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2015 (12) TMI 42 - AT - Income TaxDisallowance of faculty teaching charges payable to Ohio University - CIT(A) deleted the addition - Held that - The services have been rendered by the faculty members from Ohio University as the classes were taken in Bangalore. The services have been utilized for the purposes of the Trust s objectives in India, viz. of imparting higher education in India. Ohio University has also offered the income earned by it from the assessee trust to tax in India. In the light of the above mentioned facts, it is clear that the activities of the assessee trust were conducted in India in accordance with its objects. As regards the payments being made out of India, we concur with the view of the learned CIT (Appeals) that merely because the payments are made outside India, it cannot be said that the charitable activities were also conducted outside the country. We also do not concur with the Assessing Officer s view that a specific exemption is required from CBDT for making claim of application of income. This requirement has been specified only for those trusts that have as its objects, the promotion of international welfare. In the case of the assessee in the case on hand, the objects of charitable activities for imparting higher education in India, has already been approved by the Department while granting the assessee trust registration. Also unable to concur with the view of the Assessing Officer that mere credit entries in favour of Ohio University in the assessee s books of account cannot be taken by the assessee as being for charitable purposes as contemplated in Section 11 of the Act. Thus we uphold the decision of the learned CIT (Appeals) in deleting the addition/disallowance made in respect of faculty teaching charges as the word applied does not mean spent and even if the income has been earmarked and allocated for the purpose of carrying out the objects of the institution, it might be deemed to be applied for that purpose. - Decided in favour of assessee. Set off of brought forward excess application income/loss of earlier years - CIT(A) allowed claim - Held that - The assessee had incurred certain preliminary expenditure in the year of setting up of the trust. The same is amortised by the assessee trust over a period of 5 years from the year of incurring of expenditure. The fact of amortization was not disputed by the Assessing Officer in the assessment proceedings for Assessment Year 2007-08 where the entire amount was added back claiming 1/5 th of the expenditure. The un-amortised expenditure has been brought forward and set off as application of income in subsequent years, including the to assessment years, 2008-09 and 2009-10 which are under consideration.urther, the CBDT Circular No.5-P (LXX) 6 of 1968 cited by the assessee makes it clear that income should be understood in its commercial sense; in the case of trusts also and therefore the commercial principle enunciated by the Hon ble Karnataka High Court in the above referred case of Sisters of St. Anne (1983 (8) TMI 44 - KARNATAKA High Court) applies to trusts as well. In view of the factual and legal matrix of this issue in the case on hand as discussed above, we concur with the decision of the learned CIT (Appeals) in cancelling the disallowance made by the Assessing Officer and in allowing the amortization of expenses - Decided in favour of assessee. Loss on account of foreign exchange fluctuation - CIT(A) allowed claim - Held that - The basic facts of the matter on this issue are not in dispute. In the year under consideration, the assessee had incurred expenditure towards programme fees payable to Ohio University, USA - We have already held that these payments come under the purview of application of income for charitable purpose in India. Having held so, we have no hesitation in holding that foreign exchange fluctuation expenses related to the programme fee is also a deductible expenditure as held by the Hon ble Apex Court in the case of Woodward Governor India (P) Ltd. (2009 (4) TMI 4 - SUPREME COURT ). In this view of the matter, we uphold the decision of the learned CIT (Appeals) - Decided in favour of assessee. Disallowance of Accumulation of Income - Held that - The purposes mentioned by the assessee trust in Form No.10 were for use in purchase of fixed assets and for use in other purposes, for fulfillment of the objects of the trust. The Assessing Officer disallowed the assessee s claim for accumulation of income on the grounds that the purposes mentioned in Form NO.10 was not specific. As pointed out by the learned CIT (Appeals), there are divergent decisions by various High Courts in the matter. While the Assessing Officer has relied on the decision of the Hon ble Kerala High Court, the assessee has relied on the decision of the Hon ble Delhi High Court. The learned CIT (Appeals) after noting the divergent views taken by different High Courts has decided the issue in favour of the assessee by observing that there is no decision of the jurisdictional High Court in the matter, the decision favourable to the assessee should be followed. As decided in Director of Income Tax, Exemptions And Others Versus Envisions 2015 (6) TMI 38 - KARNATAKA HIGH COURT as long as the objects of the trust are charitable in character and as long as the purpose or purposes mentioned in Form 10 are for achieving the objects of the trust, merely because of non-furnishing of the details, as how the said amount is proposed to be spent in future, the assessee cannot be denied the exemption as is admissible under sub-section 2 of Section 11 of the I.T.Act, 1961. - Decided in favour of assesse.
Issues Involved:
1. Disallowance of faculty teaching charges payable to Ohio University. 2. Set-off of brought forward excess application of income/loss of earlier years. 3. Loss on account of foreign exchange fluctuation. 4. Disallowance of accumulation of income under Section 11(2). Detailed Analysis: 1. Disallowance of Faculty Teaching Charges Payable to Ohio University: Assessment Years 2008-09 & 2009-10: - Assessing Officer's View: The expenditure was disallowed on the grounds that mere book entries do not constitute application of income under Section 11. The term "applied" implies actual spending or utilization. Payments made outside India were not considered as applied for charitable purposes in India. - CIT (Appeals) Decision: Allowed the expenditure, noting that payments made outside India for charitable purposes in India can be considered as application of income. Ohio University offered these payments as income in India and paid taxes. - ITAT Decision: Upheld CIT (Appeals) decision. The Tribunal noted that the services were rendered in India, and payments to Ohio University facilitated the trust's educational objectives in India. Judicial precedents (Gem and Jewellery Export Promotion Council, NASSCOM) supported that application of income for purposes in India does not restrict the expenditure within India. The Tribunal also referenced the Andhra Pradesh High Court ruling in Trustees of HEH Nizam's Charitable Trust, which clarified that "applied" does not necessarily mean "spent". 2. Set-off of Brought Forward Excess Application of Income/Loss of Earlier Years: Assessment Year 2008-09: - Assessing Officer's View: Disallowed the set-off of brought forward expenditure, asserting no express provision in the Act permits this. The application of income must occur in the relevant previous year. - CIT (Appeals) Decision: Allowed the set-off, relying on the Karnataka High Court decision in Society of the Sisters of St. Anne and CBDT Circular No.5-P(LXX)-6 of 1968. - ITAT Decision: Upheld CIT (Appeals) decision. The Tribunal referenced the Karnataka High Court ruling that depreciation and other commercial principles apply to trusts, allowing the amortization of expenses. 3. Loss on Account of Foreign Exchange Fluctuation: Assessment Year 2009-10: - Assessing Officer's View: Disallowed the foreign exchange fluctuation loss, arguing that since the programme fee was denied exemption, the related exchange fluctuation could not be allowed. - CIT (Appeals) Decision: Allowed the exchange fluctuation loss, as the programme fee payments to Ohio University were considered application of income. - ITAT Decision: Upheld CIT (Appeals) decision. The Tribunal cited the Supreme Court ruling in Woodward Governor India (P) Ltd., recognizing foreign exchange fluctuation as a deductible expense. 4. Disallowance of Accumulation of Income under Section 11(2): Assessment Year 2009-10: - Assessing Officer's View: Disallowed the accumulation of income, arguing that the purposes stated in Form No.10 were not specific. - CIT (Appeals) Decision: Allowed the accumulation, noting the divergent judicial views and favoring the assessee's position. - ITAT Decision: Upheld CIT (Appeals) decision. The Tribunal referenced the Karnataka High Court decision in DIT (Exemptions) V Envisions, which held that as long as the objects of the trust are charitable, and purposes in Form No.10 align with these objects, the benefit under Section 11(2) cannot be denied. Conclusion: The ITAT dismissed the Revenue's appeals for both Assessment Years 2008-09 and 2009-10, upholding the CIT (Appeals) decisions on all issues. The Tribunal emphasized the application of income for charitable purposes in India, even if the payments were made outside India, and supported the set-off of brought forward expenses and foreign exchange losses in line with judicial precedents.
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