Indo-French Centre for the Promotion of Advanced Research, New Delhi V. ADIT, New Delhi

ITA 1370/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0702 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 20-12-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 29-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order
• Section: 12A; 263; 11

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C NEW DELHI) BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI K.G . BANSAL, ACCOUNTANT MEMBER ITA. NO.1370/D/2010 ASSESSMENT YEAR : 2005-06 INDO-FRENCH CENTRE FOR THE PROMOTION VS. ASSTT. DIRECTOR OF OF ADVANCED RESEARCH, 5-B, GROUND INCOME TAX ( E), FLOOR, INDIAN HABITAT CENTER, LODHI ROAD, TRUST CIRCLE-IV, NEW DELHI-3 NEW DELHI PAN NO.AAAT0155Q (APPELLANT) (RESPONDENT) APPELLANT BY :S/SHRI S.D. KAPILA, R.R. MAURYA, AN D MISS. CHARU KAPOOR, ADVOCATES RESPONDENT BY: SMT. REENA SINHA PURI, CIT-DR ORDER PER K.G. BANSAL: AM: THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER O F CIT(A)-XXI, NEW DELHI, PASSED ON 28.01.2010 IN APPEA L NO.222/07-08, PERTAINING TO ASSESSMENT YEAR 2005-0 6. THE ASSESSEE HAS TAKEN UP EIGHT SUBSTANTIVE GROUNDS IN THE APPEAL. HOWEVER, DURING THE COURSE OF HEARING BEFO RE US, THE LEARNED COUNSEL FOR THE ASSESSEE EXPLAINED THAT ONLY GROUND NO.1 IS MATERIAL FOR DECIDING THE APPEAL. T HIS GROUND IS THAT THE LEARNED CIT(A)-XXI, NEW DELHI, ERRED ON FACTS AND IN LAW IN SUSTAINING THE ADDITION OF `7,27,36,413/- U/S 11(1)(A) OF THE INCOME-TAX ACT, 1961, MADE BY THE A DDITIONAL 1370-2010 2 DIRECTOR OF INCOME-TAX (EXEMPTIONS), NEW DELHI (THE ASSESSING OFFICER). 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE-SOC IETY FILED ITS RETURN ON 29.10.2005 DECLARING NIL INCOME . THE CASE WAS SELECTED FOR SCRUTINY. IT WAS FOUND THAT THE A SSESSEE IS A SOCIETY REGISTERED UNDER SOCIETIES REGISTRATION ACT . THE ASSESSEE IS ALSO REGISTERED U/S 12A OF THE ACT W.E. F. 01.04.2003. THE MAIN OBJECT OF THE ASSESSEE IS TO PROMOTE CO-OPERATION BETWEEN INDIA AND FRANCE IN ADVANCED A REAS OF FUNDAMENTAL AND APPLIED SCIENTIFIC RESEARCH AND TO DEVELOP CO-OPERATION BY IDENTIFYING SCIENTISTS AND SCIENTIF IC INSTITUTIONS OF THE TWO COUNTRIES. THE ASSESSEE SH OWED RECEIPTS OF `14,80,79,592/- AND EXPENDITURE BY WAY OF APPLICATION OF INCOME AT `14,48,53,630/-. THE EXCE SS OF INCOME OVER EXPENDITURE AMOUNTING TO `31,26,962/- H AS BEEN CARRIED OVER TO THE BALANCE SHEET. ON EXAMINA TION OF RECORD, IT WAS FOUND THAT AN EXPENDITURE OF `7,27,3 6,413/- WAS INCURRED IN FRANCE, THE DETAILS OF WHICH ARE FU RNISHED ON PAGE NO.2 OF THE ORDER. THE ASSESSEE WAS REQUIRED TO STATE WHY THE EXPENDITURE SHOULD NOT BE DISALLOWED FOR TH E REASON THAT APPLICATION OF INCOME IN INDIA ONLY IS TO BE D EDUCTED FROM THE INCOME U/S 11(1)(A) OF THE ACT. IT WAS SU BMITTED THAT THE ASSESSEE HAS BEEN CARRYING OUT THE ACTIVIT IES OF RESEARCH WORK. THESE ACTIVITIES ARE CARRIED OUT IN GOVERNMENT EDUCATIONAL INSTITUTIONS SUCH AS IIT, UN IVERSITIES ETC. THE RESEARCH PROJECTS ARE APPROVED BY THE GOV ERNMENT 1370-2010 3 OF INDIA. ON COMPLETION OF THE RESEARCH, A REPORT IS PLACED BEFORE THE NOMINEE OF THE GOVERNMENT OF INDIA. THE EXPENDITURE OF ABOUT `7.27 CRORES HAS BEEN INCURRED IN FRANCE IN EURO CURRENCY. THE EXPENDITURE HAS BEEN INCURRED AS PER AGREEMENT WITH THE FRENCH GOVERNMENT, WHICH HAS BEEN APPROVED BY THE INDIAN GOVERNMENT. THE MONEY WAS RECEIVED FROM THE FRENCH GOVERNMENT AND AFTER INCUR RING THE AFORESAID EXPENDITURE, THE BALANCE AMOUNT WAS R EMITTED TO INDIA. SUCH AMOUNT HAS BEEN UTILIZED IN INDIA F OR RESEARCH WORK. THEREFORE, THE EXPENDITURE OF ABOUT `7.27 CR ORES HAS BEEN MADE FROM THE FUNDS WHICH WERE RECEIVED OUTSID E INDIA. ACCORDINGLY, THERE IS NO REASON TO DISALLOW THIS EXPENDITURE. THE ASSESSING OFFICER CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE HIM. IT HAS B EEN HELD THAT THE ACCOUNTS OF THE ASSESSEE-SOCIETY IN RESPEC T OF RECEIPT OF EXPENDITURE IN INDIA AND FRANCE HAVE BEE N MERGED. IN ANY CASE, THE ASSESSEE IS THE SAME. TH EREFORE, NO DISTINCTION CAN BE MADE BETWEEN RECEIPTS IN INDI A AND RECEIPTS OUTSIDE INDIA, BOTH OF WHICH CONSTITUTE TH E INCOME OF THE ASSESSEE DERIVED FROM PROPERTY HELD UNDER TRUST . SECTION 11 (1)(A) PERMITS THE DEDUCTION OF EXPENDIT URE TO THE EXTENT TO WHICH INCOME IS APPLIED TOWARDS THE OBJEC TS IN INDIA. SECTION 11(1)(C)(I) PERMITS THE DEDUCTION O F THE EXPENDITURE WHICH TENDS TO PROMOTE INTERNATIONAL WE LFARE IN WHICH INDIA IS INTERESTED PROVIDED THAT THE BOARD B Y GENERAL OR SPECIAL ORDER, HAS DIRECTED THAT IT SHALL NOT BE INCLUDED IN 1370-2010 4 THE TOTAL INCOME OF THE PERSON IN RECEIPT OF SUCH I NCOME. THERE IS NO GENERAL OR SPECIAL ORDER OF THE BOARD I N THE CASE OF THE ASSESSEE. THEREFORE, THE DEDUCTION WAS DENI ED. THE TOTAL INCOME WAS COMPUTED AT `5,37,51,436/- AS UNDE R:- TOTAL INCOME AS PER INCOME & EXPENDITURE ACCOUNT: 14,80,79,592/- LESS: 15% OF INCOME 2,22,11,939/- 12,58,67,653/- LESS: CLAIM OF APPLICATION AS PER INCOME & EXP. A/C 14,48,52,630/- LESS: DISALLOWANCE AS PER DISCUSSION: 7,27,36,413/- AMOUNT ALLOWED AS APPLICATION 7,21,17,217/- TAXABLE INCOME: 5,37,51,436/- 2.1 AGGRIEVED BY THIS ORDER, THE ASSESSEE MOVED AN APPEAL BEFORE THE LEARNED CIT(A). AS MENTIONED EAR LIER, THE APPEAL WAS DISPOSED OFF ON 28.01.2010. THE LEARNED CIT(A) DISMISSED THE GROUND OF THE ASSESSEE BY INTER ALIA MENTIONING THAT:- (I) THE ASSESSEE IS A RESIDENT IN INDIA AS ITS CONTROL AND MANAGEMENT OR NOT WHOLLY OR SUBSTANTIALLY LOCATED OUTSIDE INDIA; (II) THE INCOME OF A RESIDENT PERSONS INCLUDES ANY INCOME FROM WHATEVER SOURCE DERIVED AND, THEREFORE, THE GRANTS RECEIVED FROM THE FRENCH GOVERNMENT ARE INCLUDIBLE IN THE TOTAL INCOME UNDER THE ACT; 1370-2010 5 (III) THE ASSESSEE IS OPERATING A BANK ACCOUNT IN FRANCE THROUGH AN AUTHORIZED PERSON; (IV) THE ASSESSEE IS RECEIVING FUNDS IN INDIA BY WAY OF REPATRIATION FROM THE AFORESAID ACCOUNT; AND (V) THE INCOME IS NOT ELIGIBLE FOR DEDUCTION U/S 11(1)(A) AS THE AMOUNT HAS NOT BEEN APPLIED TOWARDS THE OBJECTS IN INDIA. 3. BEFORE US, THE LEARNED COUNSEL SUBMITTED BACKGROUND FACTS THAT THE SOCIETY WAS JOINTLY SET U P BY THE GOVERNMENT OF INDIA AND THE GOVERNMENT OF FRANCE, H AVING EQUAL CONTROL. THE SOCIETY IS REGISTERED UNDER THE SOCIETIES REGISTRATION ACT AND ALSO UNDER THE I.T. ACT. THE MAIN OBJECT OF THE SOCIETY IS TO MAKE FUNDS AVAILABLE FOR RESEA RCH IN THE FIELDS OF PURE AND APPLIED SCIENCES. HALF OF THE P ROJECTS ARE EXECUTED IN FRANCE AND HALF OF THE PROJECTS ARE EXE CUTED IN INDIA. EACH PROJECT IS CARRIED OUT BY ONE FRENCH S CIENTIST AND ONE INDIAN SCIENTIST. THE ASSESSEE HAS BEEN APPROV ED U/S 35(1)(II) FOR AND UPTO ASSESSMENT YEAR 2004-05, THU S, CONFERRING THE BENEFIT OF SECTION 10(21) ON IT. TH IS BENEFIT WAS NOT AVAILABLE AND, THEREFORE, IT APPLIED FOR TH E REGISTRATION TO THE CIT, WHICH GRANTED W.E.F. 01.04 .2003. AS THE ASSESSEE HAS BEEN CARRYING OUT RESEARCH WORK IN FRANCE ALSO AND EXPENDITURE OF ABOUT `7.27 CRORES WAS INCU RRED IN THAT COUNTRY IN THIS YEAR. THE MAIN OBJECTION OF T HE LOWER AUTHORITIES IN NOT ALLOWING THE DEDUCTION OF THIS E XPENDITURE IS THAT APPROVAL HAS NOT BEEN GRANTED BY THE BOARD TO INCUR 1370-2010 6 EXPENDITURE OUTSIDE INDIA, AS REQUIRED UNDER PROVIS O TO SECTION 11(1)(C). SUCH APPROVAL HAS NOW BEEN OBTAI NED VIDE BOARD F NO.180/06/09-INCOME-TAX ACT-I(PT.) DATED 12.10.2010, A COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK ON PAGE NO.2. THEREFORE, IT IS AGITATED THAT THE DEDUCTION OF EXPENDITURE MAY BE ALLOWED AS THE COND ITIONS PRESCRIBED U/S 11(1)(C) STANDS FULLY SATISFIED. FO R THE SAKE OF READY REFERENCE, THE ORDER IS REPRODUCED BELOW:- IN EXERCISE OF THE POWERS CONFERRED BY PROVISO TO CLAUSE (C) OF SUB-SECTION (1) OF SECTION 11 OF THE INCOME-TAX ACT, 1961 (43 OF 1961), THE CENTRAL BOARD OF DIRECT TAXES HEREBY DIRECTS THAT THE INCOME DERIVED FROM PROPERTY HELD UNDER THE TRUST KNOWN AS INDO-FRENCH CENTRE FOR THE PROMOTION OF ADVANCED RESEARCH, NEW DELHI SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE PERSONS IN RECEIPT OF SUCH INCOME TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED IN ACCORDANCE WITH THE OBJECTS OF THE INDO-FRENCH CENTRE FOR THE PROMOTION OF ADVANCED RESEARCH, NEW DELHI. THIS ORDER SHALL HAVE EFFECT FOR THE PERIOD COVERED BY THE ASSESSMENT YEAR 2005-06 TO 2009- 10. THE CLAIM AS ABOVE OF THE APPLICANT REGARDING THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES OUTSIDE INDIA WILL BE SUBJECT TO VERIFICATION DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS PER THE INCOME-TAX ACT, 1961. 3.1 IN REPLY, THE LEARNED CIT-DR SUBMITTED THAT TH E BOARD ORDER SPECIFICALLY STATES THAT THE CLAIM REGA RDING THE EXPENDITURE TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES OUTSIDE INDIA WILL BE SUBJECT TO VERIFICAT ION DURING 1370-2010 7 THE COURSE OF ASSESSMENT PROCEEDINGS. THE DEDUCTIO N WAS DENIED PURELY ON A LEGAL GROUND AND WITHOUT VERIFYI NG THE FACT WHETHER THE EXPENDITURE HAS BEEN ACTUALLY INCU RRED TOWARDS AUTHORIZED PURPOSES OUTSIDE INDIA. THEREFO RE, WHILE SHE HAD NO OBJECTION TO RECORDING A FINDING THAT TH E ASSESSEE IS ENTITLED TO DEDUCTION U/S 11(1)(C), IT HAS ALSO BEEN SUBMITTED THAT THE MATTER REGARDING VERIFICATION OF ACTUAL EXPENDITURE MAY BE RESTORED TO THE FILE OF THE ASSE SSING OFFICER. 3.2 IN THE REJOINDER, THE LEARNED COUNSEL SUBMITTE D THAT THE FACT OF VERIFICATION CAN BE DISCERNED FROM THE ASSESSMENT ORDER AS THE ASSESSING OFFICER HAS NOT O NLY FURNISHED BREAK UP OF THE AMOUNT OF EXPENDITURE BUT ALSO THE NATURE OF THE EXPENDITURE UNDER VARIOUS HEADS. THE REFORE, THERE IS NO NEED TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER. AT THIS STATE, IT MAY BE USEFUL TO REPRODUCE THE DETAILS OF THE EXPENDITURE MENTIONED ON PAGE NO.2 OF THE ASSESSMENT ORDER: S.NO. NATURE OF EXPENSES AMOUNT (`) 1 RESEARCH PROJECT 5,81,60,092/ - 2. INDUSTRIAL RESEARCH 69,07,118/ - 3. SEMINAR AND WORK SHOP 33,35,439/ - 4. SHORT VISIT OF SCIENTISTS 1,67,000/ - 5. INDO FRENCH QUIZ 3,85,892/ - 6. GOVERNING BODY EXPENSES. 37,80,872/ - TOTAL 7,27,36,413/ - 4. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. WE FIND THAT THE FUNDA MENTAL QUESTION REGARDING APPLICABILITY OF THE PROVISION C ONTAINED IN 1370-2010 8 SECTION 11(1)(C) DOES NOT SURVIVE IN VIEW OF THE BO ARD ORDER DATED 12.10.2010. THIS HAS ALSO BEEN FAIRLY ADMITT ED BY THE LEARNED DR. HOWEVER, SHE POINTED OUT THAT THE ORDE R IS SUBJECT TO VERIFICATION OF THE EXPENDITURE IN THE C OURSE OF ASSESSMENT PROCEEDINGS AS THE BOARD ORDER HAS BEEN PASSED AFTER PASSING OF THE ASSESSMENT ORDER AS WEL L AS THE IMPUGNED ORDER. THEREFORE, IT WILL BE NECESSARY TO VERIFY THE EXPENDITURE FOR GETTING THE DEDUCTION IN TERMS OF T HE CONDITION MENTIONED THEREIN. THE CASE OF THE LEARNE D COUNSEL IS THAT THE VERIFICATION HAS BEEN DONE BY T HE ASSESSING OFFICER AS HE HAS MENTIONED THE DETAILS O F THE EXPENDITURE IN RUPEE TERMS UNDER VARIOUS SUB HEADS. THE EXPENDITURE WAS INCURRED IN EURO AND ON THE BASIS O F THE DETAILS FILED, THE ASSESSING OFFICER QUANTIFIED THE FRENCH EXPENDITURE AT ABOUT `7.27 CRORES. THEREFORE, IT I S CLEAR THAT THE VERIFICATION HAS BEEN MADE. ON THE OTHER HAND , THE CASE OF THE LEARNED DR IS THAT NO SUCH VERIFICATION HAS BEEN CARRIED OUT BY THE ASSESSING OFFICER. THE BREAK UP OF THE EXPENDITURE AND QUANTIFICATION OF THE TOTAL EXPENDI TURE INCURRED IN FRANCE HAS BEEN MENTIONED IN THE ASSESS MENT ORDER ON THE BASIS OF FIGURES SUPPLIED BY THE ASSES SEE AND APPLYING CONVERSION RATE FOR THE PURPOSE OF STATING THE EXPENDITURE UNDER VARIOUS HEADS IN RUPEE TERMS. 4.1 WE HAVE CONSIDERED THIS MATTER ALSO. WE FIND THAT FURNISHING OF THE AMOUNTS OF EXPENDITURE UNDER VARI OUS SUB- HEADS DOES RAISE THE INFERENCE THAT THE ASSESSING O FFICER HAS 1370-2010 9 LOOKED INTO THE EXPENDITURE. IT IS ANOTHER MATTER THAT THERE MAY HAVE BEEN NO VERIFICATION BY EXAMINING THE VOUC HERS AND THE BILLS. BUT THAT DOES NOT MEAN THAT VERIFIC ATION HAS NOT BEEN MADE. THE JURISDICTION FOR VERIFYING THE CORRECTNESS ETC. OF THE BOOKS ARISE FROM ISSUANCE OF NOTICE U/S 143(2). SUCH A JURISDICTION CANNOT BE CONFERRED OR TAKEN AW AY BY AN ORDER UNDER SOME OF THE PROVISION PASSED BY ANY OTH ER I.T. AUTHORITY. FURTHER, WE ARE NOT DEALING WITH AN APP EAL ARISING FROM AN ORDER PASSED U/S 263 IN WHICH LACK OF REQUI SITE VERIFICATION MAY RENDER THE ORDER TO BE ERRONEOUS A ND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THERE FORE, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER HAD JURISDIC TION DE HORS THE BOARD ORDER AND HE CARRIED OUT VERIFICATION AS THOUGHT FIT BY HIM. HAVING SATISFIED HIMSELF WITH THE INCURRIN G OF THE EXPENDITURE, THE ISSUE REGARDING ACTUAL INCURRING O F THE EXPENDITURE OR OTHERWISE HAS NOT BEEN RAISED AT ALL BY HIM OR THE LEARNED CIT(A). THEREFORE, WE DO NOT THINK IT NECESSARY TO RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR ANY FURTHER VERIFICATION. 5. IN RESULT, THE APPEAL IS ALLOWED AS DISCUSSED ABOVE. THIS ORDER WAS PRONOUNCED IN OPEN COURT ON 7.01.201 1. SD/- SD/- ( A.D. JAIN ) ( K.G. BANSAL ) JUDICIAL MEMBER ACCOUNTANT ME MBER DT.7.01.2011. NS 1370-2010 10 COPY FORWARDED TO:- 1. INDO-FRENCH CENTER FOR THE PROMOTION OF ADVANCED RESEARCH, 5-B, GROUND FLOOR, INDIA HABITAT CENTER, LODHI ROAD, NEW DELHI-3 2. ASSTT. DIRECTOR OF INCOME-TAX (E), TRUST CIRCLE-IV , NEW DELHI. 3. THE CIT 4. THE CIT (A), NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY BY ORDER (ITAT, NEW DELHI).