Income Tax Appellate Tribunal - Delhi
Indo French Centre For The Promotion Of ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'C': NEW DELHI
BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER
AND
SHRI A.D. JAIN, JUDICIAL MEMBER
ITA Nos. 3065 & 6164/Del/2012
Assessment Years: 2008-09 & 2009-10
ADIT(E),
Trust Circle-IV, Room No. 204, 2nd floor, Aayakar Bhawan, Distt. Centre,
Laxmi Nagar,
New Delhi.
Vs.
Indo French Centre for the Promotion of Advanced Research, 5B, Ground Floor, India Habitat Centre,
Lodhi Road, New Delhi.
AAAT1055Q
(Appellant)
(Respondent)
Appellant by: Sh. Satpal Singh, Sr. DR
Respondent by: Sh. N.K. Gupta, CA
O R D E R
PER S.V. MEHROTRA, A.M.
These appeals filed by the Revenue are directed against the two separate orders of ld. CIT(A)-XII, New Delhi, dated 05/03/2012 for A.Y. 2008-09 and ld. CIT(A)-XXI, New Delhi, dated 04/09/2012 for A.Y. 2009-10.
ITA No. 3065/D/12 for A.Y. 2008-09:2. Brief facts of the case are that assessee was registered u/s 12A vide order dated 13th May, 2004 F. No. 45/I-993/03/168. It had filed its return of income declaring Nil income accompanied with audit report in Form No. 10B. In course of assessment proceedings the AO noticed that investments were not made in conformity with section 11(5) of the Income Tax Act. He, therefore, required the assessee to clarify as to why the same should not be taken as violation of section 13(1)(d) of the Income Tax Act. The assessee's reply has been reproduced at pages 2 to 3 of Assessment Order. In its reply the assessee referred to the notification of CBDT vide order F. No. 180/06/2009-ITA-1(Pt.) dated 12.10.2010 and pointed out that vide said order CBDT had exempted the income of the society u/s 11(1)(c). Accordingly, it was submitted that there was no question of applicability of section 11(5) and the maintenance of the bank account in France or expenditure incurred in France will not adversely affect the exemption explicitly extended by the CBDT. It was further pointed out that in A.Y. 2008-09 there was no accumulated income as provided u/s 11(2) of the Income Tax Act and, therefore, the applicability of section 11(5) was not required to be considered. As regards the applicability of provisions of section 13(1)(d) it was submitted as under:
Sub-section(2) of section 11 applies only when 85% of total income referred to a clause (a) or clause (b) of sub-section (1), is not applied for charitable or religious purpose during the previous year.
In our case during the assessment year under consideration, more than 85% of the total income has been applied for the charitable purpose as per the objectives of the society. This purports to be a fact and is not denied.
Therefore there is no need for the so called investment or deposits of accumulated un-spent amount as required u/s 11(5) and, therefore, the provisions of the stated section are not applicable.
Provisions of section 13(1)(d) with respect to its applicability to our case is not relevant as no investments or deposits were made of any funds of the society which were pending utilizations.
The expression "Investments" means, to lay out money IN BUSINESS with a view to obtain income or profit.
While the essence to deposit as defined under 13(1)(d) there must be a liability to return it to the Party by whom or on whose behalf has been made on fulfillment of certain conditions. In the commercial sense the terms is used to indicate the aforesaid transaction as deposit of money for employment in business, deposits for value to initiate security for, deposit of title deeds, similar documents as security for loan, deposits of money bill in a bank in the ordinary course of business of current account and deposits a sum at interest at a fixed deposit in a bank. None of these conditions of investment or deposit apply to our case. Provisions of section 13(1)(d) with respect to its applicability to our case for the previous year in question does not arise, since the society has not parked any fund with Credit Industrial at Commercial Bank, Paris, France, either as an investment or as a deposit. Under the existing arrangement with the Government of France the funds representing the grant from the Government of France are directly deposited in this account for utilization by the Centre for the mandated purposes (Ref. is made to the Delhi High Court judgment clearly bringing out this distinction in the case of Director of Income Tax (Exemption) vs. Alarippu [2000-(244)-ITR-0358] copy of the judgment relied upon is enclosed.
In view of the submissions made herein above, we trust the position of the requirements of section 13(1)(d) vis-à-vis our case of explained and find the same in order."
3. The AO, however, did not accept the assessee's contention for the following reasons:
The submission of the assessee that money kept in Credit Industrial et Commercial Paris was neither investment nor deposit was misplaced. As assessee itself had shown the credit amount only under the head "Investment".
The investment was earning interest which was reflected on the income side of income and expenditure account.
Exemption given u/s 11(1)(c) by board was limited to the extent of income applied outside India. Certificate by board u/s 11(1)(c) did not give immunity from violation of section 13 of Income Tax Act which is specific and leads to forfeiture of tax exemption.
The AO also pointed out that assessee's contention that in the year under consideration there was no accumulated income u/s 11(12) and, therefore, applicability of section 11(5) was not required, was misplaced. In this regard he preferred to section 13(1)(d) and pointed out that the said section referred to' any income' for any period. He was of the opinion that 'any accumulation' has to remain invested as per the provisions of section 11(5) else it would be hit by the provisions of sec. 13(1)(d). He, therefore, made an addition of Rs. 18,44,50,256/- which was claimed as expenditure by assessee and thus, determined the deficit at Rs. 81,99,955/-. The interest earned from Credit Industrial et Commercial Paris was taxed at maximum marginal rate u/s 164(2) of the Act.
4. Ld. CIT(A) allowed the assessee's appeal.
4.1 Being aggrieved with the order of ld. CIT(A), the Department is in appeal before us and has taken following grounds of appeal:
"On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in allowing benefits of section 11 & 12 of the Income Tax Act, 1961 to the assessee whereas the assessee has violated the provisions of section 13(1)(d) of the Act.
On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 11,37,438/- made by the AO on a/c of interest earned on the balance in the bank account with Credit Industrial Commercial, Paris and non-applicability of section 164(2) to the assessee."
5. Ld. DR relied on the order of Assessing Officer and submitted that the amount kept with Credit Industrial et Commercial Paris was investment or deposit in violation to section 11(5) and, therefore, AO had rightly invoked section 13(1)(d).
6. Ld. Counsel referred to the submissions made before ld. CIT(A) and submitted that there was no violation of provisions of section 11(5).
6.1 We have considered the submissions of both the parties and have perused the record of the case. Short point for consideration is whether the amount lying with Credit Industrial et Commercial Paris was in violation of provisions of section 11(5) or not. Section 11(5) prescribes the forms and modes of investing or depositing the money which the assessee had not applied to charitable or religious purposes in India. This section is applicable, if in the previous year the income applied to charitable or religious purposes in India falls short of 85% of the income derived during that year and is accumulated or set up apart, either in whole or in part, for application to such purposes in India. The AO has also invoked section 13(1)(d) which is also attracted only when funds of the trust are invested or deposited after 28/02/1983, otherwise than in any one or more of the modes specified in sub-section (5) of section 11. Therefore, we have to examine two aspects in the present case-firstly whether assessee had applied less than 85% of its income towards the objects of the trust and secondly whether the amount lying with the Credit Industrial et Commercial Paris was in violation to sec. 11(5). We will first consider the second aspect relating to alleged violation of the provisions of section 11(5). In order to appreciate the controversy it is necessary to refer to the facts of the case as submitted before ld. CIT(A). The same are reproduced hereunder:
"Indo - French Centre for Promotion of Advanced Research was formed in India under the Ministry of Science & Technology for promotion of advanced research under a joint collaborative programme. The centre was formed jointly by the Governments of India and France, based on the principle of reciprocity and parity. It was registered as a Society under the Societies Registration Act, 1860, on 16.04.1986. The society has also been recognized as Scientific and Industrial Research Organization by the Department of Scientific & Industrial Research (DSIR).
The government of India has entered into a bilateral arrangement with the Government of France and formed the Institution as a registered society under the Society Registration Act, 1980 and all decisions of the society are subject to scrutiny by both the Governments.
The Government of India has proposed exemption of the institution from payment of Taxes through a letter No. PAR/E&T/326(2)/84-II dated 08.06.1985 from the then Foreign Secretary. Copies of the letters exchanged between the Government of India and Government of France are enclosed with the Memorandum of Association as Annexure "I". The aforesaid initial letters clearly state as under:
"The INDO-FRENCH centre for the promotion of advanced research will be exempt from payment of Income Tax. For import of scientific equipment by such society, no custom duty is payable under Indian laws. French contribution to Indo French centre will be in the following form:
Direct contribution to be transferred and placed at the disposal of the centre according to the approved budged.
Equipment etc. as may be given, from time to time, by the French side.
Expenses in France to be borne by the France side on visits of Indian scientists to France.
Air Fare for French scientists visiting India.
Any other expenses which the French side agree to bear."
The aforesaid arrangement was confirmed by the than secretary General, Ministry of External Relations of the Govt. of France, vide letter dated 08.06.1985 (Refer Annexure "I") Keeping in view the aforesaid arrangement between the Government of India and Government of France, Reserve Bank of India has also agreed for the opening of "French France" account by the centre in France with a French bank in Paris for the purpose of promotion of advanced research. Copies of letters from RBI dated 04.07.1988 and 05.09.1988 are enclosed as Annexure "2" and "3". The permission by RBI was given subject to following conditions:
Grants received from the French Govt. may be credited to the account freely.
Interest on balance may be credited to the account freely.
Debit in respect of bank charges and repatriation to India may be made freely.
Debits for the expenses in connection with conducting of research programs in French Laboratories and joint workshops, seminars abroad may be made freely.
All other transactions will require the prior approval of Reserve Bank of India.
As per the arrangement the grants in aid from the Govt. of France is to be deposited in the bank account in France and after meeting the expenses incurred in France, balance grant in aid is freely remittable to India."
7. From the above arrangement it is evident that assessee had not parked any funds with Credit Industrial et Commercial Bank, Paris, France either as an investment or as a deposit. The funds representing the grant from the Government of France was directly deposited in this account for utilization by the centre for the mandated purposes. The assessee in its submission had also pointed out that assessee had not shown the balance with Credit Industrial et Commercial Bank, Paris under the head "Investment" but under the head "current assets". The expression 'investment' implies to lay out money in business with a view to obtain income or profit. The term 'deposit' indicates the transaction as deposit of money for employment in business, deposit of title deeds, similar documents as security for loan, deposits of money in a bank in the ordinary course of business of current account and to deposit a sum at interest at a fixed deposit in a bank. Thus, both 'investments' and 'deposits' require a positive act on the part of assessee with an intention to earn income/ interest. However, in the present case, the funds remained lying with the Credit Industrial et Commercial Bank, Paris, France at the end of the year, after meeting expenditure for the mandated purposes, on which the centre had earned nominal interest as per the policy of the bank. This was as per the arrangement between two Governments and, therefore, this could not be termed as investment or deposit kept by assessee with the said bank for earning interest. Therefore, there was no violation of the provisions of sec. 11(5) in the present set off facts. Further, AO has not demonstrated with facts and figures that submission of assessee that in the relevant assessment year under consideration i.e. A.Y. 2008-09 there was no accumulated income, is not correct. Therefore, in any views of the matter, there was no question of any violation of section 11(5).
8. As regards, the applicability of provisions of section 13(1)(d), as we have already held that the provisions of section 11(5) are not attracted in the present set of facts, the provisions of section13(1)(d) will also not apply. The assessee has been granted exemption u/s 11(1)(c) by the Board in respect of income applied outside India. The said section reads as under:
11(1) "Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income-
(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 the1st day of April, 1952, to the extent to which such income is applied to such purposes outside India:
Provided that the Board,by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income;"
Therefore, to the extent amount was not applied to the objects of society outside India, the amount remained with the French Bank. Therefore, it could not be said that there was any violation of provisions of sec. 11(5).
9. As we have held that assessee's income was eligible for deduction u/s 11 & 12, the applicability of provisions of section 164 is ruled out. In view of the above discussion, we do not find any reason to interfere with the order of ld. CIT(A). Accordingly, Department's appeal is dismissed.
10. ITA No. 6164/D/12 for A.Y. 2009-10:
The Department has taken following grounds of appeal:
"On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in allowing benefits of section 11 & 12 of the Income Tax Act, 1961 to the assessee whereas the assessee has violated the provisions of section 13(1)(d) of the Act;
On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in adjudicating that there is no violation of section 13(1)(d) of the Act in respect of interest of Rs. 9,37,722/- earned on investment made with Credit Industrial et Commercial Paris, France, by the assessee ignoring that investment was not made in conformity with section 11(5) of the Act and there was violation of provisions of section 13(1)(d) of the Act and the assessee itself had shown this under the head investment in Balance Sheet;
On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in allowing the deficit of Rs. 81,99,955/- of assessment year 2008-09 as there is no provisions for set off of losses u/s 11 & 12 of the Income Tax Act, 1961;
On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in holding that maximum marginal rate is not applicable on the income on a/c of interest of Rs. 9,37,722/- earned from Credit Industrial et Commercial Paris, France, ignoring that assessee committed violation within the meaning of provisions of section 13(1)(d) r.w.s. 11(5) of the Act in respect of this income."
11. As far as ground no. 1 & 2 are concerned, for the reasons given in A.Y. 2008-09, these grounds are dismissed.
12. As far as ground no. 3 is concerned brief facts are that in course of assessment proceedings assessee requested for allowing the benefit of brought forward losses for A.Y. 2008-09. The AO denied the same observing that assessee was not given benefit of carry forward of loss in A.Y. 2008-09.
13. Ld. CIT(A), following the decision of Hon'ble Delhi High Court in the case of DIT vs. Raghu Vanshi Charitable Trust reported in 197 Taxman 170, directed the AO to allow the set off of brought forward losses. In this case, the Hon'ble Delhi High Court had held that income derived from the trust property is to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the trust for charitable and religious purposes in the earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year in which adjustment has been made having regard to the benevolent provisions contained in section 11(1)(a) of the Act. The Hon'ble Delhi High Court also referred to the decision of Hon'ble Gujarat High Court in the case of CIT vs. Shri Plot Swetamber Murti Pujak Jain Mandal reported in 211 ITR 293. We, therefore, do not find any reason to interfere with the order of ld. CIT(A) on this issue.
14. In the result, this ground is dismissed.
15. As far as ground no. 4 is concerned since we have already held that the income of the assessee is exempt u/s 11 & 12 of the Income Tax Act, the provisions of section 164 could not be invoked.
16. In the result, this ground is dismissed.
17. In the result, the Departmental appeals are dismissed.
Order pronounced in the open court on 31/12/2013 Sd/- Sd/-
(A.D. JAIN) JUDICIAL MEMBER (S.V. MEHROTRA) ACCOUNTANT MEMBER Dated: 31/12/2013 *Kavita Copy to:
Appellant Respondent CIT CIT(A) DR, ITAT, New Delhi.
TRUE COPY By Order ASSISTANT REGISTRAR PAGE 13 ITA Nos. 3065 & 6164/D/ 2012 - Indo French Centre