TMI Blog2012 (7) TMI 799X X X X Extracts X X X X X X X X Extracts X X X X ..... ation - Held that:- The income of the assessee being exempt, the assessee is only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of the trust. There is no double deduction claimed by the assessee as canvassed by the Revenue - in favour of the assessee - IT Appeal NO. 787 (DELHI) OF 2011 - - - Dated:- 11-7-2012 - U.B.S. BEDI, A.N. PAHUJA, JJ. ORDER U.B.S. Bedi, Judicial Member This appeal of the assessee is directed against the order of CIT(A)-XII, New Delhi, relevant to assessment year 2007-08, whereby besides challenging confirmation of Assessing Officer's order in treating a sum of Rs. 1,95,26,116/- spent outside India for participating in Hannover Fair, 2006, as taxable income of the assessee, assessee also challenged confirmation of the action of the Assessing Officer in reducing application relating to charge of depreciation amounting to Rs. 2,77,149/-. 2. As regards first issue, it was submitted before Assessing Officer that the assessee is a registered society, which came into being on 9.7.1996. The trust was set up under the seal of President of India, Minist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property held under trust- * Created on or after the 1st day of April, 1952 for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes, outside India, and * For charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India: Provided that board, by general or special order, has directed in either case that all not be included in the total income of the person in receipt of such income: From the above provisions, it is clear that organization created after 1-4-1952 are empowered to carry out activities outside India. However, CBDT in certain circumstances may direct by a general or specific order permitting certain activities, which tend to promote international welfare in which India is interested. 4.3 As section 11(1)(a) specifically states, that the application has to take place in India we have to analysis what is the meaning of the word application. The word applied means "to put the use" or "to turn to use" or "to make use" and section 11(1)(a) further puts a geographical re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound that it falls under the mischief of section 11(1)(c) of the I.T. Act. 4. That the authorities below have overlooked the fact that the amount of Rs. 3,00,00,000/- provided by Engineering Export Promotion Council at the behest of Ministry of Commerce and Indust5ry was a tied up grant specifically provided for purposes of participating in Hannover Fair and did not constitute the income of the trust. This being so the receipt of Rs. 3,00,00,000/- did not fall within the ambit of section 11(1)(a) of the I.T. Act. 5. That the authorities below were, therefore, highly arbitrary and unjust in bringing the amount of Rs. 1,95,26,116/- under the tax net." 5. During the hearing of appeal, it was pleaded by the Ld. Counsel for the assessee that since purpose of participating and other details were submitted and relevant provisions provide for such allowance to be allowed, so addition was not called for and prayed, for deletion of the addition/disallowance made by the Assessing Officer and confirmed by the CIT(A). Elaborating further that all policy with regard to functioning of the trust is formulated by the Government of India, Ministry of Industry and having been implemented ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by Allahabad High Court in the case of CIT v. Radhawsami Satsang Sabha [1954] 25 I.T.R. 472 (All.), though, this decision was in the context of section 4(3)(i) of the Act, and in the old Act, the income was exempt irrespective of application or accumulation was in other words, even 100% accumulation was permissible. Therefore, application or non-application did not have any tax implication since, the implication of term application is different under the new Act and on the basis of recent case laws, currently the term 'apply' is more or less closer to the term 'spent', unless there is no doubt about the authenticity of the application The accounting standard and guiding principles of 'accrual accounting' are also relevant and showing application through book entries is not permissible. In the case of Nachimuthu Industrial Association v. CIT [1999] 235 I.T.R. 190, the Hon'ble Supreme Court upheld the decision of Madras High Court, where it was held that sum transferred to a donation reserve fund could not be treated as application of funds. Considering the above discussion, it becomes clear that word applied is synonymous with the word spent in the context of section 11 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Now, it is to be seen that the words "to the extent to the which such income is applied to such purposes in India" appearing in section 11(1)(a) of the Act only require that the charitable purposes should be confined to India on the application of the income of the trust to the execution of such purposes can be outside India, appears to us to be also opposed to the natural and grammatical meaning that can be ascribed to the words. The word "applied" is a verb used in past tense. In the provision, it is used in the transitive form because it is followed by the words "to such purposes in India". It answers three questions which would arise in the mind of the reader: apply what? applied to what? and where? The answers would then make the meaning obvious. The answer to the first question would be : apply the income of the trust. The answer to the second question will be : applied to charitable purposes. The answer to the third question will be: applied in India. Thus even grammatically speaking it seems to us that the group of words "to such purposes in India" qualifies the preceding verb "applied". It is a case of a verb being qualified by two prepositions which follow, viz., "to" a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of the jurisdictional Delhi High Court in the case of DIT v. National Association of Software in I.T.A. No. 17/2011 etc. vide order dated 10.05.2012, in which it was observed as per paras.31 43 as under: "31. We, therefore, hold that the amount of Rs. 38,29,535/- spent by the assessee-trust in Hannover, Germany cannot be considered as application of the income of the trust in India for charitable purposes. The substantial question of law is thus answered in favour of the assessee insofar as the payment of taxes under the VDIS is concerned and in favour of the Revenue insofar as the expenditure incurred outside India (Germany) is concerned. ** ** ** 43. We now turn to the assessment year 2006-07, I.T.A. No.518/2011 arises out of I.T.A. No. 4468/Del./2009 in the file of the Tribunal which was an appeal by the assessee. Before the Tribunal the assessee had taken only one issue in appeal, namely, whether the expenditure of Rs. 1,70,85,034/- incurred outside India on events and activities held outside India did not qualify for exemption under section 11(10)(a) of the Act. In line with our earlier decision, the substantial question of l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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