The Commissioner Of Income Tax -Exemption v. Indo-French Centre For The Promotion Ofadvanced Research

$-3 *IN THE HIGH COURT OF DELHI AT NEW DELHI+ITA 1486/2018 & C.M. No. 54341/2018 THE COMMISSIONER OF INCOME TAX -EXEMPTION Appellant Through: Ms. Adeeba Mujahid, Junior StandingCounsel for Mr. Ajit Sharma, SeniorStanding Counsel. versus INDO-FRENCH CENTRE FOR THE PROMOTION OFADVANCED RESEARCH Through: Respondent CORAM:HON'BLE MR. JUSTICE VIPIN SANGHIHON'BLE MR. JUSTICE SANJEEV NARULAORDER%09.10.2019 % ITA 1486/2018 & C.M. No. 54341/2018 (to seek condonation of 310 daysin re-filing the appeal) 1. We have heard learned junior standing counsel for the Revenue. Thepresent appeal is directed against the order dated 29.08.2013 passed by theIncome Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') inI.T.A. No. 2802/Del/2014 (for the assessment year 2010-11). The Tribunalhas rejected the appeal preferred by the Revenue against the order of the CIT(Appeals) dated 19.02.2014. Vide order dated 21.12.2018, this Court hadexpressed that this appeal may be covered by the earlier deeisiOn renderedby this Court in the case of the same assessee and directed the learnedcounsel for the Appellant to place on record a copy of that order. Teamed counsel has produced a copy of the said order and submitted that the matteris not covered by the earlier decision of this Court in ITA 427/2014 decidedon 31.10.2014 relating to the same assessee. Before proceeding further,taking advantage of the aforesaid decision, we reproduce from it thebackground in which the Respondent assessee society came into being, andthe purpose for which it was established. The relevant extract from thedecision in ITA 427/2014 reads as under; "(a) Indo French Centre for Promotion of Advanced Researchwas formed in India, jointly by the Government of India andGovernment of France based on the principle of reciprocity andparity. The said Centre was registered as a Society under theSocieties Registration Act, I860 on 16.04.1986 and has beenrecognized as a Scientific and Industrial Research Organizationby the Department of Scientific and Industrial Research (DSIR).(b) As per the bilateral agreement between the Governments ofIndia and France, the decisions of the respondent-Centre aresubject to scrutiny of both Governments. (c) The Government of India had assured exemption frompayment of taxes to the then proposed Centre by their letter dated08.06.1985. Thereafter, there was exchange of correspondenceand it was mutually decided by the two Governments that the said Centre would be exempt from payment of income tax. Nocustom duties would be payable by the said Centre under theIndian Laws for import ofscientific equipment. (d) The Government of France had agreed to make contributionto the said Centre in the following manner and mode:- "1.1 Direct contribution to be transferred and placed at thedisposal of the centre according to the approved budget. 1.2 Equipment etc. as may be given, from time to time, by theFrench side. 1.3 Expenses in France to be borne by the France side on visitsofIndian scientists to France. 1.4 Air Fare for French scientists visiting India. 1.5 Any other expenses which the French side agree to bear." (e) This was accepted by the Government of India. Pursuant tothe aforesaid agreement, the Reserve Bank of India hadpermitted/ allowed opening of a foreign currency account by therespondent Centre in France with a French Bank in Paris. TheReserve Bank of India by letters dated 04.07.1988 and05.09.1988 granted the following permissions:- "i. Grants received from the French Govt. may be credited to the account freely. a. Interest on balance may be credited to the account freely, in. Debit in respect of bank charges and repatriation to Indiamay be made freely. iv. Debits for the expenses in connection with conducting ofresearch programs in French Laboratories and joint workshops,seminars abroad may be made freely. V. All other transactions will require the prior approval ofReserve Bank ofIndia. (e) This was accepted by the Government of India. Pursuant tothe aforesaid agreement, the Reserve Bank of India hadpermitted/ allowed opening of a foreign currency account by therespondent Centre in France with a French Bank in Paris. TheReserve Bank of India by letters dated 04.07.1988 and05.09.1988 granted the following permissions:- "i. Grants received from the French Govt. may be credited to the account freely. a. Interest on balance may be credited to the account freely, in. Debit in respect of bank charges and repatriation to Indiamay be made freely. iv. Debits for the expenses in connection with conducting ofresearch programs in French Laboratories and joint workshops,seminars abroad may be made freely. V. All other transactions will require the prior approval ofReserve Bank ofIndia. 1.5 As per the arrangement the grants in aid from the Govt. ofFrance is to be deposited in the bank account in France and after meeting the expenses incurred in France, balance grant in aid isfreely remittable to India. 2. The Assessing officer held that the foreign contribution made by theGovernment of France to the tune of Rs. 9,45,28,000/- was in breach of theprovisions of the FCRA. On that premise, the Assessing Officer has madethe said addition. The CIT (Appeals) set aside the addition ofRs.9,45,28,000/- made by the Assessing Officer on the ground that theassessee society had received the grant from the French Government inviolation of FCRA (Foreign Contribution Regulation Act, 2010). He also set aside the addition of Rs. 8,849/- on the ground that the deposit in theFrench banlc account violates the provisions of section 11(5) read withsection 13(l)(d) of the Income Tax Act. A perusal of the impugned ordershows that the Government itself had clarified that transaction betweenGovernment of India, and Government of any foreign country or territory donot attract the provisions of the FCRA as stipulated in Section 51 of FCRA,2010. Not only this, the Government of India addressed a communication tothe Secretary General, Ministry of External Relations, Government ofFrance through its Foreign Secretary, making it clear that the assesseesociety established for promotion of scientific research etc. will be exemptfrom payment of income tax. 3. The submission of learned counsel for the Appellant is that theRespondent assessee is a society registered under the Societies RegistrationAct, 1860 which cannot be considered to be the Government of India itself.She further submits that the Respondent assessee society had obtainedregistration under Section 12AA of the Income Tax Act and, therefore, eachyear the expenditure incurred by the said society was liable to scrutiny underSection 11 of the Income Tax Act. Since the contribution of Rs.9,45,28,0007- was in violation of FCRA, the Assessing Officer was justifiedin making the addition. 4. Having heard learned Jr. Standing Counsel, we are of the considered viewthat firstly, the Appellant is not justified in claiming that the provisions ofthe FCRA are attracted in the present case, since the contribution has beenmade by the Government of France under a sovereign agreement between 1^, the Government of Franee and the Government of India. The two sovereigngovemments may have deeided to incorporate the Respondent assesseesociety as a vehicle to fulfill their objective in the field of scientific research.That does not take away the fact that the transaction was between the twosovereign govemments. Moreover, then Foreign Secretary also gave asovereign assurance to the Govemment of France, on behalf of theGovernment of India on 08.06.1985, that the assessee society established forpromotion of scientific research etc. will be exempted from payment ofincome tax. 1^, the Government of Franee and the Government of India. The two sovereigngovemments may have deeided to incorporate the Respondent assesseesociety as a vehicle to fulfill their objective in the field of scientific research.That does not take away the fact that the transaction was between the twosovereign govemments. Moreover, then Foreign Secretary also gave asovereign assurance to the Govemment of France, on behalf of theGovernment of India on 08.06.1985, that the assessee society established forpromotion of scientific research etc. will be exempted from payment ofincome tax. 5. Even if the aforesaid aspects were to be kept aside, the enquiry that theAssessing Officer is obliged to undertake under section 11, on year to yearbasis, is in relation to the expenditure incurred by the assessee society, andto ascertain whether the contributions have been utilized for the purpose forwhich the said society is incorporated and granted registration. It was notfound by the Assessing Officer that the assessee society had utilized any partof its funds for a purpose other than promotion of scientific research. Firstly,there was no violation of the FCRA. Even if, for the sake of argument, thissubmission is accepted, the so called violation of the FCRA would not giveany cause to the Assessing Officer to make the addition of Rs. 9,45,28,000/-.For the same reason, the addition of Rs. 8,849/-, was also not justified. 6. We find no reason to take a different view from that taken by the Tribunaland in our view no question of law arises in the present appeal. The same is,accordingly, dismissed. \r 7. Since we are not inclined to entertain the present appeal, we are notconsidering the aspect of delay in re-filing the same. VIPIN SANGHI, J SANJEEV NARllj)^, J OCTOBER 09, 2019 nk