To qualify for exemption u/s. 11 (10) (a)- claim of expenses & application of income should be confined to India

Income Tax Appellate Tribunal, Delhi 

India Brand Equity Foundation vs. Assistant Commissioner of Income Tax (E) 

Issues: 

(a) Whether the expenditure incurred outside India on events and activities held outside India could qualify for exemption under section 11(10)(a) of the Income Tax Act, 1961?

(b) Whether the amount spent by the assessee-trust in Hannover, Germany could be considered as application of the income of the trust in India for charitable purposes?

Relevant Extract:

Tribunal Held as under,-

8. We have heard both the sides, considered the material on record as well as case laws cited. It is not in dispute that amount of Rs. 1,95,26,116/- was spent for participating in Hannover Fair held in Germany and for such participation, Steering Committee under the chairmanship of Commerce Secretary was constituted and modalities of participation was decided by the Organizing Committee under the Chairmanship of Additional Secretary, Ministry of Commerce & Industry, and as stated, the entire control was with the Ministry. The roles of Indian Brand Equity Foundation and Engineering Export Promotion were decided by the Organizing Committee which was chaleked out by the Ministry IBEF and they had no free control over the event. IBEF was participating as agent for the Ministry. For the purpose of participation in fair, Ministry of Commerce & Industry directed its sponsored body Engineering Export Promotion Council to transfer Rs. 3 crores to the assessee trust for setting up Indian pavilion in the fair as a partner country. However, a sum of Rs. 1,95,26,116/- was spent for participating in Hannover Fair held in Germany and has been treated as falling in the mischief of section 11(1) by Assessing Officer whose action has been confirmed in first appeal.

9. Now, it is to be seen that the words "to the extent to the which such income is applied to such purposes in India" appearing in section 11(1)(a) of the Act only require that the charitable purposes should be confined to India on the application of the income of the trust to the execution of such purposes can be outside India, appears to us to be also opposed to the natural and grammatical meaning that can be ascribed to the words. The word "applied" is a verb used in past tense. In the provision, it is used in the transitive form because it is followed by the words "to such purposes in India". It answers three questions which would arise in the mind of the reader: apply what? applied to what? and where? The answers would then make the meaning obvious. The answer to the first question would be : apply the income of the trust. The answer to the second question will be : applied to charitable purposes. The answer to the third question will be: applied in India. Thus even grammatically speaking it seems to us that the group of words "to such purposes in India" qualifies the preceding verb "applied". It is a case of a verb being qualified by two prepositions which follow, viz., "to" and 'in'. So read, it seems clear to us that grammatically also it would be proper to understand requirement of the provision in this way, that is, that the income of the trust should be applied not only to charitable purposes, but also applied in India to such purposes. The submissions of Ld. Counsel that the words "in India" qualify only the words "such purposes" so that only the purposes are geographically confirmed to India does not appear to us to be the natural and grammatical way of construing the provision. That would break or clog the natural flow of the entire group of words "to the extent to which such income is applied to such purposes in India". The meaning sought to be attached by Ld. Counsel to the words "in India" as qualifying only the 'purposes' places a strain on the natural or grammatical interpretation of the group of words. If what Ld. Counsel contends is correct, then section 11(1)(c) may become redundant and otiose. If as he says, the income of the trust can be applied even outside India so long as the charitable purposes are in India, then there is no need for a trust which tends to promote international welfare in which India is interested and which was created after 1.4.1952 to apply to the CBDT for a general or special order directing that the income to the extent to which it is applied to the promotion of international welfare outside India shall not be denied the exemption, nor would it be necessary for a charitable or religious trust created before the aforesaid date to seek such an order from CBDT in respect of its income which is applied to charitable or religious purposes outside India. In our opinion, therefore, the words "in India" appearing in section 11(1)(a) and the words "outside India" appearing in section 11(1)(c) of the Act qualify the verb "applied appearing in these provisions and not the words "such purposes."

10. In the light of above discussion and carefully considering the relevant provisions of law, we are of the opinion that disallowance of the amount of Rs. 1,95,26,116/-incurred by the assessee on account of amounts spent outside India for participating in Hannover Fair in Germany during the year under consideration cannot be treated as application of income of the trust to the execution of such purpose. Hence, in our view, disallowance in this regard could validly be made. Our view is fortified by the decision of the jurisdictional Delhi High Court in the case of DIT v. National Association of Software in I.T.A. No. 17/2011 etc. vide order dated 10.05.2012, in which it was observed as per paras.31 & 43 as under:

"31. We, therefore, hold that the amount of Rs. 38,29,535/- spent by the assessee-trust in Hannover, Germany cannot be considered as application of the income of the trust in India for charitable purposes. The substantial question of law is thus answered in favour of the assessee insofar as the payment of taxes under the VDIS is concerned and in favour of the Revenue insofar as the expenditure incurred outside India (Germany) is concerned.

43. We now turn to the assessment year 2006-07, I.T.A. No.518/2011 arises out of I.T.A. No. 4468/Del./2009 in the file of the Tribunal which was an appeal by the assessee. Before the Tribunal the assessee had taken only one issue in appeal, namely, whether the expenditure of Rs. 1,70,85,034/- incurred outside India on events and activities held outside India did not qualify for exemption under section 11(10)(a) of the Act. In line with our earlier decision, the substantial question of law arising from this issue is decided in favour of the Revenue and against the assessee."

Therefore, action of authorities below allowing the claim of the assessee is justified and proper. As such, while confirming the amount of disallowance, we dismiss this ground of appeal of the assessee.