2015 (9) TMI 654 - AT - Income Tax

Charitable purpose - Expenses incurred outside India on account of foreign traveling - whether were not allowable as application of income as the assessee was not notified by the CBDT in this regard? - CIT(A) granted relief for the assessee - Held that - Undisputedly and admittedly, the main objective of the assessee association is to promote trade and industry in India that in the present era of economic globalization, sending delegation to foreign countries cannot be held as outside the ambit of main objective of the assessee association. Per contra, from the Article of Association available it is vivid that the main objects as contained in clause (3) of the Memorandum of Association, objectives cannot be fulfilled without sending foreign delegation and, therefore, foreign travelling expenses incurred by the assessee cannot be held as application of income outside taxable territories of the assessee. Therefore, we are inclined to agree with the conclusion of the CIT(A) and we are unable to see any infirmity, perversity or any other valid reason to interfere with the same - Decided in favour of assessee.

Summary

Issues:
1. Allowability of foreign traveling expenses as application of income under section 11(1)(C) of the Income Tax Act, 1961.
2. Interpretation of judgments related to application of income outside India for charitable purposes.
3. Determination of whether foreign traveling expenses are aligned with the main objective of promoting trade and industry in India for a charitable organization.

Issue 1: Allowability of Foreign Traveling Expenses
The appeal concerned the disallowance of foreign traveling expenses incurred by a trade association for promoting trade and industry. The Assessing Officer (AO) disallowed the expenses, contending they were not utilized for the association's main objective. However, the Commissioner of Income Tax (Appeals) [CIT(A)] granted relief, stating that the expenses were for promoting trade and industry in India, a core objective of the association. The Tribunal noted that the main objective of the association was promoting trade and industry in India, and sending delegations abroad was essential for this purpose. The Tribunal agreed with the CIT(A) and dismissed the revenue's appeal, emphasizing that the expenses were aligned with the association's objectives.

Issue 2: Interpretation of Judgments on Application of Income Outside India
The revenue argued that the expenses were not allowable under section 11(1)(C) of the Income Tax Act, 1961, as the association was not notified by the Central Board of Direct Taxes (CBDT). They cited judgments related to income applied outside India not being considered as application of income for charitable purposes in the absence of CBDT notification. However, the Tribunal distinguished the case at hand from the precedents cited, emphasizing that the association did not apply income outside taxable territories but incurred expenses for promoting trade and industry in India. The Tribunal concluded that the judgments referred to by the revenue were not applicable to the present case, as the facts were distinguishable.

Issue 3: Alignment of Foreign Traveling Expenses with Main Objective
The Tribunal analyzed the association's Memorandum of Association and concluded that sending delegations to foreign countries was integral to fulfilling its main objective of promoting trade and industry in India. The Tribunal found that in the context of economic globalization, sending delegations abroad was within the ambit of the association's core objectives. Therefore, the Tribunal upheld the CIT(A)'s decision to allow the foreign traveling expenses, dismissing the revenue's appeal for lacking merit.

In conclusion, the Tribunal upheld the CIT(A)'s decision, emphasizing that the foreign traveling expenses were aligned with the charitable organization's main objective of promoting trade and industry in India. The Tribunal found no justification to disallow the expenses and dismissed the revenue's appeal, noting that the association's activities were within the scope of its charitable objectives.