National Association of Software and Service Co. (NASSCOM), New Delhi v. DDIT, New Delhi

ITA 3625/DEL/2008 | 2005-2006
Pronouncement Date: 12-03-2010 | Result: Allowed

Appeal Details

RSA Number 362520114 RSA 2008
Assessee PAN IONIN1998U
Bench Delhi
Appeal Number ITA 3625/DEL/2008
Duration Of Justice 1 year(s) 3 month(s) 2 day(s)
Appellant National Association of Software and Service Co. (NASSCOM), New Delhi
Respondent DDIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 12-03-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted F
Tribunal Order Date 12-03-2010
Date Of Final Hearing 23-11-2009
Next Hearing Date 23-11-2009
Assessment Year 2005-2006
Appeal Filed On 10-12-2008
Judgment Text
I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 1/21 IN THE INCOME TAX APPELLATE TRIBUNAL NEW DELHI BENCH F BEFORE SHRI G. E. VEERABHADRAPPA HONBLE VICE PRESIDENT AND SHRI A. D. JAIN JUDICIAL MEMBER ITA NO. 429 /DEL/2005 4564/DEL/2007 3625/DEL/2008 (ASSESSMENT YEAR 1998-99. 2004-05 2005-06) NATIONAL ASSOCIATION OF SOFTWARE VS. DDIT(E) & SERVICES COMPANIES (NASSCOM) TRUST CIRCLE 1 INTERNATIONAL YOUTH CENTRE TEEN MURTI MARG NEW DE LHI CHANAKYA PURI NEW DELHI- 110 021 ITA NO. 580 /DEL/2005 2554/DEL/2006 172/DEL/2008 89/DEL/2009 (ASSESSMENT YEAR 1998-99 2003-04 2004-05 2005-06 ) ADIT(E) VS. NATIONAL ASSOCIATION OF SOFTWARE TRUST CIRCLE 1 & SERVICES COMPANIES (NASSCOM) NEW DELHI INTERNATIONAL YOUTH CENTRE TEEN MURTI MARG CHANAKYA PURI NEW DELHI- 110 021 (APPELLANTS) (RESPONDENTS) PAN / GIR NO. N-415 APPELLANT BY: SHRI AJAY VOHRA ADV. SHRI SANCHIT JOLY & MS. SHIKHA CAS RESPONDENT BY: SHRI NAVNEET SONI CIT DR ORDER PER A. D. JAIN JM: I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 2/21 1. I.T.A. NO. 429/DEL/2005 IS THE APPEAL BY THE ASS ESSEE AGAINST THE ORDER OF LD. CIT(A) VIII NEW DELHI IN A PPEAL NO.116/2004-05 DATED 9.11.2004 FOR THE ASSESSMENT Y EAR 1998-99. I.T.A. NO. 580/DEL/2005 IS THE APPEAL BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) VII NEW DE LHI IN APPEAL NO.01/2003-04 DATED 9.11.2004 FOR THE ASSESS MENT YEAR 1998-99. I.T.A. NO. 2554/DEL/2006 IS THE APPE AL BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) XXIX N EW DELHI IN APPEAL NO.45/2006-07 DATED 31.05.2006 FOR THE ASSESSMENT YEAR 2003-04. I.T.A. NO. 172/DEL/2008 A ND I.T.A. NO. 4564/DEL/2007 IS THE APPEAL BY THE REVEN UE AGAINST THE ORDER OF LD. CIT(A) XXI NEW DELHI IN A PPEAL NO.55/2007-08 DATED 17.10.2007 FOR THE ASSESSMENT Y EAR 2004-05 I.T.A. NO. 89/DEL/2009 IS THE APPEAL BY TH E REVENUE AND I.T.A. NO. 3625/DEL/2008 IS THE APPEAL BY THE ASSESSEE HAS BEEN PREFERRED AGAINST THE ORDER OF LD . CIT(A) XXI NEW DELHI IN APPEAL NO.293/2007-08 DATE D 31.10.2008 FOR THE ASSESSMENT YEAR 2005-06. AS ALL THE APPEALS RELATE TO THE SAME ASSESSEE AND HAVING INTERCONNECTED ISSUES AS ALSO THE IDENTICAL ISSUES FOR THE DIFFERENT ASSESSMENT YEARS ALL THE APPEALS ARE BEI NG DISPOSED OFF BY THIS COMMON ORDER. 2. IN THE ASSESSEES APPEAL IN I.T.A. NO. 429/DEL/2 005 THE ASSESSEE HAS CHALLENGED (I) THE ACTION OF THE LD. C IT(A) IN I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 3/21 NOT TREATING THE AMOUNT OF TAXES PAID IN RESPECT OF THE INCOME DISCLOSED UNDER VDIS AS APPLICAITON OF INCOM E FOR THE PURPOSE OF SECTION 11 (II) THE ACTION OF THE L D. CIT(A) IN UPHOLDING THE VIEW OF THE A.O. THAT THE EXPENDIT URE INCURRED ON THE EVENT OF ACTIVITIES OUTSIDE INDIA A RE NOT ELIGIBLE TO BE TREATED AS APPLICATION OF INCOME FOR CHARITABLE PURPOSE U/S 11 OF THE ACT. 3. IN THE REVENUES APPEAL IN I.T.A. NO. 580/DEL/20 05 THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN DIRECTING THAT THE SUBSCRIPTION RECEIVED IS TO BE T REATED AS INCOME U/S 28(3) OF THE ACT AND TO GRANT EXEMPTION U/S 11 THEREON. IN I.T.A. NO. 2554/DEL/2006 THE REVENUE H AS CHALLENGED THE ACTION OF CIT(A) IN (I) HOLDING THAT THE SUBSCRIPTION RECEIVED BY THE ASSESSEE IS NOT TAXABL E U/S 28(3) OF THE ACT AND THE ASSESSEE WAS ENTITLED TO T HE EXEMPTION AVAILABLE U/S 11 OF THE ACT. IN I.T.A. N O. 172/DEL/2008 THE REVENUE HAS CHALLENGED THE ACTION OF CIT(A) IN HOLDING THAT THE INCOME OF THE ASSESSEE IS NOT TAXABLE U/S 28(3) OF THE ACT AND IN DIRECTING THE A .O. TO ALLOW EXEMPTION U/S 11 OF THE ACT. THE REVENUE HAS ALSO CHALLENGED THE ACTION OF LD. CIT(A) IN DELETING THE ADDITION MADE BY THE A.O. BY TREATING THE DONATION AS CORPORATE DONATION AND AGAINST THE ACTION OF THE CI T(A) IN ALLOWING RELIEF ATTRIBUTABLE TO THE PROVISION OF DO UBTFUL I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 4/21 DEBTS. IN I.T.A. NO. 4564/DEL/2007 THE ASSESSEE HA S CHALLENGED THE ACTION OF THE CIT(A) IN UPHOLDING TH E ACTION OF THE A.O. IN HOLDING THAT THE EXPENDITURE INCURRED ON EVENTS AND ACTIVITIES OUTSIDE INDIA WAS NOT APPL ICATION OF INCOME FOR THE PURPOSE OF SECTION 11 OF THE ACT. IN I.T.A. NO. 3625/DEL/2008 THE ASSESSEE HAS CHALLENG ED THE ACTION OF CIT(A) IN UPHOLDING THE ACTION OF THE A.O . IN HOLDING THAT THE EXPENDITURE INCURRED OUTSIDE INDIA WAS NOT APPLICATION OF INCOME FOR THE PURPOSE OF SECTION 11 OF THE ACT. IN I.T.A. NO. 89/DEL/2009 THE REVENUE HAS CHALLENGED THE ACTION OF THE CIT(A) IN HOLDING THAT THE SUBSCRIPTION INCOME RECEIVED BY THE ASSESSEE WAS NO T TAXABLE U/S 28(3) OF THE ACT AND IN ALLOWING THE BE NEFIT OF EXEMPTION U/S 11 OF THE ACT. THE REVENUE HAS ALSO CHALLENGED THE ACTION OF THE CIT(A) IN DELETING THE ADDITION MADE BY THE A.O. AS INCOME OF THE CORPORAT E DONATIONS WAS RECEIVED BY THE ASSESSEE. 4. THUS IT IS NOTICED THAT IN ALL THE APPEALS OF T HE REVENUE THE REVENUE HAS BASICALLY CHALLENGED THE ACTION OF THE CIT(A) IN DIRECTING THE A.O. TO TREAT THE SUBSCRIPTION REC EIVED AS NOT TAXABLE U/S 28(3) OF THE I. T. ACT AND ALLOWING EXEMPTION U/S 11 OF THE ACT THEREON AS ALSO THE ACT ION OF CIT(A) IN DELETING THE ADDITION MADE BY THE A.O. BY I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 5/21 TREATING AS INCOME THE SUM RECEIVED BY THE ASSESSEE AS CORPUS DONATION. 5. IN THE ASSESSEES APPEAL THE ASSESSEE HAS SUBST ANTIALLY CHALLENGED (I) THE ACTION OF THE CIT(A) IN NOT TREA TING THE TAXES PAID IN RESPECT OF THE VDIS APPLICATION AS APPLICATION OF INCOME FOR THE PURPOSE OF SECTION 11 OF THE ACT AND (II) THE ACTION OF THE CIT(A) IN UPHOLDING THE ACTION OF THE A.O. IN TREATING THE EXPENDITURE INCU RRED ON EVENTS AND ACTIVITIES OUTSIDE INDIA HAS NOT ELIGIBL E TO BE TREATED AS APPLICATION OF INCOME FOR CHARITABLE PUR POSE U/S 11 OF THE ACT. EACH OF THE ISSUE WHICH HAS BEEN R AISED IN THE APPEALS ARE DISPOSED OF IN SERIATIM. 6. WITH REGARD TO THE ISSUE RAISED BY THE ASSESSEE CHALLENGING THE ACTION OF CIT(A) IN UPHOLDING THAT THE ACTION O F THE A.O. IN NOT TREATING THE TAXES PAID IN RESPECT OF T HE INCOME DECLARED UNDER VDIS AS APPLICATION OF INCOME FOR TH E PURPOSE OF SECTION 11 OF THE ACT THE LD. COUNSEL F OR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A CHARITABL E INSTITUTION WHICH HAD NOT FIELD ITS RETURNS OF INCO ME SINCE ITS INCEPTION IN 1998 UNDER THE BONA FIDE BELIEF TH AT ITS INCOME WAS NOT LIABLE TO TAX THAT UNDER THE LEGAL PROVISIONS THE ASSESSEE WAS NOT ENTITLED EXEMPTION UNDER SECTION 11 OF THE ACT AND AS THE ASSESSEE DID NOT H AVE THE REGISTRATION U/S 12A THE ASSESSEE HAD FILED ITS RE TURN FOR I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 6/21 THE ASSESSMENT YEARS 1989-90 TO 1997-98 UNDER THE V DIS SCHEME OF 1997 AND HAD PAID THE AGGREGATE OF TAX TO AN EXTENT OF RS.43 76 392/- DURING THE ASSESSMENT YEAR 1998-99 THAT THE PAYMENT OF APPLICABLE TAXES ARE R EQUIRED TO BE MADE BY VIRTUE OF THE STATUTORY PROVISIONS OF GOVERNING THE CONDUCT AND ACTIVITIES OF ANY ORGANIZ ATION THAT THE PAYMENT OF APPLICABLE TAXES IS A NECESSARY OUTLAY WHICH IS AN INTIMATE PART OF COMMERCIAL ACTIVITY TH AT THE ASSESSEE HAS TO MAKE PAYMENT OF TAXES IN ORDER TO P RESERVE ITS CORPUS AND TO CONTINUE TO CARRY ON ITS ACTIVITI ES IN FUTURE THAT NON PAYMENT OF TAXES WOULD HAVE SEVERELY JEOPA RDIZED THE EFFICIENT FUNCTIONING OF THE ASSESSEE AND IN FA CT IT WOULD HAVE PUT THE VERY SURVIVAL OF THE ASSESSEE AT STAKE THAT THE FACT THAT THE LIABILITY RELATES TO THE EAR LIER YEAR WHEN THE ASSESSEE WAS NOT REGISTERED U/S 12A OF THE ACT WOULD BE OF NO CONSEQUENCE AS THE PAYMENT WAS MADE BY THE ASSESSEE IN THE RELEVANT PREVIOUS YEAR IN WHICH THE ASSESSEE WAS DULY REGISTERED U/S 12A AND THE PAYMEN T WAS NECESSARY TO BE MADE IN ORDER TO ENABLE THE ASSESSE E TO PURSUE A CHARITABLE ACTIVITY IN FUTURE WITHOUT ANY IMPEDIMENT. THE LD. COUNSEL FOR THE ASSESSEE RELIE D ON THE DECISION OF THE HON'BLE HIGH COURT OF MADRAS IN THE CASE OF JANKI AMAL AYYA NADAR TRUST (1985) 153 ITR 15 9 (MAD.) TO SUPPORT HIS EXPLANATION THAT THE EXPENDIT URE I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 7/21 INCURRED BY WAY OF PAYMENT OF TAXES OUT OF THE CURR ENT YEAR INCOME HAS TO BE CONSIDERED AS APPLICATION FOR CHARITABLE PURPOSE. HE FURTHER RELIED UPON THE DEC ISION OF THE HON'BLE HIGH COURT OF ANDHRA PRADESH IN THE CAS E OF NIZAMS SUPPLEMENTAL RELIGIOUS ENDOWMENT TRUST (1981): 187 ITR 378 (A.P.) IN SUPPORT OF THE SAME EXPLANATION. HE FURTHER RELIED UPON THE DECISION O F THE HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF GANGA CHARITY TRUST FUND (1986) 162 ITR 612 (GUJ.) WHER EIN THE HONBLE COURT HAD HELD THAT ALL OUTGOING INCLUD ING OUTGOING BY WAY OF INCOME TAX PAID BY THE ASSESSEE TRUST MUST BE DEDUCTED AND IT IS ONLY FORM THE SURPLUS IN COME IN THE HANDS OF THE TRUSTEES THAT THE QUESTION OF APPL ICATION OR ACCUMULATION OR SETTING APART OF INCOME CAN ARISE. IT WAS THE SUBMISSION THAT IN VIEW OF THE PRINCIPLES LAID DOWN BY THE ABOVE SAID DECISIONS THE INCOME TAX PAID UNDER THE VDIS DECLARATION MADE BY THE ASSESSEE WITHIN THE FINANCIAL YEAR IN WHICH IT DID NOT HAVE EXEMPTION U /S 12A WAS LIABLE TO BE TREATED AS APPLICATION OF INCOME. 7. IN REPLY THE LD. D.R. SUBMITTED THAT THE EXPEND ITURE RELATED TO AN EARLIER ASSESSMENT YEAR THAT THE EXPE NDITURE WAS IN THE FORM OF INCOME TAX ON ACCOUNT OF INCOME EARNED IN AN EARLIER ASSESSMENT YEAR AND IF AT ALL AN EXEMPTION IS TO BE GIVEN THE EXEMPTION COULD HAVE BEEN I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 8/21 GIVEN ONLY TO THE INCOME ON WHICH THE TAXES HAD BEE N PAID AND AS THE INCOME WAS NOT ELIGIBLE FOR EXEMPTION PR OVIDED U/S 12A THE EXPENSES COULD NOT BE TREATED AS APPLI CATION OF INCOME. HE VEHEMENTLY SUPPORTED THE ORDER OF TH E A.O. AND THE CIT(A). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E PERUSED THE MATERIAL ON RECORD. AT THE OUTSET THE UNDISPUTED FACT REMAINS THAT THE ASSESSEE DID NOT H AVE THE REGISTRATION U/S 12A FOR THE ASSESSMENT YEARS 1989- 90 TO 1997-98 AND THE ASSESSEE HAD REGISTRATION U/S 12A O NLY FOR THE ASSESSMENT YEAR 1998-99. UNDISPUTEDLY THE TAX ES PAID BY THE ASSESSEE ALSO RELATE TO THE INCOME GENE RATED BY THE ASSESSEE FROM WHATEVER SOURCE FOR THE ASSESSMEN T YEAR 1989-90 TO 1997-98. TRUE THE TAX WHICH HAS B EEN PAID DURING THE ASSESSMENT YEAR 1998-99 IS THE TAX IN RELATION TO THE INCOME FOR THE ASSESSMENT YEARS 198 9-90 TO 1997-98. HOWEVER ONCE THE ASSESSEE HAVE THE FA CT THAT IT IS NOT A NEW ORGANIZATION WHICH HAS GOT REGISTRA TION U/S 12A THE SAME ASSESSEE WHO DID NOT HAVE REGISTRATION U/S 12A FOR THE ASSESSMENT YEARS 1989-90 TO 1997-98 WHO WAS SUBSEQUENTLY GIVEN THE BENEFIT OF SECTION 12A F OR THE ASSESSMENT YEAR 1998-99 THAT THE CORPUS CAPITAL OF THE ASSESSEE FOR THE YEAR IN WHICH THE ASSESSEE HAS GOT REGISTRATION U/S 12A IS THE ACCUMULATION OF INCOME OF THE I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 9/21 ASSESSEE LESS THAN THE EXPENDITURE OF THE ASSESSMEN T YEARS 1989-90 TO 1997-98. EVEN ASSUMING THAT THE TAXES P AID ARE NOT LIABLE TO BE TREATED AS APPLICATION THAT TH E SAME WOULD HAVE REDUCED FROM THE CORPUS CAPITAL AND THE CORPUS WOULD BE REDUCED BY THE AMOUNT OF THE TAXES PAID. IN FACT THE POSITION OF THE ASSESSEE WOULD REMAIN THE SAME IN RESPECT OF THE CORPUS AND THE INCOME IRRESPECTIVE OF THE PAYMENT OF THE TAXES. FURTHER AS HELD BY THE HON'B LE HIGH COURT OF MADRAS IN THE CASE OF JANKI AMAL AYYA NAD AR TRUST (SUPRA) AS ALSO THE DECISION OF HON'BLE HIG H COURT OF ANDHRA PRADESH IN CASE OF NIZAMS SUPPLEMENTAL RELIGIOUS ENDOWMENT TRUST (SUPRA) THE TAX IS NECE SSARY TO PRESERVE THE PROPERTY AND THAT TOO WHEN A DEMAND IS LAWFULLY MADE. 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 WHI CH IT IS ABSOLUTELY NECESSARY FOR THE CONTINUANCE OF THE TRU ST. IN THESE CIRCUMSTANCES RESPECTFULLY FOLLOWING THE DEC ISION OF HON'BLE HIGH COURT OF MADRAS IN THE CASE OF JANKI AMAL AYYA NADAR TRUST (SUPRA) AND THE DECISION OF HON'B LE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF NIZAM S SUPPLEMENTAL RELIGIOUS ENDOWMENT TRUST(SUPRA) THE A.O. IS DIRECTED TO TREAT THE PAYMENT OF TAXES UNDE R VDIS I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 10/21 AS MADE BY THE ASSESSEE TO BE APPLICATION OF INCOM E U/S 11 OF THE I. T. ACT. IN THESE CIRCUMSTANCES THE FIND INGS OF THE LD. CIT(A) AND THE A.O. ON THIS ISSUE STAND REVERS ED AND GROUNDS NOS. 2 & 2.1 OF THE ASSESSEES APPEAL IN I. T.A. NO. 429/DEL2005 STAND ACCEPTED. 9. IN RESPECT OF THE ISSUE IN THE ASSESSEES APPEAL AGAINST THE ACTION OF CIT(A) IN UPHOLDING THE VIEW OF THE A.O. THAT THE EXPENDITURE ON THE EARNING FROM ACTIVITIES OUTS IDE INDIA ARE NOT ELIGIBLE TO BE TREATED AS APPLICATION OF IN COME FOR CHARITABLE PURPOSE U/S 11 OF THE ACT IT WAS SUBMIT TED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE A.O. AND THE LD. CIT(A) WERE OF THE VIEW THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED IN INDIA IN ORDER TO BE ELIGIBLE FOR EXEMPTION THAT THAT IT IS NOT THE CASE OF THE REVENUE THAT TH E EXPENDITURE INCURRED WAS NOT FOR THE PURPOSE OF THE CHARITABLE ACTIVITIES OF THE ASSESSEE; THAT THE FAC T THAT THE EXPENDITURE WAS INCURRED FOR ATTAINING THE OBJECTS OF THE ASSESSEE TRUST WAS NOT IN DISPUTE AND THE DISPUTE C ENTERED ONLY ON THE ISSUE THAT THE EXPENDITURE HAD BEEN INC URRED OUTSIDE INDIA AND NOT IN INDIA; THAT THE PROVISIONS OF SEC.11(1)(A) OF THE ACT ENVISAGE THE GROUND OF EXEM PTION WITH RESPECT OF INCOME I. E. APPLIED FOR ATTAININ G THE CHARITABLE PURPOSE OR NOT OF INCURRING THE EXPENDIT URE IS NOT RELEVANT; THAT EVEN THOUGH SECTION 11(1)(A) USE S THE I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 11/21 WORD IN INDIA WHAT IS INTENDED IS THAT THE INCOM E IS TO BE APPLIED TO SUCH PURPOSE IN INDIA I.E. THE PURP OSE OF THE EXPENDITURE SHOULD BE TO ATTAIN THE CHARITABLE OBJE CTS IN INDIA; THAT THE EXPENDITURE NEED NOT BE INCURRED IN INDIA; THAT I.E. THE BENEFIT OF THE EXPENDITURE INCURRED S HOULD GIVE THE CHARITABLE BENEFIT IN INDIA; THAT IF ANY EXPEND ITURE IS INCURRED EVEN OUTSIDE INDIA TO ACHIEVE THE CHARITAB LE OBJECTS IN INDIA IT SHOULD BE ALLOWED AS APPLICATI ON AS IT HAS BEEN EXPENDED FOR ADVANCING CHARITABLE OBJECTS IN INDIA AND FOR FULFILLING THE CHARITABLE PURPOSE IN INDIA THAT THE ASSESSEE IS PRIMARILY LOOKING AFTER THE INTERES T OF THE SOFTWARE DEVELOPMENT AND THE SOFTWARE GROWTH IN IND IA THAT THE EXPENDITURE HAD BEEN INCURRED EVEN OUTSIDE INDIA FOR ATTAINING THE PRIMARY OBJECTS OF THE ASSESSEE T RUST FOR THE PROMOTION AND EXPORT OF SOFTWARE FOR INDIA WHIC H NEEDLESS TO SAY IS ADVANCEMENT OF CHARITABLE OBJEC T IN INDIA AND THE FULFILLMENT OF CHARITABLE PURPOSE IN INDIA ESPECIALLY IN VIEW OF THE FACT THAT THE ASSESSEE HA S BEEN HELD TO BE A CHARITABLE ORGANIZATION BY THE REVENUE BY GRANTING THE ASSESSEE THE REGISTRATION U/S 12A OF T HE ACT. IT WAS THE SOFTWARE IN INDIA WHICH BENEFITED FROM THE EXPENDITURE INCURRED BY THE ASSESSEE ON THE EVENT A T HANOVER GERMANY; THAT IN FACT BY INCURRING THE EXPENDITURE WHICH HAD COMPULSORILY TO BE INCURRED A T THE I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 12/21 EVENT AT HANOVER GERMANY THAT NO OTHER PERSON HAS G OT ANY BENEFIT WHATSOEVER OTHER THAN THE INDIAN SOFTW ARE INDUSTRY ON WHOSE BEHALF AND FOR WHOM THE CHARITABL E ACTIVITIES IS BEING DONE THAT A PROVISION SHOULD BE GIVEN ORDINARY GRAMMATICAL MEANING AND ONE SHOULD NOT TRY TO READ INTO OR TRY TO READ OUT OF THE PROVISION WHICH IS UNAMBIGUOUS; THAT IN SECTION 11(1)(A) WORDS IN IND IA FOLLOW THE WORDS TO SUCH PURPOSE AND THE WORDS US ED ARE NOT APPLIED IN INDIA; THAT HAD THE LEGISLATURE IN TENDED THAT THE APPLICATION SHOULD BE IN INDIA IT WOULD HA VE SPECIFICALLY STATED SO WHICH IS CONSPICUOUS BY THE ACTION OF THE WORDS APPLIED. THE LD. COUNSEL FOR THE ASSE SSEE FURTHER RELIED UPON THE DECISION OF THE MUMBAI BENC H OF THE TRIBUNAL IN THE CASE OF GEMS & JEWELLERY EXPOR T COUNCIL 68 ITD 95 (MUM) TO SUPPORT HIS CONTENTION THAT EVEN IF THE EXPENDITURE IS INCURRED OUTSIDE INDIA B UT THE BENEFIT OF SUCH EXPENDITURE IS FOR ATTAINING THE PU RPOSE IN INDIA THE SAME HAS TO BE HELD TO BE APPLICATION U/ S 11(1) OF THE ACT. HE SUBMITTED THAT THE DECISION OF THE HON 'BLE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF H.E.H. NIZAMS PILGRIMAGE MONEY TRUST VS CIT 171 ITR 323 (A.P.) RELIED UPON BY THE CIT(A) DOES NOT APPLY IN SO FAR AS IN THAT CASE THE FUNDS HAD BEEN APPLIED OUTSIDE INDIA IN CONTRAVENTION OF THE TRUST DEED ITSELF AND THAT TH E HON'BLE I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 13/21 HIGH COURT HAS NOT GIVEN ANY DECISION TO HOLD THAT THE EXPENDITURE FOR THE PURPOSE OF CLAIMING THE BENEFIT OF APPLICATION U/S 11 HAS TO BE INCURRED IN INDIA ONLY . 10. IN REPLY THE LD. D.R. SUBMITTED THAT THE EXPEN DITURE HAD BEEN INCURRED OUTSIDE INDIA AND THAT THE INTENT ION OF THE LEGISLATURE WAS TO ALLOW PERMISSION ONLY IF THE EXPENDITURE WAS INCURRED IN INDIA. HE VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A) AND THE A.O. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE PROVISIONS OF SECTION 11(1)(A) OF THE ACT CL EARLY SHOWS THAT THE WORDS USED ARE IS APPLIED TO SUCH P URPOSE IN INDIA. THE WORDS ARE NOT IS APPLIED IN INDIA . THE FACT THAT THE LEGISLATURE HAS PUT THE WORDS TO SUC H 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 PUR POSE OF CHARITABLE AND RELIGIOUS PURPOSE IN INDIA. UNDISPU TEDLY THE ASSESSEE IS REGISTERED U/S 12A AS A CHARITABLE INSTITUTION. IT IS ALSO NOT DISPUTED THAT THE ACTI VITIES OF THE ASSESSEE ARE CHARITABLE. IT IS ALSO NOT THE CASE O F THE REVENUE THAT THE EXPENDITURE INCURRED BY THE ASSESS EE IN HANOVER GERMANY HAS NOT RESULTED IN THE BENEFIT BE ING DERIVED IN INDIA. IN THESE CIRCUMSTANCES IT CANNO T BE SAID THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IN HA NOVER I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 14/21 GERMANY WHICH RESULTED IN AND WHICH WAS FOR THE PU RPOSE OF ATTAINING THE CHARITABLE OBJECT IN INDIA IS NOT APPLICATION OF INCOME. THIS VIEW IS ALSO SUPPORTED BY THE DECI SION OF A COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF GEM & JEWELLERY EXPORT CORPORATION (SUPRA) WHEREIN IT AHS BEEN HELD AS FOLLOWS: A BARE READING OF THE SUB-SECTION 11(1)(A) DOES NO T LEAVE US IN DOUBT THAT THE REQUIREMENT UNDER SECTIO N 11 IS FOR APPLICATION OF INCOME FOR PURPOSES IN IND IA AND IT DOES NOT RESTRICT THE APPLICATION OF INCOME WITHIN THE TERRITORY OF INDIA. THE CHARITABLE PURP OSE FOR WHICH THE INCOME SHOULD BE APPLIED FOR CLAIMING EXEMPTION UNDER SECTION 11(1)(A) SHOULD BE IN INDIA . IN THIS CASE IT IS NOT DISPUTED THAT THE TRADE DELEGATION HAD BEEN SENT ABROAD FOR THE BENEFIT OF THE ENTIRE TRADE IN INDIA. THE EXPORTS ARE MADE FR OM INDIA AND THE PURPOSE FOR SENDING THE DELEGATION WAS TO INCREASE THE POSSIBILITIES OF EXPORTS OUT OF INDIA. WE ACCORDINGLY HOLD THAT SINCE THE ASSESSEE HAS APPLIED THE INCOME FOR CHARITABLE PURPOSES IN INDIA THE MERE FACT THAT THE EXPENDITURE HAS BEEN INCURRED OUT OF INDIA DOES NOT DISQUALIFY THE EXPENDITURE FORM EXEMPTION UNDER SECTION 11(1)(A). 12. THE DECISION IN H.E.H. NIZAMS PILGRIMAGE MONE Y TRUST VS CIT (SUPRA) HAS BEEN RIGHTLY DISTINGUISHE D BY THE LD. COUNSEL FOR THE ASSESSEE AS IN THAT DECISION THE ISSUE BEFORE THE HON'BLE HIGH COURT WAS WHETHER THE INCOM E APPLIED IN INDIA IN CONTRAVENTION OF THE TRUST DEED CAN BE CLAIMED AS EXEMPTION U/S 11 OF THE ACT EVEN THOUGH THE I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 15/21 OBJECT OF THE TRUST MANDATED THAT THE PURPOSE OF TH E TRUST WAS CHARITABLE ACTIVITIES IN INDIA. IN THESE CIRCU MSTANCES WE ARE OF THE VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IN HANOVER GERMANY FOR THE PURPOSE OF ATT AINING THE OBJECTS OF THE ASSESSEE IN INDIA IS ELIGIBLE TO BE TREATED AS APPLICATION U/S 11 OF THE ACT. IN THESE CIRCUMS TANCES THE FINDINGS OF THE LD. CIT(A) ON THE ISSUE STAND R EVERSED AND CONSEQUENTLY GROUND NOS. 3 & 3.1 OF THE ASSESS EES APPEAL STAND ACCEPTED. 13. APROPOSE THE ISSUE RAISED IN THE REVENUES APPE ALS BEING AGAINST THE ACTION OF THE LD. CIT(A) IN HOLDI NG THAT THE INCOME OF THE ASSESSEE IS NOT TAXABLE U/S 28(3) OF THE ACT IT WAS SUBMITTED BY THE LD. COUNSEL FOR THE AS SESSEE THAT THE A.O. HAD HELD THAT THE SUM RECEIVED BY THE ASSESSEE UNDER THE NON REFUNDABLE ADMISSION FEE WAS LIABLE TO TAX AS INCOME OF THE ASSESSEE WHEREAS IT WAS CL AIMED BY THE ASSESSEE THAT THE AMOUNT WAS CONTRIBUTION TOWAR DS THE CORPUS THAT WAS NOT LIABLE TO TAX IN VIEW OF THE PR OVISIONS OF SECTION 11(1)(D) OF THE ACT THE ASSESSEE HAD REC EIVED SUBSCRIPTION AMOUNT FROM ITS MEMBERS IN THE FORM OF NON REFUNDABLE ADMISSION FEE AND ANNUAL SUBSCRIPTION CH ARGES; THAT IN TERMS OF THE MEMORANDUM OF ASSOCIATION OF T HE ASSESSEE EVERY MEMBER WAS REQUIRED TO PAY A ONE TI ME NON REFUNDABLE ADMISSION FEE OF RS.5 000/- AT THE T IME OF I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 16/21 ADMISSION THAT IN THE CASE OF THE ASSOCIATE MEMBE RS THE FEE WAS RS.3 000/-; THAT APART FROM THIS AMOUNT EA CH MEMBER WAS REQUIRED TO PAY AN ANNUAL SUBSCRIPTION O F AN AMOUNT BASED IN RELATION TO THE TURNOVER OF THE MEM BERS THAT IN TERMS OF CLAUSE 12.4 OF THE MEMORANDUM OF ASSOCIATION THE ONE TIME NON-REFUNDABLE FEE CAN BE UTILIZED ONLY FOR THE PURPOSE OF CAPITAL NATURE; TH AT IN THESE CIRCUMSTANCES THE ASSESSEE HAD CLAIMED THE ONE TIM E ADMISSION FEE FOR THE NEW MEMBERS AS BEING IN THE N ATURE OF DONATION TOWARDS CORPUS AND IT IS NOT TO BE INCL UDE IN THE TOTAL INCOME OF THE ASSESSEE IN VIEW OF THE PRO VISIONS OF SECTION 1(1)(D) OF THE ACT; AND THAT THE LD. CI T(A) DELETED THE ADDITION MADE BY THE A.O. BY HOLDING TH AT THE ASSESSEE HAD NOT UTILIZED THE ADMISSION FEE ONLY FO R THE CAPITAL PURPOSE AS PER CLAUSE 12.4 OF THE MEMORANDU M OF ASSOCIATION; AND THE AMOUNT FORMED PART OF THE CORP US OF THE ASSESSEE. HE FURTHER RELIED UPON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF STHANAK VASI VARDHMAN VANIK JAIN SANGH 260 ITR 366 (GUJ.) AS A LSO THE DECISION OF THE HON'BLE HIGH COURT OF KERALA IN THE CASE OF VANDANA PRINTERS 127 ITR 227 (KER.). IN REPLY THE LD. D.R. VEHEMENTLY SUPPORTED THE ORDER OF THE A.O. HE ALSO SUBMITTED THAT THE FUNCTIONS PERFORMED BY T HE ASSESSEE WERE EXCLUSIVELY FOR THE BENEFIT OF ITS ME MBERS I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 17/21 WHICH INTER-ALIA BENEFITED THE ASSESSEE ITSELF THRO UGH ITS INCREASE IN SUBSCRIPTION FEE. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E PERUSED THE MATERIAL ON RECORD. IN THE CASE OF SA TNA VASI VARDHMAN JAN SANGH (SUPRA) IT HAS BEEN HELD THAT VOLUNTARY CONTRIBUTION WITH SPECIFIC DIRECTION SHAL L FORM PART OF THE CORPUS AND THAT CANNOT BE TREATED AS IN COME OF THE TRUST. SIMILARLY THE DECISION IN THE CASE OF VANCHI TRUST (SUPRA) HOLDS THAT WHERE THERE IS A STIPULA TION THAT THE SUBJECT MATTER OF THE DONATION SHOULD BE HELD B Y THE DONEE TRUST AS CORPUS AND ONLY INCOME THEREFROM IS TO BE EXPENDED FOR CHARITABLE PURPOSE OF THE DONEE. IT IS NOT THE INCOME OF THE DONEE TRUST. A PERUSAL OF THE FACTS IN THE PRESENT ASSESSEES CASE SHOWS THAT THE MEMORANDUM O F ASSOCIATION OF THE ASSESSEE ITSELF CLEARLY HOLDS TH AT 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 CLEARLY UNDERSTOOD BY THE ME MBER THAT HE IS MAKING THE PAYMENT AS A DONATION FOR THE ACQUISITION OF A CAPITAL ASSET. FURTHER EVEN OTHE RWISE THE ASSESSEE DULY ENJOYED THE BENEFIT OF REGISTRATION U /S 12A OF THE ACT. AS LONG AS THE ASSESSEE IS HOLDING REGIST RATION U/S 12A THE ASSESSEE IS DEEMED TO BE A CHARITABLE ORGAN IZATION. ONCE IT IS FOUND THAT THE ASSESSEE IS A CHARITABLE I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 18/21 ORGANIZATION AND IT IS ALSO FOUND THAT THE MEMBERS WHO HAVE PAID ONE TIME SUBSCRIPTION FEE ARE ALSO WELL A WARE THAT THE AMOUNT CAN BE SPENT BY THE ASSESSEE ONLY F OR 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 T HE CORPUS OF THE ASSESSEE AND CORPUS DONATIONS ARE NOT LIABLE TO BE TREATED AS INCOME OF THE ASSESSEE AS PER THE PROVISIONS OF SECTION 11(1)(D) OF THE ACT. IN THES E CIRCUMSTANCES THE FINDINGS OF LD. CIT(A) ON THIS I SSUE ARE FOUND TO BE WELL VERSED AND THE SAME ARE UPHELD. 15. CONCERNING THE ISSUE RAISED BY THE REVENUE IN I .T.A. NO. 172/DEL./2008 CHALLENGING THE ACTION OF LD. CIT (A) IN DELETING THE PROVISIONS FOR DOUBTFUL DEBS IT WAS S UBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESS EE HAD CLAIMED DEDUCTION ON ACCOUNT OF THE PROVISIONS FOR DOUBTFUL DEBTS AND THE SAME WAS DISALLOWED BY THE A .O. ON THE GROUND THAT THERE WAS NO OUTFLOW OF CASH AND CONSEQUENTLY NO DEDUCTION WOULD BE ALLOWED ON THE SAID AMOUNT; THAT SIMILAR DISALLOWANCES HAD BEEN MADE FO R THE ASSESSMENT YEARS 2002-03 AND 2003-04 AND THE CIT(A) HAD DELETED THE SAID DISALLOWANCES BUT THE REVENUE HAD NOT FILED ANY APPEAL FOR THE DISALLOWANCE FOR THE ASSES SMENT YEAR 2002-03 & 2003-04 THAT THE CIT(A) HAD DELETED THE I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 19/21 ADDITION HOLDING THAT THE A.O. HAD FAILED TO ASSIGN ANY COGENT REASON FOR DISALLOWANCE OF THE EXPENDITURE; THAT ON THE PRINCIPLES OF CONSISTENCY THE DELETION AS MADE BY THE CIT(A) WAS LIABLE TO BE UPHELD; AND THAT THE INCOM E DERIVED BY A TRUST /SOCIETY CLAIMING EXEMPTION U/S 11 IS TO BE DETERMINED ON COMMERCIAL PRINCIPLES AND IN DOING SO OUTGOING WHICH ARE OTHERWISE ALLOWABLE SHALL BE ALL OWED AS DEDUCTION WHILE COMPUTING THE INCOME OF SUCH TRUST/SOCIETY. FOR THIS PROPOSITION THE LD. COUN SEL RELIED UPON THE DECISION IN THE CASE OF GANGA CHARITY CLU B 162 ITR 61 (GUJ.) WHEREIN THE HON'BLE HIGH COURT HAS HE LD THAT WHERE THERE IS A VIEW THAT THE TRIBUNAL WAS RIGHT IN COMING TO THE CONCLUSION THAT THE INCOME DERIVED FR OM THE TRUST PROPERTY MUST BE DETERMINED ON COMMERCIAL PRINCIPLES AND IN DOING SO ALL OUTGOING INCLUDING OUTGOING BY WAY OF INCOME TAX PAID BY THE ASSESSEE TRUST MUS T BE DEDUCTE4D AND IT IS ONLY FOR THE SURPLUS INCOME IN THE HANDS OF THE TRUSTEES THAT THE QUESTION OF APPLICAT ION OF ACCUMULATION OF SETTING APART OF THE INCOME CAN ARI SE. IN REPLY THE LD. D.R. VEHEMENTLY SUPPORTED THE ORDER O F THE A.O. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E PERUSED THE MATERIAL ON RECORD. A PERUSAL OF THE ASSESSMENT ORDER CLEARLY SHOWS THAT IN RESPECT OF T HE CLAIM I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 20/21 OF EXPENSES ON ACCOUNT OF THE PROVISION FOR DOUBTFU L DEBT THE A.O. HAS DISALLOWED THE SAME ON THE GROUND THAT THERE WAS NO OUTFLOW AND CONSEQUENTLY THE EXPENSE COULD NOT BE TREATED AS INCOME APPLIED FOR CHARITABLE OR RELI GIOUS PURPOSES. A SIMILAR DISALLOWANCE HAD BEEN MADE FOR THE ASSESSMENT YEAR 2003-04 WHICH HAS BEEN DELETED BY THE CIT(A) ON THE GROUND THAT SINCE EXEMPTION U/S 11 HA S BEEN DIRECTED TO BE ALLOWED TO THE ASSESSEE THE GR OUND BECOMES ACADEMIC AND IS INFRUCTUOUS. HOWEVER FOR THE ASSESSMENT YEAR 2004-05 WHICH IS THE YEAR UNDER AP PEAL THE LD. CIT(A) HAS DELETED THE DISALLOWANCE ON THE GROUND THAT THE A.O. HAS MADE DISALLOWANCE WITHOUT ANY COG ENT REASON AND CONSEQUENTLY EXEMPTION WAS GRANTED U/S 1 1 AND CONSEQUENTLY THE INCOME OF THE ASSESSEE WOULD B E COMPLETELY EXEMPTED. IN THESE CIRCUMSTANCES THE I SSUE AS RAISED BY THE REVENUE IN THIS APPEAL BECOMES INFRUC TUOUS AND ACADEMIC IN NATURE AND CONSEQUENTLY THE SAME I S DISMISSED AS INFRUCTUOUS. 17. IN THE RESULT THE APPEALS OF THE ASSESSEE IN I .T.A. NOS.429/DEL/2005 4564/DEL/2007 AND 3625/DEL/2007 A RE ALLOWED AND THE APPEAL OF REVENUE IN I.T.A. NOS. 58 0 /DEL/2005 2554/DEL/2006 172/DEL/2008 89/DEL/2009 ARE DISMISSED. I.T.A. NO. 429 580 /DEL/2005 2554/06 4564/07 172 3625/08 89/09 21/21 18. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT ON 12 TH MAR. 2010. SD./- SD./- (G. E. VEERABHADRAPPA) (A. D. JAIN) VICE PRESIDENT JUDICIAL MEMBER DATED:12 TH MAR. 2009 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR ITAT NEW DELHI