Sub-Grant Paid to Foreign Collaborator under Research Project Not Application of Income Outside India: ITAT

Case: Hriday v. ITO (Exemption)

Court: ITAT Delhi

ITA No.: 3530 to 3534 (Delhi) of 2017

Assessment Year: 2010–11 to 2014–15

Date of Order: 25 February 2026

Brief Facts:

• The assessee was a charitable organisation registered under section 12A engaged in public health advocacy, research and awareness programmes aimed at promoting healthy lifestyles among youth in India. 

• The organisation received project-specific grants from the National Institutes of Health (NIH), USA for a collaborative research project on tobacco cessation among vulnerable youth.

• Under the terms of the research collaboration, part of the grant received from NIH was required to be remitted as a sub-grant to the School of Public Health, University of Texas, USA, which acted as a collaborating investigator responsible for research design, scientific supervision and technical inputs.

• During assessment proceedings, the Assessing Officer treated the remittance made to the University of Texas as application of income outside India, invoking section 11(1)(c) and denying exemption under sections 11 and 12. 

• The Assessing Officer also invoked section 13(1)(c) read with section 13(3), alleging that the payment amounted to benefit to specified persons. 

• The Commissioner (Appeals) upheld the disallowance. The assessee therefore filed an appeal before the ITAT. 

Observations:

The Tribunal observed that:

• The grants received from NIH were project-specific tied-up funds meant for implementation of a collaborative research programme involving both Indian and international investigators. 

• A portion of the grant was contractually required to be remitted to the University of Texas for co-implementation and scientific oversight of the project.

• The Tribunal held that the remittance of the sub-grant constituted diversion of income by overriding title, since the grant was subject to a prior obligation requiring its application towards the collaborative project. 

• Consequently, only the net grant retained by the assessee could be regarded as income available for application in India.

• Further, the Tribunal noted that the University of Texas did not fall within the category of persons specified under section 13(3). 

• There was no evidence that the trustees, founders, or signatories of the assessee-society derived any direct or indirect benefit from the remittance. Therefore, the invocation of section 13(1)(c) was held to be unjustified.

Hence, the ITAT held that the sub-grant remitted to the University of Texas under a collaborative research agreement formed part of a tied-up project grant and constituted diversion of income by overriding title, and therefore could not be treated as application of income outside India. It also held that section 13(1)(c) was not attracted, as no benefit accrued to persons specified under section 13(3). Accordingly, exemption under sections 11 and 12 could not be denied on this ground.