2020 (9) TMI 486 - AT - Income Tax

Exemption u/s 11 - income applied outside India - Proper application for approval u/s 11(1)(c) - CBDT approval to the exemption being granted in respect of payments made by the assessee trust - assessee trust had spent monies for creation of endowment funds, through contribution at the Cornell University USA, for scholarship of Indian students, as well as for foreign collaboration project between Indian and Cornell scientists, and grant of financial assistance to Harvard Business School for construction of a new executive building named Tata Hall - whether the amounts so spent by the assessee trust will be treated as permissible application of the trust income, and, accordingly, will be the assessee be eligible for tax exemption, under section 11, in respect of that income? HELD THAT - CBDT approval states in so many words, the extent to which such income is applied for such purposes outside India . Clearly, where the income of the trust is applied for such purposes upto the specified amount, the actual application of income, and not the amount so specified in the CBDT approval, will be covered by exemption available under section 11(1)(c). It goes without saying that where the actual application of income of the trust exceeds the permitted contribution in paragraph 1 of the CBDT approval, the exemption under section 11(1)(c) will be available only to the extent specified in paragraph 1 of the CBDT approval. That is the limited verification, in terms of the CBDT approval, required to be made by the Assessing Officer. Ironically, however, when we asked, during the course of hearing before us, as to what verifications would the Assessing Officer like to carry out now, learned Departmental Representative, as also the Assessing Officer appearing in person, submitted that the verification required is for the purposes of ensuring that such an application of income of the trust outside India, i.e. by contributions to the Cornell University and Harvard University, tend to promote international welfare in which India is interested . That exercise, for the detailed reasons set out above, cannot be conducted by the Assessing Officer, nor does the scheme of the Act, or facts of the case- particularly in the light of material on the basis of which the CBDT has granted the approval, permit so. Even though there is no res judicata in the income tax proceedings, the principles of consistency apply to the income tax proceedings nevertheless, and, in the light of these principles of consistency, it was not open to the Assessing Officer to decline the benefit of section 11(1)(c), in respect of application of income of the trust outside India by making contributions to Cornell University USA and Harvard University USA, only for these two years, when, on the same set of facts, the benefit of section 11(1)(c) has been allowed for all other years. Taken note of the stand of the CIT(A) that the approval granted by the CBDT is not specifically stated to be retrospective in nature, and, therefore, it cannot be given retrospective effect. We do not see any merits in this line of reasoning. Whether the expression retrospective effect is specifically used in the approval or not, when it is specifically stated that the order shall have the effect for the period covered by assessment years 2009-10 to 2016-17 , there is no escape from the position that the order applies to the period so covered from the assessment years 2009-10 to 2016-17. CIT(A) has clearly been hyper pedantic in his approach, and, in any case, there is no justification for his obsession with the expression retrospective effect - particularly when the fact of retrospective effect is so glaring from the content of the CBDT approval. As regards learned CIT(A)'s stand that since application for approval under section 11(1)(c) is made only on 31st March 2015, it cannot apply for the assessment year 2011-12 (and 2012-13) , it proceeds on the assumption that the prior application for the CBDT's approval for application of income of the trust outside India is required but then this assumption is not correct inasmuch as no such time limit is stipulated under section 11(1)(c). Wherever time limits for taking approvals of the prescribed authorities are stipulated, such as in 10(23C), 12A(1)(a), 80HHD(4), the legislature has specifically provided for the same. In the absence of a time limit prescribed by the statute, no matter how desirable- even if that be so, it cannot be inferred. The only verification required, as we have held earlier in this order, was with respect to the extent to which such income is applied for such purposes outside India and that verification is not even in dispute as all the related payment details and RBI remittance approvals have already been filed before the Assessing Officer, at the assessment stage, and the same have not been faulted at all. When the Assessing Officer appeared before us in person, he did not even dispute that; all he wanted to verify was as to how the contributions to Cornwell University USA and Harvard University USA tend to promote the international welfare in which India is interested, but then, for the detailed reasons set out earlier in the order, that is what he cannot be permitted to do, as it falls beyond the call of his duty. We reject this plea as well. CIT(A) was in error in upholding the denial of claim of the assessee for exemption in respect of application of income of the trust outside India, by way of contributions made to Cornell University USA and Harvard University USA - Decided in favour of assessee.

Summary

Issues Involved:
1. Denial of deduction for income applied outside India under section 11(1)(c) of the Income Tax Act, 1961.
2. Carrying forward of deficit on account of excess expenditure.

Issue-wise Detailed Analysis:

1. Denial of Deduction for Income Applied Outside India:

Core Issue:
The primary issue was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in denying the deduction for income applied outside India under section 11(1)(c) of the Income Tax Act, 1961, despite the appellant having an order from the Central Board of Direct Taxes (CBDT) as required by the proviso to Section 11(1)(c).

Facts and Developments:
The assessee, a public charitable trust, applied funds for scholarships and projects at Cornell University and Harvard Business School. The amounts spent were ?197.79 crores for AY 2011-12 and ?25.37 crores for AY 2012-13. The Assessing Officer (AO) initially disallowed these amounts due to the absence of CBDT approval. However, the CBDT later granted approval for the period covering AY 2009-10 to 2016-17. Consequently, the AO rectified the assessment orders under section 154, deleting the additions. Despite this, the CIT(A) held that the CBDT's approval was not retrospective and did not apply to AY 2011-12 and 2012-13, thereby restoring the disallowed amounts.

Rival Contentions:
The assessee argued that the CBDT's approval covered the relevant assessment years and that the CIT(A) erred in disregarding the rectification orders. The Department contended that the approval was conditional and required verification during assessment proceedings, which was not done.

Analysis:
The tribunal noted that the CBDT's approval explicitly stated its effect for the period covered by AY 2009-10 to 2016-17. The CIT(A)'s interpretation that the approval was not retrospective was found to be incorrect. The tribunal emphasized that once the CBDT granted approval, it was not open to the AO or CIT(A) to question it. Furthermore, the principle of consistency required that the same treatment be given for all assessment years covered by the CBDT's approval.

Conclusion:
The tribunal concluded that the CIT(A) erred in upholding the denial of exemption under section 11(1)(c) for the amounts applied outside India. The tribunal allowed the assessee's claim for exemption for both AY 2011-12 and 2012-13.

2. Carrying Forward of Deficit on Account of Excess Expenditure:

Issue:
The AO's appeal against the CIT(A)'s direction to allow the carrying forward of a deficit of ?9.79 crores on account of excess expenditure.

Analysis:
The tribunal noted that this issue was covered in favor of the assessee by the jurisdictional High Court's judgment in the case of CIT Vs Institute of Banking Personnel Selection, which allowed the carrying forward of such deficits.

Conclusion:
The tribunal upheld the CIT(A)'s direction to allow the carrying forward of the deficit, following the jurisdictional High Court's precedent.

Final Disposition:
- The appeals filed by the assessee for AY 2011-12 and 2012-13 were allowed.
- The appeal filed by the AO for AY 2012-13 was dismissed.