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September 24, 2022

Expenditure incurred by trusts outside of India cannot be considered as income application

by CA Shivam Jaiswal in Income Tax, Legal Court Judgement

Expenditure incurred by trusts outside of India cannot be considered as income application

Facts and Issue of the Case

The assessee has raised the following grounds of appeal

“1. The order of the Hon’ble Commissioner of Income Tax (Appeals) – XII, New Delhi confirming the order of Learned Assessing Officer is bad in law and on facts and against the principals of natural justice and must be quashed.

2. That the Hon’ble Commissioner of Income Tax (Appeals) has grossly erred in disallowing the partial amount of Rs.10,15,818.00 being spent on account of amounts spent abroad on account of boarding and lodging and travel out of total expenditure of Rs. 21,54,776.00 on foreign travel. The expense of staff travelling abroad amounts to the application of income in accordance with section ll(l)(a) towards main objects of the society as assessee is a charitable organization. The order passed is bad in law and on facts and circumstances of the case. The impugned illegal order needs to be quashed immediately.

3. That the Hon’ble Commissioner of Income Tax Appeals has wrongly applied the judgment of Hon’ble Delhi High Court in the case of Director of Income-Tax (Exemption! vs. National Association of Software Services Companies and the case of India Brand Equity Foundation vs. Assistant Commissioner of Income Tax (E) 1. Trust Ward II. New Delhi [(2012) 23 Taxman.com 323 (Del)] in the present case as facts of the case are very different, Rs.10,15,818/- is the amount reimbursed to the employees towards Boarding, Lodging, Conveyance etc.. The order passed is bad in law and on facts and circumstances of the case and needs to be quashed immediately.

4. The assessee craves leave to add / alter any of the grounds of appeal on or before the date of final hearing.”

The facts of the case are that, the assessee was accorded Registration u/s 12A of the IT Act in addition the Assessee society has been granted approval u/s 80G (5) (vi) of the Act for the period of Assessment Year 2012-13 onwards till it is rescinded. The object of the society claimed to be chargeable in nature within the meaning of Section 2(15) of the Act and benefit u/s 11 & 12 are allowed to the assessee. During the year under consideration, the assessee society incurred expenses to the tune of Rs. 21,54,776/- on account of foreign travel and claimed it as application of income during the year. During the assessment proceedings the assessee has been given the opportunity to justify and substantiate the nature of foreign travel and purpose of the visit with supporting documents. In reply, assessee submitted the details of visit, but failed to substantiate it with supporting documents stating that the ‘Office of the Society has already been closed’. The reply of the assessee found not satisfactory by the A.O. Therefore, disallowed the foreign expenses of Rs. 21,54,776/- and passed assessment order dated 22/12/2016. As against the assessment order dated 22/12/2016, the assessee has preferred an appeal before the CIT(A). The Ld.CIT(A) vide order dated 02/04/2018, disallowed the expenditure amount to Rs. 10,15,818/- which was spent outside India on account of boarding and lodging local transport etc. Further, allowed a sum of Rs. 11,38,958/- out of the amount of Rs. 21,54,716/- as application of income by partly allowing the appeal. Aggrieved by sustaining of the disallowance of Rs. 10,15,818/- by the CIT(A), the assessee has preferred the present Appeal on the grounds mentioned above.

Observation by the Court

The court had heard the parties, perused the material on record and gave our thoughtful consideration. The moot question for consideration in the preset Appeal is that, whether the expenditure incurred by the assessee outside India on account of boarding and lodging, local transport etc. is to be considered as application income are not. In the case of Director of Income-tax, the Jurisdictional High Court vide order dated 10/05/2012 held that, the expenditure incurred by the assessee trust outside India cannot be considered as application of the income of the trust in India for charitable purpose. In the case of India Brand Equity Foundation vs. Assistant Commissioner of Income Tax (E), Trust, Ward-II, New Delhi [(2012) 23 taxman.com 323 (Del)] it was held that amount spent outside India for participating in a fare held outside India cannot be treated as application of income of trust for purpose of section 11(1 )(a). The Hon’ble 1TAT observed that if the income of die trust can be applied even outside India so long as the charitable purposes are in India, then there is no need for die trust which tends to promote international welfare in which India is interested and which was created after 04/01/1952 to apply to the CBDT for a general or special order directing dial the income to the extent to which it is applied to die promotion of international welfare outside India shall not be denied die exemption nor would it be necessary for a charitable or religious trust created before die aforesaid date to seek such a order from CBDT in respect of its income which is applied to charitable or religious purposes outside India. It was further held that the words “in India” appearing in section ll(l)(a) and the words “outside India” appearing in section 11(l)(c) qualified the word “applied” appearing in these provisions and not the words “said purposes.”

Thus, it is well settled law that the expenditure incurred by the trust outside India cannot be considered as application of income as per Section 11(1)(a) of the Act. Therefore in the present case, the disallowance of Rs. 10,15,818/- which was spent outside India on account of boarding and lodging local transport etc. cannot be considered as application income as per Section 11(1)(a) of the Act. The Ld. Counsel for the assessee submitted that, the disallowance of Rs. 10,15,818/- sustained by CIT(A), will result in addition of the amount twice to the gross total income of the assessee, once through foreign contribution received reimbursed amount is already included in the total income and in a second time by disallowance made in the assessment order, therefore submitted that the order impugned deserves to be quashed.

The court find that assessee has not raised such ground either before the CIT (A) or before us, apart from the same the Assessee has not even produced any iota of evidence/materials before the AO/CIT(A) or before us to suggest that the assessee has received foreign contribution as per law to meet the expenditure of Rs. 10,15,818/- incurred by the assessee for boarding and lodging, local transport etc. outside India. Therefore the court  are not in a position to uphold the theory of reimbursement taken by the Assessee.

In view of the above discussions the court  are of the opinion that the Order passed by the Ld. CIT (A) is just and proper, which requires no interference, accordingly the court  dismiss the Grounds No. 1 to 3 of the assessee.

Conclusion

The appeal of the assessee is dismissed by the court .

Churchs-Auxiliary-For-Social-Action-Vs-ACIT-ITAT-Delhi

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