and the payment does not fall within the exception in s.13(1)(c). The reasonableness of the payment was not in issue before the High Court: the Tribunal had examined the evidence and the revenue did not contest its findings, which the Court recorded at paragraph 19. Counsel were agreed that the facts for 2010-11 and 2011-12 were materially similar, so the decision governs those years too.
The revenue argued a single, absolute point: relying on paragraph 22 of Charanjiv Charitable Trust, that even one instance of application of income or property for the benefit of a prohibited person costs the trust its exemption on the whole of its income, so the exemption failed irrespective of whether the salary was reasonable (paragraphs 16 and 17). The Court rejected that reading. On a plain reading of s.13(1) the exemption does not operate to exclude income applied for the benefit of a s.13(3) person, and it is lost to the extent of that application and no further (paragraph 21). Section 13(2)(c) has to be read as a whole: the deeming attaches only to what is paid in excess of what may reasonably be paid for the services, so an amount that is reasonably payable for services actually rendered cannot be construed as applied for the benefit of a prohibited person merely because it is paid to one (paragraph 22). Charanjiv Charitable Trust was not doubted but confined — its observations must be read in the context of the facts of that case (paragraph 23). What the Court did not do was decide reasonableness: it recorded that there was no cavil that the salary was not excessive given the chairperson's qualifications and functions, that the Tribunal had examined the evidence, and that the revenue did not contest those findings (paragraph 19). Below, the Commissioner (Appeals) had deleted the disallowance as unjustified and on the principle of consistency, a similar disallowance having been deleted for the preceding year (paragraphs 11 and 12).
Thus, if the amount paid for services is such as is reasonably payable for such service, the same cannot be construed as applied for the benefit of a prohibited person notwithstanding that it is paid to such a person. Consequently, such payment would not fall within the exception of clause (c) of subsection (1) of Section 13 of the Act.
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Handle my notice → Ask a CA on WhatsAppNo, provided the salary is no more than what the services are reasonably worth. Section 13(2)(c) is not a bar on paying a specified person at all: it deems a salary to be application for that person's benefit only to the extent it is in excess of what may reasonably be paid for the services, so a payment that is reasonable for the service is not caught by s.13(1)(c) at all. The Delhi High Court answered both questions of law against the revenue and dismissed its appeals. Note what was not in issue: the reasonableness of the Rs 16,20,000 salary had been found below and was not contested before the High Court, which recorded that there was no cavil about it, so the decision is on the legal point and not a finding on the facts of this trust's remuneration. This was decided by the High Court (Delhi High Court — Vibhu Bakhru and Tejas Karia, JJ. (judgment delivered by Vibhu Bakhru, J.); IT Appeal Nos. 179, 181 and 182 of 2023) and bears on section 13(1)(c), section 13(2)(c), section 13(3), section 11, section 12, section 40A(2)(a) of the Income Tax Act 1961. It is reported as (2025) 480 ITR 1 / 174 taxmann.com 605 (Delhi)(HC); neutral citation 2025:DHC:2745-DB; IT Appeal Nos. 179, 181 and 182 of 2023. The further citation (2026) 349 CTR 792 appears on one digest index only and is not on the report's own citation line.. Officers and Commissioners routinely read s.13(1)(c) as an absolute prohibition on payments to trustees and treat any such payment as a benefit conferred, then deny the whole exemption. This decision reads s.13(1)(c) with the qualification in s.13(2)(c) and holds that a payment commensurate with the services rendered is not an application of income for the benefit of a prohibited person at all, so the question of denial does not arise; and it holds that where the exemption is lost it is lost only to the extent of the application. The revenue's usual counter is Charanjiv Charitable Trust, and the Court dealt with that by confining it to its own facts. Two limits are worth carrying with the case. The reasonableness of this salary was found below and conceded before the High Court, so the decision settles the construction of s.13(2)(c) and not what a reasonable salary looks like; and the disallowance itself was made under s.40A(2)(a), with s.13 arriving only as the revenue's argument on appeal. If it applies to you, the first step is this: Document what the specified person actually does for the trust — hours, role, qualifications, years of relevant experience — before the salary is fixed, not after the notice arrives.
The assessee, formerly Ram Krishna Kulwant Rai Charitable Trust, came into existence with effect from 1 April 2001 and was registered under s.12A by an order dated 1 February 2001; it was renamed IILM Foundation by a trust-deed amendment of 26 July 2007. It runs Banyan Tree World School at Gurgaon and the IILM Under Graduate Business School and IILM Early College at Lodhi Road, and claims exemption under ss.11 and 12. For assessment year 2009-10 it paid its chairperson, Ms Malvika Rai, a person falling within s.13(3), a salary of Rs 16,20,000. The Assessing Officer held the salary excessive and not commensurate with her education, experience and duties and, she being a related party, disallowed 30 per cent of it, Rs 4,86,000, expressly under s.40A(2)(a); he made other disallowances as well and assessed the trust as an association of persons. The Commissioner (Appeals) deleted the salary addition. The remuneration varied across the years in the batch — Rs 16,63,200 for 2008-09, Rs 16,20,000 for 2009-10 and 2011-12 and Rs 19,08,646 for 2010-11 — and the disallowances were ad hoc: Rs 2,25,000 for 2007-08, the whole of the salary for 2008-09, Rs 4,86,000 for 2009-10, Rs 5,72,594 for 2010-11 and nothing for 2011-12. Before the Tribunal the trust led additional evidence on what the chairperson actually did — the business school's brochure, editions of its journal and documentation of events run under her guidance. The chairperson is a graduate, and the trust's answer to the point made against her qualifications was that the statutory test is what the services rendered are worth. The matter was decided on 2025-04-21 by the High Court (Delhi High Court — Vibhu Bakhru and Tejas Karia, JJ. (judgment delivered by Vibhu Bakhru, J.); IT Appeal Nos. 179, 181 and 182 of 2023). On those facts the High Court held as follows. The revenue's appeals were dismissed and both questions of law answered against it. On a plain reading of s.13(1), the exemption in ss.11 and 12 is lost only to the extent that income is applied for the benefit of a s.13(3) person, not at large. Section 13(2)(c) deems the payment of a salary to such a person to be application for that person's benefit, but its opening words must be read with its closing words, 'in excess of what may be reasonably paid for such services'; so where the person has rendered service and the amount is what is reasonably payable for it, the deeming does not operate and the payment does not fall within the exception in s.13(1)(c). The reasonableness of the payment was not in issue before the High Court: the Tribunal had examined the evidence and the revenue did not contest its findings, which the Court recorded at paragraph 19. Counsel were agreed that the facts for 2010-11 and 2011-12 were materially similar, so the decision governs those years too.
The revenue argued a single, absolute point: relying on paragraph 22 of Charanjiv Charitable Trust, that even one instance of application of income or property for the benefit of a prohibited person costs the trust its exemption on the whole of its income, so the exemption failed irrespective of whether the salary was reasonable (paragraphs 16 and 17). The Court rejected that reading. On a plain reading of s.13(1) the exemption does not operate to exclude income applied for the benefit of a s.13(3) person, and it is lost to the extent of that application and no further (paragraph 21). Section 13(2)(c) has to be read as a whole: the deeming attaches only to what is paid in excess of what may reasonably be paid for the services, so an amount that is reasonably payable for services actually rendered cannot be construed as applied for the benefit of a prohibited person merely because it is paid to one (paragraph 22). Charanjiv Charitable Trust was not doubted but confined — its observations must be read in the context of the facts of that case (paragraph 23). What the Court did not do was decide reasonableness: it recorded that there was no cavil that the salary was not excessive given the chairperson's qualifications and functions, that the Tribunal had examined the evidence, and that the revenue did not contest those findings (paragraph 19). Below, the Commissioner (Appeals) had deleted the disallowance as unjustified and on the principle of consistency, a similar disallowance having been deleted for the preceding year (paragraphs 11 and 12). In the words reproduced by the source cited on this page: "Thus, if the amount paid for services is such as is reasonably payable for such service, the same cannot be construed as applied for the benefit of a prohibited person notwithstanding that it is paid to such a person. Consequently, such payment would not fall within the exception of clause (c) of subsection (1) of Section 13 of the Act."
It was decided by the High Court on 2025-04-21 and is reported as (2025) 480 ITR 1 / 174 taxmann.com 605 (Delhi)(HC); neutral citation 2025:DHC:2745-DB; IT Appeal Nos. 179, 181 and 182 of 2023. The further citation (2026) 349 CTR 792 appears on one digest index only and is not on the report's own citation line.. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 13(1)(c), section 13(2)(c), section 13(3), section 11, section 12, section 40A(2)(a), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The revenue's appeals were dismissed and both questions of law answered against it. On a plain reading of s.13(1), the exemption in ss.11 and 12 is lost only to the extent that income is applied for the benefit of a s.13(3) person, not at large. Section 13(2)(c) deems the payment of a salary to such a person to be application for that person's benefit, but its opening words must be read with its closing words, 'in excess of what may be reasonably paid for such services'; so where the person has rendered service and the amount is what is reasonably payable for it, the deeming does not operate and the payment does not fall within the exception in s.13(1)(c). The reasonableness of the payment was not in issue before the High Court: the Tribunal had examined the evidence and the revenue did not contest its findings, which the Court recorded at paragraph 19. Counsel were agreed that the facts for 2010-11 and 2011-12 were materially similar, so the decision governs those years too. It arises in Charitable Trusts & Exemption and Capital Gains Exemptions matters, on section 13(1)(c), section 13(2)(c), section 13(3), section 11, section 12, section 40A(2)(a) of the Income Tax Act 1961, and was decided by Delhi High Court — Vibhu Bakhru and Tejas Karia, JJ. (judgment delivered by Vibhu Bakhru, J.); IT Appeal Nos. 179, 181 and 182 of 2023. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Put comparable remuneration for the same role in similar institutions on record, since the statutory test is what may reasonably be paid for such services, not what a trustee may be paid. Where the officer has disallowed only a percentage of the payment, use that as the starting point: he has already accepted the balance as reasonable and must justify the estimate for the rest. If exemption is denied on this ground, take the point that s.13(2)(c) is a measure of excess, so a payment that is reasonable for the services is not a specified violation at all — but note that what this decision decides is the denial of exemption in assessment, not the cancellation of a registration.
Validity check could not be completed. Later treatment: none found. The report carries no citator banner, no note of a special leave petition and nothing recording a later decision applying, following or affirming the judgment, and a search on its citations returned nothing later. For a judgment a year old that is expected rather than reassuring, and absence of contrary authority is not good law, so the status stays unverified. What has changed is the footing: the full text has been read, the date and the appeal numbers are fixed, and the quoted sentence is confirmed as the Court's own words at paragraph 22. Charanjiv Charitable Trust was distinguished, and the case review block on the report records it as such, so this judgment is limiting treatment of Charanjiv and not an application of it. The Tribunal's common order of 24 December 2020 is recorded as affirmed. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The full text of the judgment has been read, which settles several flags. The date of judgment is 21 April 2025, not 24 April; the batch is IT Appeal Nos. 179, 181 and 182 of 2023, and the Court took the facts from ITA 181/2023, relating to assessment year 2009-10; the three appeals concern assessment years 2009-10, 2010-11 and 2011-12, the Tribunal's order under appeal having also covered 2008-09 and the trust's own appeal for 2007-08. One statement in the earlier note must be withdrawn: it said that nothing showed a registration under s.12A having been cancelled or restored. The judgment records that the s.12A registration was cancelled by order dated 7 July 2011 with effect from assessment year 2003-04, and that the cancellation was set aside by the Tribunal on 23 March 2012 in ITA 3638/Del/2011, after which the Commissioner (Appeals) allowed the exemption. The caution stands on the merits — this decision is about denial of exemption in assessment and should not be cited on cancellation of registration — but the factual denial was wrong. The disallowance in the assessment was made under s.40A(2)(a). The citation (2026) 349 CTR 792 rests on a single index and is not on the report's citation line. The judgment does not decide what a reasonable salary is: the finding on reasonableness was made below and was not contested before the High Court. It does not deal with what happens if part of a payment is found excessive — whether only that part is taxed, or the wider consequence the revenue contended for — and it does not deal with cancellation of registration, so the entry should not be cited for that. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The revenue's appeals were dismissed and both questions of law answered against it. On a plain reading of s.13(1), the exemption in ss.11 and 12 is lost only to the extent that income is applied for the benefit of a s.13(3) person, not at large. Section 13(2)(c) deems the payment of a salary to such a person to be application for that person's benefit, but its opening words must be read with its closing words, 'in excess of what may be reasonably paid for such services'; so where the person has rendered service and the amount is what is reasonably payable for it, the deeming does not operate and the payment does not fall within the exception in s.13(1)(c). The reasonableness of the payment was not in issue before the High Court: the Tribunal had examined the evidence and the revenue did not contest its findings, which the Court recorded at paragraph 19. Counsel were agreed that the facts for 2010-11 and 2011-12 were materially similar, so the decision governs those years too.
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