2018 (10) TMI 436 - AT - Income Tax

Benefit of section 11 & 12 denied - receipt of sponsorship income from India and abroad - commercial receipts - AO observed that assessee is hit by proviso to section 2(15) - assessee is neither registered under FCRA nor permission been taken from RBI for receiving foreign funds into the Society under FEMA - Held that - As in India Trade Promotion Organisation vs. DGIT 2015 (1) TMI 928 - DELHI HIGH COURT held that mere receipt of fee or charge cannot be said that the assessee is involved in any trade, commerce or business. The assessee is a charitable society and is involved in providing the medical facilities and spread the awareness to the public at large and is fall in the last category i.e. advancement of any other object of general public utility . However, on perusing the material on record, there is there is no proper justification for denying the exemption and the Proviso of section 2(15) is not attracted in this case - CIT(A) has rightly directed the AO to allow the exemption u/s 11(1) of the Act with all the consequential benefits vide order dated 15/9/2015, which does not need any interference on our part, hence, we uphold the order of the Ld. CIT(A) on the issue in dispute and reject the ground raised by the Revenue. Non deduction of TDS - assessee has paid as honorarium to the doctors coming from abroad and its cannot be considered as an application of income in India for charitable purposes - Held that - We find that assessee is not running any hospital towards which this expense has been incurred. The assessee just conducted a seminar for the benefit of its parent body i.e. Escorts Hospital, which is a private company. The expense has been incurred outside India and therefore, it is a violation of Section 11(1)(c) and the above transaction is covered under the FEMA Act, for which the approval of the RBI is essential. Since assessee is remitting funds outside India and claiming its as application of income, which is violation of section 11(1)(C), hence, the amount of ₹ 9,76,031/- was rightly disallowed by the AO and accordingly, assessment was rightly completed at income of ₹ 10,10,88,303/- vide order dated 26.3.2013. Case law of DIT(E) vs. National Association of Software and Services Companies 2012 (5) TMI 204 - DELHI HIGH COURT is directly applicable on the present issue in which the Hon ble Court has laid down the law that the State did not like to forgo the revenue in favour of charity outside the country held income applied outside India cannot be considered as application of income of the trust in India for charitable purposes - Decided in favour of revenue.

Summary

Issues Involved:
1. Allowance of benefit under sections 11 and 12 of the Income Tax Act.
2. Registration under FCRA and permission from RBI for receiving foreign funds.
3. Violation of section 11(1)(c) regarding funds applied outside India.
4. Disallowance of ?9,76,031/- for non-deduction of tax on honorarium paid to foreign doctors.

Issue-Wise Detailed Analysis:

1. Allowance of Benefit under Sections 11 and 12 of the Income Tax Act:
The Revenue contended that the Ld. CIT(A) erred in allowing the benefit of sections 11 and 12, arguing that the sponsorship income received by the assessee constituted commercial receipts and thus violated the proviso to section 2(15) of the Act. The assessee, a society registered under the Societies Registration Act and enjoying benefits under section 80G, argued that it was a charitable institution involved in medical relief activities. The AO had denied the exemption under section 11(1) on the grounds that the assessee was engaged in trade, commerce, or business by receiving sponsorship fees for conducting seminars. However, the Ld. CIT(A) and Tribunal had previously allowed such exemptions, and the Hon'ble Delhi High Court and Supreme Court had upheld these decisions. The Tribunal found that mere receipt of fees or charges did not amount to trade, commerce, or business, citing the case of India Trade Promotion Organisation vs. DGIT. Thus, the Tribunal upheld the Ld. CIT(A)'s order, allowing the exemption under section 11(1).

2. Registration under FCRA and Permission from RBI for Receiving Foreign Funds:
The Revenue argued that the assessee neither registered under the Foreign Contribution (Regulation) Act (FCRA) nor obtained permission from the Reserve Bank of India (RBI) for receiving foreign funds, which should disqualify it from the benefits under sections 11 and 12. However, this issue was not elaborated upon in the Tribunal's final decision, indicating that the primary focus was on the exemption under section 11(1) and the nature of the sponsorship receipts.

3. Violation of Section 11(1)(c) Regarding Funds Applied Outside India:
The Revenue claimed that the assessee violated section 11(1)(c) by applying funds outside India without RBI approval, which should disqualify it from the benefits under sections 11 and 12. The Tribunal noted that the assessee conducted seminars in India and paid honorarium to foreign doctors, which was considered an application of income in India. The Ld. CIT(A) had observed that the payments were not taxable in India under the DTAA with the USA. However, the Tribunal found that the assessee's activities did not constitute a violation of section 11(1)(c) as the charitable activities were conducted in India.

4. Disallowance of ?9,76,031/- for Non-Deduction of Tax on Honorarium Paid to Foreign Doctors:
The AO disallowed ?9,76,031/- paid as honorarium to foreign doctors, arguing that it was not an application of income in India for charitable purposes and violated section 11(1)(c). The Ld. CIT(A) had deleted this addition, stating that the payments were not taxable in India under the DTAA. However, the Tribunal found that the assessee incurred expenses outside India for the benefit of its parent body, a private company, and thus violated section 11(1)(c). The Tribunal cited the Hon'ble Delhi High Court's decision in DIT(E) vs. National Association of Software and Services Companies and the Supreme Court's judgment in HEH Nizam’s Religious Endowment Trust vs. Commissioner of Income Tax, concluding that income applied outside India cannot be considered as application of income for charitable purposes in India. Therefore, the Tribunal set aside the Ld. CIT(A)'s order on this issue and upheld the AO's disallowance.

Conclusion:
The Tribunal partly allowed the Revenue's appeal. It upheld the Ld. CIT(A)'s decision to grant exemption under section 11(1) but reversed the Ld. CIT(A)'s decision on the disallowance of ?9,76,031/-, thereby allowing the Revenue's ground on this issue. The order was pronounced on 05/10/2018.