2022 (10) TMI 167 - AT - Income Tax

ITAT Upholds Trust's International Spending Decision

The Income Tax Appellate Tribunal (ITAT) upheld the decision of the Commissioner of Income Tax (Appeals) [CIT(A)], dismissing the Revenue's appeal. The ... Exemption u/s 11 - spending money by the trust outside India without the approval of CBDT - whether the Ld. CIT (A) was correct in holding that spending by the trust outside India without the approval of the CBDT u/s 11(1 )(c) of the Act is permissible, despite that the facts and ration of relied upon cases were not directly related to application of section 11 (1 )(c) of the Act - HELD THAT:- CIT(A) after considering the facts and circumstances of the case rightly granted relief to the assessee by following the rule of consistency as the Ld. CIT(A) -40 New Delhi had accepted appellant’s grounds for assessment years 2012-13, 2013-14 and 2014-15 [2022 (9) TMI 1186 - ITAT DELHI] i.e. subsequent assessment years on the identical facts and circumstances. Therefore the Ld. CIT(A) was also right in following the order and granting relief to the assessee. Appeal of the Revenue is dismissed. Issues Involved:1. Permissibility of spending by the trust outside India without CBDT approval under section 11(1)(c) of the Income Tax Act.2. Non-observance of conditions in section 11(1)(c) and its implications.3. Verification of the utilization of grants for specified purposes.4. Permissibility of a trust receiving amounts for activities not forming part of its income under sections 11 and 12.5. Treatment of government grants as exempt income.Issue-wise Detailed Analysis:1. Permissibility of Spending by the Trust Outside India Without CBDT Approval:The Revenue challenged the CIT(A)'s decision that allowed the trust to spend money outside India without CBDT approval under section 11(1)(c). The CIT(A) relied on precedents where similar expenditures were permitted, such as the case of Apparel Export Promotion Council, which was upheld by the Delhi High Court and the Supreme Court. The CIT(A) noted that the trust received specific grants from the Ministry of Commerce for promoting Indian exports, which were not voluntary contributions under section 12 and thus not included in the total income under section 11.2. Non-observance of Conditions in Section 11(1)(c) and Implications:The Revenue cited the Delhi High Court's decision in the NASSCOM case, arguing that non-compliance with section 11(1)(c) conditions renders the section infructuous. However, the CIT(A) maintained that the trust's activities were consistent with the aims and objects similar to those in the Apparel Export Promotion Council case, thus justifying the expenditures without CBDT approval.3. Verification of the Utilization of Grants for Specified Purposes:The CIT(A) thoroughly examined the administrative approval documents and found that the grants were specifically sanctioned for participation in international events. The trust was required to maintain separate accounts and detailed records of expenditures, which were subject to audit by the sanctioning authority and the Comptroller and Auditor General (CAG) of India. Any unspent funds, along with interest, were to be refunded to the government, ensuring that the grants were utilized for their intended purposes.4. Permissibility of a Trust Receiving Amounts for Activities Not Forming Part of Its Income Under Sections 11 and 12:The CIT(A) concluded that the grants received by the trust were not voluntary contributions under section 12 but were tied-up grants for specific purposes. The trust acted as a trustee of these funds, which were not integrated with its normal income or corpus. This view was supported by various judicial precedents, including the Delhi High Court's decision in the case of Society for Development Alternatives and the ITAT's decision in the case of Society for Integrated Development in Urban and Rural Areas (SIDUR).5. Treatment of Government Grants as Exempt Income:The CIT(A) treated the government grants as exempt income, not to be included as receipts, based on the nature of the grants and the specific conditions attached to their utilization. The grants were provided for specific projects and events, and the trust had no discretion to use the funds for any other purposes. This treatment was consistent with judicial precedents, which held that tied-up grants for specific purposes do not form part of the trust's income under sections 11 and 12.Conclusion:The ITAT upheld the CIT(A)'s order, dismissing the Revenue's appeal. The ITAT found no legal infirmity or error in the CIT(A)'s decision, which was based on consistent judicial precedents and a thorough examination of the facts and circumstances. The trust's expenditures were justified, and the grants were correctly treated as exempt income, ensuring compliance with the conditions attached to their utilization. The appeal was dismissed, affirming the CIT(A)'s findings and granting relief to the assessee.