TaxTMI 
TaxTMI 
2018 (11) TMI 1055
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....l questions of law in the memo of appeal are quoted hereinbelow for reference : "(1) Whether on the facts and in the circumstances of the case, the Tribunal is right in deleting faculty teaching charges to Ohio Univer sity towards academic expenses by holding that merely because the payments are made outside India, it cannot be said that the charitable activities were also conducted outside India even when the assessee has applied its income for charitable activities outside India and not within which is an essential condition as set out in section 11 of the Act and the assessee has not been granted such exemption by the Central Board of Direct Taxes (CBDT) vide a special order ? (2) Whether on the facts and in the circumstances of the case, the Tribunal is right in confirming the order of the Commissioner of Income-tax directing the assessing authority to allow the claim of the assessee for set off of brought forward excess application of income/ loss of income/loss of income for earlier years by relying upon the decision of this hon'ble court in the case of CIT v. Society of the Sis ters of St. Anne [1984] 146 ITR 28 (Karn) and Circular No. 5-P (lxx)-6 of 19....
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....ulty 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 sup port services. In terms of the agreement, the assessee is required to pay a sum of USD 9,000 per student for the 18 month duration of the course (i.e. USD 3,000 per student for 6 months period). At the end of the year, as the payments had not yet been made, the assessee had accrued the amount in its books of account and the actual remittance was made in the subsequent year. The assessee had deducted tax at source on the amounts so credited towards faculty teaching charges on the basis of income accruing/arising to Ohio University in India by virtue of a permanent establishment in India. Further Ohio University had filed returns of income in India offering this income to tax and paid taxes accordingly. It is also not disputed that the services have been rendered by the faculty members from Ohio University as the classes were taken in Bangalore. The services have been utilized for the purposes of the Trust's objectives in India, viz., of imparting higher education in India. Ohio University has also offered the....
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....he purpose of charitable and religious pur pose in India. Undisputedly, the assessee is registered under section 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 cir cumstances, it cannot be said that the expenditure incurred by the assessee in Hanover, Germany, which resulted in and which was for the purpose of attaining the charitable object in India, is not appli cation of income. This view is also supported by the decision of a Co- ordinate Bench of this Tribunal in the case of Gem and Jewellery Export Promotion Council v. Sixth ITO [1999] 68 ITD 95 (Mumbai), wherein, it has been held as follows : A bare reading of the section 11(1)(a) does not leave us in doubt that the requirement under section 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 section 11(1)(a) should ....
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....c purpose as there was nothing else to be done except the actual payment. The Tribunal was right in holding that the actual payment is irrelevant for purposes of finding out whether there has been an application of the funds . . .' We also find in the cases of CIT v. Radhaswami Satsang Sabha [1954] 25 ITR 472 (All) and CIT v. Thanthi Trust [1999] 239 ITR 502 (SC), it has been held that the word 'applied' does not mean 'spent' and even if the income has been earmarked and allocated for the purpose of carrying out the objects of the institution, it might be deemed to be applied for that purpose. In view of the facts and circumstances and the legal matrix of the case on hand, as discussed above, we uphold the decision of the learned Commissioner of Income-tax (Appeals) in deleting the addi tion/disallowance made in respect of faculty teaching charges. Con sequently, the grounds raised by the Revenue at A (1 to 5) for both the assessment years 2008-09 and 2009-10 are dismissed." 5. Having heard the learned counsel, we are of the opinion that the said findings of the learned Tribunal relying upon the decision of the hon'ble Supreme Court in t....
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....hat it is no part of the Revenue's case at any point of time that the credit entries made in the assessee's books of account were not genuine or true or that they were mere make-believe or bogus. It is also not brought to our notice that the Income-tax Officer doubted the said entries and called upon the assessee to produce the accounts of the college and that the assessee failed to produce the same." 10. In CIT v. Trustees of H. E. H. the Nizam's Charitable Trust (supra), the Division Bench of the Andhra Pradesh High Court held as under : "The Tribunal had rightly taken the view that it was not correct to equate the word 'applied' as used in section 11 with the word 'spent'. If the Legislature had intended that the amount should actually be spent, there was nothing which had prevented it from using that word. In the instant case, therefore, the amounts which were sanc tioned but not actually spent in the relevant accounting year would, in the given facts and circumstances, constitute application of the funds for charitable purposes within the meaning of section 11(1)(a)." 11. Following its earlier view in the case of H. E. H. Nizam's ....
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....ld that even if the amount is earmarked or allocated for the purpose of the institution, it should be deemed to have been applied for its purpose. The Division Bench of the Allahabad High Court dealt with the provision of section 4(3)(i) of the old Income-tax Act, 1922, which is again under section 11(1)(a) of the 1961 Act. The relevant portion of the said judgment is also quoted below for ready reference (page 522 of 25 ITR) : "The Sabha, in the sense understood by Lord Macnaghten, is clearly an institution having been brought about to effect the purpose and to carry out the objects for which the trust was founded. The other word, on which reliance is placed, is the word 'applied' in clause (ia). This word 'applied' in this clause, it is said, means actually spent and it is pointed out that while, in clause (i) of sub-section (3) of sec tion 4 of the Act, the words used are 'income applied or finally set apart', the words 'finally set apart' have not been repeated in clause (ia) of that sub-section. We do not think that the word 'applied' nec essarily means 'spent'. Even if it has been earmarked and, allocated for the purpos....
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....essee had not done anything which can characterize the payments as donation or application of the income of the trust for any charitable purposes. In the balance-sheet, the amount is merely shown as reserve for donation. There was a balance under the said account even earlier and this amount is added to it. Merely adding this sum to such a reserve in the account cannot be taken as any application of the income for any charitable purpose, or setting apart for any charitable purpose. The result is that the first question referred to us has to be answered in the affirmative and in favour of the Revenue." 14. Even though by a short order, the appeal filed against the said judgment of the Madras High Court was dismissed by the hon'ble Supreme Court on December 17, 1997, vide Nachimuthu Industrial Association v. CIT [1999] 235 ITR 190 (SC). 15. Thus, we are of the opinion that in view of the findings of fact recorded by the learned Tribunal that a provision was made to the Ohio University for charitable activity by way of education being imparted in India and the fact of the actual payment made to the Ohio University in the very next year and that too offered for taxat....
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.... Assessing Officer in the assessment proceedings for the assessment year 2007-08 where the entire amount was added back claiming 1/5th of the expenditure. The unamortized expenditure has been brought forward and set off as application of income in sub sequent years, including the assessment years 2008-09 and 2009-10 which are under consideration. We find that the issue before us is directly related to the issue decided by the hon'ble Karnataka High Court in the case of Society of the Sisters of St. Anne (supra) cited by the assessee. In the said case, the hon'ble Karnataka High Court at paras 8 to 10 thereof has held as under : . . . Further, the CBDT Circular No. 5-P (LXX) 6 of 1968 cited by the assessee makes it clear that income should be understood in its com mercial sense ; in the case of trusts also and therefore the commercial principle enunciated by the hon'ble Karnataka High Court in the above referred case of Society of the Sisters of St. Anne (supra) applies to trusts as well. In view of the factual and legal matrix of this issue in the case on hand as discussed above, we concur with the decision of the learned Commissioner of Income-tax (Ap....
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.... i.e., book income, after adding back any appropriations or applications thereof towards the purpose of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or oth erwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax under section 11(3) to the extent that they represent outgoings for purposes other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income computed in the aforesaid manner, should be not less than 75 per cent. of the latter, if the trust is to get the full benefit of the exemption under section 11(1).' In CIT v. Trustee of H. E. H. the Nizam's Supplemental Religious Endowment Trust [1981] 127 ITR 378 (AP), the Andhra Pradesh High Court has accepted the accounts maintained in respect of the trust in conformity with the principles of accountancy for the purposes of determining the income derived from the property held in trust." 18. In view of the aforesaid findings of the learned Tribunal, allowing any expenditure of the earlier year which has been brought forward and s....
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....ct and such adjustment will have to be excluded from the income of the trust under section 11(1)(a)." 19. In so far as question No. 3 quoted above is concerned, the findings of the Tribunal are quoted below for ready reference (page 311 of 44 ITR (Trib)) : "We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronounce ments cited. The purposes mentioned by the assessee-trust in Form 10 were 'for use in purchase of fixed assets' and for use in other pur poses, 'for fulfilment of the objects of the trust'. The Assessing Officer disallowed the assessee's claim for accumulation of income on the grounds that the purposes mentioned in Form 10 was not specific. As pointed out by the learned Commissioner of Income-tax (Appeals), there are divergent decisions by various High Courts in the matter. While the Assessing Officer has relied on the decision of the hon'ble Kerala High Court, the assessee has relied on the decision of the hon'ble Delhi High Court. The learned Commissioner of Income-tax (Appeals) after noting the divergent views taken by different High Courts has decid....