2021 (12) TMI 1068 - AT - Income Tax

Exemption u/s 11 - Expenditure on distributing prize, Honorarium to jury, Event management expenses and Employee benefits - Whether expenditure incurred directly or indirectly in connection with the objects of the Trust? - sole objective of the Trust is the running of Infosys Prize annual award to honor outstanding achievements to scholars / scientists - HELD THAT - The objects of the Trust has also been accepted by the Ld.AO which is to institute prizes which are meant to achievers in various fields and endeavors to elevate the prestige of scientific research in India and inspire young Indians to choose a vocation in scientific research. Since its inception, the assessee focused solely on the governance and running of Infosys Prize, annual award to honor outstanding achievements to scholars / scientists. The contention of the Ld.AO that the expenses are routine expenses incurred for the day to day activities of the Trust is not correct. The expenditure comprised of Honorarium to Juries for selection of prize winners, event management expenses incurred for Infosys Prize ceremony, travelling and conveyance expenses, memento and souvenir expenses, professional charges and service tax thereon, employee benefits and other expenses. These expenses were incurred in connection with the Infosys Prize ceremony held during the year. During the previous year 2015-16 relevant to AY 2016-17, the Infosys Prize was announced on 16.11.2015 and the awards ceremony was held at New Delhi on 13.2.2016. Thus, there is no merit in the contention of the Ld.AO that the expenditure was held towards the routine activities of the trust and hence the same cannot be considered as utilised from the amounts accumulated u/s 11(2) towards a specific activity. The application of income for charitable purpose includes any expenditure incurred directly or indirectly in connection with the objects of the Trust. To treat only direct expenditure incurred as application for objects of the Trust would be too narrow a view. In the present case, the sole objective of the Trust is the running of Infosys Prize annual award to honor outstanding achievements to scholars / scientists. There is no other objectives for which the Trust carried on its activities. Thus, the entire expenditure incurred during the year was towards the purpose of carrying on the aforesaid charitable activity. Income of the current year and income accumulated u/s 11(2) are parked in deposits and SB account with scheduled banks which are permitted as per section 11(5). The maturity proceeds are again reinvested in deposits. Thus, the identity of monies as current year's income and income accumulated u/s 11(2) is not possible. Consequently, the expenditure of ₹ 5,31,43,622 incurred towards the objectives of the Trust should be treated as application of income out of earlier years accumulation of income as declared by the assessee. We are of the opinion that when the expenditure can be treated as application of amount from current year's income, there is no reason as to why the same should not be treated as spent out of earlier years accumulation - no justifiable reason for separating and treating expenditure of ₹ 5,31,43,622 differently from the Prize Money expenditure - Decided in favour of assessee.

Summary

Issues Involved:
1. Erroneous order of CIT(A) on taxation principles for charitable institutions.
2. Specificity of purpose for income accumulation under Section 11(2).
3. Inclusion of all expenditure connected to the main activity, not just prize money.
4. Distinction between Sections 11(1)(a) and 11(2) regarding income accumulation.
5. Interpretation of Section 11(3A) on general purpose accumulation and spending.
6. Usage of the terms "Purposes" in Section 11(1)(a) and "purpose" in Section 11(2).

Issue-wise Detailed Analysis:

1. Erroneous Order of CIT(A) on Taxation Principles for Charitable Institutions:
The revenue argued that the CIT(A) erred in allowing the appeal by the assessee, claiming that the order was erroneous both factually and legally concerning the taxation of charitable institutions. The tribunal upheld the CIT(A)'s decision, noting that the trust's objects, including prize money and other connected expenditures, were in line with its charitable purposes.

2. Specificity of Purpose for Income Accumulation under Section 11(2):
The revenue contended that the purpose for accumulation was general and not specific, thus not meeting the requirements of Section 11(2). The tribunal found that the trust's accumulation "for the objects of the trust" was sufficiently specific, as all expenditures were connected to the main activity of awarding the Infosys Prize.

3. Inclusion of All Expenditure Connected to the Main Activity, Not Just Prize Money:
The CIT(A) held that the objects of the trust included all expenditures connected to the main activity, not just the prize money. The tribunal agreed, noting that expenses such as honorarium to juries, event management, and professional charges were all connected to the main activity and thus could be considered as application of income accumulated under Section 11(2).

4. Distinction Between Sections 11(1)(a) and 11(2) Regarding Income Accumulation:
The revenue argued that the CIT(A) failed to distinguish between Sections 11(1)(a) and 11(2), which have different provisions for income accumulation. The tribunal upheld the CIT(A)'s view that the accumulated income could be applied to any of the charitable objects of the trust, as long as it was within the stipulated conditions.

5. Interpretation of Section 11(3A) on General Purpose Accumulation and Spending:
The revenue claimed that general purpose accumulation and spending were not allowed under Section 11(3A). The tribunal found that the CIT(A) correctly interpreted the section, allowing the trust to apply accumulated income for its stated objectives, which included various expenditures connected to the main activity.

6. Usage of the Terms "Purposes" in Section 11(1)(a) and "purpose" in Section 11(2):
The revenue argued that the CIT(A) failed to distinguish between the terms "Purposes" in Section 11(1)(a) and "purpose" in Section 11(2). The tribunal found that the CIT(A)'s interpretation was correct, allowing the trust to apply its accumulated income for its various charitable objectives.

Conclusion:
The tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision that the trust's expenditures were in line with its charitable objectives and that the accumulated income could be applied to these expenditures. The tribunal found no infirmity in the CIT(A)'s view and ruled in favor of the assessee.