2015 (11) TMI 435 - AT - Income Tax

Eligibility for exemption u/s.11 - Held that - In the light of the examination of the facts of the case, we direct the Assessing Officer to redo the assessments in the following lines (1) The tied-up grants received from the donor, Bread for the World, will be taken out of the computation of income from the income-side. (2) All the money spent under the tied-up programmes directed by the donor also will be taken out of the computation of income from the expense-side. (3) Any non-refundable credit balance in the personal account of Bread for the World will be treated as income in the year in which such non-refundable balance was ascertained. (4) The expenses incurred by the assessee for house construction, reclamation of land, non-formal education programme (other than covered by the tied-up grants) will be deducted as revenue expenses. Further, we make it clear that if the assessee already considered above grant as income of the assessee in its income and expenditure account, then the finding of the Tribunal above is not applicable. These appeals are remitted back to the file of the Commissioner of Income Tax (Appeals) for fresh consideration.

Summary

Issues Involved:

1. Eligibility for exemption under Section 11 of the Income Tax Act.
2. Treatment of 'tied-up grants' received by the assessee.
3. Admissibility of additional grounds and evidences.
4. Applicability of Section 11(1)(a) and Section 11(1)(c) of the Income Tax Act.
5. Taxability of amounts spent outside India.

Detailed Analysis:

1. Eligibility for exemption under Section 11 of the Income Tax Act:

The primary issue was whether the assessee was eligible for exemption under Section 11 of the Income Tax Act. The Assessing Officer (AO) denied this exemption, arguing that the assessee's activities were in the nature of trade, commerce, or business, and thus fell within the ambit of the amended provisions of Section 2(15) of the Act. The AO treated the assessee as an Association of Persons (AOP) and taxed it accordingly. The Commissioner of Income Tax (Appeals) [CIT(A)] observed that the assessee would be entitled to exemption under Section 11 provided it satisfied the conditions of Section 11(1)(a). However, since the assessee spent a significant amount outside India, it was held that the assessee was not eligible for exemption under Section 11(1)(a).

2. Treatment of 'tied-up grants' received by the assessee:

The assessee argued that it received 'tied-up grants' from the Government of India (GOI) and participation fees from members, which were meant for specific purposes such as conducting trade fairs and advertisements outside India. These receipts were not part of its income and thus outside the purview of Section 11. The CIT(A) did not accept this argument, holding that the entire expenditure was not spent/applied in India, violating Section 11(1)(a). The Tribunal, however, noted that tied-up grants for specific purposes do not form the corpus of the assessee or its income and should be treated as amounts held in trust for specific purposes.

3. Admissibility of additional grounds and evidences:

The assessee filed additional grounds and evidences, which were admitted by the Tribunal. The Tribunal referenced the judgment of the Supreme Court in National Thermal Power Co. Ltd vs. CIT, which allows the Tribunal to examine a question of law arising from the facts found by the authorities below, even if it was not raised before the lower authorities.

4. Applicability of Section 11(1)(a) and Section 11(1)(c) of the Income Tax Act:

The CIT(A) held that the assessee was not eligible for exemption under Section 11(1)(a) as the income was not applied for charitable purposes in India. The assessee also did not obtain permission from the Board as required under Section 11(1)(c), which provides for exemption in cases where income is applied outside India for purposes that promote international welfare in which India is interested. The Tribunal noted that Section 11(1)(c) is a beneficial provision, and the only condition is to obtain the Board's permission.

5. Taxability of amounts spent outside India:

The CIT(A) directed the AO to tax the amounts spent outside India, as the assessee did not obtain the necessary permission under Section 11(1)(c). The Tribunal, however, noted that if the assessee had already considered the grants as income in its income and expenditure account, the tied-up grants should be taken out of the computation of income. The Tribunal remitted the matter back to the CIT(A) for fresh consideration in light of its observations.

Conclusion:

The Tribunal concluded that the appeals were partly allowed for statistical purposes and remitted the matter back to the CIT(A) for fresh consideration, emphasizing the need to reconsider the treatment of tied-up grants and the applicability of Section 11(1)(a) and Section 11(1)(c) in light of the Tribunal's findings. The order was pronounced on August 28, 2015.