Rental income applied to charitable objects and reasonable CEO

Rental income applied to charitable objects and reasonable CEO remuneration do not forfeit trust exemption.

Issue

Rental Income & Commercial Activity: Whether a charitable trust forfeits exemption under Sections 11 and 12 when it earns substantial rental income by leasing trust property, where such leasing is empowered by the trust deed and the receipts are fully applied toward charitable objects.
Reasonableness of CEO Remuneration: Whether the Assessing Officer can deny tax exemption by disallowing remuneration paid to a trust’s Chief Executive Officer solely based on subjective perception, without bringing comparable evidence of excessiveness on record.
FCRA Grants & Accounting Treatment: Whether discrepancies in foreign contributions/grants justify denying exemption under Sections 11 and 12 when the reconciliation is accepted in remand proceedings and unutilized tied-up grants are properly recognized as liabilities under standard accounting principles.

Facts

Background: The assessee, a registered charitable trust, claimed income tax exemption under Sections 11 and 12 for Assessment Year 2013-14.
Ground 1 (Rental Income): The AO denied exemption and assessed the trust as an Association of Persons (AOP), alleging that earning substantial rental income from leasing immovable properties constituted a commercial activity inconsistent with its charitable purpose.
Ground 2 (CEO Remuneration): The AO further alleged that the remuneration paid to the trust’s CEO was exorbitant and disallowed it based on subjective estimation, using it as a secondary ground to treat the entity as an AOP.
Ground 3 (FCRA Receipts & Tied-Up Grants): The AO alleged discrepancies between FCRA returns, books of accounts, and financial statements, claiming that substantial foreign grants remained unutilized and ought to be taxed.
Remand Proceedings: Before the CIT(A), a remand report was called. The trust submitted a full reconciliation showing its accounting policy: tied-up/specific grants were recognized as income only upon utilization, while unutilized balances were carried forward as liabilities. The AO accepted this reconciliation during the remand process.

Decision

Rental Income Retains Exemption: Leasing property to generate funds for charitable purposes is an incidental activity rather than an independent commercial object. Since the rental proceeds were fully applied to charitable goals as authorized by the trust deed, the exemption under Sections 11 and 12 cannot be denied.
CEO Remuneration Reinstated: Disallowance based on mere subjective perception is unsustainable. In the absence of comparative evidence showing the CEO’s pay was unreasonable, excessive, or a device to divert funds for private benefit, the disallowance was directed to be deleted.
FCRA & Grant Objections Quashed: Once the AO accepted the grant reconciliation in the remand report and found the liability-based accounting method aligned with standard principles, no adverse inference survived.
Outcome: All issues were decided in favor of the assessee, restoring full exemption under Sections 11 and 12.

Key Takeaways

Incidental Resource Generation is Permissible: Renting out trust property to augment funds directly for charitable execution does not convert a trust’s activity into an ineligible commercial enterprise.
Evidentiary Standard for Excessive Remuneration: The Revenue cannot arbitrarily declare executive salaries exorbitant under Section 13 without bringing tangible, market-comparable data to prove diversion of income.
Validity of Deferral Accounting for Grants: Carrying unutilized tied-up or restricted grants as a liability until actual expenditure complies with standard accounting principles and does not constitute undisclosed or taxable income.

IN THE ITAT CHANDIGARH BENCH ‘B’

Joint Commissioner of Income-tax (OSD)

S.M. Sehgal Foundation

Laliet Kumar, Judicial Member
and Manoj Kumar Aggarwal, Accountant Member

IT Appeal No. 45 (Chd) OF 2019
[Assessment year 2013-14]

JULY 20, 2026

Ms. Aditi Gupta, CA for the Appellant. Dr. Ranjit Kaur, Addl.CIT Sr. DR for the Respondent.

ORDER

Laliet Kumar, Judicial Member. – The present appeal is filed by the Revenue feeling aggrieved by the order dt. 20.10.2018 passed by the Ld. CIT(A)-2, Gurgaon on the grounds and the additional ground mentioned herein as under:

That on the facts and circumstances of the case, the Id. CIT(A) has erred in law in holding that the AO was not justified in rejecting the assessee’s claim of being a charitable trust even when the assessee is involved in earning rental income commercially and not utilizing the grants received for charity.

ii.

That on the facts and circumstances of the case, the Id. CIT(A) has erred in law in holding that the AO was not justified in rejecting the assessee’s claim of being a charitable trust even when the assessee trust is making unreasonable payment to its CEO who is covered as per provision of section 13(3)(cc) of the Act.

iii.

. That on the facts and in the circumstances of the case, the Id. CIT(A) has erred in law in treating the payment made by Sehgal Family Foundation USA amounting to Rs. 10 lacs as explained even when the claim of assessee that it is following cash basis of accounting, is not acceptable as the assessee is following mercantile system of accounting.

iv.

That on the facts and in the circumstances of the case, the Id. CIT(A) has erred in law in holding that the AO incorrectly restricted the expenses to 85% of total receipts and taxed the balance 15% at Maximum Marginal Rate even when the assessee’s activities are not charitable in nature.

That the appellant craves to add, delete or amend any grounds of appeal on or before the appeal is heard or disposed off.

Additional ground of Appeal

vi.

That on the facts and circumstances of the case the proviso to section 2(15) of the Income Tax Act is applicable in this case as the activities of the assessee are mainly commercial in nature and the assessee falls in the category of “advancement of General Public Utility.

2 . In this regard, the Ld. Sr. DR had drawn our attention to pages 21 to 23 of the impugned order and the findings of the Ld. CIT(A) which are to the following effect;

“9. Decision:

“I have given careful consideration to the facts of the case, grounds of appeal, contentions of the Assessing Officer and remand reports submitted by the Assessing Officer from time to time. The clarifications and rejoinders submitted by the appellant on the remand reports-received during the course of appellate proceedings, have also been considered.

Ground No. 1:- is general and hence no specific observation is made.

Ground No. 2:- is about taxing the appellant’s income as an AOP, instead of it being exempt as of a charitable trust.

Perusal of the written submissions made as well as discussions made on various occasions by the AR, and also the comments of Assessing Officer in the remand report has been made.

(i) From the Remand reports, it emerges that the Assessing Officer has accepted that the total receipts of Rs. 6,21,68,690/-, shown in the FCRA return has been verified and reconciled. Further, the miscellaneous receipt of Rs.3,87,96,954/- which forms part of the Receipt and Payment account was also accepted as correct. Hence, this issue, that there is a difference in amount of grant received as per Receipt & Payment account as well as Income & Expenditure account, stands reconciled and verified.

(ii) As regards doubts about registration of appellant trust under the FCRA is concerned, this fact was also examined by the Assessing Officer and found to be correct and as per the procedure.

(iii) From the copy of trust deed filed, it is apparent that one of the objects of the appellant trust was to lease and let out property for earning rental income and amendment to the trust deed to include the same was made through a decree for rectification of the trust deed. Therefore, the objection of the Assessing Officer on this ground, stands clarified.

(iv) The Assessing Officer has contended that the amount of salary paid to Ms. Jane Elien Schukoske, CEO of the appellant trust was exorbitantly high. This has been refuted by the appellant maintaining that the salary paid to the CEO was as per the industry standards and the prevailing market scenario. It was further submitted that Ms. Jane Elien Schukoske has vast national and international experience and was responsible for all functions of the Trust. A detailed biodata of Ms. Schukoske was also filed. On the other hand the Assessing Officer has not brought on record any adverse observation in this regard. Merely disbelieving the salary paid as being exorbitant without any basis is not justified.

In the light of the above observations, the action of the Assessing Officer treating the Trust as an AOP and taxing it as such, is not justified. The ground of appeal is therefore allowed.

Ground No. 3:- The payment of Rs. 10,00,000/- by Sehgal Family Foundation, USA to International Maze and Wheat Improvement Centre, was considered by Assessing Officer, as unaccounted cash received by the appellant. The appellant has submitted that Sehgal Family Foundation in USA made charitable disbursement (Donation) to CIMMYT in Mexico for US $18,600.00, an amount equivalent to INR 1,000,000/- in the month of February 2013. CIMMYT is an autonomous, nonprofit, International research organization for science based agricultural development with direct links to about 100 developing courtiers through offices in Asia, Africa, and Latin America. The objective of this donation was to support CIMMYT in augmenting their research program especially on Maize research and have the accessibility of genetic resource develop by CIMMYT to SM Sehgal Foundation in India to support their agriculture research program. This amount was neither paid by the appellant trust not booked as a liability by the appellant. Further, as no cash was received by appellant, the same was not shown in the Receipt Payments account.

Therefore, there appears no reason for treating this amount as unexplained and there is no basis for disallowance of this amount by the Assessing Officer. The entire grant in aid received (either from domestic donors or from foreign donors), was utilized for the purpose of charitable objects of the appellant.

The ground of appeal is therefore, allowed.

Ground No. 4, 5 & 6:- In the light of the above discussions, it is seen that the Assessing Officer has incorrectly restricted and allowed expenses up 85% of total receipts and taxed the balance 15% as income at Maximum Marginal Rate. This disallowance is only done on adhoc basis and the Assessing Officer he has not brought any material on record to prove that the appellant is not carrying out its charitable objectives. The appellant has fulfilled all the conditions for claiming exemptions u/s 11/12 of the Act. Some of the contentions made by the Assessing Officer in the assessment order on basis of which he rejected the appellant’s claim were later on accepted by him and reconciled in the remand reports. Therefore, the grounds of the appellant that the Assessing Officer was not justified in rejecting its claim of being a Charitable Trust are accepted.

Keeping the above discussions and observations in mind, the appeal of the appellant is allowed.”

3. In nutshell it is gathered that the present appeal has been preferred by the Revenue challenging the findings recorded by the learned Commissioner of Income-tax (Appeals) on pages 21 to 23 of the appellate order, whereby the learned CIT(A) allowed the appeal of the assessee and held that the Assessing Officer was not justified in denying the benefit of exemption under sections 11 and 12 of the Income-tax Act, 1961, treating the assessee as an Association of Persons (AOP), making an addition of Rs.10,00,000/-, and restricting the application of income to 85% of the receipts.

4. The assessee, M/s S.M. Sehgal Foundation, is a charitable trust registered under the provisions of the Income-tax Act. During the assessment proceedings, the Assessing Officer held that the assessee had violated the conditions prescribed under sections 11 and 12 on several grounds, namely, discrepancies in accounting of grants, receipt of foreign contributions, earning of rental income, amendments in the trust deed, alleged excessive remuneration paid to the Chief Executive Officer, and an amount of Rs.10,00,000/-allegedly representing unexplained cash. On these premises, the Assessing Officer denied the exemption under sections 11 and 12, assessed the assessee in the status of an AOP and further restricted the allowable expenditure to 85% of the total receipts.

5. In appeal, after considering the assessment order, the remand reports submitted by the Assessing Officer, the documentary evidence placed on record and the detailed submissions of the assessee, the learned CIT(A) held that the Assessing Officer had failed to bring any cogent material on record to establish that the activities of the assessee had ceased to be charitable or that the statutory conditions for exemption had been violated. The learned CIT(A.) further observed that several objections raised in the assessment order stood clarified during the remand proceedings and that the Assessing Officer himself had accepted certain factual explanations furnished by the assessee. Accordingly, the learned CIT(A.) held that the denial of exemption under sections 11 and 12, the addition of Rs.10,00,000/- and the ad hoc restriction of expenditure to 85% of the receipts were unsustainable and allowed the appeal of the assessee.

6. Submissions of the Learned Departmental Representative (DR)

6.1 The learned Senior Departmental Representative (Sr. DR) vehemently relied upon the assessment order and assailed the findings recorded by the learned CIT(A). It was submitted that the Assessing Officer had, after an elaborate examination of the books of account and other records, rightly concluded that the assessee had failed to satisfy the statutory conditions prescribed under sections 11 and 12 of the Income-tax Act. According to the learned Sr. DR, the assessee had adopted an accounting methodology which did not correctly reflect the real income arising from grants received, substantial foreign contributions remained unutilised, and the discrepancies noticed between the FCRA returns, books of account and financial statements clearly demonstrated that the affairs of the trust were not being maintained in accordance with law. It was, therefore, contended that the learned CIT(A) had erred in deleting the additions made by the Assessing Officer.

6.2 Addressing the issue relating to the trust deed, the learned Sr. DR submitted that the findings recorded by the learned CIT(A) were factually erroneous and contrary to the material available on record. It was contended that there was no Rectification Deed in existence, as observed by the learned CIT(A). What was available on record was only an Addendum to the Deed of Settlement dated 15.06.2010, whereby Clauses 6 and 7 were inserted in the original trust deed. According to the learned Sr. DR, the said addendum merely empowered the Board of Trustees to acquire land, buildings and other immovable properties out of the funds of the trust for effectuating the charitable purposes and objects of the trust. It was argued that the learned CIT(A) had incorrectly described the addendum as a rectification deed and had misinterpreted its contents while granting relief to the assessee.

6.3 The learned Sr. DR further submitted that a substantial portion of the assessee’s receipts comprised rental income earned from leasing out its immovable properties. According to the Revenue, the magnitude and nature of such rental activity demonstrated that the assessee had ventured into commercial exploitation of its properties, thereby deviating from its charitable character. It was argued that the Assessing Officer had rightly held that the assessee was not entitled to exemption under sections 11 and 12 of the Act, as the activity of earning rental income had assumed a commercial complexion inconsistent with the charitable objects of the trust.

6.4 On the issue relating to the remuneration paid to the Chief Executive Officer, Mrs. Jane Elien Schukoske, the learned Sr. DR submitted that although the learned CIT(A), while dealing with the issue at page 22 of the appellate order, had observed that the remuneration paid was normal, no detailed reasoning, comparative analysis or supporting material had been discussed in the appellate order. It was, therefore, argued that the finding of the learned CIT(A) lacked adequate factual foundation and deserved to be reversed.

6.5 The learned Sr. DR further contended that the learned CIT(A) had failed to properly examine the payment of Rs. 10,00,000/- made by Sehgal Family Foundation, USA, and had accepted the assessee’s explanation without adequately appreciating the findings recorded by the Assessing Officer. According to the Revenue, the said transaction had not been properly accounted for by the assessee and, therefore, the Assessing Officer was justified in treating the same in accordance with law.

6.6 Summarising his submissions, the learned Sr. DR contended that the learned CIT(A) had accepted the explanations furnished by the assessee without properly appreciating either the factual findings recorded by the Assessing Officer or the legal implications arising therefrom. It was, therefore, urged that the impugned appellate order be set aside and that the assessment order passed by the Assessing Officer be restored in its entirety.

7. Submissions of the Learned Authorised Representative (AR)

7.1 Per contra, the learned Authorised Representative (AR) strongly supported the order of the learned CIT(A) and submitted that the impugned appellate order had been passed after an exhaustive examination of the assessment records, remand reports and the documentary evidence placed on record. It was contended that the learned CIT(A) had correctly appreciated the factual matrix and the applicable legal position while granting relief to the assessee.

7.2 On the issue relating to the treatment of grants, the learned AR submitted that the assessee had consistently followed a recognised and accepted accounting policy in respect of tied-up or specific grants. According to the said policy, grants received for specified charitable projects were recognised as income only to the extent they were actually utilised for the designated purposes, whereas the unutilised balance was reflected as a liability in the balance sheet. It was argued that this accounting treatment had been consistently followed over the years, had been accepted by the Department in earlier assessments and was fully supported by settled judicial precedents governing charitable institutions.

7.3 With regard to the alleged discrepancies between the FCRA returns and the books of account, the learned AR submitted that the entire issue stood satisfactorily reconciled during the remand proceedings. The Assessing Officer himself, in the remand report, had accepted several factual explanations furnished by the assessee. It was further submitted that the assessee had been duly registered under the Foreign Contribution (Regulation) Act since the year 2001 and that the subsequent registration obtained under the amended FCRA provisions was necessitated merely on account of the shifting of its registered office and did not constitute a fresh registration.

7.4 Addressing the issue of rental income, the learned AR submitted that the Revenue had proceeded on an erroneous understanding of the trust deed. It was argued that the dominant objects of the trust, as contained in the original trust deed and the Addendum dated 15.06.2010, remained purely charitable and included activities relating to genetic research, agricultural education, conservation of natural resources, sustainable agriculture, environmental protection, family planning, improvement of the status and literacy of women, and, subsequently, relief to the poor and education. The power conferred upon the Board of Trustees to acquire, hold and manage immovable properties was merely an enabling provision intended to facilitate the attainment of these charitable objects and did not constitute an independent object of carrying on the business of leasing or renting properties.

7.5 The learned AR further submitted that the assessee trust had been regularly assessed from Assessment Year 2009-10 up to Assessment Year 2025-26, and throughout this period neither the Assessing Officer nor the learned CIT(E) had ever questioned the earning of rental income or treated the same as being inconsistent with the charitable character of the trust. Our attention was invited to the assessment orders passed in the preceding as well as subsequent years, wherein the exemption claimed under sections 11 and 12 had consistently been allowed despite the existence of rental receipts. It was, therefore, contended that, in the absence of any change either in facts or in law, the Revenue was not justified in taking a contrary stand in the year under consideration. Reliance in this regard was placed upon the judgment of the Hon’ble Supreme Court in Radhasoami Satsang v. CIT /193 ITR 321 (SC)] on the principle of consistency.

7.6 Elaborating further, the learned AR submitted that the rental income was merely incidental to the attainment of the charitable objects of the trust and that the entire rental receipts had been applied towards the charitable purposes for which the trust had been established. The mere fact that income was generated through leasing of trust properties could not alter the charitable character of the institution or disentitle it from claiming exemption under sections 11 and 12 of the Act. In support of this proposition, reliance was placed upon the decision of the Mumbai Bench of the Tribunal dated 07.04.2026 in Vanita Samaj v. ITO(Exemption) [2026] (Mumbai – Trib.)/ITA No. 7794/Mum/2025, wherein it was held that rental income derived from properties held under trust, when applied towards charitable purposes, does not deprive the trust of the benefit of exemption under the Act.

7.7 On the issue relating to the remuneration paid to Mrs. Jane Elien Schukoske, Chief Executive Officer, the learned AR submitted that the remuneration was fully commensurate with her qualifications, experience, responsibilities and the nature of functions discharged by her. It was argued that the trust was professionally managed and required competent professionals for the effective implementation of its various charitable programmes. Although the learned CIT(A) had observed that the remuneration was reasonable, the learned AR fairly submitted that no comparative analysis had been undertaken by the appellate authority. However, it was emphasised that the Revenue had equally failed to bring on record any comparable material or objective evidence to establish that the remuneration was excessive, unreasonable or violative of any provision of the Act. It was also pointed out that the remuneration structure had remained substantially similar in the preceding and subsequent years and had never been objected to by the Department.

7.8 Lastly, with regard to the payment of Rs. 10,00,000/- made by Sehgal Family Foundation, USA directly to CIMMYT, the learned AR submitted that the said amount represented an independent charitable contribution made by the donor on behalf of the Foundation and was never received by the assessee trust. Consequently, the same neither constituted the income of the assessee nor could it be treated as an undisclosed receipt. It was, therefore, contended that the learned CIT(A) had rightly deleted the addition and correctly held that no violation of the provisions governing exemption under sections 11 and 12 had been established.

7.9 In view of the aforesaid submissions, it was prayed that the order of the learned CIT(A) be upheld and the grounds raised by the Revenue be dismissed in their entirety.

8. We have heard the rival submissions, perused the orders of the authorities below and carefully examined the material available on record.

8.1 The Revenue has challenged the findings of the learned CIT(A) primarily on the grounds that (i) the assessee was engaged in earning rental income by leasing its properties, which according to the Assessing Officer constituted a commercial activity disentitling the assessee from exemption under sections 11 and 12 of the Act; (ii) the remuneration paid to the Chief Executive Officer was excessive; and (iii) the payment of Rs.10,00,000/- made by Sehgal Family Foundation, USA, on behalf of the assessee, was liable to be treated as unexplained income.

8.2 (i) Rental income and leasing of properties

We have considered the rival submissions and carefully perused the material available on record. The principal basis adopted by the learned CIT(A) for allowing the assessee’s claim is the observation that one of the objects of the trust was to lease out properties and earn rental income. However, on a careful examination of the original trust deed as well as the Addendum/Rectification Deed dated 15.06.2010, we find that the aforesaid observation is factually incorrect and contrary to the material available on record.

The original trust deed, placed at page 67 of the paper book, enumerates the charitable objects of the trust, namely: (i) genetic research and agricultural education; (ii) conservation of land, water and genetic resources; (iii) sustainable agriculture and environmental protection; (iv) family planning and population control; and (v) improvement of the status and literacy of women. Subsequently, by way of the Addendum/Rectification Deed dated 15.06.2010, the additional charitable objects of Relief to the Poor and Education were incorporated. Significantly, neither the original trust deed nor the addendum includes, as an object of the trust, carrying on the activity of leasing or renting of immovable properties for earning rental income.

8.3 What is, however, contained in the trust deed is a separate enabling provision conferring powers upon the Board of Trustees. Clause VIII merely authorises the trustees to acquire, hold, manage or otherwise deal with land, buildings and other immovable properties with the funds of the trust for effectuating the charitable objects of the trust. Such an enabling clause cannot be elevated to the status of an independent charitable object. The power to acquire and manage trust properties is only incidental to the effective administration of the trust and to facilitate the attainment of its charitable purposes. Therefore, the finding of the learned CIT(A) that leasing of properties itself constituted one of the objects of the trust is clearly erroneous and is not borne out from the trust deed.

8.4 At the same time, we also notice that the trust deed, along with the Addendum dated 15.06.2010, has been the subject matter of adjudication in the preceding as well as subsequent assessment years. At no stage have the Revenue authorities questioned the charitable nature of the objects or recorded any finding that the activities of the trust were not genuine. The entire controversy is confined to the interpretation of the enabling clause empowering the trustees to acquire and manage immovable properties.

8.5 The record further reveals that the Revenue has not brought any material to establish that the rental income earned by the trust was diverted for any non-charitable purpose or that the dominant character of the trust had ceased to be charitable. On the contrary, the Income and Expenditure Account demonstrates that the receipts of the trust, whether derived from grants, donations, interest or rental income, were applied only towards the charitable objects of the trust. Thus, the source from which the income was generated has not altered the fundamental charitable character of the institution.

8.6 It is a settled proposition of law that the decisive test is the dominant object of the institution and not the source of its income. Income derived from property held under trust, including rental income, does not lose the benefit of exemption under sections 11 and 12 merely because such income arises from leasing of trust property, so long as it is applied towards the charitable purposes for which the trust has been established. The leasing of trust property, in the facts of the present case, is only an incidental mode of augmenting resources to fulfil the charitable objects and cannot be construed as an independent commercial object of the trust.

8.7 Accordingly, while we disagree with the reasoning assigned by the learned CIT(A) in holding that earning rental income was itself one of the objects of the trust, we nevertheless uphold the ultimate conclusion that the assessee cannot be denied exemption on this ground. The reasoning adopted by the learned CIT(A) is incorrect; however, the conclusion reached by him is sustainable on the basis that the rental income was merely incidental to the charitable activities and was admittedly applied towards the charitable objects of the trust. Consequently, the ground raised by the Revenue on this issue is devoid of merit and is dismissed.

8.8 Accordingly, we concur with the findings recorded by the learned CIT(A) on this issue. The ground raised by the Revenue challenging the allowability of exemption merely because the assessee earned rental income is devoid of merit and is, therefore, dismissed.

8.9 (ii) Remuneration paid to the Chief Executive Officer and payment of Rs. 10,00,000/-

We have considered the rival submissions and carefully perused the material available on record. The Revenue has challenged the remuneration paid to Mrs. Jane Elien Schukoske, Chief Executive Officer of the assessee trust, on the ground that the salary paid was excessive and not commensurate with the services rendered. We, however, find no merit in the said contention.

8.10 Admittedly, neither the Assessing Officer nor the learned CIT(A) has brought on record any comparable material to demonstrate that the remuneration paid to the Chief Executive Officer was excessive, unreasonable or disproportionate to her qualifications, experience, duties and responsibilities. The entire disallowance is founded on mere surmises without any objective benchmark or comparable instance. It is a settled proposition that an allegation of excessive remuneration cannot rest upon subjective perception; it must be supported by cogent evidence establishing that a similarly placed professional would ordinarily command substantially lower remuneration.

8.11 The assessee has consistently maintained that the trust is managed on professional lines and that the Chief Executive Officer possesses the requisite qualifications, expertise and experience necessary for carrying out the activities of the trust. It was also submitted before us that the remuneration paid to Mrs. Jane Elien Schukoske was commensurate with her status and responsibilities and, in fact, could not be equated with the remuneration structures prevailing in other charitable organisations, having regard to the scale and nature of the activities undertaken by the assessee trust. These submissions have not been controverted by the Revenue through any tangible material.

8.12 Significantly, it is not the case of the Assessing Officer that Mrs. Jane Elien Schukoske is a specified or related person within the meaning of the relevant provisions of the Act, nor has any material been brought on record to suggest that the remuneration was a device for diversion of the income or property of the trust for private benefit. Equally, there is no finding that the services rendered by her were either unnecessary or not commensurate with the remuneration paid.

8.13 We also find merit in the contention of the learned Authorised Representative that charitable institutions of the nature of the assessee, engaged in specialised developmental and research activities, require professional management. Engagement of qualified professionals at market-driven remuneration, by itself, cannot lead to an inference that the trust has ceased to exist for charitable purposes or that the expenditure is excessive. In the absence of any comparable evidence or objective analysis, the Revenue cannot substitute its own perception for commercial expediency.

8.14 Furthermore, the record does not indicate that the remuneration paid during the year under consideration represented any abnormal departure from the remuneration paid in the earlier or subsequent assessment years. The Revenue has also not demonstrated that the salary structure accepted in other years has undergone any unusual variation so as to warrant a different view in the year under appeal. The principle of consistency also, therefore, supports the assessee’s case.

8.15 Accordingly, although the reasoning recorded by the learned CIT(A) on this issue could have been more elaborate, we find no infirmity in the ultimate conclusion reached by him. In the absence of any material establishing that the remuneration was excessive, unreasonable or violative of the provisions of the Act, no interference is called for.

8.16 Consequently, the ground raised by the Revenue challenging the remuneration paid to the Chief Executive Officer is dismissed. Likewise, the Revenue has not brought any material to demonstrate that the payment of Rs. 10,00,000/- received from Sehgal Family Foundation, USA, was utilised for any purpose other than the charitable objects of the trust or that it resulted in any violation of the provisions of the Act. Accordingly, this aspect of the ground also fails.

8.17 The ground of appeal raised by the Revenue is, therefore, dismissed.

8.18 Alleged discrepancies in FCRA receipts and accounting of grants We have carefully considered the rival submissions and perused the material available on record. One of the principal reasons assigned by the Assessing Officer for denying exemption under sections 11 and 12 of the Act was the alleged discrepancy between the figures reflected in the FCRA returns, the books of account and the financial statements of the assessee. According to the Assessing Officer, the foreign grants received by the assessee had not been properly accounted for and substantial grants remained unutilised, thereby leading to the conclusion that the affairs of the trust were not maintained in accordance with law.

8.19 We are unable to subscribe to the aforesaid reasoning of the Assessing Officer. The record reveals that during the appellate proceedings the learned CIT(A) called for detailed remand reports from the Assessing Officer. In the remand proceedings, the assessee furnished complete reconciliation of the foreign contributions reflected in the FCRA returns vis-a-vis the books of account, the Receipt and Payment Account and the Income and Expenditure Account. Significantly, the Assessing Officer, in the remand report itself, accepted that the total receipts disclosed in the FCRA returns stood duly reconciled with the books of account. The Assessing Officer also accepted the reconciliation of miscellaneous receipts reflected in the Receipt and Payment Account. Thus, the very foundation on which the assessment order proceeded stood diluted by the Assessing Officer’s own findings recorded during the remand proceedings.

8.20 We also find merit in the explanation furnished by the assessee that it has consistently followed a recognised accounting policy in respect of tied-up or earmarked grants, whereby such grants are recognised as income only to the extent they are utilised for the specific purposes for which they are received, while the unutilised balance is carried forward as a liability in the Balance Sheet. Such an accounting treatment is in consonance with well-recognised accounting principles governing charitable institutions and ensures that only the amount actually applied towards charitable purposes is reflected as income. The Revenue has not brought on record any material to establish that this accounting policy was either impermissible in law or had resulted in suppression of income.

8.21 We further notice that the assessee has been duly registered under the Foreign Contribution (Regulation) Act since the year 2001. The subsequent registration referred to by the Assessing Officer merely arose on account of the change in the registered office of the trust consequent upon the amended FCRA provisions. The Assessing Officer has not brought any material on record to establish that the assessee had violated any provision of the FCRA or that any foreign contribution had been misutilised or diverted for purposes other than the charitable objects of the trust.

8.22 In our considered opinion, once the discrepancies alleged in the assessment order stood reconciled during the remand proceedings and such reconciliation was substantially accepted by the Assessing Officer himself, there remained no justification for drawing an adverse inference against the assessee on this issue. The Revenue has also failed to point out any specific defect in the reconciliation statements or to demonstrate that any part of the foreign contribution remained unaccounted for or was applied for noncharitable purposes.

8.23 Accordingly, we find no infirmity in the conclusion reached by the learned CIT(A) that the objections raised by the Assessing Officer regarding the FCRA receipts and accounting of grants did not survive after the remand proceedings. We, therefore, uphold the finding of the learned CIT(A) on this issue and dismiss the corresponding ground raised by the Revenue

9. Accordingly, the appeal of the revenue is dismissed.