The Commissioner of Income Tax - Exemption v. Indo-French Centre for the Promotion of Advanced Research

1. We have heard learned junior standing counsel for the Revenue. The present appeal is directed against the order dated 29.08.2013 passed by the Income Tax Appellate Tribunal(hereinafter referred to as'the Tribunal')in I.T.A. No.2802/Del/2014(for the assessment year 2010-11). The Tribunal hasrejectedthe appealpreferredbytheRevenue againstthe orderofthe CIT (Appeals) dated 19.02.2014. Vide order dated 21.12.2018,this Court had expressed that this appeal may be covered by the earlier deeisiOn rendered by this Court in the case of the same assessee and directed the learned counsel for the Appellant to place on record a copy ofthat order. Teamed 2019:DHC:7405-DB counsel has produced a copy ofthe said order and submitted that the matter is not covered by the earlier decision ofthis Court in ITA 427/2014 decided on 31.10.2014 relating to the same assessee. Before proceeding further, taking advantage of the aforesaid decision, we reproduce from it the background in which the Respondent assessee society came into being, and the purpose for which it was established. The relevant extract from the decision in ITA 427/2014 reads as under; "(a) Indo French Centrefor Promotion ofAdvanced Research wasformed in India, jointly by the Government ofIndia and Government ofFrance based on the principle ofreciprocity and parity. The said Centre was registered as a Society under the Societies Registration Act, I860 on 16.04.1986 and has been recognized as a Scientific andIndustrial Research Organization by the DepartmentofScientific andIndustrialResearch(DSIR). (b) As per the bilateral agreement between the Governments of India and France, the decisions of the respondent-Centre are subjectto scrutiny ofboth Governments.

(c) The Government of India had assured exemption from paymentoftaxes to the thenproposed Centre by their letter dated 08.06.1985. Thereafter, there was exchange ofcorrespondence and it was mutually decided by the two Governments that the said Centre would be exemptfrom payment ofincome tax. No custom duties would be payable by the said Centre under the Indian Lawsfor importofscientific equipment.

(d) The Government ofFrance had agreed to make contribution to the said Centre in thefollowing manner and mode:- "1.[1] Direct contribution to be transferred and placed at the disposal ofthe centre according to the approved budget. 1.[2] Equipment etc. as may be given,from time to time, by the French side. 1.[3] Expenses in France to be borne by the France side on visits ofIndian scientists to France. 1.[4] Air Farefor French scientists visitingIndia. 1.5Any other expenses which the French side agree to bear." (e) This was accepted by the Government ofIndia. Pursuant to the aforesaid agreement, the Reserve Bank of India had permitted/allowed opening ofaforeign currency account by the respondent Centre in France with a French Bank in Paris. The Reserve Bank of India by letters dated 04.07.1988 and 05.09.1988granted thefollowingpermissions:- "i. Grants receivedfrom the French Govt. may be credited to the accountfreely. a.Intereston balance may be credited to the accountfreely, in. Debit in respect of bank charges and repatriation to India may be madefreely. iv. Debits for the expenses in connection with conducting of research programs in French Laboratories andjoint workshops, seminars abroad may be madefreely.

V. All other transactions will require the prior approval of

Reserve Bank ofIndia. 1.[5] As per the arrangement the grants in aidfrom the Govt. of France is to be deposited in the bank accountin France and after meeting the expenses incurred in France, balance grant in aid is freely remittable toIndia.

2. The Assessing officer held that the foreign contribution made by the Government ofFrance to the tune ofRs. 9,45,28,000/- was in breach ofthe provisions ofthe FCRA. On that premise,the Assessing Officer has made the said addition. The CIT (Appeals) set aside the addition of Rs.9,45,28,000/- made by the Assessing Officer on the ground that the assessee society had received the grant from the French Government in violation of FCRA (Foreign Contribution Regulation Act, 2010). He also set aside the addition of Rs. 8,849/- on the ground that the deposit in the French banlc account violates the provisions of section 11(5) read with section 13(l)(d) ofthe Income Tax Act. A perusal ofthe impugned order shows that the Government itself had clarified that transaction between Government ofIndia,and Government ofany foreign country or territory do not attract the provisions ofthe FCRA as stipulated in Section 51 ofFCRA,

2010. Not only this,the Government ofIndia addressed a communication to the Secretary General, Ministry of External Relations, Government of France through its Foreign Secretary, making it clear that the assessee society established for promotion of scientific research etc. will be exempt from payment ofincome tax.

3. The submission of learned counsel for the Appellant is that the Respondent assessee is a society registered under the Societies Registration Act, 1860 which cannot be considered to be the Government ofIndia itself. She further submits that the Respondent assessee society had obtained registration under Section 12AA ofthe Income Tax Act and,therefore, each year the expenditure incurred by the said society was liable to scrutiny under Section 11 of the Income Tax Act. Since the contribution of Rs. 9,45,28,0007- was in violation ofFCRA,the Assessing Officer wasjustified in making the addition.

4. Having heard learned Jr. Standing Counsel,we are ofthe considered view that firstly, the Appellant is not justified in claiming that the provisions of the FCRA are attracted in the present case, since the contribution has been made by the Government of France under a sovereign agreement between the Government ofFranee and the Government ofIndia. The two sovereign govemments may have deeided to incorporate the Respondent assessee society as a vehicle to fulfill their objective in the field ofscientific research. That does not take away the fact that the transaction was between the two sovereign govemments. Moreover, then Foreign Secretary also gave a sovereign assurance to the Govemment of France, on behalf of the Government ofIndia on 08.06.1985,thatthe assessee society established for promotion of scientific research etc. will be exempted from payment of income tax.

5. Even ifthe aforesaid aspects were to be kept aside, the enquiry that the Assessing Officer is obliged to undertake under section 11, on year to year basis, is in relation to the expenditure incurred by the assessee society, and to ascertain whether the contributions have been utilized for the purpose for which the said society is incorporated and granted registration. It was not found bythe Assessing Officer thatthe assessee society had utilized any part ofits funds for a purpose other than promotion ofscientific research.Firstly, 1^, there was no violation ofthe FCRA.Even if, for the sake ofargument,this submission is accepted,the so called violation ofthe FCRA would not give any cause to the Assessing Officer to make the addition ofRs.9,45,28,000/-. For the same reason,the addition ofRs.8,849/-, was also notjustified.

6. We find no reason to take a different view from that taken bythe Tribunal and in our view no question oflaw arises in the present appeal. The same is, accordingly, dismissed. \r

7. Since we are not inclined to entertain the present appeal, we are not considering the aspect ofdelayin re-filing the same.

OCTOBER 09,2019 nk VIPIN SANGHI,J SANJEEV NARllj)^,J