TaxTMI 
TaxTMI 
2025 (2) TMI 1912
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....n HEH Nizam's Religious Endowment Trust vs CIT refers to the activities of the religious trust outside India, which is not relevant to the facts of the instant case. 4. The Ld CIT(A) erred in not considering the decision of the Hon'ble Delhi High Court in the case of DIT(E) vs National Association of Software and Services Companies wherein the Hon'ble High Court clearly held that expenditure incurred outside India cannot be considered as application of income of the trust in India for charitable purposes." 2. Facts of the case, in brief, are that assessee being a company, e-filed its return of income for A.Y. 2016-17 on 12-10-2016, declaring NIL income. The case was selected for scrutiny under CASS, and notices u/s 143(2) and 142(1) were issued, to which the assessee responded electronically. The assessee is a society registered u/s 12A of the Income Tax Act, 1961, since 09-11-2006, and during scrutiny proceedings, it submitted supporting documents for its receipts and application of income for exemption u/s 11. During the assessment, it was observed that the assessee incurred an expenditure of Rs. 16,06,26,569/- outside India on Exhibitions, Trade Fairs, De....
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....ed and disposed off as under: 5.1.1. Ground No. 1 and 5 of the appeal are general in nature do not need adjudication. 5.1.2. Ground No.2 of the appeal is related to the expenditure incurred outside the country of Rs. 18,22,35,780/- which is not considered as utilisation for the purpose of Sec.11 of the I.T. Act. 5.1.3. In this regard, as seen from the assessment order dated 25.12.2018, the appellant society was registered u/s 12A of the IT Act, 1961, vide order in F.No.DIT(E)/HTD/41(06)/12A/2006-07, dtd. 09-11-2006 by the then Director of Income Tax (Exemptions), Hyderabad and formed with the objective of promoting pharmaceuticals exports and related activities. Further, during the assessment proceedings the appellant had uploaded a statement vide which shown an amount of Rs. 16,06,26,569/- as expenditure incurred outside India viz., on Exhibitions/Trade Fairs, Delegations, Publicity & Canvassing-Abroad. 5.1.4. While finalizing the assessment the AO had categorically rejected the claim of the appellant as per provision of section 11(1)(a) of the Act and held that only that income which has been applied in India will qualify for exemption but not ....
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....as regards the activities and objects of the appellant society and the revenue has not contested the above appellate order. Therefore following the principle of consistency and the decision of the Hon'ble Apex Court in Radhasoami Satsang Vs CIT(1992) 193 ITR 321 the expenditure incurred by it outside India for charitable or religious purpose in India ought to be treated as application of Income in India for the purpose of section 11 of the Act. 5.1.7. Further, in the case of DDIT(Exemptions) vs Ohio University Christ College hon'ble ITAT Bengalore Bench 'B' in ITA Nos. 1075 & 1076/Bang/2014 dated 09.01.2015 has allowed the assessee's appeal on similar set of facts while allowing the same the ITAT has referred the decision of ITAT, Mumbai in the case of Gem & Jewellery Export Promotion Council vs ITO and decision of ITAT, Delhi in the case of NASSCOM vs. DDIT as under: "11. ........A perusal of the provision 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 a....
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.... and Services Companies (NASCOM) and the decision of Mumbai ITAT in the case of Gems & Jewellery Promotion Council vs. ITO. 5.1.9. In fact, hon'ble High Court in the case of DIT(E) vs. The Associated Chambers of Commerce and Industries of India ITA No. 343/2016 dated 24.05.2016 upheld the order of Tribunal that sending delegation to foreign countries can not be held as outside the main objects of the assessee. Here it is worth to mention that while deciding the issue the hon'ble Court has referred the decision of hon'ble High Court has discussed the decision of Delhi High Court in the case of DIT(E) vs. National Association of Software and Services Companies (NASCOM) and decision of Hon'ble Supreme Court in the case of H.E.H. Nizam's Religious Endowment Trust vs CIT also and decided the issue in favour of assessee on similar set of facts. 5.1.10. In the case of appellant expenditure incurred outside India viz. exhibition/trade fairs, delegation, publicity and canvassing aboard of Rs. 18,22,35,780 (Correct amount is 16,06,26,569/-) was for the purpose to help the Indian Pharmaceutical Industries and related trading activity. Even though such expenses were incurred ....
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....d to burden this order with a plethora of authorities on the construction of a Section, but since a point of grammar is also involved in the interpretation of the provision, we think it fit and appropriate to briefly refer to a few rules of interpretation laid down in some of the decided cases. In Jugalkishore Saraf v. M/s. Raw Cotton Co. Ltd., AIR 1955 SC 376, S. R. Das, J. speaking for the Supreme Court observed as follows: - ........... ....... 26. It may not be out of place to state that the view of the learned authors Kanga and Palkhivala in their treatise on "Law and Practice of Income Tax" is the same as ouRs. In their 4th Edition (1958), which is a treatise on the old Act, the following observations appear at page 197 of the book in the commentary of Section 4(3)(i): "(d) The exemption is restricted to such portion of the income as is in fact applied, or accumulated or set apart for application, to religious or charitable purposes within the taxable territories. The territorial limit of application of income -viz. the taxable territories - is as essential to secure exemption as the nature of the purpose - viz. religious or charitable. ....
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....esh look at the Section and having regard to the globalisation of commerce and the vast strides made in cross-border trade and flight of capital, it is the need of the hour to shed conservative thinking on the subject and adopt a bold and innovative approach by dispensing with the requirement that the application of the income of the trust should be in India in order to secure exemption for the trust. His point was that this can be achieved by construing or interpreting the section in the manner suggested by him. He also points out that the benefits of the application of the income outside the taxable territory will ultimately trickle down to India. He also pointed out by way of example an anomaly that is likely to arise because of the interpretation which we have placed upon the provision. He says that in the case of a trust whose object is the giving away of scholarship to meritorious students, the cost of air tickets purchased in India and borne by the trust to enable the student to go abroad for higher studies will be exempted from tax because the application of the income is in India, whereas the amount of fees paid by the trust abroad to the University there would not be exem....
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.... income of the trust, as a result of the view we have taken, by permitting the assessee to apply for accumulation of the amount in shortfall for future application. In support of the claim, the decision of this Court in Continental Construction Ltd. v. Union of India, (1990) 185 ITR 230 is cited. The option to accumulate the income for future application to charitable purposes has to be exercised by the trust in writing before the expiry of the time allowed under Section 139(1) for furnishing the return of income, as provided in Explanation (iib) below Section 11(1) of the Act. In respect of all the years that are before us in which the question of application of income outside India arises, such time limit has already expired and we are informed by the learned Sr. Standing Counsel that there is no provision to condone the delay. In view of this difficulty, we are unable to accede to the prayer made on behalf of the assessee. We have also gone through the judgment of the Division Bench of this Court relied upon by the assessee. That was a case where the assessee was denied the benefit of Section 80O of the Act. The decision of the taxing authorities was upheld by the Court. The ass....
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.... order of the Tribunal cannot be questioned. However, the Assessing Officer has also brought the annual subscription fee received from each member to tax under Section 28(iii) of the Act. According to the Assessing Officer, one of the main objectives of NASSCOM is to provide value added services to its members and further under clause 13 of the aims and objectives listed in the memorandum of association, the objects include "to act as a clearing house, as an information centre for the members of the association and provide co-operative services in their common benefits". According to the Assessing Officer, the assessee being a National Association of Software Service Companies, it was natural for it to provide such services to its members. He noted that the services also included the following: - * "It provides information on the Indian domestic Market It has successfully launched the Domestic trade Net, wherein tender enquiries on computers and related product and compiled and sent to member. * It informs its members on changes in policies of Government of India with regard to computer software and software services. * It organizes seminars/ conferences/....
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....mutual association." The section thus partly erodes the principle of mutuality by bringing to tax receipts on account of rendering of specific services by the association to its members. The Supreme Court stated that the words "performing specific services" in their opinion mean in the context, "conferring particular benefits" upon the members. If this test is applied to the present case it will be seen that in consideration of the receipt of the annual subscription fees, the assessee-trust has not been shown to have performed any specific services to the members. Whereas the annual subscription fees is a recurring receipt, receivable by the assessee-trust by mere efflux of time irrespective of whether any services are rendered or not to the members, what is contemplated in Section 28(iii) is the receipt of fees from particular members to whom specific services have been rendered by the trust. The annual subscription fee is paid merely to keep the membership alive on yearly basis. The distinction between the two being clear, and in the absence of any evidence to show that the assessee receives fees from the members as a "quid pro quo" for specific services rendered to them, we are ....
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....e incurred on events and activities outside India did not represent application of income in India for the purposes of Section 11(1)(a) of the Act. In tune with our decision in respect of assessment year 1998-99 in ITA No.17/2011 the substantial question of law is answered in favour of the Revenue and against the assessee. 39. We now turn to ITA No.477/2011 which arises out of ITA No.172/Del/2008 in the file of the Tribunal. ITA No.172/Del/2008 before the Tribunal is an appeal by the Revenue relating to the assessment year 2004-05 in which three issues were raised: - (i) Applicability of Section 28(iii) of the Act in respect of annual subscription fees. (ii) Exemption in respect of the corpus donation received. (iii) Deduction for provision made for doubtful debts. With regard to the applicability of Section 28(iii), in line with our decision in the appeal for the assessment year 1998-99 the substantial question of law is answered in favour of the assessee and against the Revenue. As regards the exemption allowable in respect of the corpus donation, here also the substantial question of law, following our decision for the assessment year....
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..../Del/2009 on the file of the Tribunal. Before the Tribunal the appeal was by the Revenue and two issues were raised: - (i) Taxability of annual subscription fees under Section 28(iii); (ii) Taxability of the corpus donation received by the trust. These two substantial questions of law, following our earlier decision, are answered in favour of the assessee and against the Revenue. 42. ITA No.480/2011 arises out of ITA No.3625/Del/2008 which was an appeal by the assessee before the Tribunal in which it challenged the decision of the departmental authorities that the expenditure incurred outside India did not amount to application of income for charitable purposes in India within the meaning of Section 11(1)(a) of the Act. This issue and the substantial question of law arising therefrom in line with our earlier decision is decided/ answered in favour of the assessee and against the Revenue. 43. We now turn to the assessment year 2006-07. ITA No.519/2011 arises out of ITA No.4468/Del/2009 in the file of the Tribunal which was an appeal by the assessee. Before the Tribunal the assessee had taken only one issue in appeal, namely, whet....
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....n connection with the exhibition in Germany amounts to application of the income in accordance with section 11(1)(a). The argument put forward by the Revenue was that the expenditure, even if it is considered as application of the income, was outside India and the mandate of the section is that the income should be applied in India to charitable purposes and this condition not having been satisfied, the Tribunal was clearly wrong in holding that the expenditure should be considered as application of the income of the trust in India. The argument of the assessee is that there is no such mandate in the section to the effect that the income of the trust should be applied in India and that the only requirement is that the purposes should exist in India and if that is satisfied, the income can be applied for such purposes even outside India. According to the assessee, so long as the purposes are in India, it does not matter as to where the sites of the application is. [Para 13] A little historical background is necessary to be brought out in understanding the mandate of section 11. Section 11 corresponds to section 4(3)(i) of the Indian Income-tax Act, 1922. [Para 14] Under the....
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....he taxable territories to charitable purposes as are done to promote international welfare in which India is interested. In these two cases the income of the trust could be applied or spent outside India without losing exemption, provided the CBR passes an appropriate order, [Para 17} It may be noticed that sub-clause (ii) of Clause (c) of subsection (i) of section 11, in substance provides for the same condition which was imposed by sub-clause (I) of clause (a) of the proviso to section 4(3)(i) of the old Act. Sub-clause (i) of clause (c) of sub-section (1) of section 11 is in the same terms as sub-clause (ii) of clause (a) of the proviso to section 4(3)(i) of the old Act [Para 21]. The assessee's contention that the words 'to the extent to which such income is applied to such purposes in India' appearing to section 11(1)(a) only require that the charitable purposes should he confined to India and the application of the income of the trust to the execution of such purposes can be outside, India, appears to be opposed to the natural and grammatical meaning that can be ascribed to the words. The word 'applied' is a verb used in past tense. In th....
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....dia' appearing in section 11(1)(c) of the Act qualify the verb 'applied' appearing in these provisions and not the words 'such pur}}oses'. {Para 221] In view of the above, it is held that the amount of Rs. 38,29,535 spent by the assessee-trust in Hanover, Germany cannot be considered as application of the income of the trust in India for charitable purposes... [Para 31] 7. In the case of India Brand Equity Foundation vs. Assistant Commissioner of Income Tax (E), Trust, Ward-II, New Delhi [(2012) 23 taxman.com 323 (Del)] it was held that amount spent outside India for participating in a fare held outside India cannot be treated as application of income of trust for purpose of section 11(1)(a). The Hon'ble ITAT observed that if the income of die trust can be applied even outside India so long as the charitable purposes are in India, then there is no need for die trust which tends to promote international welfare in which India is interested and which was created after 04/01/1952 to apply to the CBDT for a general or special order directing dial the income to the extent to which it is applied to die promotion of international welfare outside I....
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....llowing effect : "II. A The main Objects to be pursued by the company on its incorporation are: (1) To support, protect, maintain, increase and promote the export of Drugs and Pharmaceuticals inter alia including intermediates, herbal, ayurvedic, unani and homeopathic medicines, biotech and biological products, diagnostics, surgicals, nutraceuticals, pharma industry related services collaborative research, contract manufacturing, providing base for clinical trials and consultancy. (2) To keep in communication with Chambers of Commerce and other mercantile and public bodies through out the world with a view to taking appropriate and necessary measures for maintaining or increasing the exports of Drugs and Pharmaceuticals; (3) To enunciate just and equitable principles to govern the trade in Drugs and Pharmaceuticals and to set up a code or codes of practices for the general guidance of manufacturers, traders and exporters of these products and further to simplify transactions relating to their exports; (4) To advise or represent to Governments, Local Authorities and Public Bodies (a) the policies and other measures, including dir....
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....ion within India and distribution in foreign markets of Drugs and Pharmaceuticals that are exported; l) selecting in foreign countries, firms, persons etc., who might serve as agents of manufacturers and exporters of Drugs and Pharmaceuticals in India; m) deputing the officers of the company to witness the inspection of Drugs and Pharmaceuticals exported to foreign countries, where such inspection is being conducted by the authorities in the importing countries; n) deputing the officers of the Company to witness the survey in foreign countries to which drugs and pharmaceuticals are exported or witness the survey in India of these products intended for export, when any dispute or difference between the parties to a contract for sale and purchase of such products arise; o) enquiring and investigating into complaints received from foreign and/or Indian exporters in respect of the quality, description or other particulars of Drugs and Pharmaceuticals exported from India or the non-performance or non-observance of the terms and conditions of contract relating to such export and other connected matters and advising the manufacturers or exporters concer....
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....spuse of. turn to account with all or any part of the property of the Company, (7) to enter into contracts, (1) to draw, make, accept, endorse, discount and execute negotiable instruments, (ii) to deposit or invest the moneys of the Company in any banks, and/or securities approved in this behalf by the Union Government; (iii) to collect funds or subscriptions from the members as may be specified in the Articles of Association, (8) to subscribe for becoming a member of and operate with any other Association whether incorporated or not, whose objects are, altogether or in part, similar to those contained in this Memorandum and obtain from and communicate to any such Association such information as may be likely to fulfill the objects of this Company: and (9) to do all such other lawful acts as may be conducive for the maintenance and increase of the export trade and commerce in Drugs and Pharmaceuticals or incidental to the attainment of the above objects or any one of them. Provided that the Company shall not support with its funds or endeavor to impose on or procure to be observed by its members or others any regulations or rest....
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....h receipts and expenditure take place and of the property, credits and liabilities of the Company, and subject to any reasonable restrictions as to the time and manner of inspecting the same that may be imposed in accordance with the regulations of the Company for the time being in force, the accounts shall be open to the inspection of the members. Once at least in every year, the accounts of the Company shall be examined and the correctness of the Balance sheet and the Income and Expenditure Account ascertained by one or more properly qualified auditor or auditors. X. If upon a winding up or dissolution of the Company, there remains, after the satisfaction of all the debts and liabilities, any property whatsoever the same shall not be distributed amongst the members of the Company but shall be given or transferred to such other Company having objects similar to the objects of the Company to be determined by the members of the Company at or before the time of dissolution or in default there of, by the High Court of Judicature that has or may acquire jurisdiction in the matter. 8. The Ld. AR further submitted that if the assessee were permitted to explain the expenditure....
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....of the assessee's total income. In Section 11(1)(a) of the Act, terms used - "applied to such purposes in India." The benefit under this provision is granted to the assessee only if the income derived from property held under trust is applied for the specified purposes in India. Therefore, the assessee is only entitled to the benefit under Section 11(1)(a) of the Act only if the income is applied within India. 10.2. The language used in the statute is plain, simple and unambiguous, leaving no room for confusion or deviation. In fact, the Hon'ble Delhi High Court in the case of National Association of Software and Services Companies (supra), has given its findings in paras 24 to 28, which are reproduced hereinabove, explaining the reasons behind adopting a strict or literal interpretation of the statute when the language is clear and unambiguous. 10.3. In view of the above, we are of the considered opinion that since the assessee has incurred expenditure outside India, even if it was for the purpose of achieving its objectives, albeit the income has not been applied in India, therefore, the assessee is not entitled to relief under Section 11(1)(a) of the Act. 11. The re....