TaxTMI 
TaxTMI 
2026 (2) TMI 1310
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....d accordingly notices u/s. 143(2) and 143(1) of the Act were issued and served on the assessee. In response ld. AR of the assessee appeared from time to time and submitted relevant information as called for. 4. Assessee is registered u/s. 12A of the Act vide order dated 14.12.1999. The assessee namely Hriday (Health Related Information Dissemination Amongst Youth), is a voluntary organization of public health professionals, social scientists and lawyers engaged in advocacy and research aiming to promote health awareness and inform health activism among youth in India. The program focuses on enhancing health awareness among school students ages 10 to 13 years. The schools have also become portals of health education for the neighborhood communities. 5. During assessment proceedings, the Assessing Officer observed that assessee has given a sum of Rs. 55,73,410/- in the year under consideration to the University of Texas, USA. The assessee was asked to explain above transaction and was asked to explain why provisions of section 11(1)(c) of the Act is not attracted. In response, Ld AR of the assessee submitted a reply on 08.03.2013. After examining the documents submitted by the ....
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....scientific integrity of the study. This time Hriday was the principal applicant and thus, sub grant was sent to University of Texas to serve as the principal investigator and investigators on this grand and help in reviewing formative research, in developing community-based intervention model. This work was to assess welfare of adolescences and people living in slums in Delhi India." 1.5 It is further submitted that the assessee society is a FCRA approved society vided approval letter date 30* September, 2002, wherein it has been granted the registration under the Foreign Contribution Regulation Act, 1976 vide registration no. 231660284 for educational and social activities. 1.6 This is further stated that the assessee society has been granted special permission by the Reserve Bank of India vide letter dated 19 March; 2008, wherein a no objection to the assessee society was specially issued in connection with the distribution of a part of the funds received a grants from National Institute of Health, USA to the University of Texas, US and other countries to support research and other programmes related to the activities of Hriday. In partial modification of their ....
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....from the total income for the year. The Assessing Officer further observed that University of Texas, USA receiving the funds from FCRA accounts of the assessee is a foreign entity and also a substantial contributor to the assessee society. Therefore, the sub grant was remitted to a person who is a substantial contributor to the trust which attracts the provisions of section 13(1)(c) r.w.s. 13(3) of the Act. Therefore, remittance of funds of the society outside India is not allowed as application of income to the assessee. The expenses have to be incurred in India for welfare purposes to be allowed as application of income during the year. According to the Assessing Officer, the transfer of funds to University of Texas, USA and on the other hand receiving funds from University of Texas, USA cannot be considered as actual expenditure rather circulation of money. This cannot be considered as application of income. He wondered why such the grant should be routed through the assessee and accordingly he rejected the other submissions made by the assessee and proceeded to treat the expenditure incurred outside India which attracts provisions of section 13(1)(c) r.w.s. 13(3) of the Act. Ac....
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....only the portion of income to the extent not applied in India will not be eligible for exemption. The Assessing Officer is directed accordingly." 8. Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal :- "1. That the order of the Learned CIT (Appeal) is bad in law and against the statutory provisions. 2. That the Learned CIT Appeal has erred in confirming the additions of Rs. 55,73,410/- made by the Assessing officer on account of payment/Remittance made to the University of Texas, USA as not an application of income u/s 11(1) (C) of the Income Tax Act, of the Income Tax Act,1961 (hereinafter referred to as 'the Act')." 9. Assessee has also filed additional grounds of appeal, which are as under:- "1. That the authorities below has erred both in law and on facts in bringing the sum of Rs. 55,73,410/- as income of the appellant by failing to appreciate that aforesaid sum did not represent income of the appellant in view of the doctrine of diversion of income by overriding title. 2. That without prejudice computation of income to the order of assessment dated 21.3.2013 u/s 143(3) of the Act is ot....
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....apacity Building Program, which funds research collaboration to build capacities in research, in partnering developing countries and for US investigators to gain experience in international health. This study was a school-based intervention aimed at preventing tobacco use among adolescents in urban Delhi and Chennai involving over 14,000 students in 32 schools. MYTRI's robust scientific design demonstrated the effectiveness of school-based interventions in reducing tobacco use among Indian youth by reducing current tobacco use, reducing their future intentions to use tobacco and by enhancing their health advocacy skills (Perry CL, 2009). This research helped Government of India in designing National Tobacco Control Programme (NTCP) as school health interventions were shown to be effective through HRIDAY's collaborative research with University of Texas. 12. Further, the ld. AR of the assessee submitted that the University of Texas and the assessee applied for the grant together and they have co-title on the grant. In this regard, he submitted that appellant society had applied for the grant in question in collaboration with researchers from the School of Public Health, U....
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.... own income after it accrues or has arisen, although such application may be under a contract or obligation, whereas diversion of income is that which diverts away or deflects before it accrues to or reaches the assessee, and it is received by him only for the benefit of the person who is entitled to the income under an overriding charge or title. In fact, in Motilal Chhadami Lal Jain v. CIT reported in 190 ITR 1 (SC), it was held that, what has to be seen is the nature of obligation by reason of which the income becomes payable to a person other than the one receiving it. Where the obligation flows out of an antecedent and independent title it effectively slices away a part of the corpus of the right to receive the entire income and thus it would be a case of diversion. Hence as pointed out by the Supreme Court in CIT v. Imperial Chemical Industries (India) (P.) Ltd. reported in 74 ITR 17, where there is an obligation to apply an income in a particular way before it is received by the assessee or before it has accrued or arisen to the assessee, it is a case of diversion of the income. Applying the aforesaid to the facts of the instant case, it will be seen that, receipts from the ....
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.... to it for Rs. 5,75,000 with a view to close down this business. The purchaser made default in payment, and on August 9, 1953, a fresh agreement was entered into between the parties for the sale of the properties mentioned in the first agreement and also chemicals and paper used for manufacture which had not been included in the first agreement for the sum of Rs. 7,35,000. As the memorandum of association of the assessee company allowed the assessee to manufacture and sell chemicals, and even after the sale the company carried on manufacture on behalf of the purchaser, the department sought to assess the profit derived from the sale of the chemicals and paper, viz. Rs. 1,15,259 as profits from business. The assessee contended that it was a realisation sale and this amount was not liable to tax. Held The fact that the business of the company was sold as a going concern and was in fact worked by the assessee on behalf of the buyer till the entire consideration was paid made no difference, as the agreement clearly indicated that the assessee was keeping the factory going, not on his own behalf but entirely on behalf of the buyer. (ii) 237 ITR 617 (SC) Dalmia....
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....f the accounting year. Profits were ascertained on September 30, 1964, when the property was transferred and as such for the year 1965-66 the question of profit accruing to the assessee did not arise. Section 60 has its application only to a case where income accrues to the transferee but the income-earning asset or source of income remains with the transferor. In this case, the very existence of the agreement to transfer dated July 24, 1962, ruled out and totally excluded the application of section 60. There appeared to be clear inconsistency between the assessment of capital gains on the transfer of the factories on the one hand and the finding of accrual of income since the computation of capital gains were effected by treating the gross amount of consideration as the sale price. The Income-tax Officer thus by implication accepted the profits as belonging to the transferee and not the transferor-otherwise, the net amount paid alone ought to have been taken as the sale price. The High Court's judgment, therefore, not only suffered from apparent inconsistency but on a totality of the situation was inherently contradictory. The profits arising from the working of the two cement....
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....dgment. Tied-up grants for a specified purpose would only mean that the assessee, which is a voluntary organization, has agreed to act as a trustee of a special fund granted by Bread for the World with the result that it need not be pooled or integrated with the assessee's normal income or corpus. In this case, the assessee is acting as an independent trustee for that grant, just as same trustee can act as a trustee of more than one trust. Tied-up amounts need not, therefore, be treated as amounts which are required to be considered for assessment, for ascertaining the amount expended or the amount to be accumulated. (iii). The assessee should have actually credited that grant in the personal account of the donor, Bread for the World and any amount spent against that grant should have been debited to that separate account of the donor. That incoming and outgoing need not be reflected in the income and expenditure account of the assessee. At the end of the project, the balance, if any, available to the credit of Bread for the World, the donor, could be treated as income of the assessee, if the donor did not insist for the repayment of the balance amount. (vi). ....
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....such receipts were not the income of the appellant. It is submitted that, if the real nature of the transaction is seen, it would be evident that the addition made by the learned Assessing Officer was unsustainable and untenable and, overlooking the factual substratum of the case. 16. It is also submitted that the learned Assessing Officer has brought to tax the entire receipts as income of the appellant on the basis of the form of the transaction and, has thus failed to appreciate the substance of transaction. It has been held by Apex Court in the case of Kika Bhai Prem Chand vs. CIT reported in 24 ITR 506 that "It is well recognized in revenue cases; regard must be had to the substance rather than to the form". The aforesaid principle has been reiterated and reaffirmed in the cases of CIT vs. Motors & General Stores (P.) Ltd. reported in 66 ITR 692 (SC) and CIT vs. B.M. Kharwar reported in 72 ITR 603 (SC). In fact, in the judgment of B.M. Kharwar, it was held that, legal relation alone can determine the taxability of the receipts arising from the transaction and if the said principle is applied to the facts of the instant case, it will be seen that the title of the grant was s....
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....e is real or hypothetical; whether there is a corresponding liability of the other party to pass on the benefits of duty free import to the assessee even without any imports having been made; and the probability or improbability of realization of the benefits by the assessee considered from a realistic and practical point of view (the assessee may not have made imports), it is quite clear that in fact no real income but only hypothetical income had accrued to the assessee and section 28(iv) of the Act would be inapplicable to the facts and circumstances of the case. Essentially, the Assessing Officer is required to be pragmatic and not pedantic." ii) 398 ITR 531 (SC) CIT v. Balbir Singh Maini 24. The matter can also be viewed from a slightly different angle. Shri Vohra is right when he has referred to Sections 45 and 48 of the Income Tax Act and has then argued that some real income must "arise" on the assumption that there is transfer of a capital asset. This income must have been received or have "accrued" under Section 48 as a result of the transfer of the capital asset. 25. This Court in E.D. Sassoon & Co. Ltd. v. CIT AIR 1954 SC 470 at 343 held: ....
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....B) 6.2 The Assessee also claimed that the provisions of section 11(1)(c) of the Act are not applicable to the case of the Assessee. The Assessee also submitted that the total remittance towards consulting expenses incurred by the appellant, may be regarded as spent outside India, however, the same have been 'applied' for the purpose in India. Further such expenses have not been incurred for any objectives of International welfare in which India has a national interest that require prior approval of CBDT, hence, such remittance do not attract provisions of section 11(1)(c) of the Act. Likewise, the reimbursement of travelling, boarding and lodging expenses is towards meetings and conferences in relation to India project and the remittance, in any case, is not for the purpose of International welfare. We observe that though the Ld. Commissioner clearly held and not denied by the Assessee that the said sum was paid for boarding and lodging and consulting services and remuneration of expenses paid outside India. As regards, the submissions that section 11(1)(c) is not applicable to it, it is to be noted that as per the said provisions a charitable organization cannot have acti....
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....d the net grant for the purpose of charity except in AY 2010-11. Sr. No. Particulars Assessment Years (Rs.) 2010-11 2011-12 2012-13 2013-14 2014-15 i) Total Receipts (I) 3,94,23,368 3,98,29,462 3,12,08,720 2,75,69,317 5,48,98,416 ii) 15% of total receipts (II=I*15%) 59,13,505 59,74,419 46,81,308 41,35,398 82,34,762 iii) Amount to be applied (III=I-II) 3,35,09,863 3,38,55,042 2,65,27,412 2,34,33,919 4,66,63,654 iv) Amount applied as per order of assessment (IV) 3,23,44,379 3,82,69,668 3,38,58,525 2,14,53,724 4,93,20,599 v) Surplus (if any) yet to be applied (V=III-IV) 11,65,484 (44,14,626) (73,31,113) 19,80,198 (26,56,945) vi) Grant given to University of Texas (VI) 55,73,410 34,62,871 35,25,428 39,60,766 32,84,214 vii) Taxable income as per order of assessment (VII) 70,78,989 15,59,794 (26,49,805) 61,15,590 61,24,042 21. On the other hand, ld. DR brought to our notice detailed findings of the Assessing Officer and submitted that the funds transferred outside India will not be considered as application of income....
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.... surplus it must furnishes form 9A or 10 Further, the case laws relied upon by the appellant are misplaced and not identical to the case of the appellant. The case of M/s. Tirupati Trust Vs. CIT reported at 230 ITR 636 (SC) is a Supreme Court judgment clarifying that income from charitable trusts is exempt under Section 11(1)(a) of the Income Tax Act if applied for charity, and this application doesn't have to be strictly in the same year the income arises, allowing flexibility for use in subsequent years, while also affirming that failure to follow procedures in Section 11(2) (for accumulation) doesn't invalidate basic exemptions under Section 11(1)(a) for applied income." 22. Considered the rival submissions and material placed on record, we observed that the assessee is a trust engaged with the aims and object as per the memorandum associations are as under: - "IN THE MATTER DE ACT XXI DE 1860 BEING AN ACT FOR REGISTRAITON OF LITERACY, SOIENTIFIC AND CHARITABLE SOCIETIES IN THE MATTER OF "HRIDAY" MEMORANEUM OF ASSOCIATION 1. The name of the society shall be "HRIDAY" 2. The registered office of the Society shall be situated in the....
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....ectly or indirectly by way of dividends, bonus, profits or in any manner whatsoever to the present or past members of the Society or to any person claiming through any one or more of the present or past members. No member or the Society shall have any personal claim on the movable or immovable properties of the Society or make any profits, whatsoever, by virtue of his/her membership." 23. Further, we observed that the memorandum of association was authored and signatory are Dr. Rajendra Tandon, Dr Kolli Srinath Reddy, Dr Dorairaj Prabhakaran, Dr P S N Menon, Dr Kamal Preet Kochhar & Ms. Archana Kapoor. 23. Further, we observed that the assessee had signed up for a programme focusing on enhancing health awareness among students, with the programme being implemented at school, college, home, and community levels. The said programme was carried out with the assistance of voluntary organisations comprising public health professionals, social scientists, and lawyers, with the objective of promoting health awareness and encouraging health activism among youth in India. In order to promote the above objectives, the assessee entered into the programme and received grants from the Nat....
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.... net grant should be treated as the actual grant available to the assessee for application in India. 24. We observed that the Assessing Officer has invoked the provisions of section 13(1)(c) of the Act with the observation that the assessee has utilized part of the grant outside India, therefore, any benefit directly or indirectly for the benefit of any person refer to sub section (3) shall be treated as violation of section 13(1)(c) of the Act. In this regard, whether the lead investigators including University of Texas having interest, therefore, the provisions of section of 13(3) of the Act being attracted in the present case or not. In order to analyze the same, we are reproducing the section 13(1)(c) and 13(3) of the Act below: "13. (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or th....
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.... or founder of the institution, any person who has made a substantial contribution to the trust-i.e., a total contribution exceeding Rs. 1,00,000 during the relevant previous year or Rs. 10,00,000 in aggregate-any trustee or manager of the institution, any relative of such author, founder, trustee, or manager, and any concern in which any of the aforesaid persons has a substantial interest, as specified under section 13(3) of the Act. In the present case, the assessee had remitted the subgrant to the University of Texas and they are not falling any of the related person definition described in the section 13(3) of the Act, for the simple reason that the grant has come from NIH and only NIH falls into the definition of Section 13(1)(c) of the Act. In our view, the Assessing Officer invoked the above provisions without appreciating the actual facts on record and proceeded to make disallowance to the extent of the sub-grant remitted or spent for the purpose of the project outside India. We are confining ourselves to address the disallowance made on account of alleged application of income outside India. As already held by us, the grant received by the assessee is required to be consid....