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India Brand Equity Foundation 23,26, Institutional Area,Lodhi Road,New Delhi. Vs. ACIT(E), Trust Ward-II New Delhi.
July, 13th 2012
                                            1


                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
                                                                   I.T.A. No.787/Del./2011
                                                                           (A.Y : 2007-08)
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:-



                                             2
                                                   I.T.A. No.787/Del./2011
                                                           (A.Y : 2007-08)

       (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







                              3
                                                                 I.T.A. No.787/Del./2011
                                                                         (A.Y : 2007-08)
               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



                                            4
                                                                I.T.A. No.787/Del./2011
                                                                        (A.Y : 2007-08)
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




                                           5
                                                                   I.T.A. No.787/Del./2011
                                                                           (A.Y : 2007-08)
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




                                             6
                                                                  I.T.A. No.787/Del./2011
                                                                          (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 &




                                             7
                                                                    I.T.A. No.787/Del./2011
                                                                            (A.Y : 2007-08)
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




                                              8
                                                                  I.T.A. No.787/Del./2011
                                                                          (A.Y : 2007-08)
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,




                                             9
                                                                              I.T.A. No.787/Del./2011
                                                                                      (A.Y : 2007-08)
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).




                                                  10
                                                                   I.T.A. No.787/Del./2011
                                                                           (A.Y : 2007-08)
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).




                                            11
                                                                  I.T.A. No.787/Del./2011
                                                                          (A.Y : 2007-08)
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




                                           12
 
 
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