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2010 (3) TMI 2 - AT - Income TaxExemption claimed u/s 11 - Charitable activities - payment of taxes under VDIS - Assessee has substantially challenged the action of the CIT(A) in not treating the taxes paid in respect of the VDIS application as application of income for the purpose of s. 11 and the action of the CIT(A) in upholding the action of the AO in treating the expenditure incurred on events and activities outside India has not eligible to be treated as application of income for charitable purpose u/s. 11 - the assessee did not have the registration u/s. 12A for the asst. yrs. 1989-90 to 1997-98 and the assessee had registration u/s. 12A only for the asst. yr. 1998-99. HELD THAT:- The expenditure incurred by way of the payment of taxes out of the current year income has to be considered as applicable for charitable purposes. Because the payment is made to protect the existence in which it is absolutely necessary for the continuance of the trust. In these circumstances, respectfully following the decision in the case of Janaki Ammal Ayya Nadar Trust [1982 (8) TMI 4 - MADRAS HIGH COURT] and the decision of Hon'ble High Court in the case of Nizam's Supplemental Religious Endowment Trust [1978 (2) TMI 7 - ANDHRA PRADESH HIGH COURT], the AO is directed to treat the payment of taxes under VDIS, as made by the assessee, to be application of income u/s 11. In these circumstances, the findings of the learned CIT(A) and the AO on this issue stand reversed and ground Nos. 2 and 2.1 of the assessee's appeal stand accepted. Expenditure on the earning from activities outside India - Whether not eligible to be treated as application of income for charitable purpose under s. 11? - HELD THAT:- Assessee is registered u/s 12A as a charitable institution. A perusal of the provisions of s. 11 (1)(a) clearly shows that the words used are "is applied to such purpose in India". The words are not "is applied in India". The fact that the legislature has put the words "to such purpose" between 'is applied' and 'in India' shows that the application of income need not be in India, but the application should result and should be for the purpose of charitable and religious purpose in India. In these circumstances, we are of the view that the expenditure incurred by the assessee in Hanover, Germany for the purpose of attaining the objects of the assessee in India is eligible to be treated as application u/s 11. In these circumstances, the findings of the learned CIT(A) on the issue stand reversed and consequently, ground Nos. 3 and 3.1 of the assessee's appeal stand accepted. Income not taxable u/s 28(3) - corpus donations - HELD THAT:- A perusal of the facts in the present assessee's case shows that the memorandum of association of the assessee itself clearly holds that the one-time admission fee is to be used only for acquiring capital assets. Thus, when a member makes a payment of one-time admission fee, it is clearly understood by the member that he is making the payment as a donation for the acquisition of a capital asset. Further, even otherwise, the assessee duly enjoyed the benefit of registration under s. 12A of the Act. As long as the assessee is holding registration under s. 12A the assessee is deemed to be a charitable organization Once it is found that the assessee is a charitable organization and it is also found that the members who have paid one-time subscription fee are also well aware that the amount can be spent by the assessee only for the purpose of acquiring capital asset, the one-time subscription fee received by the assessee from the members would have to be held to be a donation to the corpus of the assessee and corpus donations are not liable to be treated as income of the assessee, as per the provisions of s. 11(1)(d). In these circumstances, the findings of ld CIT(A) on this issue are found to be well versed and the same are upheld. Disallowance for doubtful debts - As per AO as no outflow of cash and consequently, no deduction would be allowed on the said amount - HELD THAT:- A similar disallowance had been made for the asst. yr. 2003-04, which has been deleted by the CIT(A) on the ground that since exemption u/s11 has been directed to be allowed to the assessee, the ground becomes academic and is infructuous. However, for the asst. yr. 2004-05, which is the year under appeal, CIT(A) has deleted the disallowance on the ground that the AO has made disallowance without any cogent reason and consequently exemption was granted u/s 11 and consequently the income of the assessee would be completely exempted. Therefore, the issue as raised by the revenue in this appeal becomes infructuous and academic in nature and consequently, the same is dismissed as infructuous.
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