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IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH `C' : NEW DELHI)
BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND
SHRI A.N. PAHUJA, ACCOUNTANT MEMBER
ITA No.787/Del./2011
(Assessment Year : 2007-08)
India Brand Equity Foundation Vs. ACIT(E), Trust Ward-II
23,26, Institutional Area, New Delhi.
Lodhi Road,
New Delhi.
(PAN/GIR No.AAATI2767E)
(Appellant) (Respondent)
Assessee by : Shri K.K. Khanna
Revenue by : Shri Satpal Singh, DR
ORDER
PER U.B.S. BEDI, J.M.
This appeal of the assessee is directed against the order of CIT(A)-XII, New
Delhi, relevant to assessment year 2007-08, whereby besides challenging confirmation of
Assessing Officer's order in treating a sum of Rs.1,95,26,116/- spent outside India for
participating in Hannover Fair, 2006, as taxable income of the assessee, assessee also
challenged confirmation of the action of the Assessing Officer in reducing application
relating to charge of depreciation amounting to Rs.2,77,149/-.
2. As regards first issue, it was submitted before Assessing Officer that the assessee
is a registered society, which came into being on 9.7.1996. The trust was set up under the
seal of President of India, Ministry of Commerce & Industries. The entire corpus was
provided by Govt. of India to promote India Brand Overseas. The trust is treated to be
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formed by Government of India is not for the benefit of any particular section of
community, but is meant for larger interest of the country. The objects transcends the
boundaries of so-called charity or charitable purposes, though by and large are confined
to a particular section of a society. Here, the trust is for the benefit of whole nation. So,
any contrary view, as submitted by the assessee, would be unpragmatic and retrogressive.
Assessing Officer did not accept the contention of the assessee, but treated the amount of
Rs.1,95,26,111/- spent in participation of Hannover Fair in Germany by discussing and
considering the issue has held as falling in the mischief u/s 11(1)(a) & 11(1)(b) of the
Act and was taxed accordingly.
3. Assessee took up the matter in appeal and it was submitted before first appellate
authority, for allowing claim of the assessee being not taxable, but the CIT(A) upheld the
order of the Assessing Officer as per paras.4 to 4.4 of his order as under:
"4. The assessee has taken various grounds of appeal but the effective ground
is against the disallowance of ` 1,95,26,116/- on account of the fact that
this amount is spent outside India for participating in the Hannover Fair.
4.1 The appellant is aggrieved because the Assessing Officer has
disallowed a sum of Rs 1,95,26,116/- as the appellant had spent
this amount outside India at the Hannover Fair and as per the
provision or section l1(l)(a) the amount has to be applied for such
purposes in India. The appellant had also moved an application
before the Central Board of Direct Taxes vide letter dated
09/11/ /2009 for claiming exemption but has not received any
approval till date from CBDT.
4.2 Under section 11(l)(c) of the income tax Act, any income applied
on activities outside India is not eligible for exemption. A
charitable organization cannot have activity outside India unless it
happens to be a trust created before 1-4-1952 or it is engaged in
promotion of international welfare in which India is interested. In
other words, NGOs registered after 1-4-1952 are not allowed to
have any international activity unless such activity is specifically
exempted by CBDT. Provisions of section 11(l)(c) are as under:-
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(c) Income derived from the property held under trust-
* Created on or after the 1st day of April, 1952 for a
charitable purpose which tends to promote
international welfare in which India is interested, to
the extent to which such income is applied to such
purposes ,outside India, and
* For charitable or religious purposes, created before
the 1st day of April, 1952, to the extent to which
such income is applied to such purposes outside
India:
Provided that board, by general or special order, has
directed in either case that all not be included in the total
income of the person in receipt of such income:
From the above provisions, it is clear that
organization created after 1-4-1952 are empowered to carry
out activities outside India. However, CBDT in certain
circumstances may direct by a general or specific order
permitting certain activities, which tend to promote
international welfare in which India is interested.
4.3 As section 11(1)(a) specifically states, that the application has to take
place in India we have to analysis what is the meaning of the word
application. The word applied means "to put the use" or "to turn to use" or
"to make use" and section 11(1)(a) further puts a geographical restriction
for its application in India.
4.4 In the case of CIT Vs Radhaswami Satsang Sabha [1954] 25 ITR 472
(All.) where it was categorically held that word 'applied' does not
necessary mean spent. But this decision was in context of section 4(3)(i)
of the Act. It may be noted that in the old Act, the income was exempt
irrespective of application or accumulation. In other words, even 100 per
cent accumulation was permissible therefore application or non-
application did not have may tax implications. The implication of the term
'application' is different under the new Act. On the basis of recent case
laws currently the term, 'applied' is more or less closer to the term 'spent'
unless there is no doubt about the authenticity 01 application. The
accounting standards and the guiding principles of 'accrual accounting'
are also relevant. And showing application through book entries is not
permissible. In the case of Nachimuthu Industrial association Vs CIT
[1999] 235 ITR 190, the Supreme Court upheld the decision of Madras
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High Court where it was held that sums transferred to a donation reserve
fund could not be treated as application of funds.
From the above discussion it is clear that the word applied is synonymom
the word spent in the context of section 11 of the IT Act and hence it is mandatory
the amount should be spend and applied in India. The plea taken by the appellant
had participated in the Hannover Fair at the insistence of Ministry of Commerce
cannot over ride the Income Tax Act. There is no bar in applying for charitable
purpose India if there is an approval from CBDT. In the absence such approval
the, Officer was correct in subjecting to tax the amount of Rs. 1,95,26,116/-."
4. Still aggrieved, assessee took up the matter in further appeal and raised following
grounds on this issue:
1. That the authorities below have overlooked the fact that a sum of
Rs.3,00,00,000/- was specifically given by Ministry of Commerce and
Industry. Government of India body for participating in "Hannover Fair
2006"
2. That the participation in Hannover Fair was at the behest of Ministry of
Commerce and Industry, Government of India.
3. That the authorities below have erred both in law and on the facts of the case
to treat a sum of Rs.1,95,26,116/- spent outside India for participating in
Hannover Fair as taxable income of the trust on the ground that it falls under
the mischief of section 11(1)(c) of the I.T. Act.
4. That the authorities below have overlooked the fact that the amount of
Rs.3,00,00,000/- provided by Engineering Export Promotion Council at the
behest of Ministry of Commerce and Indust5ry was a tied up grant specifically
provided for purposes of participating in Hannover Fair and did not constitute
the income of the trust. This being so the receipt of Rs.3,00,00,000/- did not
fall within the ambit of section 11(1)(a) of the I.T. Act.
5. That the authorities below were, therefore, highly arbitrary and unjust in
bringing the amount of Rs.1,95,26,116/- under the tax net."
5. During the hearing of appeal, it was pleaded by the Ld. Counsel for the assessee
that since purpose of participating and other details were submitted and relevant
provisions provide for such allowance to be allowed, so addition was not called for and
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prayed, for deletion of the addition/disallowance made by the Assessing Officer and
confirmed by the CIT(A). Elaborating further that all policy with regard to functioning
of the trust is formulated by the Government of India, Ministry of Industry and having
been implemented through the board of trustees. For the purpose of overseeing the
participation in Hannover Fair, 2006, Ministry constituted a steering committee under the
chairmanship of Commerce Secretary. Modalities of participation was decided by the
Organizing Committee under the Chairmanship of Additional Secretary, Ministry of
Commerce and Industry. From the minutes, it is clear that entire control was with the
Ministry and India Brand Equity Foundation (assessee trust) and Engineering Export
Council roles were decided by the organizing committee for role of India Branch Equity
Foundation (IBEF) and in this regard minutes of meeting of India Hannover Fair can be
referred to as is apparent, even the role was chalked out by the Ministry and IBEF had no
free control over the event. IBEF was participating as agent for the Ministry. For the
purpose of participation in fair, Ministry of Commerce & Industry directed its sponsored
body Engineering Export Promotion Council to transfer Rs.3 crores to the assessee trust
for setting up Indian Pavilion in the fair as a partner country. By relying upon Cotton
Textiles Export Promotion Council (1968) 67 I.T.R. 539, Nirmal Agriculture Society
(1999) 71 I.T.D. 152 (Hyd.), Sukhdeo Charity vs. CIT (1984) 19 Taxman 222 (Raj.), it
was pleaded that for the purpose of participation in the fair, Ministry of Commerce and
Industry directed its sponsored body, namely, Engineering Export Promotion Council to
transfer Rs.3 crores to the assessee trust for setting up Indian pavilion in the fair as
partner country and grant for specific purposes has been held as tide up grants and
amount of Rs.19526116/- spent in attending Hannover fair in Germany at the behest of
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Ministry cannot be taxed by treating it as application outside India by bringing it into the
mischief of section 11(1)(a), 11(1)(b) to tax it so disallowance should be deleted.
6. Ld. DR submitted that since assessee organization was set up after 1.4.1952, was
not empowered to carry out activities outside India, as per section 11(1)((a), it is
specifically stated that application has to take place in India and the word `application'
means "to put the use" or "to turn to use" or "to make use" and section 11(1)(a) further
puts a geographical restriction for its application in India only and moreover the courts
have held that word `applied" does not necessarily mean spent as held by Allahabad High
Court in the case of CIT vs. Radhawsami Satsang Sabha (1954) 25 I.T.R. 472 (All.),
though, this decision was in the context of section 4(3)(i) of the Act, and in the old Act,
the income was exempt irrespective of application or accumulation was in other words,
even 100% accumulation was permissible. Therefore, application or non-application did
not have any tax implication since, the implication of term application is different under
the new Act and on the basis of recent case laws, currently the term `apply' is more or
less closer to the term `spent', unless there is no doubt about the authenticity of the
application The accounting standard and guiding principles of `accrual accounting' are
also relevant and showing application through book entries is not permissible. In the case
of Nachimuthu Industrial Association vs. CIT (1999) 235 I.T.R. 190, the Hon'ble
Supreme Court upheld the decision of Madras High Court, where it was held that sum
transferred to a donation reserve fund could not be treated as application of funds.
Considering the above discussion, it becomes clear that word applied is synonymous with
the word spent in the context of section 11 of the I.T. Act, 1961. So, it is mandatory that
the amount should be spent and applied in India. As regards plea taken by the assessee, it
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(A.Y : 2007-08)
has participated in Hannover Fair at the instance of the Ministry of Commerce, cannot
override the Income-tax Act and there is no bar in applying for charitable purpose outside
India, if there is an approval from CBDT which is not there. So, in the absence of such
approval, Assessing Officer was correct in subjecting to tax the amount of
Rs.1,95,26,116/- and Ld.CIT(A) has justifiably confirmed the order of Assessing Officer
in this regard, whose action being perfectly justified needs further confirmation and may
be confirmed.
7. In order to counter the submissions of Ld.DR, Ld.Counsel for the assessee while
laying stress on the language of section 11(1)(a), 11(1)(b) & 11(1)(c) of the Act has
pleaded that though charitable purposes should be confined to India, and the application
of the income of the trust the execution of such purposes can be outside India, as
provided in relevant provisions of law. Therefore, it was pleaded for deletion of he
impugned addition.
8. We have heard both the sides, considered the material on record as well as case
laws cited. It is not in dispute that amount of Rs.1,95,26,116/- was spent for participating
in Hannover Fair held in Germany and for such participation, Steering Committee under
the chairmanship of Commerce Secretary was constituted and modalities of participation
was decided by the Organizing Committee under the Chairmanship of Additional
Secretary, Ministry of Commerce & Industry, and as stated, the entire control was with
the Ministry. The roles of Indian Brand Equity Foundation and Engineering Export
Promotion were decided by the Organizing Committee which was chaleked out by the
Ministry IBEF and they had no free control over the event. IBEF was participating as
agent for the Ministry. For the purpose of participation in fair, Ministry of Commerce &
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Industry directed its sponsored body Engineering Export Promotion Council to transfer
Rs.3 crores to the assessee trust for setting up Indian pavilion in the fair as a partner
country. However, a sum of Rs.1,95,26,116/- was spent for participating in Hannover
Fair held in Germany and has been treated as falling in the mischief of section 11(1) by
Assessing Officer whose action has been confirmed in first appeal.
9. Now, it is to be seen that the words "to the extent to the which such income is
applied to such purposes in India" appearing in section 11(1)(a) of the Act only require
that the charitable purposes should be confined to India on the application of the income
of the trust to the execution of such purposes can be outside India, appears to us to be
also 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 the provision, it is used in the
transitive form because it is followed by the words "to such purposes in India". It
answers three questions which would arise in the mind of the reader: apply what? applied
to what? and where? The answers would then make the meaning obvious. The answer to
the first question would be : apply the income of the trust. The answer to the second
question will be : applied to charitable purposes. The answer to the third question will
be: applied in India. Thus even grammatically speaking it seems to us that the group of
words "to such purposes in India" qualifies the preceding verb "applied". It is a case of a
verb being qualified by two prepositions which follow, viz., "to' and `in'. So read, it
seems clear to us that grammatically also it would be proper to understand requirement of
the provision in this way, that is, that the income of the trust should be applied not only to
charitable purposes, but also applied in India to such purposes. The submissions of Ld.
Counsel that the words "in India" qualify only the words "such purposes" so that only the
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purposes are geographically confirmed to India does not appear to us to be the natural
and grammatical way of construing the provision. That would break or clog the natural
flow of the entire group of words "to the extent to which such income is applied to such
purposes in India". The meaning sought to be attached by Ld.Counsel to the words "in
India" as qualifying only the `purposes' places a strain on the natural or grammatical
interpretation of the group of words. If what Ld.Counsel contends is correct, then section
11(1)(c) may become redundant and otiose. If as he says, the income of the trust can be
applied even outside India so long as the charitable purposes are in India, then there is no
need for a trust which tends to promote international welfare in which India is interested
and which was created after 1.4.1952 to apply to the CBDT for a general or special order
directing that the income to the extent to which it is applied to the promotion of
international welfare outside India shall not be denied the exemption, nor would it be
necessary for a charitable or religious trust created before the aforesaid date to seek such
an order from CBDT in respect of its income which is applied to charitable or religious
purposes outside India. In our opinion, therefore, the words "in India" appearing in
section 11(1)(a) and the words "outside India" appearing in section 11(1)(c) of the Act
qualify the verb "applied appearing in these provisions and not the words "such
purposes."
10. In the light of above discussion and carefully considering the relevant provisions
of law, we are of the opinion that disallowance of the amount of Rs.1,95,26,116/-
incurred by the assessee on account of amounts spent outside India for participating in
Hannover Fair in Germany during the year under consideration cannot be treated as
application of income of the trust to the execution of such purpose. Hence, in our view,
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disallowance in this regard could validly be made. Our view is fortified by the decision of
the jurisdictional Delhi High Court in the case of DIT vs. National Association of
Software in I.T.A. No.17/2011 etc. vide order dated 10.05.2012, in which it was observed
as per paras.31 & 43 as under:
"31. We, therefore, hold that the amount of Rs.38,29,535/- spent by the
assessee-trust in Hannover, Germany cannot be considered as application of ther
income of the trust in India for charitable purposes. The substantial question of
law is thus answered in favour of the assessee insofar as the payment of taxes
under the VDIS is concerned and in favour of the Revneue insofar as the
expenditure incurred outside India (Germany) is concerned.
....................................................................
43. We now turn to the assessment year 2006-07, I.T.A. No.518/2011 arises
out of I.T.A. 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, whether the expenditure of Rs.1,70,85,034/- incurred outside
India on events and activities held outside India did not qualify for exemption
under section 11(10(a of the Act. In line with our earlier decision, the substantial
question of law arising from this issue is decided in favour of the Revenue and
against the assessee."
Therefore, action of authorities below allowing the claim of the assessee is justified and
proper. As such, while confirming the amount of disallowance, we dismiss this ground
of appeal of the assessee.
11. As regards ground no. 6 regarding disallowing the deprecation on Rs. 2,77,149/-
as application of the income. It is the contention of the Ld. Counsel of the assessee that
this issue is squarely covered in favour of the assessee by the decision of the Hon'ble
Punjab and Haryana High Court in the case of C.I.T. vs. Tiny Tots Education Society
330 ITR 21, which has followed the decision of the Punjab and Haryana High Court in
the case of C.I.T. vs. Market Committee, Pipli 330 ITR 16, so it was prayed for deletion
of disallowance made by the Assessing Officer and confirmed by the CIT(A).
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12. Ld.DR did not object to such factual aspect, but relied upon the orders of the
authorities below to plead for confirmation of the order in this regard.
13. We have heard both the sides and considered the material on record as well as
precedents relied upon by the Ld. Counsel for the assessee and find that the issue raised
in this appeal is squarely covered by the decision of the Hon'ble Punjab and Haryana
High Court in the case of C.I.T. vs. Tiny Tots Education Society 330 ITR 21, which has
followed the decision of the Punjab and Haryana High Court in the case of C.I.T. vs.
Market Committee, Pipli 330 ITR 16 and the relevant portion thereof is reproduced as
under:-
"In the present case, the assessee is not claiming double deduction on
account of depreciation as has been suggested by learned counsel for the
Revenue. The income of the assessee being exempt, the assessee is only
claiming that depreciation should be reduced from the income for
determining the percentage of funds which have to be applied for the
purposes of the trust. There is no double deduction claimed by the
assessee as canvassed by the Revenue. The Judgement of the Hon'ble
Supreme Court in Escorts Ltd. case [1993] 199 Income Tax Rules, 1962
43 is distinguishable for the above reasons. It cannot be held that
double benefit is given in allowing claim for depreciation for computing
income for purposes of section 11. The questions proposed have, thus, to
be answered against the Revenue and in favour of the assessee."
14. Since the issue is squarely covered in favour of the assessee, therefore while
following the aforesaid decision of the Punjab and Haryana High Court, we direct to
delete the impugned addition made by the Assessing Officer and confirmed by the
CIT(A).
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15. As a result, the appeal filed by the assessee gets partly accepted
Order pronounced in open court on 11.07.2012.
Sd/- Sd/-
(A.N. PAHUJA) (U.B.S. BEDI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : July, 11th, 2012
SKB
Copy of the order forwarded to:-
1. Appellant
2. Respondent
3. CIT
4. CIT(A)-XII, New Delhi.
5. CIT(ITAT) Deputy Registrar, ITAT
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