Loading judgment…
Facts
The assessee, a society registered under Section 12A, incurred expenditure outside India for exhibitions, trade fairs, and publicity. The Assessing Officer treated this as non-application of income, disallowed it, and added back entrance fees. The CIT(A) granted relief, but the Revenue appealed.
Held
The Tribunal held that expenditure incurred outside India cannot be considered as application of income for charitable purposes in India under Section 11(1)(a) of the Income Tax Act. The plain language of the statute requires the income to be applied within India. The reliance on earlier decisions was dismissed as the law was later clarified by the High Court.
Key Issues
Whether expenditure incurred outside India for promoting exports can be considered as application of income for charitable purposes in India under Section 11(1)(a) of the Income Tax Act.
Sections Cited
11(1)(a), 12A, 143(2), 142(1), 144, 12(1), 143(3), 28(iii), 11(1)(c), 80-O, 80HHB, 11(1)(a), 11(1)(c), 11(1)(a)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, HYDERABAD BENCHES “A” , HYDERABAD
Before: SHRI LALIET KUMAR, HON’BLE & SHRI G. MANJUNATHA, HON’BLE
O R D E R PER LALIET KUMAR, J.M.
This appeal is filed by the Revenue, feeling aggrieved by the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) Delhi, dated 30.08.2024 for the AY 2016-17 on the following grounds :
“1.The Ld CIT(A) erred in law and ignored the fact that the assessee failed to satisfy conditions of Section 11(1)(a) of the Income Tax Act 2. The Ld CIT(A) erred in law and in facts of the case in allowing the appeal of the assessee based on the case laws not relevant to the facts of the case.
3. The Ld.CIT(A), NFAC erred in not considering the facts that the decision of Hon'bl SC in 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.”
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, Delegations, and Publicity. A show-cause notice u/s 144 was issued, questioning why this should not be treated as non- application of income. The assessee contended that similar expenses were allowed in its case for A.Y. 2005-06 by the LD.CIT(A) and that such expenditure was necessary to fulfill its objective of export promotion, benefiting Indian industries. It also argued that Section 11(1)(a) does not explicitly prohibit expenditure outside India, if the benefit accrues in India, citing the case of DIT vs. Bharat Diamond Bourse (2003) 259 ITR 80 (SC). However, the Assessing Officer rejected this contention, relying on the Hon'ble Delhi High Court’s ruling in the case of DIT(E) vs. NASSCOM, which held that expenditure incurred outside India cannot be treated as application of income in India. Further, it was found that the actual foreign expenditure amounted to Rs.18,22,35,780/- which was higher than what was initially declared. Additionally, the AO noted that the assessee received a non-refundable entrance fee of Rs.20,73,000/- which was not offered to tax. Since this amount was not a voluntary contribution with a specific direction to be treated as corpus, it was treated as income u/s 12(1) of the Act. Accordingly, the AO disallowed the foreign expenditure as application of income and added the entrance fee to the taxable income. Accordingly, Assessing Officer completed the assessment u/s 143(3) of the Act and passed assessment order on 25.12.2016.
Feeling aggrieved by the order passed by the assessing officer, assessee filed appeal before the Ld. CIT(A), who granted relief to the assessee, by observing as under :
“5. I have gone through the facts of the case and material available on record. It is observed from the submission filed by the assesse from time to time that during the assessment proceedings the AO had disallowed the claim of expenditure of the appellant and determined the total taxable income of the appellant at Rs.18,43,08,780/- as against the return income of Nil after adjustments/additions of expenditure incurred outside India to the tune of Rs.18,22,35,780/- and nonrefundable entrance fee of Rs.20,73,000/-. Aggrieved by the impugned order u/s. 143(3) of the Act dated 25.12.2018 the appellant is in appeal. 5.1. As regards to grounds of appeal
, the appellant has taken
5. (Five) Grounds appeal which are discussed 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 the income applied outside India and relied upon 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 “We therefore hold that the amount of Rs.38,29,535 spent by the assesse trust in Hanover Germany cannot be considered as application of income of the trust in India for charitable purposes. The SQL is thus answered in favour of the assessee in so far as the payment of taxes under the VDIS is concerned and in favour of the Revenue so far as the expenditure incurred outside (Germany) is concerned”. 5.1.5. Further, the appellant has submitted that as stated in the assessment order the actual expenditure incurred outside India works out to Rs.18,22,35,780/- as against Rs.16,06,26,569/- shown in the statement uploaded by the assessee. As regard to ground of appeal
, in support of its claim the appellant has relied upon various case laws and submitted in this context that in the appellant’s own case for the assessment year 2005-06, CIT(Appeals)-IV, Hyderabad vide his order dated 15.10.2008 in appeal No.349/ADIT/CIT(A)-IV/07-08 has held that even though expenditure was incurred abroad it could not be said that the benefit therefrom did not arise in India. It was held by the CIT(A), Hyderabad in order dated 15.10.2008 that the assessee was entitled to exemption u/s. 11 since the said expenditure was for the charitable activity for the India Industry. The relevant part of the appellate order is as under:
6. I have gone through the submissions of the appellant. It is clear that the appellant has been granted registration u/s. 12AA after due appraisal of the activities to be undertaken by the trust. One of such activities included organizing Buyer Seller meetings abroad. The basic purpose of conducting such meetings was to help the Indian Pharmaceutical Industry and related trading activity. Even though such expenditure were incurred abroad, it could not be said that the benefit therefrom did not arise in India. This was indeed a charitable activity for the purpose of Indian Industry. Accordingly, I am not inclined to accept the view of the Assessing Officer that the appellant is not entitled exemption u/s. 11 on this account.”
5.1.6. Further, the appellant has stated that in the present appeal the status-quo 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 & 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 application of income need not be in India, but the application should result and should be for the purpose of charitable and religious purpose in India. Undisputedly, the assessee is registered under s.12A as a charitable institution. It is also not disputed that the activities of the assesse are charitable. It is also not the case of the Revenue that the expenditure incurred by the assessee in Hanover, Germany has not resulted in the benefit being derived in India. In these circumstances, it cannot be said that the expenditure incurred by the assessee in Hanover, Germany, which resulted in and which was for the purpose of attaining the charitable object in India, is not application of income. This view is also supported by the decision of a Co-ordinate Bench of this Tribunal in the case of Gem & Jewellery Export Promotion Council (supra), wherein, it has been held as follows:
A bare reading of the sub-s. 11(1)(a) does not leave us in doubt that the requirement under s. 11 is for application of income for purpose in India and it does not restrict the application of income within the territory of India. The charitable purpose of which the income should be applied for claiming exemption under s.11(1)(a) should be in India. In this case, it is not disputed that the trade delegation has been sent abroad for the benefit of the entire trade in India. The exports are made from India and the purpose for sending the delegation was to increase the possibilities of exports out of India. We accordingly hold that since the assessee has applied the income for charitable purposes in India, the mere fact that the expenditure has been incurred out of India, does not disqualify the expenditure from exemption under s.11(1)(a).
4.5.4. We also don not concur with the Assessing Officer’s view that a specific exemption is required from CBDT for making claim of application of income. This requirement has been specified only for those trusts that have as its objects, the promotion of international welfare.”
5.1.8. Subsequently, the hon’ble ITAT, Delhi in the case of DCIT(E) vs. The Associated Chambers of Commerce and Industries of India has taken the same view and decided the issue in favour of the assessee. While deciding the same the hon’ble ITAT has considered the decision of Delhi High Court in the case of DIT(E) vs. National Association of Software 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 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 abroad the basic purpose of the same was to promote pharmaceutical export of India and other related activities. Accordingly, it can be said that the appellant company has applied the income for the charitable purposes in India within the meaning of Section 11 of the Act. More particularly when the appellant had granted registration u/s. 12A of the Act on 09.09.2006. Therefore, the addition/disallowance made on account of expenditure incurred outside the country of Rs. 18,22,35,780 by not considering it as utilization for the purpose of Section 11 of the Act, is deleted. Accordingly, ground no.2 of appeal is allowed.”
Feeling aggrieved with the order of ld.CIT(A), Revenue is now in appeal before us.
Before us, the Ld.DR submitted that the order passed by the Ld.CIT(A) is contrary to the decision of Hon'ble Delhi High Court in the case of Director of Income Tax (Exemption) Vs. National Association of Software and Services Companies (NASCOM) and our attention was drawn to paras 13 and 24 to 43 of the order, which reads as under :
13. We now proceed to the examination of the second substantial question of law framed by us. The question is whether the expenditure of `38,29,535/- incurred by the assessee-trust on events/ activities held in connection with the exhibition in Hanover, Germany amounts to application of the income in accordance with Section 11(1)(a) of the Act. The argument put forward by the learned Standing Counsel for 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 learned counsel for the assessee, so long as the purposes are in India, it does not matter as to where the situs of the application is.
We do not intend 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. But it is not essential that the trust itself should be expressly confined to purposes within the taxable territories. If the trustees, as a matter of fact though not as a matter of legal obligation under the trust, restrict the application of the income to purposes within the taxable territories, that would be sufficient compliance with the clause." At page 219, the following observations appear as commentary on the proviso to the section: - "Proviso. Para. (a). - Foreign charities. - The substantive part of cl. (i) enacts that exemption can be claimed in respect of only such portion of the trust-income as is applied to religious or charitable purposes within the taxable territories. Para (a) of the Proviso is a corollary to that substantive provision and it provides that such portion of the income of a religious or charitable trust is to be included in the total income as is in fact applied to religious or charitable purposes outside the taxable territories. In other words, the Revenue confines the right of exemption to only such trusts as are administered for the benefit of the public of India and does not extend it to foreign charities. Two exceptional cases are, however, provided for, in which the Central Board of Revenue may by general or special order grant exemption from tax in respect of income applied to religious or charitable purposes outside the taxable territories : (a) where the trust or other legal obligation was created before the commencement of the Income-tax (Amendment) Act, 1953, and (b) where the trust or other legal obligation is created after such commencement and the income is applied outside the taxable territories to charitable purposes which tend to promote international welfare in which India is interested." In the 6th Edition (1969), the same observations appear at page 244 in the commentary under Section 11 of the present Act. The view remains unchanged in the 8th Edition brought out in the year 1990 (at page 349) and in the 9th Edition brought out in the year 2004 (at page 505). We are fortified in our conclusion by the view expressed by the learned authors.
We now come to the last part of the submission of Mr. Vohra, learned counsel for the assessee. He suggested (of course, without giving up or conceding his main arguments dealt with above) that the time has now come to take a fresh 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 exempt because it amounts to application of the income of the trust outside India, even though there is no difference between the two so far as the charitable nature of the purpose is concerned. In both the cases, according to him, the income is applied to the charitable purposes only.
What Mr. Vohra says is not without force or merit but we are required to interpret the statute as it is and not in the manner in which we think the law ought to be. We need to distance ourselves from matters of policy. Innovative thinking has its limits. Judicial adventurism, masquerading as judicial innovativeness should not result in legislation. Policy, so far as we are concerned, is uncharted territory into which we should feel chary of making forays. Secondly, we ought to be wise enough to know that in the matter of exemption from tax in all-India statute, judicial restraint, and not innovativeness or novelty, may be the proper approach to follow in order that the long settled legal position is not turned upside-down. We must, however, appreciate the tenacity with which the matter was argued before us by the learned counsel on behalf of the assessee but we are afraid that he is looking up the wrong tree.
The next submission of the learned counsel for the assessee was that in case the expenditure incurred in Germany is not to be considered as application of the income of the trust in India for charitable purposes, then only the net surplus, that is to say the excess of the receipts in connection with the trade fair in Germany over the expenditure incurred there can be considered as a surplus and be excluded. In other words what is being contended is this. Out of the gross receipts of `2,56,84,141/-, the receipts in connection with the Hanover Trade Fair should be segregated and instead of excluding the entire receipts on the ground of improper application of the income of the trust, it should be reduced by the amount of expenditure of `38,29,535/- incurred in Hanover, Germany and only the balance amount shall be considered as income not applied for charitable purposes in India. In the absence of any specific provision permitting this, we are unable to accept the contention.
The last submission in this connection was that an opportunity may be directed to be granted to the assessee to make good the shortfall in the application of the 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 80-O of the Act. The decision of the taxing authorities was upheld by the Court. The assessee had also raised an alternative claim for deduction under Section 80HHB of the Act. The eligibility of the assessee to the claim under Section 80HHB was not disputed by the assessing authorities. The Division Bench of this Court noticed that the income tax authorities did not allow the assessee's claim under Section 80HHB because the assessee had not complied with certain formalities such as creation of reserves in its accounts. It is in this background that this Court held that it will be extremely unfair not to give the benefit to the assessee under Section 80HHB. It was thus directed that the Income Tax Department should not stand on mere technicalities and must give an opportunity to the assessee to fulfill the requirements of Section 80HHB(3) within a reasonable time. It has to be remembered that the writ court can issue such direction based on equitable considerations and in the interest of justice, but our jurisdiction under Section 260A of the Act is not so wide as writ jurisdiction. We have no such discretion in the absence of any specific provision in the Act. We are accordingly unable to accept the request of the assessee.
We, therefore, hold that the amount of `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. The substantial question of law is thus answered in favour of the assessee in so far as the payment of taxes under the VDIS is concerned and in favour of the Revenue so far as the expenditure incurred outside India (Germany) is concerned.
The next question which arises is regarding the applicability of Section 28(iii) of the Act. The assessee received non-refundable admission fee from its members as well as annual subscription charges. The non- refundable admission fee was `5,000/- for each member payable at the time of admission and `3,000/- in the case of associate member. Apart from this amount, every member was required to pay an annual subscription of an amount based in relation to the turnover of the member. There is no dispute with regard to the one-time admission fee received from the members. The Tribunal has held that the one-time admission fee is not taxable under Section 28(iii) and Mr. Sabharwal, learned Sr. Standing Counsel for the Revenue has fairly stated that this part of the 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/ exhibitions in India and abroad. This is aimed at helping members in their business promotion. • On an annual basis, it sends about 150-200 circulars to all its members explaining new policies of Government agencies, market information and other relevant statistics." From the above, the Assessing Officer took the view that there were specific services rendered by the assessee to its members and therefore the annual subscription fee was assessable under Section 28(iii).
On appeal the CIT (Appeals) held that the annual subscription received from the members was not taxable under Section 28(iii). The Revenue carried the matter in appeal to the Tribunal. We note that the Tribunal has not separately dealt with the assessability or otherwise the annual subscription fee, though it has referred to the assessability of the non-refundable admission fee and decided that issue specifically. We also find that in paragraph 13, the Tribunal has considered the non-refundable admission fee and the annual subscription charges in a consolidated manner and it seems to us that they have been dealt with together. In the circumstances, we proceed to frame the following substantial question of law on the footing that the Tribunal has decided the issue in favour of the assessee: - "Whether on a proper interpretation of Section 28(iii) of the Act, the Tribunal was right in law in holding that the annual subscription fees received by the assessee-trust from its members was not taxable under the said provision? …..
In expounding Section 10(6) of the old Act, which was the precursor of Section 28(iii) of the present Act, the Supreme Court in Commissioner of Income-tax, West Bengal v. Calcutta Stock Exchange Association Ltd., (1959) 36 ITR 222, observed that the performance of the services of the description mentioned in that sub- section, may, but for the words of that section, have amounted to carrying on business in respect of those services. It was further observed that unless the assessee is brought within the terms of the Section, the receipt in question cannot be charged to income tax. The Supreme Court approved the view of the Calcutta High Court that the Section contemplated "services in regard to the matter outside the mutual dealings for which the association was formed for the transaction of which it exists as a 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 unable to hold that the Tribunal was wrong in holding that the annual subscription fees was not assessable under the section. The substantial question of law is thus answered in the affirmative, in favour of the assessee and against the Revenue.
Turning to the other appeals, we take up the appeal for the assessment year 2002-03 which is ITA No.520/2011. In this order the first substantial question of law relates to the applicability of Section 28(iii) of the Act. For the reasons stated by us in and 18/2011, this question is answered in the affirmative, in favour of the assessee and against the Revenue.
The only other substantial question of law which arises in this appeal relates to the corpus donation of `7,70,000/- received by the assessee. The finding of fact recorded by the Tribunal is that the members who paid the one-time admission fee were aware that it can be spent by the assessee only for the purposes of acquiring a capital asset and, therefore, the amount must be held to be a corpus donation, not taxable as income. Since this is essentially a finding of fact no substantial question of law arises for our consideration.
We now take up relating to the assessment year 2003-04. This arises out of ITA No.2554/Del/2006 filed by the Revenue before the Tribunal which was disposed of by order dated 12.03.2009. The only substantial question of law which arises relates to the applicability of Section 28(iii) of the Act. In line with our decision for the assessment year 1998-99, the substantial question of law is answered in affirmative, in favour of the assessee and against the Revenue. No other substantial question of law arises for this year.
We now turn to and 477/2011, both of which relate to the assessment year 2004-05. ITA No.17/2011 arises out of ITA No.4564/Del/2007 borne in the file of the Tribunal and disposed of by it by order dated 12.03.2009. This order, as already noted, is a consolidated order disposing of the appeals, both by the assessee and by the Revenue for several assessment years. ITA No.4564/Del/2007 is the appeal by the assessee before the Tribunal for the assessment order 2004-05. The order of the Tribunal shows that the only ground taken by the assessee was that the departmental authorities were not right in holding that the expenditure 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. 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 1998-99, is answered in favour of the assessee and against the Revenue.
As regards the provision for bad and doubtful debts, the question again is whether in computing the income of the trust on commercial principles, the provision can be deducted or where the deduction can be allowed only in accordance with the provisions of Section 36(i)(vii) read with Section 36(2)(i) of the Act. We have already held that the income of the trust available for application to charitable purposes in India should be computed not in accordance with the strict provisions of the Income Tax Act but should be computed in accordance with commercial principles and it is on this footing that the payment of Income Tax Act under the VDIS was treated as a deduction and as proper application of the income of the trust. The same line of reasoning holds good for the provision for bad and doubtful debts. Even under the computation provision of the Act such a provision was considered allowable up to and including the assessment year 1988-89 and it was only from the assessment year 1989-90 that the Act required that a mere provision would not be allowable as a deduction and the actual writing off of the debt was a necessary pre-condition. Be that as it may, under the commercial principles it has always been recognized that a provision, reasonably made for a loss or an outgoing, can be deducted from the income if there is apprehension that the debt might become bad. There is nothing brought on record to show that the provision was not made bonafide. In such a situation, the ratio of the decisions cited by us while dealing with the deductibility of the taxes paid under the VDIS will equally apply. We accordingly hold that while computing the income available to the trust for application to charitable purposes in India in accordance with Section 11(1)(a) the provision for doubtful debts must be deducted. Accordingly, we frame the following substantial question of law and answer the same in the affirmative in favour of the assessee and against the Revenue: - "Whether the Tribunal was right in law in holding that the provision for doubtful debts must be deducted from the income of the trust on commercial principles, for the purposes of Section 11(1)(a) of the Act?"
We now turn to the appeals for the assessment year 2005-06. arises out of 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. 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.
We now turn to the assessment year 2006-07. 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, whether the expenditure of `1,70,85,034/- incurred outside India on events and activities held outside India did not qualify for exemption under Section 11(1)(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.”
6. It was submitted that once the statute under Section 11(1)(a) read with 11(1)(c) is specific, clear and unambiguous and provides for the deduction of the expenditure incurred in India only, then it is not correct for the Ld.CIT(A) to grant relief for the amount spent out of India which is contrary to the provisions of 11(1)(a) of the Act. It was further submitted that if the assessee is an organization set up by the Government of India, then a specific notification should have been issued by the Board through a special / general order, exempting the expenditure incurred outside India from the total income of the assessee. In the present case, no such notification has been issued either generally or specifically, granting exemption to the assessee for incurring expenditure outside India, even for achieving its aims and objectives of the assessee. The ld.DR has also drawn our attention to the recent decision of the Tribunal in the case of Church’s Auxiliary for Social Action Vs. ACIT (Exemptions), in dt.26.07.2022, wherein the Tribunal has held has under :
“5. We have heard the parties, perused the material on record and gave our thoughtful consideration. The moot question for consideration in the preset Appeal is that, whether the expenditure incurred by the assessee outside India 4 Church’s Auxiliary for Social Action, ND on account of boarding and lodging, local transport etc. is to be considered as application income are not.
In the case of Director of Income-tax (Exemption) Vs. National Association of Software and Services Companies in and other connected matters, the Jurisdictional High Court vide order dated 10/05/2012 held that, the expenditure incurred by the assessee trust outside India cannot be considered as application of the income of the trust in India for charitable purpose. The relevant portions of the judgment are hereunder:-
The next question is whether the expenditure incurred by the assessee- trust on events/activities held in 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 provision as it existed prior to 1-4-1952, there was no difference maintained between application of the income of the trust within or without the taxable territories. The provision as it existed after the amendment made with effect front 1-4-1952 makes a reference to application or accumulation for application of the income of the trust to such religious of charitable purposes as revenue to anything done within the taxable territories'. The assessee contended that the words 'as relate to anything done within the taxable territories' clearly show that the charitable purposes must be executed within the taxable territories and that it was immaterial where the income is actually applied. It is difficult to conceive of a situation under which the charitable purposes are executed within the taxable territories but the income of the trust is applied elsewhere in the implementation of such purposes. Be that as it may, the position is put beyond doubt by the proviso to section 4(3) (i) of the old Act. It says that the income of the trust shall stand included in its total income if it is applied to religious or charitable purposes throughout/within the taxable territories. The proviso is indicative of the object of the main provision. In the main part, it ions provided that the income of the trust should be applied within the taxable territories to religious or charitable purposes and in the proviso an exception was carved out to provide that if the income is applied outside the taxable territories, even though to religious or charitable purposes, the trust will not secure the exemption from tax in respect of such income. Two situations were anticipated for which provision was made in the proviso itself. In these two situations, the Central Board of Revenue (CBR, the present CBDT) was empowered to direct by general or special order, that in such cases the income of 6 Church’s Auxiliary for Social Action, ND the trust shall not be included in the total income merely because the income was applied to charitable purposes outside the taxable territories. The first situation was where the property was held under a trust or other legal obligation created before 1-4-1952. The second situation was where the property was held under trust or other legal obligation created after the aforesaid date and the income there from is applied outside the 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 ll (l)(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 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 scents 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 that grammatically also it would be proper to understand the requirement of the provision in this may, 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 submission of the assessee that the words 'in India' qualify only the appear 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 assessee 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 assessee contends is correct then section 11(1) (c) may become redundant and otiose. If as assessee 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 front CBDT in respect of its income which is applied to charitable or religious purposes outside India. Therefore, the words ’in India1 appearing in section 11(1)(a) and the words 'outside India' appearing in section ll(l)(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 1TAT 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 India shall not be denied die exemption nor would it be necessary for a charitable or religious trust created before die aforesaid date to seek such a order from CBDT in respect of its income which is applied to charitable or religious purposes outside India. It was further held that the words in India" appearing in section ll(l)(a) and the words "outside India" appearing in section 11(l)(c) qualified the word "applied" appearing in these provisions and not the words "said purposes."
8. Thus, it is well settled law that the expenditure incurred by the trust outside India cannot be considered as application of income as per Section 11(1)(a) of the Act. Therefore in the present case, the disallowance of Rs. 10,15,818/- which was spent outside India on account of boarding and lodging local transport etc. cannot be considered as application income as per Section 11(1)(a) of the Act.
9. The Ld. Counsel for the assessee submitted that, the disallowance of Rs. 10,15,818/- sustained by CIT(A), will result in addition of the amount twice to the gross total income of the assessee, once through foreign contribution received reimbursed amount is already included in the total income and in a second time by disallowance made in the assessment order, therefore submitted that the order impugned deserves to be quashed. We find that assessee has not raised such ground either before the CIT (A) or before us, apart from the same the Assessee has not even produced any iota of evidence/materials before the AO/CIT(A) or before us to suggest that the assessee has received foreign contribution as per law to meet the expenditure of Rs. 10,15,818/- incurred by the assessee for boarding and lodging, local transport etc. outside India. Therefore we are not in a position to uphold the theory of reimbursement taken by the Assessee.
10. In view of the above discussions we are of the opinion that the Order passed by the Ld. CIT (A) is just and proper, which requires no interference, accordingly we dismiss the Grounds No. 1 to 3 of the assessee.
In the result, the appeal of the assessee is dismissed.”
Per contra, ld.AR had submitted that the assessee is a company formed for achieving the main objects and also the incidental or ancillary objects to the attainment of the main objects (placed at pages 92 to 96 of the paper book), which are to the following 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 direct and indirect taxation, adopted by them in relation to their effect on industry and/or commerce: (b) the steps to be taken by them to prevent any contravention of the codes of practices laid down by the Council, by any of the persons concerned, where such contravention would affect exports of Drugs and Pharmaceuticals provided that such advice or representation shall be only in so far as such policies or measures have a bearing directly or otherwise on the exports of Drugs and Pharmaceuticals; B. The object incidental or ancillary to the attainment of the main objects are: (1) a) to undertake market studies in various individual foreign countries on regular as well as ad hoc basis: b) sending out trade missions to foreign countries. c) appointing, representatives, agents or corresponds Forest for purpose of continuously and regularly reporting the preferences, reception so matters: d) conducting propaganda so as to bring to the notice of the dealers d public in foreign countries the advantages of trade and commerce with? India in Drugs & Pharmaceuticals e) collecting and circulating statistics and other information regarding manufacture, trade or ultimate use of Drugs and Pharmaceuticals in various countries; propagating information for use of manufacturers, traders and shippers of Drugs and Pharmaceuticals by lecturers, discussions, books, correspondence, exhibitions, films or otherwise; g) laying down or maintaining liaison with any agency which has been setup for laying down standards of quality and packing in respect of Drugs and Pharmaceuticals intended for export; h) setting up an organization or maintaining liaison with an organization which has been setup, for performing such functions as are necessary to attain the standards of quality and packing laid down, including the conducting of inspection of Drugs and Pharmaceuticals intended for export, with this end in view; i) setting up an organization or maintaining liaison with testing Laboratories or concerned Department of the Ministry of Health in various countries of the world; j) setting up an organization or maintaining liaison with an organization which has been setup for conducting research and experiments, k) rationalizing and for increasing, where necessary, production within India and distribution in foreign markets of Drugs and Pharmaceuticals that are exported; 1) 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; 0) enquiring and investigating into complaints received from foreign and/or Indian exporters in respect of the quality, description or other paniculars 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 concerned regarding the methods to be adopted to obviate such complaints of a similar nature in future; p) making such recommendations as may be necessary or expedient to Government and public bodies like Chambers of Commerce where the Company on investigation of a complaint received by it is satisfied about its genuineness and that the same has been caused by the willful or negligent act or acts of the manufacturer or exporter of drugs and pharmaceuticals as the case may be; q) acting as arbitrators or nominating arbitrators or valuers in the settlement of disputes and differences arising out of transactions, relating to exports of Drugs and Pharmaceuticals between parties who agree to refer the disputes to the company: r) communicating with Chambers of Commerce and other mercantile and public bodies throughout India, and concert and promote measures for the promotion and advancement of export of Drugs and Pharmaceuticals: s) undertaking schemes/projects relating to import substitution; t) investing and dealing with moneys and funds belonging to the Company in schemes/projects which have a bearing on import substitution and other investments and transactions in all work ancillary thereto, and (2) to purchase, hire or otherwise acquire and maintain suitable buildings, premises, apartments, furniture and other fittings in any country for the establishment of showrooms, emporia or other agencies for publicity in regard to Drugs and Pharmaceuticals for the purpose of achieving any of the objects for which the Company is established; (3) to establish and maintain museums, collections, libraries, compilation of literature and to translate, compile, collect, publish, lend, purchase or sell any literature connected with manufacture, trade and commerce relating to Drugs and Pharmaceuticals; (4) to prepare, edit, print, publish, issue, acquire and circulate books, papers, periodicals, gazettes, circulars and other literature treating or bearing upon industry, trade se commerce, pertaining to Drugs and Pharmaceuticals; (5) to acquire, purchase or take on lease lands, buildings or other immovable or movable property which the company may from time to time deem it necessary to acquire. purchase, or take on lease, (6) to sell, improve, manage, develop, exchange, loan, sublet, mortgage, dispuse 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 restrictions, which, if an object of the company, would make it a trade union. IV. The objects for which the company is established extend to all the States of the Indian Union. V. (1) The income and property of the Company, howsoever derived, shall be applied solely for the promotion of its objects as set forth in this Memorandum, (2) No portion of the income or property aforesaid shall be paid or transferred, directly or indirectly, by way of dividend, bonus or otherwise by way of profit to persons who at any time are or have been members of the Company or to any one or more of them or to any persons claiming through any one or more of them; (3) No remuneration or other benefit in money or money's worth shall be given by the company to any of its members, except payment of out-of pocket expenses. reasonable and proper interest on money lent, or reasonable and proper rent on premises lent to the Company, (4) No member shall be appointed to any office under the company which is remunerated by salary, fees or in any other manner not excepted by Clause(3).
(5) Nothing in this Clause shall prevent the payment by the Company in good faith of reasonable remuneration to any of its officers or servants(not being a member), in return for any services actually rendered to the Company. VI. No alteration shall be made to this Memorandum of Association or to the Articles of Association of the company which are for the time being in- force unless the alteration has been previously submitted to and approved by the Regional Director, Department of Company Affairs, Chennai. VII. The liability of the Members is limited. VIII. Every Member of the Company undertakes to contribute to the assets of the Company in the event of the same being wound-up during the time that he is a Member, or within one year afterwards, for payment of the debts and liabilities of the company contracted prior to the date on which he ceases to be a member, and of the costs, charges and expenses of winding-up the same, and for adjustment of the rights of the contributories among themselves such amount as may be required not exceeding a sum of Rupees Five Thousand Only(Rs.5,000) IX. True account shall be kept of all sum of money received and expended by the Company and the matters in respect of which such 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.
The Ld. AR further submitted that if the assessee were permitted to explain the expenditure incurred outside India, then it would not be able to fulfill its basic objectives. He further contended that the doctrine of frustration would come into play, as the assessee cannot be expected to promote the export of pharmaceutical drugs outside India without incurring any expenditure outside India. The Ld. AR also drew our attention to page 184 of the paper book, where the details of the expenditure incurred outside India are captured.
The ld.AR further submitted that in identical circumstances, the case of the assessee was decided in its favour for A.Y. 2005-06 and against the said order, the Revenue has not filed any appeal before the Tribunal. The ld.AR has also drawn our attention to the Delhi Tribunal in the case of DCIT(E) Vs. The Associated Chambers of Commerce and Industries of India, which was relied upon by the Ld.CIT(A) while granting the relief. Furthermore, the ld.AR submitted that since the assessee is a government organization involved in exporting pharmaceuticals, it should be granted the benefit under Section 11(1)(a) of the Act.
We have heard the rival submissions and perused the material on record. Section 11(1)(a) and 11(1)(c) of the Act provides as under :
Section 11(1)(a) in The Income Tax Act, 1961 (a)income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property; Section 11(1)(c) in The Income Tax Act, 1961 (c)income derived from property held under trust—(i)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(ii)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:
10.1 A reading of Section 11(1)(a) of the Act makes it abundantly clear that any income derived from the property and applied for such purposes in India, subject to the cap mentioned in the act, will not form part 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 reliance of the assessee on the earlier order of the Ld. CIT(A) in its favor is of no consequence, as the law was interpreted by the Hon'ble Delhi High Court after the passing of that order on 10.05.2012. Moreover, the plain language of the statute is clear, unambiguous, and free from any confusion, in view thereof, the statutory language is required to be applied as it stands, or in other words, a literal interpretation must be followed. Accordingly, we are of the considered opinion that the assessee is not entitled to any relief.
On the contrary, the specific power is granted to the Board under Section 11(1)(c) of the Act, which allows power to issue special or general orders on a case-to-case basis to exclude certain expenditures incurred outside India from being counted as part of the total income. It is for the assessee to take up the matter with the Board and seek a specific exemption, whereby the Board may direct that such expenditure incurred outside India for achieving the assessee’s objectives shall not be included in its total income. In the absence of any specific order from the Board, we are of the opinion that the benefit of Section 11(1)(a) and 11(1)(c) of the Act, cannot be extended to the assessee.
Furthermore, the argument of the assessee being the statutory organization, it should be treated at a different pedestal than that of the other assessees while discharging functions and duties under its Memorandum of Association, is also not tenable. In our considered opinion, this argument is not applicable because, as per law, all the assessees - whether government or non-government organizations, charitable or non-charitable entities—must be treated equally. Therefore, the assessee's contention that it should receive preferential treatment and be granted the benefit under Section 11(1)(a) is not acceptable.
In view of the above, we are of the considered opinion that the order passed by the Ld.CIT(A) is without any basis. Accordingly, the order of LD.CIT(A) is reversed and the order of the Assessing Officer is restored. Thus, the appeal of Revenue is allowed.
In the result, the appeal of Revenue is allowed.