TaxTMI 
TaxTMI 
2015 (12) TMI 42
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....a in collaboration with Ohio University, USA. For the Assessment Years 2008-09 & 2009-10, the assessee had filed the returns of income declaring NIL income after application of income under Section 11 of the Act. The returns were processed under Section 143(1) of the Act and subsequently the case was selected for scrutiny. The assessments were concluded under Section 143(3) of the Act vide orders dt.22.12.2010 for Assessment Year 2008-09 and dt.15.12.2011 for Assessment Year 2009-10, wherein additions/disallowances under various heads were made. 2.2 Aggrieved by the orders of assessment for Assessment Years 2008-09 and 2009-10, the assessee preferred appeals before the CIT (Appeals), Mysore. The learned CIT (Appeals) disposed off the appeals by way of a common order dt.20.9.2013 allowing the assessee's appeals. 3. Revenue is aggrieved by the orders of the CIT (Appeals), Mysore for Assessment Years 2008-09 and 2009-10 dt.20.9.2013 and has preferred these appeals, raising the following grounds :- "A.Y. 2008-09 : A) Disallowance of faculty teaching charges payable to Ohio University amounting to Rs. 2,66,72,407 :- 1) The CIT (A) has erred in directing the assessin....
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..... 6) The CIT (A) has failed to appreciate the fact that in view of nonutilisation/ non- application of income to the extent of Rs. 2,66J2,407/-, being faculty teaching charges payable to Ohio University, Athens, USA, in the year under consideration, it is not relevant to discuss the second ground i.e., whether such amount is allowable as deduction on the ground that the same has been incurred outside India or in India. B) Set-off brought forward excess application of income/loss of earlier years :- 1) The CIT (A) has erred in directing the assessing officer to allow set-off of excess expenditure/application/deficit/loss pertaining to earlier asst. years against the income of the A.Y. 2008-09 and carry forward of excess application/expenditure/deficit/loss of the A.Y. 2008-09 to subsequent asst. years without appreciating the fact that as per the scheme of taxation of charitable and religious trust/institution as codified u/s 11, 12 and 13, there is no provision for computing loss from property held under trust/institution on account of excess application of income/funds of the trust. 2) The CIT (A) has failed to appreciate the fact that the normal comp....
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....umulated in the earlier assessment years u/s l1(l)(a), advance received, share capital or share application money received etc., then, the taxable income of the assessee shall be considered as NIL. Further, the excess amount of expenditure over and above the gross receipts cannot be considered as loss incurred eligible for carry forward and set off against the income of subsequent assessment years. Similarly, any capital expenditure incurred over and above the net surplus eligible for application, cannot be carried forward and set off against the income of subsequent assessment years. 6) The CIT (A) has failed to follow the decision of the Hon'ble ITAT, Bombay in the case of Income-tax Officer vs. Trustees of Sri Sathya Sai Trust (33 ITO 320) wherein it was held that the deficit arising on account of application of funds/sums which are not in the nature of income is not capable of being carried forward. Similarly, Hon'ble ITAT, Delhi, in the case of Pushpavati Singhania Resaerch Institute for Lever, Renal and Digestive Diseases Vs. DDIT{E), New Delhi (29 SOT 316) has held that any excess expenditure incurred by a trust/ charitable institution in earlier years cannot be all....
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....lication/ expenditure by way of actual payment to the parties concerned. C) Disallowance of preliminary expenses of Rs.l,08,292/-: Please refer to the grounds of appeal for the A.Y. 2008-09 on the issue of setoff of brought forward excess application of income/loss of earlier years which are applicable to the issue under reference. D) Disallowance of accumulation of income u/s 11(2) of Rs. 26,72,071:- 1) The CIT(A) has erred in holding that the purchase of fixed assets & equipments, besides, fulfillment of objects of the trust can be construed as specific purposes as envisaged u/s 11(2) without appreciating the fact that the assessee had failed to declare specific purposes for which the income is being accumulated u/s 11(2) except stating that 'purchase of fixed assets and equipments and used as per the objectives of the trust' and such general purposes cannot be construed as specific purposes as envisaged u/s 11(2). 2) The CIT (A) has failed to appreciate the fact that the assessee has not identified the specific amount with purpose meant for accumulation u/s 11(2) giving the particulars of mode of investment/deposit of the same such as, amount of ....
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.... in India. If the income of the Trust is applied outside India, the income is exigible to tax. After 31.3.1952, the income applied outside India by Trusts is exempt only under a general or special order of CBDT; (iii) The assessee did not prove that the payments made to Ohio University resulted in charitable purposes in India. 4.2 On appeal by the assessee, the learned CIT (Appeals) upheld the assessee's claim and deleted the disallowances made by the Assessing Officer by relying on the decision rendered by the CIT (Appeals) in the assessee's own case for Assessment Year 2007-08. The learned CIT (Appeals), while allowing the assessee's claim, observed that the application should be for charitable purposes in India and if the payment is made outside the country in furtherance of charitable purpose in India, it can be counted as application for charitable purposes in India. The learned CIT (Appeals) also noted that the Permanent Establishment ('PE') of Ohio University in India has offered these payments as income in India and has paid taxes thereon in India. 4.3 The learned Departmental Representative assailed the impugned orders of the learned CIT (Appeals) on this issue an....
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....es not mean that the charitabale purpose was outside India. It was submitted that the charitable activities were rendered in India and just because the payment was made to parties outside India, it does not change the fact that the charitable activities were carried out in India. In support of this contention, the learned Authorised Representative placed reliance on the decision of the various Tribunals in the cases of Gem and Jewellery Export Promotion Council V ITO in (1999) 69 ITD 95 (Mum) and National Association of Software and Services Companies ('NASSCOM') V DDIT, reported in 130 TTJ 377 (Del). 4.5.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements relied upon by both parties. The basic facts, not in dispute, are that the assessee has entered into an agreement with Ohio University, USA, whereby Ohio University sends its faculty to the assessee's premises in India for teaching purposes, for which the assessee makes payment to Ohio University for providing the faculty and other support services. In terms of the agreement, the assessee is required to pay a sum of USD 9,000 per student for t....
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.... the mere fact that the expenditure has been incurred out of India, does not disqualify the expenditure from exemption under s. 11(1)(a)." In the case of NASSCOM V DDIT in 130 TTJ 377 (Del), the Delhi Bench of the Tribunal at para 11 thereof has held as under :- " 11. We have considered the rival submissions. A perusal of the provisions of s. 11(1)(a) of the Act clearly shows that the words used are "is applied to such purpose in India". The words are not "is applied in India". The fact that the legislature has put the words "to such purpose" between 'is applied' and 'in India' shows that the application of income need not be in India, but the application should result and should be for the purpose of charitable and religious purpose in India. Undisputedly, the assessee is registered under s. 12A as a charitable institution. It is also not disputed that the activities of the assessee are charitable. It is also not the case of the Revenue that the expenditure incurred by the assessee in Hanover, Germany has not resulted in the benefit being derived in India. In these circumstances, it cannot be said that the expenditure incurred by the assessee in Hanover, Germany, which resul....
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.... Jewellery Export Promotion Council (supra), wherein, it has been held as follows : "A bare reading of the sub-s. 11(1)(a) does not leave us in doubt that the requirement under s. 11 is for application of income for purposes in India and it does not restrict the application of income within the territory of India. The charitable purpose for which the income should be applied for claiming exemption under s. 11(1)(a) should be in India. In this case, it is not disputed that the trade delegation had been sent abroad for the benefit of the entire trade in India. The exports are made from India and the purpose for sending the delegation was to increase the possibilities of exports out of India. We accordingly hold that since the assessee has applied the income for charitable purposes in India, the mere fact that the expenditure has been incurred out of India, does not disqualify the expenditure from exemption under s. 11(1)(a)." 4.5.4 We also do not concur with the Assessing Officer's view that a specific exemption is required from CBDT for making claim of application of income. This requirement has been specified only for those trusts that have as its objects, the promotion of in....
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....nue at A (1 to 5) for both A.Ys 2008-09 and 2009-10 are dismissed. 5. B & C : Set off of brought forward excess application of income/loss of income/loss of earlier years ( B for A.Y. 2008-09 and C for A.Y. 2009-10). 5.1 In the course of assessment proceedings, the Assessing Officer observed that the assessee had claimed application of income on account of expenditure of earlier years, which has been brought forward and set off in the year under consideration. The Assessing Officer disallowed the same on the ground that there is no express provision in the Act permitting the adjustment of earlier years brought forward expenses as application of income in the current year. According to the Assessing Officer, the application of income for charitable purposes must be during the relevant previous year. Since the income of the trust is exempt from tax, the question of deficit does not arise and also the trust is required to utilize 85% of the income of the previous year for charitable purposes during the year. In this view of the matter and for the above reasons, the Assessing Officer disallowed the assessee's claim of expenditure of earlier years being brought forward and set off....
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.... fixed asset owing to 'use' or obsolescence. It may be computed as that part of the cost of the asset which will not be recovered when the asset is finally put out of use. The object of providing for depreciation is to spread the expenditure, incurred in acquiring the asset, over its effective lifetime; the amount of the provision, made in respect of an accounting period is intended to represent the proportion of such expenditure, which has expired during that period." "At the end of its effective life, the assets ceases to earn revenue, i.e., the capital value has expired and the asset will have to be replaced or a substitute found. Provision for depreciation is the setting aside, out of the Revenue of an accounting period, the estimated amount by which the capital invested in the asset has expired during that period. It is the provision made for the loss or expense incurred through using the asset for earning profits, and should, therefore, be charged against those profits as they are earned." "If depreciation is not provided for, the books will not contain a record of revenue or capital. If the asset were hired instead of purchased, the hiring fee would be charged against ....
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....sequently, Ground No. B (1 to 6) of the Revenue's appeal for Assessment Year 2008-09 and Ground No.C for Assessment Year 2009-10 are dismissed. 6. B. Loss on account of foreign exchange fluctuation - A.Y. 2009-10. 6.1 This issue is related only to Revenue's appeal for Assessment Year 2009-10. In the course of assessment proceedings, the Assessing Officer observed that the assessee had claimed application of income on account of foreign exchange fluctuation of an amount of Rs. 70,58,026. The Assessing Officer was of the view that when the application of programme fee itself was denied exemption under Section 11 of the Act, the exchange fluctuation expenditure cannot be allowed and disallowed the assessee's claim. 6.2 On appeal, the learned CIT (Appeals) held that since programme fee payments by the assessee to Ohio University, USA has been allowed as application of income, the connected exchange fluctuations are also to be allowed and consequently deleted the disallowance made by the Assessing Officer. 6.3 Before us, the learned Departmental Representative was heard in respect of the Grounds raised, assailed the impugned order of the learned CIT (Appeals). The learned De....
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....iew in favour of the assessee is held to be applicable. 7.3 The learned Departmental Representative was heard in support of the grounds raised and while assailing the impugned order of the learned CIT (Appeals), placed reliance on finding in the order of the Assessing Officer on this issue. 7.4 Per contra, the learned Authorised Representative for the assessee submitted that the assessee had disclosed the purpose of accumulation of income in Form No.10, as purchase of fixed assets and fulfillment of the objects of the trust. It was also submitted that the Hon'ble High Court of Karnataka in the case of DIT V Envisions (2015) 58 taxmann.com 184 (Kar) has held that as long as the objects of the trust are charitable in character and purposes mentioned in Form No.10 are for achieving the objects of the Trust, merely because the details about plan of such expenditure has not been given, the same would not be sufficient to deny the assessee benefit under Section 11(2) of the Act. It was submitted by the learned Authorised Representative that the cited decision of the Hon'ble Karnataka High Court (supra) is squarely applicable to the assessee in the case on hand. 7.5.1 We have hea....