2017 (9) TMI 40 - AT - Income Tax

Exemption u/s 11 - Expenses incurred by the assessee outside India - Addition on no approval of the Board for exemption u/s 11(1)(c) - computation as per provisions of section 11 to 13 - Held that - As from the order dated 08.02.2016 issued by Central Board of Direct Taxes (CBDT) the permission has been accorded to the assessee u/s 11(1)(c) of the Act and expenses to the tune of 11, 43, 35, 344/- incurred by the assessee outside India for the purpose of international welfare are ordered to be not included in the total income of the assessee society. This factual position has not been controverted by the DR hence we find no illegality or perversity in the findings returned by the ld. CIT (A) on this ground. - Decided against revenue Transaction of foreign contribution - foreign contribution from Government of France within the meaning of section 2(1)(j) of FCRA without filing return qua these contributions in FC-3 to Ministry of Home Affairs - Held that - when a transaction is between Government of India and Government of any foreign country or territory FCRA is not attracted. When undisputedly the transaction of 9, 45, 28, 000/- is a grant given by French Government to the assessee society which is a joint venture of French Government and Government of India the transaction of transferring the grants is a transaction between both the countries as specified in the letter (supra). Furthermore vide letter dated 08.06.1985 available at page 28 of the paper book addressed to Secretary General Ministry of External Relations Government of France by Shri Ramesh Bhandari the then Foreign Secretary it is categorically made clear that the assessee society established for promotion of scientific research etc. will be exempt from payment of income-tax. So in these circumstances we find no illegality or perversity in the findings returned by ld. CIT (A) in deleting this addition by treating the assessee society as a Government society. - Decided against revenue Addition under the head interest income u/s 13(1)(d) - deposits in the French bank violates the provisions of section 11(5) read with section 13(1)(d) - Held that - When the assessee society is a joint venture of Government of India and Government of France to promote scientific research in both the countries and funds are jointly contributed by both the Governments the funds received as grant by the assessee from the French Government are deposited in the Credit Industrial Commercial Paris French bank which are in accordance with the rules and regulations of society interest thereon is not hit by provisions of section 11(5) read with section 13(1)(d) of the Act in any manner the same being not an investment. So we find no illegality or perversity in the findings returned by ld. CIT (A) hence this ground is also determined against the Revenue.

Summary

Issues:
1. Computation of income under sections 11 to 13 of the Income Tax Act.
2. Recomputation of income on commercial principles for expenditure incurred outside India.
3. Transaction of 'foreign contribution' between Government of India and Government of France.
4. Violation of section 13(1)(d) of the Income Tax Act in relation to interest earned on investments.
5. Additional grounds raised by the assessee society for re-computation of income and violation of natural justice.

Issue 1: Computation of Income under Sections 11 to 13:
The Appellate Tribunal ITAT DELHI considered an appeal by the Assistant Commissioner of Income-tax challenging the order passed by the Commissioner of Income-tax (Appeals) for the Assessment Year 2010-11. The appeal sought to set aside the order due to alleged errors in the computation of income under sections 11 to 13 of the Income Tax Act. The Tribunal found that the expenses incurred by the assessee outside India were not allowable as application of income since the assessee was not notified under section 11(1)(c) by the CBDT. However, it was revealed that the assessee had received permission under section 11(1)(c) which rendered the expenses permissible, leading to a dismissal of the appeal on this ground.

Issue 2: Recomputation of Income on Commercial Principles:
The Tribunal addressed the direction by the Commissioner of Income-tax (Appeals) to recompute the income on commercial principles for expenditure incurred outside India. The Tribunal found that the assessee society was established as a joint venture of the Government of India and Government of France to promote scientific research. It was concluded that the funds received as grants from the French Government were not in violation of any regulations, and therefore, the appeal on this ground was dismissed.

Issue 3: Transaction of 'Foreign Contribution':
The Tribunal examined the transaction of 'foreign contribution' between the Government of France and the assessee society, which was a joint venture of the two governments. It was determined that since the transaction was between the two countries, the Foreign Contribution (Regulation) Act was not applicable. The Tribunal also noted a letter from the Ministry of Home Affairs confirming that the transactions did not attract the provisions of the FCRA. Consequently, the appeal on this ground was dismissed.

Issue 4: Violation of Section 13(1)(d) in Relation to Interest Earned on Investments:
The Tribunal reviewed the addition made by the Assessing Officer under section 13(1)(d) for interest income earned on investments made with Credit Industrial Commercial Paris, France. It was established that the funds received by the assessee from the French Government were deposited in accordance with the rules and regulations of the society. Therefore, the interest earned was not in violation of the provisions of the Income Tax Act, leading to the dismissal of the appeal on this ground.

Issue 5: Additional Grounds Raised by the Assessee Society:
The Tribunal allowed the additional grounds raised by the assessee society for re-computation of income and violation of natural justice. These grounds were considered necessary for complete adjudication of the case. The Tribunal found no illegality or perversity in the findings returned by the Commissioner of Income-tax (Appeals) on these additional grounds, resulting in the dismissal of the appeal filed by the Revenue.

In conclusion, the appeal filed by the Revenue was dismissed by the Appellate Tribunal ITAT DELHI after a detailed analysis of the issues related to the computation of income, expenditure incurred outside India, foreign contributions, interest earned on investments, and additional grounds raised by the assessee society. The Tribunal's decision was based on the specific provisions of the Income Tax Act and the factual circumstances of the case.