Income Tax Appellate Tribunal - Mumbai
The Synthetic & Rayon Textiles Export ... vs Ito (E) 2(4), Mumbai on 17 May, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI MANOJ KUMAR AGGARWAL, AM
ITA No.1578/Mum/2017
(A.Y:2004-05)
ITA No.157 7/Mum/2017
(A.Y:2006-07)
ITA No.157 6/Mum/2017
(A.Y:2009-10)
ITA No.157 5/Mum/2017
(A.Y:2011-12)
ITA No.157 3/Mum/2017
(A.Y:2012-13)
The Synthetic & Rayon Income Tax Officer (E),
Textiles Export Promotion Ward 2(4)
Council R.No. 503, Piramal Chambers
Resham Bhavan, 1 s t Floor78 Lalbaug Parel
Veer Nariman Rd, Vs. Mumbai-400 012
Mumbai-400 020
PAN No. AAATT0077C
Appellant .. Respondent
Assessee by .. Mr. Vimal Punami ya,
Mr. Pankaj Jain,
Mr. Bharat Kumar, ARs'
Revenue by .. Shri vishwas Mundhe, DR
Date of hearing .. 05-05-2017
Date of pronouncement .. 17-05-2017
ORDER
PER MAHAVIR SINGH, JM:
These five appeals by the assessee are arising out of the different orders of CIT(A)-1, Mumbai, in appeal No. CIT(A)-I/IT/E-2(131,129,130,13,132)/2015- 16 & 2014-15 dated 07-12-2016. The Assessments were framed by ITO(E)-2-(4) & DDIT(E)-1(2), Mumbai for the A.Ys. 2004-05,2006-07,2009-10,2011-12 vide order dated 30-03-2015, 28-02-2014 & 29-03-2015 u/s 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter 'the Act').
ITA No. 1578, 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Prom otion Council;
AYs:04-05,06-07,09-10,11-12,12-13
2. The first common issue in these five appeals of assessee is against the order of CIT(A) confirming the disallowance made by the AO for disallowance of expenditure out of direct export promotion expenses incurred by the assessee on the ground that it is incurred in foreign exchange outside India and therefore cannot be allowed as an application of income for the purpose of section 11 of the Act. For this assessee has raised following ground No. 1: -
"Ground No.1 The CIT (A) erred in holding that the ITO was right, in disallowing expenditure of Rs.2,93,78,816 out of direct export promotion expenses incurred during the year by the Appellants on the ground that It is incurred in foreign exchange outside India and therefore cannot be allowed as an application for charitable objects in India. The Appellants submit that the said amounts constitute application of income for the purpose of section 11 and pray that the ITO be given suitable directions in the matter to delete the disallowance of Rs. 2,93,78,816 made by him.
'Without prejudice to above, the Appellants submit that the disallowance should be computed after netting off the amounts received towards Trade fairs and BSMs orgainsed outside India in respect of which the above expenditure has been incurred.Ground No. 2
Without prejudice to ground No.1 above, the CIT(A) erred in not appreciating the fact that the trade fair / exhibitions were organized out of the contributions received from the members and the income derived should be net surplus from the said activity. The Appellants submit that the disallowances should be restricted only to the extent the expenditure incurred Page 2 of 16 ITA No. 1578, 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Prom otion Council;
AYs:04-05,06-07,09-10,11-12,12-13 outside India exceeds the contribution received from the members towards trade fair and exhibitions."
3. In all other years' facts and circumstances are exactly identical and grounds raised is also identical worded except the quantum. Accordingly, we will take up the issue for AY 2012-13 in ITA No. 1573/Mum/2017 and will decide the issue.
4. Briefly stated facts are that the assessee is a trust incorporated in 1954 as a company under section 25 of the Indian Companies Act. The assessee trust is also registered under section 12 A of the Act. During the course of assessment proceedings, the AO noticed that the assessee has debited the expenditure of Rs. 3,36,66,868/- as direct export promotion expenses. He also noted that out of these export promotion expenses, a sum of Rs. 2,93,78,816/- is incurred outside India. The AO require the assessee to explain as to why export permission expense of Rs. 2,93,78,816/- incurred outside India should not be disallowed. The assessee before AO claimed that the expenditure although incurred in foreign currency outside India but it was incurred for charitable purpose in India and hence, the same is allowable as per the provisions of Section 11(1)(a) of the Act. It was explained that the Council is engaged in promotion of export of Synthetic and Rayon Textiles of India which is charitable purpose in India and for that purpose it holds expenditure in foreign countries which entails expenditure in foreign currency. It was explained that holding of expenditure in foreign countries is one of the object / integral part of Council export promotion activities but the AO disallowed the expenses by observing in Para 3.1.3 of his assessment order as under: -
"3.1.3 As per the provision, of section, the income is to be applied for charitable purpose, in India. According to the assessee's contention it exists for the promotion of export Whereas the expenditure under the head direct export promotion expenses is Rs. 3,36,67,868/- (1,66,61,384/- + 1,70,06,484/-) out of which, the amount Page 3 of 16 ITA No. 1578, 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Prom otion Council;
AYs:04-05,06-07,09-10,11-12,12-13 of Rs. 2,93,78,816/- (as per audit report FY 2011-12) has been incurred in foreign exchange outside India. This expenditure incurred outside India which cannot be allowed as an application on charitable objects, though in computation, the assessee has claimed it is direct export promotion expenses towards objects of the trust. Under any circumstances, this is not an application of income in India towards export promotion and the contentions of the assessee not being tenable. Therefore, direct promotion expenses incurred outside India of Rs. 2,93,78,816/- is disallowed."
5. Aggrieved, assessee preferred the appeal before CIT(A), who relied on the Delhi High Court decision in the case of DCIT (exemption) vs. National Association of Software and Services Companies (345 ITR 362) confirmed the disallowance by observing in Para 5.2 as under: -
"5.2 I have considered the facts and circumstances of the case, gone through the assessment order of the A.O, the submissions of the appellant and also discussed the case with the A.R of the appellant. The contentions and submissions of the appellant are being discussed and decided here in under:
i. In Ground No. 1 the appellant has disputed disallowance of expenditure on account of direct export promotion incurred outside India. Appellant in the submission has relied upon the orders of Hon. ITAT in its own case for A.Y. 1993-94 dated 5.5.2003 and A.Y. 1997-98 dated 11.02.2004. However, on perusal of these orders it is noted that the judgement of Hon. Delhi High Court in the case of DIT vs. NASSCOM dated 10.5.2012 being of a later date and Hon. Supreme Court in H.E.H Nizam Religious Endowment Page 4 of 16 ITA No. 1578, 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Prom otion Council;
AYs:04-05,06-07,09-10,11-12,12-13 Trust vs. CIT 59 ITR 582 were not considered by Hon, ITAT as mentioned by CIT(A) in his order dated 30.7.2012 for A.Y 2004-05.This contention of the appellant is therefore, not acceptable.
ii. Further it would be relevant to mention here that application of income as well as charitable purpose, both, should be in India. It can not be the case that charitable purpose should be confined to India and execution of charitable purpose may be inside or outside India. This position is held by Hon'ble Delhi High Court in the case of Director of Income- tax (Exemption) Vs National Association of Software and Services Companies (345 ITR 362) wherein while dealing with a similar issue it was observed as under:
""The assesses contention that the words 'to the extent to which such income is applied to such purposes in India' appearing to section 11(1)(a) only require that the charitable purposes should be 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 Page 5 of 16 ITA No. 1578, 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Prom otion Council;
AYs:04-05,06-07,09-10,11-12,12-13 applied to charitable purposes. The answer to the third question will be applied in India. Thus even grammatically speaking it seems 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 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 submission of the assessee that the words 'in India' qualify only the words 'such purposes' so that only the purposes are geographically confined to India does not 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 Page 6 of 16 ITA No. 1578, 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Prom otion Council;
AYs:04-05,06-07,09-10,11-12,12-13 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. 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"
In view of the facts and legal position as discussed above, contention of the appellant is not acceptable.
iii. Ground of appeal No.1 is accordingly dismissed."
Aggrieved against the confirmation of disallowance of expenses, assessee came in second appeal before us.
6. Before us the learned Counsel for the assessee argued that the issue is covered by co-ordinate Bench of Mumbai Tribunal in assessee's own case for AY 1993-94 in ITA No. 5884/Mum/1997 order dated 05-05-2003 wherein, the issue is dealt as under: -
"4. Ground No. 2 reads as under: -
On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the Assessing Officer to allow the amount of Rs. 35,88720/- as business expenditure whereas the same represents application of income outside India and the assessee itself has treated Page 7 of 16 ITA No. 1578, 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Prom otion Council;
AYs:04-05,06-07,09-10,11-12,12-13 the same as application of income, which, being outside India, is not eligible for exemption under section 11.
5. The Assessing Officer held that expenses incurred outside India to the extent of Rs. 35,88,720/- can not be disallowed because only expenditure incurred in India on charitable objects is allowable. The ld. CIT(A) allowed the assessee's claim by holding that allowable expenditure can be incurred outside India if the object of charity is located in India.
6. Before us, the led. DR relied upon the decision of the Hon'ble Andhra Pradsh Trust v. CWT, 171 ITR 323 for the proposition that the expenditure incurred abroad could not be allowed under section 11 of the Income Tax Act 1961. The learned authorized representatives for the assessee relied upon the decision of the ITAT Mumbai Bench 'A' in the case of Gem and Jewellery Export Promotion Council vs. 6th ITO 68 ITD 95 support of the proposition that where expenditure is incurred out of India for promoting charitable purposes in India deduction is allowable under section 11.
6. We have considered the rival submissions.
Apparently, the decision of the Hon'ble AP High Court relied upon by the ld. DR related to a case where both expenditure and charitable objects were outside India. We would respectfully follow the decision of the ITAT, Mumbai Bench 'A' outside India is entitled to deduction under section 11 if such expenditure is for charitable purposes in India. We see no reason to interfere with the order of the CIT(A)."
7. This decision was further followed by Tribunal in AY 1997-98 in ITA No. 4150/Mum/2000 order dated 11-02-2004 and further, in AY 2007-08 and 2008-09 in ITA No. 6639 and 6640/Mum/2011 order dated 12-09-2012. The Page 8 of 16 ITA No. 1578, 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Prom otion Council;
AYs:04-05,06-07,09-10,11-12,12-13 learned Counsel for the assessee also relied on the decision of Tribunal for AY 1993-94 taken by Revenue before Hon'ble Bombay High Court and the Hon'ble Bombay High Court in Income Tax Appeal No. 518 of 2004 dismissed the appeal of Revenue for non-appearance of the parties vide order dated 12-06-2007 and similarly for AY 1997-98 also Revenue appeals are dismissed for default.
8. On the other hand, the learned Sr. DR supported the orders of the CIT(A) and also relied on the decision of Hon'ble Delhi High Court in the case of National Association of Software and Services Companies (supra).
9. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that this issue is covered in favour of assessee by the Tribunals decision consistently from the AY 1993-94, 1997-98, 2007-08 and 2008-09 in assessee's own case. Even Hon'ble Bombay High Court has dismissed the Revenue's appeal although for non-attendance by the department. In the present order also there is no change in law and facts of the case and hence, the Hon'ble Bombay High Court in the similar circumstances taking the principle consistency in the case of Madhukar C. Ashar vs. Union of India (2016) 239 Taxman 367 (Bom) held as under: -
"6. We find that the impugned order of the Commissioner of Income completely ignores the past practice accepted by the Revenue in orders passed under Section 143(3) of the Act taxing the income of the AOP on allocation in the hands of its individual members. Nothing is indicated in the impugned order to show that there has been any change either in facts or in law, which would warrant taking a different view from that taken by the Assessing Officer from the A.Y. 2005-06 onwards. Although the principle of res judicata may not specifically apply, yet where a fundamental aspect running through various Assessment Years is subject of consideration then as held by the Apex Court in Radhasoami Satsang v. CIT [1992] 60 Taxman 248, the same approach be adopted in the Page 9 of 16 ITA No. 1578, 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Prom otion Council;
AYs:04-05,06-07,09-10,11-12,12-13 absence of change in facts and law. Further, in Bharat Sanchar Nigam Ltd. v. Union of India [2006] 282 ITR 273 the Apex Court held that though the principle of res judicata would not apply to tax matters as cause of action for each assessment year is different / distinct, yet in case there is no change in the factual position or the law, the views expressed in one year are binding for the subsequent years. This on the principle of consistency. Therefore, if the impugned order wants to depart from the consistent view taken earlier, it must so justify. Moreover, the impugned order also completely ignores the fact that there has been no change amongst the members of AOP as existing since A.Y. 2006-07 till date. The assessment order for A.Y. 2006-07 and orders subsequent thereto do reflect a determinate share being attributed to each of the members of the AOP. This submission has not even been adverted to in the impugned order while proceeding to hold that the shares of the individual members of the AOP are not determinate. Thus, the impugned order is in breach of natural justice being a non-speaking order."
10. Respectfully, following the co-ordinate Bench decision in assessee's own case and following principle of consistency we allow this issue of assessee's appeal.
11. Similarly, issue is raised by assessee in other years in ITA No. 1578/Mum/2017 for the AY 2004-05, in ITA No. 1577/Mum/2017 for AY 2006- 07, ITA No. 1576/Mum/2017 for AY 2009-10 and in ITA No. 1575/Mum/2017 for AY 2011-12. In all these years, the facts and circumstances are exactly identical; hence, taking a consistent view, we allow this ground of all the years.
12. The next issue in ITA No. 1573/Mum/2017 for the AY 2012-13 is regards to the order of CIT(A) in treating the contribution received from members for trade fair and exhibition. For this assessee has raised ground No. 3. For all other Page 10 of 16 ITA No. 1578, 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Prom otion Council;
AYs:04-05,06-07,09-10,11-12,12-13 years, the assessee raised identical worded grounds and facts and circumstances are exactly identical and hence we take the facts from this AY and will decide the issue. Ground No.3 reads as under: -
"Ground No.3 The CIT(A) erred in not adjudicating the Appellants Ground No.3 regarding claim of mutuality in respect of membership subscription and registration fees are in the nature of mutual receipt and therefore should be excluded on the principle of mutuality."
13. Brief facts relating to this issue are that the AO during the course of assessment proceedings found that the assessee has claimed membership subscription and registration fee for membership amounting to Rs. 2,35,74,044/- was claimed as exempt but the AO disallowed the claim of exemption by observing in Para 3.2.4 as under: -
"3.2.4 On the issue of whether in the given circumstances, the body constitutes a mutual association or mutual association becomes relevant in case of trade a trade association. If the benefit of a trade association is confined to a member who contribute to such association, it could be a mutual association. However, if the benefit of the public or section of public, then such trade association ceases to be mutual association and it becomes a charitable association. For example, in case of Ahmedabad Mill Owners Association, a member association whose benefit was confined to specific individual who formed an association was not considered a charitable association by the Supreme Court and other conditions having been fulfilled, the same would constitute a mutual association. As against that in case of various Chambers, Trade Associations though there is a membership of such association as the benefit goes to the Page 11 of 16 ITA No. 1578, 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Prom otion Council;
AYs:04-05,06-07,09-10,11-12,12-13 industry as a whole and not confined to the members of such association they are not mutual associations, but they are charitable associations. As such, many of the trade associations though there is membership, the benefit of such Association is to go to the trade as a whole, which itself constitutes a section of the public. Such association will be charitable association and not a mutual association. "
Aggrieved assessee preferred the appeal before CIT(A), who also confirmed the action of the AO. Aggrieved, assessee came in second appeal before Tribunal.
14. At the outset, the learned counsel for the assessee stated that the issue is covered by co-ordinate Bench of Mumbai Tribunal in assessee's own case for AY 1993-94 in ITA No. 5884/Mum/1997 order dated 05-05-2003 wherein, in Para 2 to 3, the issue is dealt as under: -
"2. The first grounds of appeal read as under: -
"On the facts and in the circumstances of the case and in law the ld. CIT(A) erred in holding that entrance fees and subscription amount was not taxable.
3. The assessee is a Council incorporated as a Company under the Indian Companies Act, 1913 and is limited by guarantee. The main object of the Council is to promote export of synthetic and rayon textiles. Major sources of the assessee's income are entrance fees and subscription paid by the members and grant-in-aid received from the Central Government. The learned Assessing Officer held that entrance fees received from members were assessee's revenue receipt and could not be excluded from assessee's income on principles of mutuality. For doing so, he relied upon the decision of the Hon'ble Bombay High Court in the case of W.I.A.A Club Ltd., 136 ITR 982. In first appeal, the ld. CIT(A) Page 12 of 16 ITA No. 1578, 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Prom otion Council;
AYs:04-05,06-07,09-10,11-12,12-13 held that the ratio of the said decision of the Hon'ble Bombay High court was not applicable to the facts of the present case and subscription and entrance fees were capital receipts and were exempt from tax.
2. Before us, the ld. DR contended that subscription fees and entrance fees were includible in assessee's receipt and were exempt from tax only to the extent they were utilized for the objects of the assessee's council. The ld. Authorized representative drew our attention to the order of the ITAT, Mumbai Bench 'C' dt. 15.10.1992, in the case of ITO vs. The Cotton Textiles Export Promotion Council, wherein the ITAT held that entrances fees should be treated as capital receipt and not assessee's income. It was stated that the constitution and the objects of the assessee Council were similar to those of the Cotton Textiles Export Corporation Council and hence, the decision of the ITAT in the said case ought to apply to the present case. Reliance was also placed on the decision of the Hon'ble Jurisdictional High Court in the case of Trustees of Shrikot Hindstree Mandal vs. CIT, 209 ITR 396 in support of the plea that the entrance fees are exempt from tax.
3. We have considered the rival submissions. We find that as per page 2 of the assessment order, an amount of Rs. 51,32,000/- received as subscriptions from members have been treated by the assessee as its income and exemption have been claimed to the extent they are applied to the objects of the Council. The controversy is thus restricted only to the entrance fees amounting to Rs. 2,74,000/-. On careful consideration of the facts of the case, we see no reason as to why we should take a view different from that of the ITAT, Mumbai Bench C in the case of Cotton Textiles Export Promotion Council, Page 13 of 16 ITA No. 1578, 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Prom otion Council;
AYs:04-05,06-07,09-10,11-12,12-13 wherein, entrance fees were treated as capital receipt. We would respectfully, follow the said decision and confirm the order of the CIT(A) in the matter of entrance fees. Thus, an amount of Rs. 2,74,000/- shall be treated as assessee's capital receipts and not income for the purpose of section 11."
15. This decision was further followed by Tribunal in AY 1997-98 in ITA No. 4150/Mum/2000 order dated 11-02-2004 and further, in AY 2007-08 and 2008-09 in ITA No. 6639 and 6640/Mum/2011 order dated 12-09-2012. The learned Counsel for the assessee also the decision of Tribunal for AY 1993-94 taken by Revenue before Hon'ble Bombay High Court and the Hon'ble Bombay High Court in Income Tax Appeal No. 518 of 2004 dismissed the appeal of Revenue for non-appearance of the parties vide order dated 12-06-2007 and similarly for AY 1997-98 also Revenue appeals are dismissed for default.
16. On the other hand, the learned Sr. DR supported the orders of the CIT(A).
17. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that this issue is covered in favour of assessee by the Tribunals decision consistently from the AY 1993-94, 1997-98, 2007-08 and 2008-09 in assessee's own case. Even Hon'ble Bombay High Court has dismissed the Revenue's appeal although for non-attendance by the department. In the present order also there is no change in law and facts of the case and hence, the Hon'ble Bombay High Court in the similar circumstances taking the principle consistency in the case of Madhukar C. Ashar (supra) exactly on same facts allow the claim of the assessee.
18. Respectfully, following the co-ordinate Bench decision in assessee's own case and following principle of consistency we allow this issue of assessee's appeal.
19. Similarly, this issue is raised by assessee in other years in ITA No. 1578/Mum/2017 for the AY 2004-05, in ITA No. 1577/Mum/2017 for AY 2006- Page 14 of 16 ITA No. 1578, 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Prom otion Council;
AYs:04-05,06-07,09-10,11-12,12-13 07, ITA No. 1576/Mum/2017 for AY 2009-10 and in ITA No. 1575/Mum/2017 for AY 2011-12. In all these years, the facts and circumstances are exactly identical; hence, taking a consistent view, we allow this ground of all the years.
20. In the result, all the five appeals of the assessee are allowed.
Order pronounced in the open court on 17-05-2017.
Sd/- Sd/-
(MANOJ KUMAR AGGARWAL) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 17-05-2017
Sudip Sarkar /Sr.PS
Page 15 of 16
ITA No. 1578, 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Prom otion Council;
AYs:04-05,06-07,09-10,11-12,12-13 Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file. //True Copy// BY ORDER, Assistant Registrar ITAT, MUMBAI Page 16 of 16