TaxTMI 
TaxTMI 
2006 (11) TMI 106
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....ering Technology under the Ministry of Tourism of the Government of India for offering its courses and expertise with a view to improve the quality of hospitality education and training in India. 3. For the purposes of discharging its obligation under the MoU, the head office opened a liaison office at Bombay on or about 6th July, 1994 when it obtained approval from the Reserve Bank of India to do so. Thereafter, as its activities increased, it was permitted by the Reserve Bank of India by a letter dated 10th February, 1995 to convert its liaison office into a branch office for the purpose of undertaking the following activities : (i) Research, reproduction, marketing etc. in relation to educational services and resources. (ii) Provide educational services and resources to the target groups consisting of hospitality industry, training institutions and individuals. 4. With a view to clarifying its tax status in India, the head office filed an application on 27th June, 1995 with the Authority for Advance Rulings (AAR) constituted under Chapter IX-B of the Act. Although the head office sought a ruling from the Authority on several questions, it was noted by the Authority that the ....
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....l purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approved by the prescribed authority, or . . ." 8. There are certain provisos to this, which we propose to consider a little later. 9. In view of the change in law, the Petitioner made an application on 7th April, 1999 to the Commissioner of Income Tax in Bombay in the prescribed Form 56D and requested for approval for the purposes of Section 10(23C)(vi) of the Act. 10. For the assessment year 1999-2000, the Petitioner had filed its return of income on 7th April, 1999 declaring its income as Nil. The total receipts received by the Petitioner were Rs.1,54,01,487/-. On this, a deduction of Rs.23,71,199/- was claimed on account of expenses incurred and the remaining income over the said expenditure coming to about Rs.1,30,30,288/- was claimed as exempted under Section 10(23C)(vi) of the Act. The case was selected for scrutiny but during the assessment proceedings it was noticed that the assessee/Petitioner was not authorised under the relevant provisions to claim the said exemption. In response, the Petitioner stated that the application for approval of....
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....ied that the terms of Section 10(23C)(vi) of the Act as well as the third proviso thereof do not require the income to be applied in India or accumulated for the application towards the objects of the institution in India. While this may be a requirement under the provisions of Section 11(1) and (2) of the Act, Section 10(23C)(vi) thereof is independent and reading an application or accumulation for application of the income towards the objects of the institution in India would be against the legislative intent. As an alternative, it was stated that the surplus amounts are maintained by the Petitioner with Dena Bank, Overseas Branch and are invested in short term deposits. To that extent, the requirement of the third proviso to Section 10(23C)(vi) of the Act is met. The Petitioner also placed reliance upon the decision of the Authority Advance Ruling in support of its case (see [1996] 219 ITR 183 (AAR)). 14. Eventually, by the impugned order dated October 12, 2004, the application of the Petitioner was rejected leading to the present writ petition. 15. The Respondents have filed a counter affidavit in which it has been admitted that although basically the facts have remained the ....
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....th September, 2006 when orders were reserved. We find no error in the view taken by the Respondents. 18. At the outset, we may notice a dichotomy in the stand taken by the Petitioner. On the one hand it is contended (where convenient) that the head office and the branch office are one and the same entity. If so, any amounts received by the branch office in India are actually amounts received by the head office. Therefore, there is no question of any expatriation of the amounts to the head office the head office is earning in India and taking its earnings (less domestic expenses) to USA. On the other hand, it is contended (where convenient) that the head office and the branch office are two different entities. If so, then the branch office has to stand on its own legs. In that event, the branch office is earning in India and taking its earnings to USA, without any reference to the head office. We are, however, proceeding on the basis that the head office and the branch office are really one entity, one subordinate to the other. 19. The first question that needs to be answered is whether the amounts generated by the Petitioner in India are its income or not. Learned counsel submitt....
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....titioner, that the cost incurred by the head office in respect of intellectual inputs and efforts are not passed on to the Petitioner but are accounted for by the head office only. If this cost is passed on to the Petitioner, perhaps it may not have any surplus as contended by its learned counsel and, therefore, it would have no income that is taxable in India. In other words, the Petitioner merely acts as a post office for all intents and purposes vis-a-vis its relationship with the head office located in USA. Learned counsel for the Petitioner is in error, we feel, in equating surplus with income. That cannot be so. We are of the opinion that the amount generated by the Petitioner in India is its income. Any income generated by the Petitioner may be income generated for and on behalf of the head office___nevertheless it is the income of the Petitioner. Thereafter, the Petitioner deducts administrative expenses incurred by it and the "surplus", is then remitted to the head office. What follows from this is that the Petitioner generates income in India, but it may or may not have any surplus. If it does have some surplus, it remits the amount to America, otherwise not. ....
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....mount is being applied in that country for educational purposes ? The answer must clearly be in the negative. Consequently, it must be held that application of the income is required to be in India for the purposes of Section 10(23C)(vi) of the Act read with the third proviso thereto. 24. Learned counsel suggested that importing the words "in India" in the third proviso is impermissible. That may be so, but similarly importing the words "anywhere in the world" is equally impermissible. But that is not really the issue. The words "in India" have necessarily to be read into the third proviso to make it workable and to keep it conformity with the application of the Act. The Respondents have rightly noted in the impugned order that the Act applies to the whole of India__it is not extraterritorial in operation. If we agree with learned counsel, then the Revenue would be given powers to apply the provisions of the Act even outside India___something that is not even postulated by Parliament. Consequently, whichever way we look at the issue, it is not possible to agree with learned counsel for the Petitioner. 25. The thrust of the contentions of learned counsel appear to be intended to p....
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....ave to reject that construction which will defeat the plain intention of the Legislature even though there may be some inexactitude in the language used. [See Salmon v. Duncombe [1886] 11 App Cas 627(PC), referred to in CIT v. S. Teja Singh [1959] 35 ITR 408 (SC). When the scope of the words used is sought to be curtailed by construction, as it was pointed out in CIT v. Shahzada Nand and Sons [1966] 60 ITR 392 (SC) and we quote (page 400) : "the approach suggested by Lord Coke in Heydon's case[(1584) 3 Rep. 7b] yields better results : To arrive at the real meaning, it is always necessary to get an exact conception of the aim, scope and object of the whole Act;? to consider according to Lord Coke : 1. What was the law before the Act was passed; 2. What was the mischief or defect for which the law had not provided; 3. What remedy parliament has appointed; and 4. The reason of the remedy." 28. In view of the rule cited with approval in Shahzada Nand, [1966] 60 ITR 392 (SC), we may briefly examine the legislative history of the amended provision. The purpose, nature and import of the legislative amendment brought by the Finance (No. 2) Act, 1998 with effect from the assessmen....
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....ose of approval under sub-clauses (vi) and (via) of section 10(23C). 8.5 These amendments will take effect from April 1, 1999, and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. 29. Circular No.779 also issued by the CBDT on 14th September, 1999, in clause (vi) states as follows (page 42) : "(vi) The provisions of clause (23C) of section 10 are rationalised so that the Central Government before notifying a fund, trust or institution may call for any information and may hold any enquiry so as to determine the genuineness of such fund, trust or institution. The second proviso to this clause has been substituted so as to empower the prescribed authority to call for information or to hold such enquiry as it deems fit before the University or other educational institution or a hospital is approved for exemption under clause (23C) of section 10." 30. Reference may also be made to the speech made by the Finance Minister on 17th July, 1998 while replying to the debate after incorporating amendments to the Finance (No.2) Bill, 1998 reported as [1998] 232 ITR (St.) 11 at 13. "In the Budget I had proposed that the blanket exemption available t....